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EXHIBIT 10.1
RECEIVABLES TRANSFER AGREEMENT
Dated as of October 2, 1995
by and between
MERISEL AMERICAS, INC.
and
MERISEL CAPITAL FUNDING, INC.
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Receivables Transfer Agreement, dated as of October 2, 1995 (this
"AGREEMENT"), between MERISEL AMERICAS, INC., a Delaware corporation (the
"ORIGINATOR") and MERISEL CAPITAL FUNDING, INC., a Delaware corporation ("MCF").
R E C I T A L S
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A. MCF is a wholly owned subsidiary of the Originator.
B. MCF has been formed for the sole purpose of purchasing or otherwise
acquiring certain trade receivables originated by Merisel, Inc., the Originator
and/or their subsidiaries.
C. The Originator intends to sell, and MCF intends to purchase, such trade
receivables, from time to time, as described herein.
D. The Originator may, from time to time, contribute capital to MCF in the
form of Contributed Receivables or cash.
The parties agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions. Except as otherwise expressly provided herein
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or unless the context otherwise requires, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in Annex X hereto,
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.
SECTION 1.02. Other Terms and Interpretation. All other terms and the
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interpretation of this Agreement shall be as set out in Annex X hereto.
ARTICLE II
TRANSFERS OF RECEIVABLES
SECTION 2.01. Agreement to Transfer. (a) On and after the date of this
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Agreement, the Originator agrees to sell or contribute without recourse, except
as specifically provided herein, to MCF all Receivables originated by the
Originator. On or before the Effective Date, the Originator and MCF shall enter
into a separate Certificate of Assignment substantially in the form of Exhibit A
hereto (the "ASSIGNMENT").
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(b) The Originator shall, on the Effective Date and on a date occurring no
less frequently than weekly thereafter, deliver to MCF a Request Notice
identifying (i) the amount of outstanding Receivables originated and owned by
the Originator through such date, (ii) at its option, a certain number of such
Receivables to be contributed to MCF (the "CONTRIBUTED RECEIVABLES"), and (iii)
the amount of all other Receivables not previously identified as purchased and
sold or contributed, to be purchased and sold (the "SOLD RECEIVABLES"), in each
case in accordance with the procedures described in this Section 2.01(b). No
later than the following Business Day (the "TRANSFER DATE"), the Originator and
MCF shall transfer the Receivables designated in such Request Notice which are
to be purchased, sold and, if applicable, contributed. Each such identification
shall be made as of the opening of business of the Originator on each Transfer
Date.
(c) The price paid for such Sold Receivables shall be the Sale Price. Such
Sale Price shall be paid by means of (i) an immediate cash payment to the
Originator or, (ii) upon the agreement of the Originator and MCF, indebtedness
owed by MCF to the Originator evidenced by, and payable with interest pursuant
to a note in the form of Exhibit B (the "SUBORDINATED NOTE") or both, provided
that the indebtedness under the Subordinated Note shall not be increased on any
day if, after giving effect thereto, MCF's Net Worth Percentage would be less
than 15%. On each Transfer Date the Sold Receivables and Contributed
Receivables shall be assigned, and on such Transfer Date MCF shall pay the Sale
Price for such Sold Receivables. The portion of the Sale Price payable in cash
shall be payable by wire transfer on the Transfer Date to an account designated
by the Originator (and approved by the Operating Agent) on or before such
Transfer Date.
(d) On and after each Transfer Date hereunder, MCF shall own the Sold
Receivables and the Contributed Receivables which have been (assuming compliance
with the terms hereof) identified as being transferred to MCF under this Section
2.01 and the Originator shall not take any action inconsistent with such
ownership, nor shall the Originator claim any ownership interest in any such
Transferred Receivables.
(e) Until the occurrence of an Event of Servicer Termination or a
resignation of the Servicer pursuant to the Purchase Agreement, (i) the
Originator, as Servicer, shall conduct the servicing, administration and
collection of such Transferred Receivables and shall take, or cause to be taken,
all such actions as may be necessary or advisable to service, administer and
collect such Transferred Receivables, from time to time, all in accordance with
(A) the terms of the Purchase Agreement, (B) customary and prudent servicing
procedures for trade receivables of a similar type and (C) all applicable laws,
rules and regulations, and (ii) documents relating to Transferred Receivables
shall be held in trust by the Originator, as Servicer, for the benefit of MCF
and its assignees as the owners thereof, and possession of any incident relating
to the Transferred Receivables and Contracts so retained is for the sole purpose
of facilitating the servicing of the Transferred Receivables. Such retention and
possession thereof is at the will of MCF and its assignees and in a custodial
capacity for their benefit only.
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SECTION 2.02. Grant of Security Interest. It is the intention of the
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parties hereto that each transfer of Transferred Receivables to be made
hereunder shall constitute a purchase and sale or capital contribution, as the
case may be, and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that any transaction provided for hereby constitutes a
loan and not a purchase and sale or capital contribution, it is the intention of
the parties hereto that this Agreement shall constitute a security agreement
under applicable law and that the Originator shall be deemed to have granted to
MCF a first priority security interest in all of the Originator's right, title
and interest in, to and under the Transferred Receivables, all payments of
principal, interest, fees, charges and indemnities on or under such Transferred
Receivables and all Proceeds of any such Transferred Receivables.
SECTION 2.03. Addition of Originator. Any Subsidiary or Affiliate of the
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Parent may become an Originator hereunder if the Rating Agency Condition is
satisfied with respect to such addition. The Originator and any Subsidiary or
Affiliate of the Parent that is proposed to be added as an Originator shall give
to MCF and its assigns and Redwood prior written notice of its desire to add or
be added, as the case may be, as an Originator. Once the notice has been given,
any addition of a Subsidiary or Affiliate of the Parent as an Originator
pursuant to this section shall become effective on the first Business Day
following the date on which (i) the Rating Agency Condition has been satisfied,
(ii) the Subsidiary or Affiliate and the parties hereto shall have executed and
delivered the agreements, instruments and other documents and the amendments or
other modifications to the Related Documents, in form and substance reasonably
satisfactory to MCF and the Operating Agent, that MCF or the Operating Agent
reasonably determine are necessary or appropriate to effect the addition and
(iii) the Operating Agent shall have given written notice of its approval of
such addition.
SECTION 2.04. Termination of Status as an Originator. (a) At any time
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when more than one Person is an Originator, an Originator may terminate its
obligations as an Originator hereunder if:
(i) the Originator (a "TERMINATING ORIGINATOR") shall have given MCF and
its assigns not less than 60 days' prior written notice of its intention to
terminate,
(ii) an Authorized Officer of the Terminating Originator shall have
certified that the termination by the Terminating Originator of its status
as an Originator will not have a material adverse effect on the business,
financial condition or operations of MCF, and
(iii) both immediately before and after giving effect to the termination
by the Terminating Originator, no Termination Event shall have occurred and
be continuing or shall reasonably be expected to occur as a result of such
termination.
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Any termination by an Originator shall become effective on the first
Business Day that follows the day on which the requirements of clauses (a)(i)
through (iii) shall have been satisfied (or such later date specified in the
notice or certificate referred to in the clauses). Any termination by an
Originator shall terminate its rights and obligations hereunder; provided,
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however, that the termination shall not relieve the Terminating Originator of
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obligations which relate to Transferred Receivables originated by or obligations
of the Terminating Originator prior to the effective date of the termination.
(b) An Originator's right and obligation to sell its Receivables to MCF
shall terminate immediately if the Originator ceases to be a Subsidiary or
Affiliate of the Parent; provided, however, that the termination shall not
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relieve the Originator of obligations which relate to Transferred Receivables
originated by or obligations of the Originator prior to the effective date of
the termination.
ARTICLE III
CONDITIONS OF SALE
SECTION 3.01. Conditions Precedent to the Initial Sale . The initial Sale
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hereunder is subject to the conditions precedent that MCF shall have received on
or before the Effective Date, each dated such date (unless otherwise indicated),
in form and substance satisfactory to MCF:
(i) an Assignment executed by the Originator;
(ii) a copy of resolutions duly adopted by the Board of Directors
of the Originator approving this Agreement, the Assignment and the other
documents to be delivered by it hereunder and the transactions and matters
contemplated hereby, certified by its Secretary or Assistant Secretary;
(iii) the charter, as amended, of the Originator, certified by
the Secretary of State of the Originator's state of incorporation, dated
not earlier than 10 days prior to the Effective Date;
(iv) a good standing certificate for the Originator issued by the
Secretary of State of the Originator's state of incorporation, dated not
earlier than 10 days prior to the Effective Date;
(v) a copy of the Originator's by-laws, as amended, certified by
the Originator's Secretary or Assistant Secretary;
(vi) a certificate of the Secretary or Assistant Secretary of the
Originator certifying the names and true signatures of the officers
authorized on behalf of the Originator to sign this Agreement, the
Assignment, and the other documents to be delivered by the Originator
hereunder (on which certificate
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MCF may conclusively rely until such time as MCF shall receive from the
Originator a revised certificate meeting the requirements of this
Subsection (vi)) and certifying that (A) the charter of the Originator has
not changed since the date of the certificate referred to in Section
3.01(iii), (B) the Originator is still in good standing in all
jurisdictions where it is qualified to do business, including, without
limitation, that referred to in Section 3.01(iv), (C) all representations
and warranties made by the Originator in this Agreement are true and
correct in all material respects (except with respect to Section 4.01(b)
and those already so qualified which are true and correct in all respects)
and (D) no financing statements or other similar instruments relating to
the Receivables have been filed in any jurisdiction, other than those
financing statements, other similar instruments and documents shown on the
certified copies of the requests for information or copies (Form UCC-11)(or
a similar search report certified by a party acceptable to the Operating
Agent) provided pursuant to clause (ix);
(vii) copies of proper financing statements (Form UCC-1), dated
on or prior to the Effective Date, naming the Originator as the assignor of
the Transferred Receivables and MCF as assignee, or other similar
instruments or documents, in form and substance sufficient for filing under
the UCC or any comparable law of any and all jurisdictions as may be
necessary or, in the reasonable opinion of the Operating Agent desirable to
perfect MCF's ownership interest in all Transferred Receivables, in each
case in which an interest may be assigned hereunder;
(viii) copies of properly executed termination statements or
statements of release (Forms UCC-2 or UCC-3) or other similar instruments
or documents, if any, in form and substance satisfactory for filing under
the UCC or any comparable law of any and all jurisdictions as may be
necessary or, in the reasonable opinion of the Operating Agent, desirable
to release all security interests and similar rights of any Person in the
Transferred Receivables previously granted by the Originator;
(ix) certified copies of requests for information or copies (Form
UCC-11) (or a similar search report certified by a party acceptable to the
Operating Agent), dated a date reasonably near and prior to the Effective
Date, listing all effective financing statements and other similar
instruments and documents, which name the Originator (under its present
name and any previous name) as debtor and which are filed in the
jurisdictions in which filings are to be made pursuant to such Subsections
(vii) and (viii) above, together with copies of such financing statements,
none of which shall cover any Transferred Receivables unless termination
statements or statements of release are provided with respect thereto
pursuant to Subsection (viii) above;
(x) any necessary third party consents to the closing of the
transactions contemplated hereby, in the form and substance reasonably
satisfactory to the Operating Agent; and
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(xi) the Lockbox Agreements in respect of each Lockbox Account,
in each case duly executed by the parties thereto and acknowledged and
agreed to by the applicable Lockbox Bank.
SECTION 3.02. Conditions Precedent to All Sales. The obligation of
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MCF to pay for each Sold Receivable on each Transfer Date (including the initial
Transfer Date) shall be subject to the further conditions precedent that on such
Transfer Date:
(a) The following statements shall be true (and delivery by the
Originator of a Request Notice and the acceptance by the Originator of the Sale
Price for any Receivables on any Transfer Date shall constitute a representation
and warranty by the Originator that on such Transfer Date such statements are
true):
(i) the representations and warranties of the Originator
contained in Section 4.01 shall be correct on and as of such Transfer Date
in all material respects (except with respect to Section 4.01(b) and those
already so qualified which are true and correct in all respects), before
and after giving effect to the Sale of Receivables on such Transfer Date
and to the application of proceeds therefrom, as though made on and as of
such date; and
(ii) the Originator is in compliance with each of its covenants
and other agreements set forth herein.
(b) The Originator shall have taken such other action, including
delivery of approvals, consents, opinions, documents and instruments as MCF may
reasonably request.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. Representations and Warranties of the Originator. The
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Originator represents and warrants to MCF as of each Transfer Date, that:
(a) With respect to the Originator:
(i) the Originator is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation and is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business requires
it to be so qualified except where the failure to be so qualified would not
materially and adversely affect (1) the performance of MCF or the
Originator of its obligations under this Agreement or any of the Related
Documents, (2) the validity or enforceability of this Agreement or any of
the Related Documents, (3) the Transferred Receivables, the Contracts or
the interests of MCF or its assigns therein, or (4)
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the business, operations, financial condition or prospects of MCF or the
Originator;
(ii) the Originator has the corporate power and authority to own,
pledge, mortgage, operate and convey all of its properties and assets, to
execute and deliver this Agreement and the Related Documents and to perform
the transactions contemplated hereby and thereby;
(iii) the execution, delivery and performance by the Originator
of this Agreement and the Related Documents and the transactions
contemplated hereby and thereby (A) have been duly authorized by all
necessary corporate or other action on the part of the Originator, (B) do
not contravene or cause the Originator to be in default under (1) the
Originator's certificate or articles of incorporation or by-laws, (2) any
contractual restriction with respect to any Debt of the Originator or
contained in any material indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other material agreement or
instrument binding on or affecting the Originator, its affiliates or their
or its respective property or (3) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to, binding on or
affecting the Originator, or its property and (C) do not result in or
require the creation of any Adverse Claim upon or with respect to any of
its properties (other than in favor of MCF with respect to this Agreement
and Redwood and the Collateral Agent under the Purchase Agreement);
(iv) this Agreement and the Related Documents have each been duly
executed and delivered by the Originator;
(v) no approval or consent of, notice to, filing with or
licenses, permits, qualifications or other action by any Governmental
Authority or any other party, is required or necessary for the conduct of
the Originator's business as currently conducted and for the due execution,
delivery and performance by the Originator of this Agreement or any of the
Related Documents or for the perfection of or the exercise by MCF, Redwood,
the Operating Agent or the Collateral Agent of any of their rights or
remedies thereunder or hereunder, except (A) approvals, consents, notices,
filings and other actions which have been obtained or made and complete
copies of which have been provided to Redwood, the Operating Agent and the
Collateral Agent (other than confirmation statements in respect of any such
filings) and (B) where the failure to obtain such approval, consent,
license, permit or qualification, make or present such notice or filing, or
take such other action would not materially and adversely affect (1) the
performance of MCF or the Originator of its obligations under this
Agreement or any of the Related Documents, (2) the validity or
enforceability of this Agreement or any of the Related Documents, (3) the
Transferred Receivables, the Contracts or the interests of MCF or its
assigns therein, or (4) the business, operations, financial condition or
prospects of MCF or the Originator;
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(vi) this Agreement and the other Related Documents delivered by
the Originator are the legal, valid and binding obligations of the
Originator enforceable against the Originator in accordance with their
respective terms subject to (A) any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors' rights generally
and (B) general equitable principles, whether applied in a proceeding at
law or in equity;
(vii) there is no pending or, to the knowledge of the
Originator, threatened, nor, to the knowledge of the Originator, any
reasonable basis for, any action, suit or proceeding against or affecting
the Originator, its officers or directors, or the property of the
Originator, in any court or tribunal, or before any arbitrator of any kind
or before or by any Governmental Authority (A) asserting the invalidity of
this Agreement or any of the Related Documents, (B) seeking to prevent the
transfer, sale, pledge or contribution of any Receivable or the
consummation of any of the transactions contemplated hereby or thereby, (C)
seeking any determination or ruling that might materially and adversely
affect (1) the performance by MCF or the Originator of its obligations
under this Agreement or any of the Related Documents, (2) the validity or
enforceability of this Agreement or any of the Related Documents, or (3)
the Transferred Receivables, the Contracts or the interests of MCF or its
assigns therein, or (D) reasonably likely to result in damages or
penalties in an uninsured amount in excess of $1,000,000;
(viii) no injunction, writ, restraining order or other order
(collectively, "Orders") of any nature adverse to the Originator or the
conduct of its business or which is inconsistent with the due consummation
of the transactions contemplated by this Agreement or the Purchase
Agreement or any of the other Related Documents has been issued by a
Governmental Authority nor been sought by any Person except such Orders
that would not materially and adversely affect (1) the performance of MCF
or the Originator of its obligations under this Agreement or any of the
Related Documents, (2) the validity or enforceability of this Agreement or
any of the Related Documents, (3) the Transferred Receivables or the
Contracts or the interests of MCF or its assigns therein, or the business,
operations, financial condition or prospects of MCF or the Originator;
(ix) the principal place of business, the chief executive office
and all other places of business of the Originator are located at the
addresses of the Originator referred to in Schedule 1 and there are now no,
and during the past four months there have not been any, other locations
where the Originator is located (as that term is used in the UCC of the
jurisdiction where such principal place of business is located) or keeps
Records;
(x) the legal name of the Originator is as set forth at the
beginning of this Agreement and the Originator has not changed its name in
the last six years, and during such period the Originator did not use, nor
does the
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Originator now use, any trade names, fictitious names, assumed names or
"doing business as" names other than as set forth in Schedule 1;
(xi) the Originator is solvent and will not become insolvent
after giving effect to the transactions contemplated by this Agreement and
the Related Documents; the Originator is paying its Debts as they mature;
the Originator has not incurred Debts beyond its ability to pay as they
mature; and the Originator, after giving effect to the transactions
contemplated by this Agreement and the Related Documents, will have an
adequate amount of capital to conduct its business in the foreseeable
future;
(xii) for federal income tax, reporting and accounting purposes
(except in any consolidated financial statements and consolidated tax
returns), the Originator will treat the sale of each Sold Receivable sold
or assigned pursuant to this Agreement as a sale of, or absolute assignment
of, its full right, title and ownership interest in such Receivable to MCF
(and those Receivables contributed to MCF by the Originator pursuant to
this Agreement shall be accounted for as an increase in the stated capital
of MCF), and the Originator has not in any other respect accounted for or
treated the transactions contemplated by this Agreement or the Related
Documents.
(xiii) the Originator has complied in all material respects with
all applicable laws, rules, regulations, and orders with respect to it, its
business and properties and all Transferred Receivables and related
Contracts (including without limitation, all applicable environmental,
health and safety requirements) and all restrictions contained in any
indenture, loan or credit agreement, mortgage, security agreement, bond,
note or other agreement or instrument binding on or affecting the
Originator or its property;
(xiv) without limiting the generality of the prior
representation, no condition exists or event has occurred which, in itself
or with the giving of notice or lapse of time or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any
Governmental Consent applicable to the Originator or any Subsidiary except
where such conditions or events would not, separately or in the aggregate,
have a material adverse effect on (A) the performance by MCF or the
Originator of its obligations under this Agreement or any of the Related
Documents, (B) the validity or enforceability of this Agreement or any of
the Related Documents, or (C) the Transferred Receivables or the Contracts
or the interests of MCF or Redwood therein;
(xv) the Originator has filed on a timely basis all tax returns
(federal, state and local) required to be filed and has paid or made
adequate provisions for the payment of all taxes, fees, assessments and
other governmental charges due from the Originator (other than taxes, fees,
amendments or governmental charges which the Originator is contesting in
good faith with such taxing authority and in respect of which no final
unappealable order has been made against the Originator), no tax lien or
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similar Adverse Claim has been filed, and no claim is being asserted, with
respect to any such tax, fee, assessment, or other governmental charge. Any
taxes, fees, assessments and other governmental charges payable by the
Originator in connection with the execution and delivery of this Agreement
and the Related Documents and the transactions contemplated hereby or
thereby have been paid or shall have been paid when due, at or prior to
such Transfer Date;
(xvi) the Originator is licensed or otherwise has the lawful
right to use all patents, trademarks, servicemarks, tradenames, copyrights,
technology, know-how and processes used in or necessary for the conduct of
its business as currently conducted which are material to its financial
condition, business, operations, assets and prospects, individually or
taken as a whole;
(xvii) as of the date of each Request Notice delivered by the
Originator, such Request Notice contains an accurate list of the aggregate
amount of all Transferred Receivables contributed or sold by the Originator
to MCF as of the relevant Transfer Date;
(xviii) each Obligor of a Transferred Receivable has been
directed, and is required to, remit all payments with respect to such
Receivable for deposit in a Lockbox Account or a Lockbox;
(xix) except as set forth on Schedule 2, the Originator is in
compliance with ERISA and has not incurred and does not expect to incur any
liabilities (except for premium payments arising in the ordinary course of
business) payable to the PBGC (or any successor thereof) under ERISA or the
Internal Revenue Code;
(xx) except as set forth on Schedule 2, each pension plan or
profit sharing plan to which the Originator or any Affiliate is a party has
been administered and fully funded in accordance with the obligations the
Originator under law and as set forth in such plan, and the Originator has
complied with the applicable provisions of ERISA or the Internal Revenue
Code in effect as of such Transfer Date;
(xxi) the Originator has not agreed to pay any fee or commission
to any agent, broker, finder or other person for or on account of services
rendered as a broker or finder in connection with this Agreement or the
Related Documents or the transactions contemplated hereby or thereby which
would give rise to any valid claim against MCF for any brokerage commission
or finder's fee or like payment;
(xxii) all information heretofore or hereafter furnished with
respect to the Originator to MCF in connection with any transaction
contemplated by this Agreement or the Related Documents is and will be true
and complete in all material respects and does not and will not omit to
state a material fact
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necessary to make the statements contained herein or therein not
misleading, provided that any projections, pro forma or preliminary
financial information furnished are based on good faith estimates and
assumptions believed by the Originator to be reasonable at the time made
and MCF acknowledges that such projections as to future events are not to
be viewed as facts and that actual results for such period may differ from
the projected results;
(xxiii) no part of the proceeds received by the Originator or
any Affiliate from the Sale Price will be used directly or indirectly for
the purpose of purchasing or carrying, or for payment in full or in part
of, Debt that was incurred for the purposes of purchasing or carrying any
"margin stock," as such term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve System;
(xxiv) other than the Services Agreement, there are not now, nor
will there be at any time in the future, any agreement or understanding
between the Originator and MCF (other than as expressly set forth herein)
providing for the allocation or sharing of obligations to make payments or
otherwise in respect of any taxes, fees, assessments or other governmental
charges;
(xxv) no transaction contemplated by this Agreement or any of
the Related Documents requires compliance with any bulk sales act or
similar law;
(xxvi) the Request Notice with respect to such Transfer Date is
accurate in all material respects;
(xxvii) each purchase of Receivables under this Agreement will
constitute (A) a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended, and (B) a purchase or
other acquisition of notes, drafts, acceptances, open accounts receivable
or other obligations representing part or all of the sales price of
merchandise, insurance or services within the meaning of Section 3(c)(5) of
the Investment Company Act of 1940, as amended;
(xxviii) (A) the Originator is not a party to any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporation restriction that is reasonably likely
to have, and no provision of applicable law or governmental regulation is
reasonably likely to have, a material adverse effect on the ability of the
Originator to carry out its obligations under this Agreement and the other
Related Documents to which the Originator is a party and (B) the Originator
is not in default under or with respect to any contract, agreement, lease
or other instrument to which the Originator is a party and which is
material to the Originator's ability to perform its obligations hereunder
or to the quality or collectibility of the receivables, and the Originator
has not delivered or received any notice of default thereunder;
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(xxix) the Originator is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended. The purchase or acquisition of the Transferred
Receivables by MCF, the application of the proceeds and the consummation of
the transactions contemplated by this Agreement and the other Related
Documents to which the Originator is a party will not violate any provision
of such Act or any rule, regulation or order issued by the Securities and
Exchange Commission thereunder;
(xxx) the bylaws or the articles of incorporation of the
Originator require it to maintain (A) books and records of account, and (B)
minutes of the meetings and other proceedings of its shareholders and board
of directors;
(xxxi) the Lockboxes and the Lockbox Accounts are the only
lockboxes and accounts maintained by the Originator into which Collections
of any Transferred Receivables are deposited; and
(xxxii) each of the representations and warranties of the
Originator contained in the Related Documents (other than this Agreement)
is true and correct in all material respects and the Originator hereby
makes each such representation and warranty to, and for the benefit of, the
Collateral Agent, the Operating Agent and Redwood as if the same were set
forth in full herein.
(b) On each Transfer Date and as of the date of each Investment Base
Certificate delivered under the Purchase Agreement with respect to each
Transferred Receivable designated as an Eligible Receivable:
(i) such Receivable is an Eligible Receivable and is a receivable
created through the provision of merchandise, goods or services by the
Originator in the ordinary course of its business;
(ii) such Receivable was created in accordance with and satisfies
in all material respects all applicable requirements of the Credit and
Collection Policies;
(iii) such Receivable represents the genuine, legal, valid and
binding obligation in writing of the Obligor enforceable by the holder
thereof in accordance with its terms, subject to (A) any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to or affecting the enforceability of
creditors' rights generally and (B) general equitable principles, whether
applied in a proceeding at law or in equity and neither such Receivable nor
its related Contract has been satisfied, subordinated, rescinded or amended
in any manner which would impair the collectibility of such Receivable,
adjust the value of such Receivable, or modify the payment terms of such
Receivable after its creation;
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(iv) such Receivable is not and will not be subject to any
exercise of any right of rescission, set-off, recoupment, counterclaim or
defense;
(v) prior to its sale or contribution to MCF such Receivable was
owned by the Originator free and clear of any Adverse Claim, and the
Originator had the right to contribute, sell, assign and transfer the same
and interests therein as contemplated under this Agreement, upon such sale
or contribution, MCF will have acquired good and marketable title to and
the sole record and beneficial ownership interest in such Receivable, free
and clear of any Adverse Claim and, after such sale or contribution, such
Receivable did not become subject to any Adverse Claim as a result of any
action or inaction of the Originator;
(vi) this Agreement and the Assignment constitute a valid sale,
contribution, transfer, assignment, setover and conveyance to MCF of all
right, title and interest of the Originator in and to such Receivable;
(vii) such Receivable is entitled to be paid pursuant to the
terms of the related Contract, has not been paid in full or been
compromised, adjusted, extended, satisfied, subordinated, rescinded or
modified, and is not subject to compromise, adjustment, extension,
satisfaction, subordination, rescission, or modification by the Originator
except in accordance with any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors' rights generally;
(viii) the Originator has submitted all necessary documentation
for payment of such Receivable to the Obligor and has fulfilled all its
other obligations in respect thereof;
(ix) the stated term of such Receivable, if any, is not greater
than 90 days;
(x) such Receivable is an "account" within the meaning of the UCC
of the jurisdiction where the Originator's chief executive office is
located;
(xi) neither such Receivable nor its related Contract contravenes
in any material respect any laws, rules or regulations applicable thereto
(including, without limitation, laws, rules and regulations relating to
usury, consumer protection, truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices
and privacy) and no party to such related Contract is in violation of any
such law, rule or regulation in any material respect;
(xii) such Receivable does not represent "billed but not yet
shipped" goods or merchandise, unperformed services, consigned goods or
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"sale or return" goods; nor does such Receivable arise from a transaction
for which any additional performance by MCF or acceptance or other act of
the Obligor remains to be performed as a condition to any payments on such
Receivable;
(xiii) there are no proceedings or investigations pending or to
the Originator's knowledge threatened before any Governmental Authority (A)
asserting the invalidity of such Receivable or such Contract, (B) asserting
the bankruptcy or insolvency of the related Obligor, (C) seeking the
payment of such Receivable or payment and performance of such Contract, or
(D) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of such Receivable or such Contract;
(xiv) as of the relevant Transfer Date hereunder, no Obligor on
such Receivable is bankrupt or insolvent, is unable to make payment of its
obligations when due, is the debtor in a voluntary or involuntary
bankruptcy proceeding, or is the subject of a comparable receivership or
insolvency proceeding, other than Obligors under the protection of a
bankruptcy court or receivership which has approved payment by any such
Obligor of such Receivable; and
(xv) the Originator has no knowledge of any fact (including any
defaults by the Obligor on any other accounts) which leads it or should
have led it to expect that any payments on such Receivable will not be paid
in full when due or to expect any other material adverse effect on (A) the
performance by MCF or the Originator of its obligations under this
Agreement or any of the Related Documents, (B) the validity or
enforceability of this Agreement or any of the Related Documents, or (C)
the Transferred Receivables or the Contracts or the interests of MCF or
Redwood therein.
It is understood and agreed that the representations and warranties described in
this Section 4.01 shall survive the sale or contribution of the Transferred
Receivables to MCF, any subsequent assignment of the Transferred Receivables by
MCF, and the termination of this Agreement and the Purchase Agreement and shall
continue so long as any Transferred Receivable shall remain outstanding.
SECTION 4.02. Covenants of the Originator.
---------------------------
(a) Offices and Records. The Originator shall keep its chief place of
-------------------
business and chief executive offices and the office where it keeps its Records
at the respective locations specified in Schedule 1 hereto or, upon at least 30
days prior written notice to MCF and the Collateral Agent, at such other
location in a jurisdiction where all action required by Section 4.02(d) shall
have been taken with respect to the Transferred Receivables. The Originator
shall, for not less than three years or for such longer period as may be
required by law, from the date on which any Transferred Receivable arose,
maintain adequate Records with respect to each Transferred Receivable, including
records of all payments received, credits granted
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and merchandise returned. Upon prior notice to the Originator, except after the
occurrence of any Termination Event, the Originator will permit representatives
of MCF, the Servicer, the Operating Agent or the Collateral Agent at any time
and from time to time during normal business hours, and at such times outside of
normal business hours as MCF, the Servicer, the Operating Agent or the
Collateral Agent shall reasonably request, (i) to inspect and make copies of and
abstracts from such records, (ii) to visit the properties of the Originator
utilized in connection with the collection, processing or servicing of the
Transferred Receivables for the purpose of examining such Records, and (iii) to
discuss matters relating to the Transferred Receivables or the Originator's
performance under this Agreement or the affairs, finances and accounts of the
Originator with any of its officers, directors, employees, representatives or
agents and with its independent certified accountants. The Originator will
advise its independent certified accountants that MCF, the Operating Agent, the
Servicer and the Collateral Agent have been authorized to review and discuss
with such accountants any and all financial statements and other information of
any kind that they may have with respect to the Originator and deliver a letter
(the "ACCOUNTANTS' LETTER") addressed to such accountants instructing them to
make available to MCF, the Operating Agent, the Servicer and the Collateral
Agent such information and records as MCF, the Operating Agent, the Servicer and
the Collateral Agent may reasonably request and to otherwise comply with the
provisions of this Section 4.02(a). The Originator shall be given prior notice
of any discussions with its accountants and the opportunity to participate;
provided that the Originator's failure or inability to participate shall not
prevent any of MCF, the Operating Agent, the Servicer and the Collateral Agent
from engaging in such discussions. After the Effective Date, if the Originator
engages the services of accountants other than Deloitte & Touche, it shall
deliver a letter addressed to such accountants containing the same terms and
provisions as the Accountants' Letter. In connection with the foregoing, in the
event any of the Originator, the Operating Agent or the Collateral Agent
determines that a deterioration has or is reasonably likely to occur in the
quality of servicing of the Transferred Receivables, any of them, individually
or collectively, may institute procedures to permit it to confirm the Obligor's
outstanding balances in respect of any Transferred Receivables. The Originator
agrees to render to MCF, the Operating Agent and the Collateral Agent, at the
Originator's own cost and expense, such clerical and other assistance as may be
reasonably requested with regard to the foregoing. If a Termination Event under
the Purchase Agreement shall have occurred and be continuing, promptly upon
request therefor, the Originator shall assist MCF in delivering to the Operating
Agent records reflecting activity through the close of business on the
immediately preceding Business Day.
(b) Compliance With Credit and Collection Policies. The Originator
----------------------------------------------
shall comply in all material respects with the Credit and Collection Policies
with regard to each Transferred Receivable and the related Contracts, and with
the terms of such Receivables and Contracts.
(c) Notice of Adverse Claim. The Originator shall advise MCF and any
-----------------------
assignees, promptly, in reasonable detail, (i) of any Adverse Claim known to it
made or asserted against any of the Transferred Receivables, (ii) of any
determination
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that a Sold Receivable, or any other Receivable designated as an Eligible
Receivable in a Request Notice or otherwise, was not an Eligible Receivable at
such time and (iii) of the occurrence of any event which would have a material
adverse effect on the aggregate value of the Transferred Receivables or on the
validity of the transfers in this Agreement.
(d) Further Assurances; Financing Statements.
----------------------------------------
(i) The Originator agrees that at any time and from time to time,
at its expense, upon the request of MCF or MCF's assignees it shall
promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or, in the reasonable
opinion of MCF or any assignee, desirable or that MCF or any assignee may
reasonably request to perfect, preserve, continue and maintain fully and
protect the transfers made and the right, title and interests (including
any security interests) granted to MCF by this Agreement or to enable MCF
or any assignee to exercise and enforce its rights and remedies under this
Agreement or any of the Related Documents with respect to any Transferred
Receivables. Without limiting the generality of the foregoing, the
Originator shall execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices as
may be necessary or in the reasonable opinion of MCF or any assignee
desirable or that MCF or any assignee may reasonably request to protect and
preserve and perfect the transfers and security interests granted by this
Agreement, free and clear of all Adverse Claims.
(ii) The Originator hereby authorizes MCF and the Collateral
Agent to file one or more financing or continuation statements, and
amendments thereto, relating to all or any part of the Transferred
Receivables without the signature of the Originator where permitted by law.
A carbon, photographic or other reproduction of this Agreement or any
notice or financing statement covering the Transferred Receivables or any
part thereof shall be sufficient as a notice or financing statement where
permitted by law. The Seller will promptly send to the Originator any
financing or continuation statements thereto which it files without the
signature of the Originator except, in the case of filings of copies of
this Agreement as financing statements, the Seller will promptly send the
Originator the filing or recordation information with respect thereto.
(e) Assignment. The Originator acknowledges and agrees that, to the
----------
extent permitted under the Purchase Agreement, MCF may assign all of its right,
title and interest in, to and under the Transferred Receivables and its right,
title and interest under this Agreement, including its right to exercise the
remedies created by Section 4.04. The Originator agrees that, upon such
assignment, the assignee under the Purchase Agreement may enforce directly,
without joinder of MCF, the repurchase obligations of the Originator set forth
in Section 4.04 with respect to breaches of the representations and warranties
or covenants set forth in Section 4.01 and 4.02.
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(f) Compliance With Agreements and Applicable Laws. The Originator
----------------------------------------------
shall perform each of its obligations under this Agreement and the Related
Documents and comply with all material requirements of any law, rule or
regulation applicable to it, provided that the Originator shall be deemed to
have complied with any such requirements for as long as the Originator contests
in good faith the application of such requirement, a stay has been granted with
respect to any penalty imposed on the Originator in respect of such requirement
and no final unappealable order in respect of such requirement has been made
against the Originator except for any noncompliance with laws which would not
have a material adverse effect on (1) the performance of MCF or the Originator
of its obligations under this Agreement or any of the Related Documents, (2) the
validity or enforceability of this Agreement or any of the Related Documents,
(3) the Transferred Receivables or the Contracts or the interests of MCF or its
assigns therein, or the business, operations, financial condition or prospects
of MCF or the Originator.
(g) Corporate Existence. Subject to Section 4.03(d), the Originator
-------------------
shall maintain its corporate existence and shall at all times continue to be
duly organized under the laws of the state of its incorporation and duly
qualified and duly authorized (as described in Section 4.01) and shall conduct
its business in accordance with the terms of its certificate of incorporation
and bylaws.
(h) Notice of Material Event. The Originator shall promptly inform
------------------------
MCF and any assignee (except in respect of clause (i), in which event the
Originator shall immediately inform MCF and any assignee) in writing of the
occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Originator or with respect to or in connection with all or any portion of
the Transferred Receivables, in excess of $1,000,000 or which, if adversely
determined, would be reasonably likely to have a material adverse effect on
the Originator;
(ii) any change in the location of the Originator's principal
office or any change in the location of the Originator's books and records;
(iii) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Originator in any federal, state or local court or before any governmental
body or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would have a material adverse effect with respect to the Originator;
(iv) the commencement of any proceedings by or against the
Originator under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official
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shall have been, or may be, appointed or requested for the Originator or
any of its assets;
(v) the receipt of notice that (A) the Originator is being placed
under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Originator's
business is to be, or may be, suspended or revoked, or (C) the Originator
is to cease and desist any practice, procedure or policy employed by the
Originator in the conduct of its business, and such cessation may have a
material adverse effect with respect to the Originator; or
(vi) any other event, circumstance or condition that has had, or
has a material possibility of having, a material adverse effect in respect
of the Originator.
(i) Maintenance of Licenses. The Originator shall maintain all
-----------------------
licenses, permits, charters and registrations which are material to the conduct
of its business.
(j) Use of Proceeds. The Originator shall apply its funds towards
---------------
general corporate purposes (including the retirement or repayment of third party
debt) and towards the other sums payable by the Originator under this Agreement
and the Related Documents in connection with the transactions contemplated
hereby and by the Related Documents and for no other purpose.
(k) Separate Identity.
-----------------
(i) The Originator shall maintain corporate records and books of
account separate from those of MCF.
(ii) The financial statements of the Parent and its consolidated
Subsidiaries shall (i) disclose the effects of the Originator's
transactions in accordance with GAAP and (ii) either (a) disclose that the
assets of MCF are not available to pay creditors of the Originator or any
other Affiliate of the Originator or (b) contain the language set forth in
Section 4.02(k)(iii)(b).
(iii) The annual financial statements of the Parent and its
consolidated subsidiaries (including MCF) will contain footnotes or other
information to the effect that with respect to MCF: (a) MCF's business
consists of the purchase of the Receivables from the Originator and (b) MCF
is a separate corporate entity with its own separate creditors, which upon
its liquidation will be entitled to be satisfied out of MCF's assets prior
to any value in MCF becoming available to MCF's equityholders.
(iv) The resolutions and other instruments underlying the
transactions described in this Agreement shall be continuously maintained
by the Originator as official records.
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(v) Except as set forth in the Services Agreement, the Originator
shall use its best efforts to maintain an arm's-length relationship with
MCF and will not hold itself out as being liable for the debts of MCF.
(vi) Except as set forth in the Services Agreement, the
Originator shall use its best efforts to keep its assets (except with
respect to any Records necessary for the servicing of the Transferred
Receivables) and its liabilities wholly separate from those of MCF.
(vii) The Originator will conduct its business solely in its own
name (including any trade or fictitious name) through its duly authorized
officers or agents so as not to mislead others as to the identity of the
Originator.
(viii) The Originator will use its best efforts to avoid the
appearance of conducting business on behalf of MCF or that the assets of
the Originator are available to pay the creditors of MCF.
(ix) Except as set forth in the Services Agreement, the
Originator will cause operating expenses and liabilities of MCF to be paid
from MCF's funds.
(l) ERISA. The Originator shall give the Operating Agent prompt
-----
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a material required contribution to a Plan or Multiemployer Plan
(but in no event will a contribution failure sufficient to give rise to a lien
under (S)302(f) of ERISA be considered immaterial), (iii) a Reportable Event,
(iv) any action by a Commonly Controlled Entity to terminate any Plan or
withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or
appoint a trustee to administer a Plan, (vi) the reorganization or insolvency of
any Multiemployer Plan and (vii) an aggregate Underfunding for all Underfunded
Plans in excess of $100,000.
(m) Cooperation With Requests for Information or Documents. The
------------------------------------------------------
Originator will cooperate fully with all reasonable requests of MCF or any
assignee regarding the provision of any information or documents, necessary,
including the provision of such information or documents in electronic or
machine-readable format, or desirable to allow MCF and each assignee to carry
out its responsibilities under the Related Documents.
(n) Payment, Performance and Discharge of Obligations. The Originator
-------------------------------------------------
will pay, perform and discharge all of its obligations and liabilities,
including, without limitation, all taxes, assessments and governmental charges
upon its income and properties when due the non-payment, performance or
discharge of which would materially and adversely affect (1) the performance of
MCF or the Originator of its obligations under this Agreement or any of the
Related Documents, (2) the validity or enforceability of this Agreement or any
of the Related Documents, (3) the Transferred Receivables or the Contracts or
the interests of MCF or its assigns therein, or (4) the
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business, operations, financial condition or prospects of MCF or the Originator,
unless and to the extent only that such obligations, liabilities, taxes,
assessments and governmental charges shall be contested in good faith and by
appropriate proceedings and that, to the extent required by GAAP, proper and
adequate book reserves relating thereto are established by the Originator and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of an Adverse Claim against any of its
properties.
SECTION 4.03. Negative Covenants of the Originator. The Originator
------------------------------------
shall not, without the written consent of MCF and each assignee of MCF's rights:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to, or assign any right to receive income in respect of any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
any Lockbox or any Lockbox Account;
(b) extend, amend, forgive, discharge, compromise, cancel or otherwise
modify the terms of any Transferred Receivable, or amend, modify or waive any
term or condition of any Contract related thereto (except as to the Originator
in its capacity as the Servicer under the Purchase Agreement and in the case of
any such Contracts, any amendments or modifications to any provision thereof
other than payment terms or any term adversely affecting the payment of such
Receivable), provided that the foregoing shall not prohibit the Servicer from
offering early pay discounts to the extent permitted by the Credit and
Collection Policy;
(c) make any change in its instructions to Obligors regarding payments
to be made to MCF or payments to be deposited to a Lockbox or a Lockbox Account
other than (i) changes of a purely administrative nature which do not alter any
directions to Obligors regarding the method, timing or place of payment, or (ii)
changes to the method or timing of payments which are in accordance with the
Credit and Collections Policy or (iii) changes redirecting payments from one
Lockbox or Lockbox Account to another Lockbox Account in respect of which all
actions required under Section 6.01 of the Purchase Agreement have been taken;
(d) merge with or into, consolidate with or into, convey, transfer,
lease or otherwise dispose of all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets or capital stock or other ownership interest of, any Person (whether in
one transaction or in a series of transactions) except where such action would
not have a material adverse effect on the business of the Originator or the
ability of the Originator to perform its obligations under this Agreement and
the Rating Agency Condition is satisfied;
(e) make statements or disclosures or prepare any financial statements
which shall account for the transactions contemplated by this Agreement in any
manner other than as a sale or absolute assignment of the Transferred
Receivables to MCF, or in any other respect account for or treat the
transactions
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contemplated hereby (including but not limited to, for accounting, tax and
reporting purposes) in any manner other than as a sale or absolute assignment of
the Transferred Receivables;
(f) (i) take any action, or fail to take any action, with respect to
the Transferred Receivables, if such action or failure to take action may
interfere with the enforcement of any rights under this Agreement or the Related
Documents that are material to the rights, benefits or obligations of MCF or any
assignee (however, nothing herein shall be construed to constitute a guarantee
of collectibility by the Originator); (ii) take any action, with respect to the
Transferred Receivables, or fail to take any action, if such action or failure
to take action may materially interfere with the enforcement of any rights with
respect to the Transferred Receivables; or (iii) fail to pay any tax,
assessment, charge, fee or other obligation of the Originator with respect to
the Transferred Receivables, or fail to defend any action, if such failure to
pay or defend may adversely affect the priority or enforceability of the first
priority perfected interest of MCF in the Transferred Receivables or the
Originator's right, title or interest in the Transferred Receivables;
(g) neither the Originator nor any Commonly Controlled Entity will:
(i) terminate any Plan so as to incur any material liability to
the PBGC;
(ii) knowingly participate in any "prohibited transaction" (as
defined in ERISA) involving any Plan or Multiemployer Plan or any trust
created thereunder which would subject any of them to a material tax or
penalty on prohibited transactions imposed under Section 4975 of the
Internal Revenue Code or ERISA;
(iii) fail to pay to any Plan or Multiemployer Plan any
contribution which it is obligated to pay under the terms of such Plan or
Multiemployer Plan, if such failure would cause such plan to have any
material Accumulated Funding Deficiency, whether or not waived; or
(iv) allow or suffer to exist any occurrence of a Reportable
Event, or any other event or condition, which presents a material risk of
termination by the PBGC on any Plan or Multiemployer Plan, to the extent
that the occurrence or nonoccurrence of such Reportable Event or other
event or condition is within the control of it or any Commonly Controlled
Entity;
(h) make any material change to the Credit and Collection Policies
without the prior written consent of MCF and each assignee;
(i) take or permit (other than with respect to actions taken or to be
taken solely by a Government Authority) to be taken any action which would have
the effect directly or indirectly of subjecting interest on any of the Purchases
or the Commercial Paper to withholding taxation in the hands of, respectively,
MCF,
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Redwood or holders of the Commercial Paper generally who are residents of the
United States, and will perform all of the Originator's obligations under this
Agreement and the Related Documents to prevent or cure any default by the
Originator which would have the effect, directly or indirectly, of subjecting
interest on any of the Purchases or the Commercial Paper to withholding
taxation; or
(j) amend the Services Agreement.
SECTION 4.04. Breach of Representations, Warranties or Covenants.
--------------------------------------------------
Upon discovery by the Originator, MCF, or any assignee of MCF's rights
hereunder, that any of the representations, warranties or covenants described in
Sections 4.01(b), 4.02(b) or (c) or 4.03(a), (b) or (c) have been breached such
that they are or were untrue or incorrect in any respect, which breach is
reasonably likely to have a material adverse effect on the value of a
Transferred Receivable or the interests of MCF or any assignee therein, the
party discovering the same shall give prompt written notice to the other
parties. Thereafter, if requested by notice from MCF or any assignee, or if the
Originator so desires, the Originator shall, on the next succeeding Business
Day, either (i) repurchase such Transferred Receivable from MCF in consideration
of cash or a reduction of the outstanding indebtedness under the Subordinated
Note or both, (ii) transfer ownership of a new Eligible Receivable or new
Eligible Receivables on such Business Day; or (iii) make a capital contribution
of the Rejected Amount in cash to MCF by remitting the amount of such capital
contribution to the Collection Account in accordance with the terms of the
Purchase Agreement, in the case of clauses (i), (ii) and (iii) in an amount
equal to the Billed Amount of such Transferred Receivable less Collections
received in respect thereof. Notwithstanding the foregoing, if any Receivable
is not paid in full on account of any Dilution Factors, the Originator's
repurchase obligation under this Section 4.04 shall be reduced by the amount of
any such Dilution Factors taken into account in the Sale Price.
ARTICLE V
INDEMNIFICATION
SECTION 5.01. Indemnification. (a) Without limiting any other rights
---------------
that MCF, any of its shareholders, officers or agents, or any assignee of MCF's
rights hereunder or such assignee's shareholders, officers, employees or agents
(each, an "INDEMNIFIED PARTY") may have hereunder or under applicable law, the
Originator hereby agrees to indemnify each Indemnified Party from and against
any and all claims, losses, liabilities, obligations, damages, penalties,
actions, judgments, suits, and costs and expenses of any nature whatsoever
related thereto, including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") which may
be imposed on, incurred by or asserted against an Indemnified Party in any way
arising out of or resulting from this Agreement or the use by the Originator of
proceeds of any purchase or assignment hereunder or in respect of any
Transferred Receivable or any Contract, excluding, however, (A) Indemnified
Amounts to the extent resulting from gross negligence or
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willful misconduct on the part of such Indemnified Party, (B) recourse for
uncollectible or uncollected Transferred Receivables or (C) consequential,
indirect, punitive or exemplary damages; provided, however, that if a court of
--------
competent jurisdiction in a final non-appealable order determines that such
Indemnified Amounts arose in part from such Indemnified Party's gross negligence
or wilful misconduct, the Originator shall reimburse such Indemnified Party for
the portion of such Claim not resulting from such Indemnified Party's gross
negligence or wilful misconduct. To the extent such a determination of gross
negligence or wilful misconduct is made, after payment of any Indemnified
Amounts related thereto, the Originator shall be repaid any amounts reimbursed
under the preceding clause that due to such determination it should not have
paid. Without limiting or being limited by the foregoing, the Originator shall
pay on demand to each Indemnified Party any and all Indemnified Amounts
necessary to indemnify such Indemnified Party from and against any and all
Indemnified Amounts relating to or resulting from:
(i) reliance on any representation or warranty made or deemed
made by the Originator (or any of its officers) under or in connection with
this Agreement or any Related Document, any report or any other information
delivered by the Originator pursuant hereto, which shall have been
incorrect in any material respect when made or deemed made or delivered;
(ii) the failure by the Originator to comply with any term,
provision or covenant contained in this Agreement, any Related Document or
any agreement executed in connection with this Agreement, with any
applicable law, rule or regulation with respect to any Transferred
Receivable or the related Contract, or the nonconformity of any Transferred
Receivable or the related Contract with any such applicable law, rule or
regulation; or
(iii) the failure to vest and maintain vested in MCF, or to
transfer to MCF, legal and equitable title to and ownership of the
Receivables which are, or are purported to be, Transferred Receivables,
together with all Collections and Proceeds in respect thereof, free and
clear of any Adverse Claim (except as permitted hereunder) whether existing
at the time of the proposed sale of such Receivable or at any time
thereafter;
excluding, however, (A) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party or (B)
recourse for uncollectible or uncollected Transferred Receivables or (C)
consequential, indirect, punitive or exemplary damages; provided, however, that
--------
if a court of competent jurisdiction in a final non-appealable order determines
that such Indemnified Amounts arose in part from such Indemnified Party's gross
negligence or wilful misconduct, the Originator shall reimburse such Indemnified
Party for the portion of such Claim not resulting from such Indemnified Party's
gross negligence or wilful misconduct. To the extent such a determination of
gross negligence or wilful misconduct is made, after payment of any Indemnified
Amounts related thereto, the Originator shall be repaid any amounts reimbursed
under the preceding clause that due to such determination it should not have
paid.
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(b) If indemnification is to be sought hereunder by an Indemnified
Party, then such Indemnified Party shall promptly notify the Originator of the
commencement of any litigation, proceeding or other action in respect thereof;
provided, however, that the failure to notify the Originator shall not relieve
the Originator from any liability or obligation that it may have hereunder or
otherwise to such Indemnified Party, except to the extent the Originator is
actually prejudiced thereby. Each Indemnified Party shall have the right to
control its own defense, but shall consult from time to time with the Originator
and in no event shall the Originator, in connection with any one action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances, be
liable for the fees and expense of more than one firm of attorneys (together
with any appropriate local counsel) at any time acting for GE Capital, GE
Capital Markets Group Inc. or their employees, directors or officers
(collectively "GE PERSONS"), unless any such GE Person has been advised by legal
counsel that (a) the representation of such GE Person by legal counsel acting
for other GE Persons would be inappropriate due to actual or potential conflicts
of interest or (b) there may be legal defenses available to such GE Person that
are different from or additional to those available to any other GE Person
represented by such legal counsel; provided, that any Indemnified Party other
--------
than any GE Person shall not be restricted from hiring separate legal counsel
the fees and expenses for which the Originator shall be liable as provided
herein. Notwithstanding anything to the contrary contained herein, the
Originator shall not have any obligation to hold harmless or indemnify any
Indemnified Party for the amount of any cash settlement if any Indemnified Party
enters into any such cash settlement of a claim without the prior written
consent of the Originator, which consent will not be unreasonably withheld or
delayed and in the event the Originator shall not consent to any proposed
settlement, then the Originator shall notify such Indemnified Party in writing
of the amount which the Originator is willing to pay (and if no such written
notification is provided, the Originator will be deemed to consent to the entire
cash settlement); provided that the Originator shall in any event continue to be
--------
obligated to hold harmless and indemnify such Indemnified Party for legal costs
in relation to such Indemnified Amount as provided herein. If, for any reason,
no settlement is made, all indemnity obligations under this Article V shall
continue.
SECTION 5.02. Assignment of Indemnities. The Originator
-------------------------
acknowledges that, to the extent permitted under the Purchase Agreement, MCF may
assign its rights of indemnity granted hereunder and upon such assignment, such
assignee shall have all rights of MCF hereunder and may in turn assign such
rights. The Originator agrees that, upon such assignment, such assignee may
enforce directly, without joinder of MCF, the indemnities set forth in this
Article V.
24
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices, Etc. All notices and other communications
------------
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile, telex and express mail) and mailed or telecommunicated, or
delivered as to each party hereto, at its address set forth under its name on
the signature page hereof or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices
and communications shall not be effective until received by the party to whom
such notice or communication is addressed.
SECTION 6.02. No Waiver; Remedies. No failure on the part of an
-------------------
Originator or MCF or any assignee of MCF to exercise, and no delay in
exercising, any right hereunder or under any Assignment shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
SECTION 6.03. Binding Effect; Assignability. This Agreement shall
-----------------------------
be binding upon and inure to the benefit of the Originator and MCF, and their
respective successors and permitted assigns. Except as contemplated herein, none
of the parties may assign any of its rights and obligations hereunder or any
interest herein without the prior written consent of the other parties. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until its termination; provided, that the rights and remedies pursuant to
--------
Section 4.04 with respect to any breach of any representation, warranty or
covenants made by the Originator pursuant to Sections 4.01, 4.02 and 4.03 and
the indemnification and payment provisions of Article V shall be continuing and
shall survive any termination of this Agreement.
SECTION 6.04. No Proceedings. The Originator hereby agrees that it
--------------
will not, directly or indirectly, institute, or cause to be instituted, against
MCF any proceeding of the type referred to in Section 9.01(c) of the Purchase
Agreement so long as there shall not have elapsed one year plus one day since
the latest maturing commercial paper issued by Redwood and allocated to MCF has
been paid in full in cash.
SECTION 6.05. Amendments; Consents and Waivers. No modification,
--------------------------------
amendment or waiver of, or with respect to, any provision of this Agreement, the
Purchase Agreement and any exhibits or schedules hereto or thereto, nor consent
to any departure by the Originator or MCF from any of the terms or conditions
hereof or thereof, shall be effective unless it shall be in writing and signed
by each of the parties hereto, and prior written consent is given by Redwood and
the Collateral Agent. Any waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No consent or demand in
any case shall, in itself, entitle any party to any other consent or further
notice or demand in similar or other circumstances. This
25
<PAGE>
Agreement and the documents referred to herein embody the entire agreement of
the Originator and MCF with respect to the Transferred Receivables and supersede
all prior agreements and understandings relating to the subject hereof.
SECTION 6.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
------------------------------------------------------
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
- -----
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF CALIFORNIA.
(b) THE ORIGINATOR AND MCF HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF CALIFORNIA, AND EACH WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE
SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE
ORIGINATOR AND MCF HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND
--------------------
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE ORIGINATOR OR MCF
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) THE ORIGINATOR AND MCF HEREBY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
SECTION 6.07. Execution in Counterparts; Severability. This
---------------------------------------
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and both of which
when taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations in any jurisdiction, or of such
provision or obligation in any jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 6.08. Descriptive Headings. The descriptive headings of the
--------------------
various sections of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
SECTION 6.09. No Setoff. The Originator's obligations under this
---------
Agreement shall not be affected by any right of setoff, counterclaim,
recoupment,
26
<PAGE>
defense or other right the Originator might have against MCF, Redwood, the
Operating Agent, the Collateral Agent or any assignee, all of which rights are
hereby waived by the Originator.
SECTION 6.10. Further Assurances. The Originator agrees to do such
------------------
further acts and things and to execute and deliver to MCF, Redwood, the
Operating Agent or any assignee such additional assignments, agreements, powers
and instruments as MCF, Redwood, the Operating Agent or any assignee may require
or deem advisable to carry into effect the purposes of this Agreement or to
better assure and confirm unto any such party its respective rights, powers and
remedies hereunder.
SECTION 6.11. Confidentiality. (a) The Originator and MCF agree to
---------------
maintain the confidentiality of this Agreement (and all drafts of this agreement
and documents ancillary to this Agreement) in their communications with third
parties other than any Affected Party or any Indemnified Party and otherwise and
not to disclose, deliver or otherwise make available to any third party (other
than its directors, officers, employees, accountants or counsel) the original or
any copy of all or any part of this Agreement (or any draft of this Agreement
and documents ancillary to this Agreement) except to an Affected Party or an
Indemnified Party.
(b) Notwithstanding Section 6.11(a), (i) the general terms of the
transactions contemplated by this Agreement and the Related Documents may be
disclosed to any existing lender to or potential investor in the Parent that has
agreed in writing not to disclose such terms, and (ii) this Agreement and the
Related Documents may be disclosed (A) if required to be filed publicly with the
Securities and Exchange Commission, (B) to the certified public accountants of
the Parent to the extent necessary, (C) to the extent otherwise required by
applicable law, rule or regulation, (D) to the extent required under a valid and
appropriately limited subpoena or equivalent legal process or (E) if the
Affected Party otherwise consents in writing.
(c) The Originator agrees that it shall not (and shall not permit any
of its Subsidiaries to) issue any news release or make any public announcement
pertaining to the transactions contemplated by this Agreement and the Related
Documents without the prior written consent of MCF and its assignees (which
consent shall not be unreasonably withheld) unless such news release or public
announcement is required by law, in which case the Originator shall consult with
MCF and its assignees prior to the issuance of such news release or public
announcement.
SECTION 6.12. Assignment of Agreement. The Originator acknowledges
-----------------------
that, to the extent permitted under the Purchase Agreement, MCF may assign its
rights granted hereunder, including any rights in the Collateral granted under
Article VII, and upon such assignment, such assignee shall have all rights of
MCF hereunder and, to the extent permitted under the Purchase Agreement, may in
turn assign such rights. The Originator agrees that, upon such assignment, such
assignee may enforce directly, without joinder of MCF, the rights set forth in
this Agreement.
27
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables Transfer
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
MERISEL AMERICAS, INC.
By: _____________________________
Name: _________________________
Title: ________________________
Address: 200 Continental Boulevard
El Segundo, CA 9024
Attention: Timothy Jenson, Treasurer
Phone number: (310) 615-6850
Telecopier number: (310) 615-6882
MERISEL CAPITAL FUNDING, INC.
By: _____________________________
Name: _________________________
Title: ________________________
Address: 200 Continental Boulevard
Suite 301
El Segundo, CA 90245
Attention: Charles Freedman
Phone number: (310) 615-6861
Telecopier number: (310) 615-6882
28
<PAGE>
Schedule 1 to
Transfer Agreement
LIST OF CHIEF EXECUTIVE
OFFICES OF THE ORIGINATOR
-------------------------
200 Continental Blvd.
El Segundo, California 90245
LIST OF OTHER OFFICES OF THE
ORIGINATOR WHERE RECORDS ARE KEPT
---------------------------------
ATLANTA, GA 4100 West Park Drive SW, Atlanta, GA 30336
CARY-N.C. 305 Gregson Drive, Cary, NC 27511
CHICAGO, IL 160 Hansen Court Ste. 112 Woodale, IL 60191
CHICAGO, IL 1269 Wood Dale Road, Woodale, IL 60191
DALLAS, TX 1221 Champion Cr. Suite 128, Carrolton, TX 75006
HARTFORD, CT 21 Hyde Rd., Farmington, CT 06032
LEE SUMMIT, MO 3050 N. Independence Ave., Lee Summit, MO 64064
MARLBORO, MA 293 Boston Post Road West, Marlboro MA 01752
PLEASANTON, CA 5964 W. Las Positas Blvd., Pleasanton, CA 94566-9012
RICHMOND, VA 5700 Eastport Blvd., Richmond, VA 23231
SAN FRANCISCO, CA 30750 San Clemente St., Hayward, CA 94544
HAYWARD, CA 2399 West Winton, Hayward, CA 94545
<PAGE>
Schedule 2 to
Transfer Agreement
Employee Benefit Plans
Section 4.01(a)(xx)
A recent audit of the Merisel Inc. 401(k) Retirement Savings Plan, which is
sponsored by the Parent and covers eligible employees of the Originator,
disclosed the following operational qualification defect: due to a deficiency in
a prior payroll system, during 1993 and 1994 salary deferral contributions
erroneously were not withheld from the portion of a participant's compensation
that was paid in the form of a supplemental paycheck, i.e., bonuses,
----
commissions, SPIFFs, retroactive pay or vacation advances; the payroll system
deficiency was corrected effective January 1, 1995. The operational
qualification defect is eligible for correction under the Voluntary Compliance
Resolution (VCR) Program established by the Internal Revenue Service (the
"IRS"), and the Originator will take or will cause the Parent to take whatever
action is necessary to correct the defect and retain the qualified status of the
Plan, and to secure a VCR compliance statement form the IRS. The Originator
represents and warrants that (1) the Parent will file a request for a VCR
compliance statement as soon as practicable, but no later than January 1, 1996,
and (2) the total amount that it will have to pay to correct the defect,
including any required Plan contributions and interest thereon and any VCR fee
payable to the IRS (but excluding legal fees) will not exceed $200,000.
<PAGE>
TRADE NAMES, FICTITIOUS NAMES, ASSUMED NAMES
AND "DOING BUSINESS AS" NAMES OF THE ORIGINATOR
-----------------------------------------------
1. Merisel Americas, Inc. dba Channel Services Group
2. E. Information Company, trade name of Merisel Americas, Inc.
3. Merchandising Solutions, trade name of Merisel Americas, Inc.
<PAGE>
EXHIBIT A
---------
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of October 2, 1995 between MERISEL AMERICAS, INC.
(the "ORIGINATOR") and MERISEL CAPITAL FUNDING, INC. ("MCF").
1. We refer to the Receivables Transfer Agreement (the "TRANSFER
AGREEMENT") dated as of October 2, 1995 between the Originator and MCF. All
provisions of such Transfer Agreement are incorporated herein by reference. All
capitalized terms shall have the meanings set forth in the Transfer Agreement.
2. The Originator does hereby sell or contribute, to MCF, without
recourse, except as provided in Section 4.04 of the Transfer Agreement, all
right, title and interest of the Originator in and to all Transferred
Receivables transferred from time to time from the Originator under the Transfer
Agreement.
3. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MERISEL AMERICAS, INC. MERISEL CAPITAL FUNDING, INC.
By: ________________________ By: _________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT B
---------
FORM OF SUBORDINATED NOTE
$300,000,000 October 2, 1995
FOR VALUE RECEIVED, MERISEL CAPITAL FUNDING, INC., a Delaware
corporation (the "MCF"), hereby promises to pay to the order of MERISEL
AMERICAS, INC., a Delaware corporation (the "ORIGINATOR"), for its account, the
principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (or such lesser
amount as shall equal the aggregate unpaid principal indebtedness owed by MCF to
the Originator under Section 2.01 of the Transfer Agreement referred to below),
in lawful money of the United States of America and in immediately available
funds immediately on the demand of the Originator.
The date, amount and interest rate, of each amount owed by MCF to the
Originator, and each payment made on account of the principal thereof, shall be
recorded by the Originator on its books and, prior to any transfer of this Note,
endorsed by the Originator on the schedule attached hereto or any continuation
thereof. MCF shall pay interest to the Originator at a rate equal to the sum of
5% per annum plus the rate prevailing on the 25th day of the month preceding
such first day established by the Federal Reserve Bank of San Francisco on
advances to member banks under Section 13 and 13a of the Federal Reserve Act as
now in effect or hereafter from time to time amended, but in no event shall such
rate exceed the maximum rate permitted by law, provided that the interest rate
shall at all times be fairly negotiated in an arm's-length manner and shall
reflect current market conditions.
This Note is the Subordinated Note referred to in the Receivables
Transfer Agreement (as modified and supplemented and in effect from time to
time, the "TRANSFER AGREEMENT") dated as of October 2, 1995 by and among the
Originator and MCF and evidences amounts owed by MCF thereunder. Capitalized
terms used in this Note and not defined herein have the respective meanings
assigned to them in the Transfer Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by MCF under this Note, when combined with any
and all other charges provided for in this Note, in the Purchase Agreement or in
any other document (to the extent such other charges would constitute interest
for the purpose of any applicable law limiting interest that may be charged on
this Note), exceeds the highest rate of interest permissible under applicable
law (the "MAXIMUM LAWFUL RATE"), then so long as the Maximum Lawful Rate would
be exceeded, the rate of interest under this Note shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Note is less than the Maximum
<PAGE>
Lawful Rate, MCF shall continue to pay interest under this Note at the Maximum
Lawful Rate until such time as the total interest paid by MCF is equal to the
total interest that would have been paid had such applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Originator under this Note exceed the amount which the
Originator could lawfully have received had the interest due under this Note
been calculated since the date of this Note at the Maximum Lawful Rate.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended.
MCF may, on any Business Day, prepay the then outstanding principal
amount of this Note in whole or in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid.
MCF expressly waives presentment, demand, diligence, protest and all
notices of any kind whatsoever with respect to this Note.
This Note is made and delivered in New York, New York and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provisions) of the State of California.
IN WITNESS WHEREOF, MCF has caused this Note to be signed and
delivered by its duly authorized officer as of the date set forth above.
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE OF LOANS
-----------------
This Note evidences loans made under the within-described Transfer
Agreement to MCF, on the date, at the interest rate, and in the principal
amounts set forth below, subject to the payments and prepayments of principal
set forth below:
===============================================================================
Principal Amount Unpaid
Amount of Interest Paid or Principal Notation
Date Loan Rate Prepaid Amount Made By
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
<PAGE>
EXHIBIT 10.2
RECEIVABLES PURCHASE AND SERVICING AGREEMENT
Dated as of October 2, 1995
by and among
MERISEL CAPITAL FUNDING, INC.,
as Seller,
REDWOOD RECEIVABLES CORPORATION,
as Purchaser,
MERISEL AMERICAS, INC.,
as Servicer
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Page
----
<C> <S> <C>
Section 1.01. Definitions................................................. 2
Section 1.02. Other Terms and Interpretation.............................. 2
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases................................................... 2
Section 2.02. Optional Changes in Purchase Limit.......................... 2
Section 2.03. Notices Relating to Purchases............................... 3
Section 2.04. Conveyance of Receivables................................... 3
Section 2.05. Facility Termination Date................................... 4
Section 2.06. Daily Yield................................................. 4
Section 2.07. Fees........................................................ 4
Section 2.08. Time and Method of Payments................................. 4
Section 2.09. Further Action Evidencing Purchases......................... 5
Section 2.10. Additional Costs; Capital Requirements...................... 6
Section 2.11. Breakage Costs.............................................. 7
Section 2.12. Purchase Excess............................................. 7
ARTICLE III
CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement.......... 7
Section 3.02. Conditions Precedent to All Purchases....................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller............... 11
Section 4.02. Representations and Warranties of the Servicer............. 17
ARTICLE V
GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller........................ 19
Section 5.02. Reporting Requirements of the Seller....................... 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 5.03. Negative Covenants of the Seller........................... 22
ARTICLE VI
COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts.................................. 24
Section 6.02. Funding of Collection Account.............................. 26
Section 6.03. Daily Disbursements From the Collection Account - Revolving
Period................................................... 27
Section 6.04. Disbursements From the Retention Account - Settlement Date
Procedures - Revolving Period............................ 29
Section 6.05. Liquidation Settlement Procedures.......................... 30
Section 6.06. Investment of Accounts..................................... 32
Section 6.07. Termination Procedure...................................... 33
ARTICLE VII
APPOINTMENT OF THE SERVICER
Section 7.01 Appointment of the Servicer................................ 33
Section 7.02. Duties and Responsibilities of the Servicer................ 33
Section 7.03. Collections on Receivables................................. 34
Section 7.04. Authorization of the Servicer.............................. 34
Section 7.05. Servicing Fees............................................. 35
Section 7.06. Covenants of the Servicer.................................. 35
Section 7.07. Reporting.................................................. 36
Section 7.08. Annual Statement as to Compliance.......................... 37
Section 7.09. Annual Independent Public Accountants' Servicing
and Compliance Report.................................... 37
ARTICLE VIII
GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest........................ 38
Section 8.02. Seller's Certification..................................... 39
Section 8.03. Consent to Assignment...................................... 40
Section 8.04. Delivery of Collateral..................................... 40
Section 8.05. Seller Remains Liable...................................... 40
Section 8.06. Covenants of the Seller and Servicer Regarding the
Collateral............................................... 41
</TABLE>
ARTICLE IX
TERMINATION EVENTS
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 9.01. Termination Events......................................... 43
Section 9.02. Events of Servicer Termination............................. 46
ARTICLE X
REMEDIES
Section 10.01. Actions Upon Termination Event............................. 48
Section 10.02. Exercise of Remedies....................................... 49
Section 10.03. Severability of Remedies................................... 49
Section 10.04. Power of Attorney.......................................... 50
Section 10.05. Continuing Security Interest............................... 50
ARTICLE XI
SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign..................................... 50
Section 11.02. Appointment of the Successor Servicer...................... 50
Section 11.03. Duties of the Servicer..................................... 51
Section 11.04. Effect of Termination or Resignation....................... 51
ARTICLE XII
INDEMNIFICATION
Section 12.01. Indemnities by the Seller.................................. 52
Section 12.02. Indemnities by the Servicer................................ 54
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XIII
OPERATING AGENT
Page
----
<C> <S> <C>
Section 13.01. Authorization and Action................................... 56
Section 13.02. Reliance, etc.............................................. 56
Section 13.03. GE Capital and Affiliates.................................. 57
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Notices, Etc............................................... 57
Section 14.02. Binding Effect; Assignability.............................. 57
Section 14.03. Costs, Expenses and Taxes.................................. 57
Section 14.04. Confidentiality............................................ 58
Section 14.05. No Proceedings............................................. 59
Section 14.06. Amendments; Waivers; Consents.............................. 59
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL..................................... 60
Section 14.08. Execution in Counterparts; Severability.................... 60
Section 14.09. Descriptive Headings....................................... 61
Section 14.10. Limited Recourse........................................... 61
</TABLE>
Schedule 1 - Concentration Limits
Schedule 2 - Excluded Obligors
Annex to 2 - Form of Amending Letter
Schedule 3 - Determination of "Daily Yield"
Schedule 4 - Yield Discount Amount
Schedule 5 - Addresses of the Seller
Schedule 6 - List of Lockboxes and Lockbox Accounts
Schedule 7 - List of Seller Agreements
Schedule 8 - List of Originator/Servicer Trade, Fictitious,
Assumed and "Doing Business as" Names
Exhibit A-1 - Form of Seller Notice (Request for Purchase)
Exhibit A-2 - Form of Seller Notice (Reduction of Commitment)
Exhibit A-3 - Form of Seller Notice (Termination of Commitment)
Exhibit A-4 - Form of Seller Notice (Repayment of Capital Investment)
Exhibit B - Form of Purchase Assignment
Exhibit C - Form of Investment Base Certificate
Exhibit D - Form of Officer's Certificate as to Solvency
Exhibit E - Form of Officer's Certificate of Seller
(Bringdown Certificate)
iv
<PAGE>
Page
----
Exhibit F - Form of Officer's Certificate of Servicer
Exhibit G - Form of Weekly Report
Exhibit H - Financial Covenants
Exhibit I - Form of Floor Plan Obligor Acknowledgement
Annex X - Definitions and Interpretation
v
<PAGE>
RECEIVABLES PURCHASE AND SERVICING AGREEMENT, dated as of October 2, 1995 (the
"AGREEMENT") by and among MERISEL CAPITAL FUNDING, INC., a Delaware corporation
(the "SELLER"), REDWOOD RECEIVABLES CORPORATION, a Delaware corporation, as
Purchaser (as such, together with its successors and assigns, the "PURCHASER"),
GENERAL ELECTRIC CAPITAL CORPORATION, in its capacity as operating agent
hereunder (as such, together with its successors and assigns, the "OPERATING
AGENT") and in its capacity as Collateral Agent for the Purchaser Secured
Parties (as such, together with its successors and assigns, the "COLLATERAL
AGENT"), and MERISEL AMERICAS, INC., a Delaware corporation, as servicer
hereunder (as such, together with its successors and permitted assigns, the
"SERVICER").
RECITALS
A. The Seller is a wholly-owned bankruptcy remote Subsidiary of the
Originator.
B. The Seller has been formed for the sole purpose of purchasing or
otherwise acquiring certain trade receivables originated by Merisel, Inc., the
Originator and/or their subsidiaries.
C. The Seller intends that such trade receivables shall be purchased
by or contributed to the Seller pursuant to the Receivables Transfer Agreement,
dated as of October 2, 1995 (the "TRANSFER AGREEMENT"), by and among the
Originator and the Seller.
D. The Seller and the Purchaser intend that the Purchaser purchase
the Receivables.
E. The Operating Agent has been requested and is willing to act as
operating agent on behalf of the Purchaser in connection with the making and
financing of such advances.
F. In order to effectuate the purposes of this Agreement, the
Purchaser and the Operating Agent desire that a servicer be appointed to perform
certain servicing, administrative and collection functions in respect of the
receivables acquired by the Purchaser under this Agreement.
G. The Originator has been requested and is willing to act as the
Servicer.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions. Except as otherwise expressly provided
-----------
herein or unless the context otherwise requires, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in Annex X hereto,
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.
Section 1.02. Other Terms and Interpretation. All other terms and
------------------------------
the interpretation of this Agreement shall be as set out in Annex X hereto.
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases. On the terms and conditions hereinafter set
---------
forth, the Purchaser shall purchase Transferred Receivables (each, a "PURCHASE")
from the Seller from time to time during the Revolving Period. Under no
circumstances shall the Purchaser make any Purchase if, after giving effect to
such Purchase, the aggregate outstanding Capital Investment would exceed the
Availability. The aggregate price for each such Purchase shall consist of the
Cash Purchase Price and the Deferred Purchase Price.
Section 2.02. Optional Changes in Purchase Limit.
----------------------------------
(a) The Seller may, not more than twice during each calendar year,
reduce the Maximum Purchase Limit permanently; provided that (i) the Seller
--------
shall give notice of such reduction to the Purchaser in the form of Exhibit A-2,
(ii) any partial reduction of the Maximum Purchase Limit shall be in an amount
equal to Five Million Dollars ($5,000,000) or an integral multiple thereof, and
(iii) no such reduction shall reduce the Maximum Purchase Limit below Capital
Investment.
(b) The Seller shall be entitled at its option to terminate the
Maximum Purchase Limit, provided that the Purchaser shall be given no less than
90 days' prior notice by the Seller of such termination in the form of Exhibit
A-3. Any such termination shall be permanent and irrevocable.
(c) Each written notice required to be delivered pursuant to clauses
(a) and (b) above shall be irrevocable and shall be effective only if received
by the Purchaser and the Operating Agent not later than 5:00 p.m., New York City
time on the Business Day prior to the date of the related termination or
reduction. Each such notice of termination or reduction shall specify the amount
thereof.
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Section 2.03. Notices Relating to Purchases.
-----------------------------
(a) On the third Business Day of each week, the Seller shall file with
the Operating Agent an Investment Base Certificate and, upon request, copies of
all applicable Request Notices under the Transfer Agreement delivered since the
date of the most recent Investment Base Certificate filed with the Operating
Agent. Availability will be calculated based on the most recent Investment Base
Certificate delivered to the Purchaser and the Operating Agent.
(b) The Seller shall give the Purchaser and the Operating Agent
written notice of each Purchase resulting in an increase in Capital Investment
(in each case, a "SELLER NOTICE"). Each such written notice shall be
substantially in the form of Exhibit A-1, shall be irrevocable and shall be
effective only if received by the Purchaser and the Operating Agent not later
than 2:00 p.m., New York City time on the Business Day prior to the date of the
related Purchase. Each such notice requesting a Purchase shall specify the
amount by which the Seller wishes the Capital Investment of the Purchaser to be
increased and the Purchase Date (which shall be a Business Day).
Section 2.04. Conveyance of Receivables.
-------------------------
(a) On the Effective Date, the Seller will complete, execute and
deliver a Purchase Assignment in the form of Exhibit B to the Purchaser.
(b) (i) Following receipt of a Seller Notice, subject to the
satisfaction of the conditions set forth in Section 3.02, the Purchaser shall
make available to or on behalf of the Seller, in same day funds, in accordance
with the Seller's instructions (after taking into account amounts on deposit in
the Collection Account which may be applied to any Capital Investment pursuant
to Section 6.03(a)(iii)) the lesser of the amount specified in such Seller
Notice and Capital Investment Available.
(ii) On each Business Day during the Revolving Period, subject to
the terms of Section 6.03 hereof, the Purchaser shall make available to or on
behalf of the Seller, in same day funds, amounts on deposit in the Collection
Account which may be disbursed to the Seller as payment for the Transferred
Receivables.
(c) Effective on the date of each Purchase, the ownership of all
Transferred Receivables (including Transferred Receivables transferred prior to
the Purchase Date) will be vested in the Purchaser. The Seller shall not take
any action inconsistent with such ownership and shall not claim any ownership
interest in any such Transferred Receivable. The Seller shall indicate in its
Records that ownership of the Transferred Receivable is held by the Purchaser.
In addition, the Seller shall respond to any inquiries with respect to ownership
of a Transferred Receivable by stating that it is no longer the owner of such
Transferred Receivable and that ownership of such Transferred Receivable is held
by the Purchaser. Documents relating to the Transferred Receivables shall be
held in trust by the Seller and the
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Servicer, for the benefit of the Purchaser as the owner thereof, and possession
of any incident relating to the Transferred Receivables so retained is for the
sole purpose of facilitating the servicing of the Transferred Receivables. Such
retention and possession is at the will of the Purchaser and in a custodial
capacity for the benefit of the Purchaser only.
(d) If the Originator is required to repurchase Transferred
Receivables from the Seller pursuant to Section 4.04(i) of the Transfer
Agreement, the Purchaser shall sell such Transferred Receivables to the Seller
for cash in an amount equal to the Outstanding Balance of such Transferred
Receivables.
Section 2.05. Facility Termination Date. Notwithstanding anything to
-------------------------
the contrary herein, on and after the Facility Termination Date, the Purchaser
shall have no obligation to purchase any additional Receivables.
Section 2.06. Daily Yield.
-----------
(a) The Seller shall pay to the Purchaser, as set forth in Sections
6.03, 6.04 and 6.05, Daily Yield on the Capital Investment of the Purchaser from
time to time.
(b) Notwithstanding the foregoing, the Seller shall pay interest on
unpaid Daily Yield and on any other amount payable by the Seller hereunder (to
the extent permitted by law) that shall not be paid in full when due (whether at
stated maturity, by acceleration or otherwise) for the period commencing on the
due date thereof to (but excluding) the date the same is paid in full at the
applicable Daily Yield Rate.
Section 2.07. Fees.
----
(a) The Seller shall pay to the Purchaser the fees set forth in the
Fee Letter.
(b) On each Settlement Date, the Seller shall pay to the Servicer, the
Servicing Fee, or to the Successor Servicer, the Successor Servicing Fees and
Expenses.
Section 2.08. Time and Method of Payments. Subject to the provisions of
---------------------------
Sections 6.03, 6.04 and 6.05, all payments of principal, interest, fees and
other amounts payable by the Seller hereunder shall be made in dollars, in
immediately available funds, to the Purchaser not later than 3:00 p.m., New York
City time, on the date on which such payment shall become due. Any such payment
made on such date but after such time shall be deemed to have been made on, and
Daily Yield shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment becomes due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day and
such extension shall be included in computing Daily Yield in connection with
such payment. All payments hereunder
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shall be made without setoff or counterclaim and in such amounts as may be
necessary in order that all such payments shall not be less than the amounts
otherwise specified to be paid under this Agreement (after withholding for or on
account of any present or future taxes, levies, imposts, duties or other similar
charges of whatever nature imposed upon an Affected Party by any Governmental
Authority, other than any tax on or measured by the net income of the Affected
Party to which any such payment is due pursuant to applicable foreign, federal,
state and local income tax laws).
Section 2.09. Further Action Evidencing Purchases.
-----------------------------------
(a) The Seller agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or appropriate, in the reasonable opinion
of the Purchaser, or that the Purchaser or the Operating Agent may reasonably
request, in order to perfect, protect or more fully evidence the transfer of
ownership of Transferred Receivables or to enable the Purchaser to exercise or
enforce any of its rights hereunder or under any Purchase Assignment. Without
limiting the generality of the foregoing, the Seller will, upon the reasonable
request of the Purchaser, (i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate, or as the Purchaser
may request, (ii) mark, or cause the Servicer to mark, conspicuously each
invoice evidencing each Transferred Receivable with a legend, acceptable to the
Purchaser, evidencing that the Purchaser has purchased all right and title
thereto and interest therein as provided in the Transfer Agreement, (iii) send
notification to Obligors as to the transfer of Transferred Receivables, and (iv)
mark, or cause the Servicer to mark, its master data processing records
evidencing such Transferred Receivables with such legend.
(b) The Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Transferred Receivables and Collections
with respect thereto without the signature of the Seller where permitted by law.
A carbon, photographic or other reproduction of this Agreement or any notice or
financing statement covering the Transferred Receivables or any part thereof
shall be sufficient as a notice or financing statement where permitted by law.
The Purchaser will promptly send to the Seller after receipt of any
acknowledgment copies from the appropriate governmental agency any financing or
continuation statements thereto which it files without the signature of the
Seller except, in the case of filings of copies of this Agreement as financing
statements, the Purchaser will promptly send the Seller after receipt from the
appropriate governmental agency the filing or recordation information with
respect thereto.
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Section 2.10. Additional Costs; Capital Requirements.
--------------------------------------
(a) In the event that any existing or future law, regulation or
guideline, or interpretation thereof, by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
any Affected Party with any request or directive (whether or not having the
force of law) of any such authority shall impose, modify or deem applicable or
result in the application of, any capital maintenance, capital ratio or similar
requirement against commitments made by any Affected Party under this Agreement
or a Program Document, and the result of any event referred to above is to
impose upon any Affected Party or increase any capital requirement applicable as
a result of the making or maintenance of, such Affected Party's commitment
(which imposition of capital requirements may be determined by each Affected
Party's reasonable allocation of the aggregate of such capital increases or
impositions), then, upon demand made by the Operating Agent on behalf of such
Affected Party as promptly as practicable after it obtains knowledge that such
law, regulation, guideline, interpretation, request or directive exists and
determines to make such demand, the Seller shall immediately pay to the
Collateral Agent on behalf of such Affected Party from time to time as specified
by the Operating Agent, additional amounts which shall be sufficient to
compensate such Affected Party for the Seller's Share of such imposition of or
increase in capital requirements together with interest on each such amount from
the date demanded until payment in full thereof at the Daily Yield Rate. A
certificate setting forth in reasonable detail the amount necessary to
compensate such Affected Party as a result of an imposition of or increase in
capital requirements submitted by the Operating Agent to the Seller shall be
conclusive, absent manifest error, as to the amount thereof.
(b) In the event that any Regulatory Change shall: (i) change the
basis of taxation of any amounts payable to any Affected Party in respect of any
Purchases, Capital Investment, LOC Draws, Liquidity Loans or Transaction
Liquidity Loans (other than taxes imposed on the overall net income of such
Affected Party for any such Purchases, Capital Investment, LOC Draws, Liquidity
Loans or Transaction Liquidity Loans by the United States of America or the
jurisdiction in which such Affected Party has its principal office); (ii) impose
or modify any reserve, Federal Deposit Insurance Corporation premium or
assessment, special deposit or similar requirements relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of, such
Affected Party; or (iii) impose any other conditions affecting this Agreement in
respect of Purchases, Capital Investment, LOC Draws, Liquidity Loans, and
Transaction Liquidity Loans (or any of such extensions of credit, assets,
deposits or liabilities); and the result of any event referred to in clause (i),
(ii) or (iii) above shall be to increase such Affected Party's costs of making
or maintaining any Purchases, Capital Investment, LOC Draws, Liquidity Loans or
Transaction Liquidity Loans or its commitment under a Program Document, or to
reduce any amount receivable by such Affected Party hereunder in respect of any
of its Purchases, Capital Investment, LOC Draws and Liquidity Loans or its
commitment (such increases in costs and reductions in amounts receivable are
hereinafter referred to as "ADDITIONAL COSTS") then, upon demand made by the
Operating Agent on behalf of such Affected Party, as promptly as practicable
after it obtains knowledge that such
6
<PAGE>
a Regulatory Change exists and determines to make such demand, the Seller shall
pay to the Collateral Agent on behalf of such Affected Party, from time to time
as specified by the Operating Agent, additional commitment fees or other amounts
which shall be sufficient to compensate such Affected Party for the Seller's
Share of such increased cost or reduction in amounts receivable by such Affected
Party from the date of such change, together with interest on each such amount
from the date demanded until payment in full thereof at the Daily Base Yield
Rate.
(c) Determinations by any Affected Party for purposes of this Section
2.10 of the effect of any Regulatory Change on its costs of making or
maintaining Purchases, Capital Investment, LOC Draws, Liquidity Loans or
Transaction Liquidity Loans or on amounts receivable by it in respect of
Purchases, LOC Draws, Liquidity Loans, Transaction Liquidity Loans and of the
additional amounts required to compensate such Affected Party in respect of any
Additional Costs, shall be set forth in a written notice to the Seller in
reasonable detail and shall be conclusive, absent manifest error.
Section 2.11. Breakage Costs. The Seller shall pay to the Collateral
--------------
Agent for the account of the Purchaser, upon the request of the Purchaser, such
amount or amounts as shall compensate the Purchaser for any loss (excluding loss
of profit), cost or expense incurred by the Purchaser (as determined by the
Purchaser) as a result of any repayment of a Purchase (and interest thereon)
other than on the maturity date of the Commercial Paper funding such Purchase,
such compensation to include, without limitation, an amount equal to any loss or
expense suffered by the Purchaser during the period from the date of receipt of
such repayment to (but excluding) the maturity date of such Commercial Paper, if
the rate of interest obtainable by the Purchaser upon the redeployment of an
amount of funds equal to the amount of such repayment is less than the rate of
interest applicable to such Commercial Paper (such expense to be referred to as
"BREAKAGE COSTS"). The determination by the Purchaser of the amount of any such
loss or expense shall be set forth in a written notice to the Seller in
reasonable detail and shall be conclusive, absent manifest error.
Section 2.12. Purchase Excess. After completion of the disbursements
---------------
specified in Subsections 6.03(a), (b) and (c), the Operating Agent shall notify
the Seller of any remaining Purchase Excess, and the Seller shall deposit the
amount of such Purchase Excess remaining in the Collection Account by 11:30 a.m.
on the following Business Day.
ARTICLE
CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement. The
--------------------------------------------------
effectiveness of this Agreement is subject to the condition precedent that the
7
<PAGE>
Purchaser, the Operating Agent and the Collateral Agent shall each have
received on or before the Effective Date the following, in form and substance
satisfactory to the Operating Agent:
(a) An executed copy of the Transfer Agreement.
(b) A certificate from an officer of the Originator in the form of
Exhibit D (Solvency Certificate as to Seller).
(c) With respect to the Seller:
(i) the certificate or articles of incorporation of the Seller
certified, as of a date no more than ten (10) days prior to the Effective
Date, by the Secretary of State of its state of incorporation;
(ii) a good standing certificate, dated no more than ten (10)
days prior to the Effective Date, from the respective Secretary of State of
its state of incorporation and each state in which the Seller is required
to qualify, or represents that it is qualified, to do business;
(iii) a certificate of the Secretary or Assistant Secretary of
the Seller certifying as of the Effective Date: (A) the names and true
signatures of the officers authorized on its behalf to sign this Agreement,
(B) a copy of the Seller's by-laws, and (C) a copy of the resolutions of
the board of directors of the Seller approving this Agreement, the Related
Documents to which it is a party and the transactions contemplated hereby
and thereby; and
(iv) an Officer's Certificate in the form of Exhibit E (Bringdown
Certificate).
(d) With respect to the Servicer:
(i) the certificate or articles of incorporation of the Servicer
certified, as of a date no more than ten (10) days prior to the Effective
Date, by the Secretary of State of its state of incorporation;
(ii) a good standing certificate, dated no more than ten (10)
days prior to the Effective Date, from the respective Secretary of State of
its state of incorporation and each state in which the Servicer is required
to qualify, or represents that it is qualified, to do business;
(iii) a certificate of the Secretary or Assistant Secretary of
the Servicer certifying as of the Effective Date: (A) the names and true
signatures of the officers authorized on its behalf to sign this Agreement,
(B) a copy of the Servicer's by-laws, and (C) a copy of the resolutions of
the board of directors of the Servicer approving this Agreement, the
Related Documents to which it is a party and the transactions contemplated
thereby and hereby; and
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(iv) an Officer's Certificate in the form of Exhibit F
(Servicer's Certificate).
(e) Certified copies of requests for information or copies on form
UCC-11 (or a similar search report certified by a party acceptable to the
Operating Agent), dated a date no more than fourteen (14) days prior to the
Effective Date listing all effective financing statements and other similar
instruments and documents which name the Originator and the Seller (under their
present names and any previous names) as debtor, together with copies of such
financing statements none of which shall cover any Transferred Receivables
unless termination statements or statements of release are provided with respect
thereto pursuant to subsection (f) below.
(f) Executed termination statements (form UCC-3), if any, necessary to
release all security interests and other rights of any Person in Transferred
Receivables previously granted by the Originator including, without limitation,
all such releases specified by the Originator prior to the date hereof.
(g) Any necessary third party consents to the closing of the
transactions contemplated hereby.
(h) Executed financing statements (form UCC-1), in respect of
Transferred Receivables, (i) pursuant to the Transfer Agreement, naming each
Originator as the assignor and the Seller as the assignee, and (ii) pursuant to
Article VIII, naming the Seller as the debtor/seller, the Purchaser as secured
party/purchaser and the Collateral Agent as the assignee, or other, similar
instruments or documents, as may be necessary or, in the reasonable opinion of
the Operating Agent, desirable under the UCC of all appropriate jurisdictions or
any other applicable law (including the Assignment of Claims Act) to perfect the
Purchaser's and the Collateral Agent's interests in all Transferred Receivables
in which an interest may be assigned hereunder.
(i) Fully executed copies of each Lockbox Agreement (other than the
agreement with Harris Bank which shall be delivered no later than 30 days after
the Effective Date).
(j) The favorable opinion of counsel to the Seller and the Originator
as to corporate and security interest/perfection matters and such other matters
as the Operating Agent may require.
(k) The favorable opinion of counsel to the Seller and the Originator,
as to the true sale of the Transferred Receivables from each Originator to the
Seller, the nonconsolidation of the Seller's assets into the bankruptcy estate
of each Originator and such other matters as the Operating Agent may require.
(l) Payment of all fees due hereunder or under the Fee Letter.
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(m) (i) Consolidated balance sheets, statements of income and
statements of cash flow of the Parent and its Subsidiaries for each of the
years in the three year period ended December 31, 1994, audited by a
nationally recognized accounting firm (accompanied by consolidating
financial information and a satisfactory management letter, together with
management's response thereto); and
(ii) Unaudited consolidated and consolidating balance sheets and
statements of income and statements of cash flow of the Parent and its
Subsidiaries for the 6 month period ended June 30, 1995.
(n) Confirmation of the ratings of the Commercial Paper as A-1+ by
S&P and P-1 by Moody's.
(o) A copy of the Servicer's Credit and Collection Policies.
(p) An Investment Base Certificate as of August 31, 1995.
(q) All taxes (other than income taxes) including without limitation,
any stamp duty, imposed on any party hereto as a result of this transaction,
shall have been paid by the Originator.
(r) An Officer's Certificate certifying the approval by the Parent's
8.58% privately placed senior note holders in accordance with the applicable
note purchase agreement.
(s) Such other approvals, consents, opinions, documents and
instruments, as the Operating Agent may reasonably request.
Section 3.02. Conditions Precedent to All Purchases. Each Purchase
-------------------------------------
(including the initial Purchase) shall be subject to the further conditions
precedent as follows:
(a) On the related Purchase Date, the Seller shall have certified in
the related Investment Base Certificate that, except as specifically disclosed
in writing to the Purchaser, and specifically consented to by the Purchaser in
its sole discretion:
(i) the representations and warranties of the Seller, the
Originator and the Servicer set forth in Sections 4.01 and 4.02 are true
and correct in all material respects (except with respect to those already
so qualified which are true and correct in all respects) on and as of such
date, before and after giving effect to such Purchase and to the
application of the proceeds therefrom, as though made on and as of such
date;
(ii) no event has occurred, or would result from such Purchase or
from the application of the proceeds therefrom, which is continuing and
constitutes a Termination Event or would constitute a Termination Event but
for
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the requirement that notice be given or time elapse or both (other than a
Termination Event under Section 9.01(m) which has not been declared as a
Facility Termination Date and in respect of which Transaction Liquidity
Loans have been provided pursuant to the Transaction Liquidity Agreement);
(iii) the Seller is in compliance with each of its covenants set
forth herein; and
(iv) no event has occurred which constitutes an Event of Servicer
Termination or would constitute an Event of Servicer Termination but for
the requirement that notice be given or time elapse or both.
(b) The Facility Termination Date has not occurred.
(c) Before and after giving effect to such purchase and to the
application of proceeds therefrom, there exists no Purchase Excess.
(d) The Originator and Seller shall have taken such other action,
including delivery of approvals, consents, opinions, documents and instruments
to the Purchaser and the Operating Agent, as the Operating Agent may reasonably
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller. The
--------------------------------------------
Seller represents and warrants to the Purchaser, the Operating Agent and the
Collateral Agent as of the date hereof, as of the Effective Date and on each
subsequent Purchase Date as follows:
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business, and is in good standing, in each jurisdiction in which
the nature of its business requires it to be so qualified.
(b) The Seller has the power and authority to own, pledge, mortgage,
operate and convey all of its properties, to conduct its business as now or
proposed to be conducted and to execute and deliver this Agreement and the
Related Documents and to perform the transactions contemplated hereby and
thereby.
(c) The Seller is and has been a wholly-owned subsidiary of Merisel
Americas, Inc.
(d) The Seller is and has been operated in such a manner that the
separate corporate existence of the Seller and each Originator would not be
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disregarded in the event of a bankruptcy or insolvency of any Originator and in
such regard:
(i) the Seller is and has been a limited purpose corporation
whose activities are restricted in its certificate or articles of
incorporation;
(ii) except as provided in the Services Agreement, no Originator
nor any Affiliate of the Originator is nor has been involved in the day-to-
day management of the Seller;
(iii) except as provided in the Services Agreement, other than
the purchase and contribution of Receivables, the incurring and payment of
indebtedness and interest pursuant to the Subordinated Note, the payment of
dividends and the return of capital to the Originator, any lease or sub-
lease of office space or equipment, the payment of Servicing Fees to the
Servicer under this Agreement and the intercorporate transactions engaged
in pursuant to the CIESCO Agreement, the Seller engages or has engaged in
no intercorporate transactions with the Originator or any Affiliate of the
Originator;
(iv) the Seller maintains separate corporate records and books of
account from each Originator, holds regular corporate meetings and
otherwise observes corporate formalities and has a separate business office
from each Originator;
(v) the financial statements and books and records of the Seller
and each Originator prepared after the Effective Date reflect the separate
corporate existence of the Seller;
(vi) the Seller maintains its assets separately from the assets
of each Originator and any other Affiliate of each Originator (including
through the maintenance of separate bank accounts and except for any
Records to the extent necessary for the servicing of the Transferred
Receivables), the Seller's funds and assets, and records relating thereto,
have not been and are not commingled with those of the Originator or any
other Affiliate of the Originator and the separate creditors of the Seller
will be entitled to be satisfied out of the Seller's assets prior to any
value in the Seller becoming available to the Seller's equityholders;
(vii) except as provided in the Services Agreement, this
Agreement or the Related Documents, no Originator nor any Affiliate of the
Originator (excluding the Seller) (A) pays the Seller's expenses; (B)
guarantees the Seller's obligations, or (C) advances funds to the Seller
for the payment of expenses or otherwise;
(viii) all business correspondence of the Seller and other
communications are conducted in the Seller's own name, on its own
stationery and through a separately-listed telephone number;
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(ix) the Seller does not act as agent for the Originator or any
Affiliates of the Originator, but instead presents itself to the public as
a corporation separate from each Originator, independently engaged in the
business of purchasing and financing Receivables;
(x) the Seller maintains at least two independent directors each
of whom, at all times after the Effective Date, shall not be a shareholder,
director, officer, employee or associate of the Originator or any Affiliate
of the Originator (other than the Seller) as provided in its certificate or
articles of incorporation; and
(xi) the bylaws or Articles of Incorporation of the Seller
require it to maintain (A) correct and complete books and records of
account, and (B) minutes of the meetings and other proceedings of its
shareholders and board of directors.
(e) The Seller has not engaged, and does not presently engage, in any
activity other than the activities undertaken pursuant to this Agreement, the
Related Documents, the Services Agreement and the CIESCO Agreement, nor has the
Seller entered into any agreement other than this Agreement, the Related
Documents, the Services Agreement, the CIESCO Agreement and any agreement
necessary to undertake any activity pursuant to this Agreement, the Related
Documents or the CIESCO Agreement.
(f) The execution, delivery and performance by the Seller of this
Agreement, the Related Documents and the transactions contemplated hereby and
thereby (i) have been duly authorized by all necessary corporate or other action
on the part of the Seller, (ii) do not contravene or cause the Seller to be in
default under (A) the Seller's certificate or articles of incorporation or by-
laws, (B) any contractual restriction contained in any (or, in the case of the
Originator only, any material) indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other (or, in the case of the
Originator only, any material) agreement or instrument binding on or affecting
the Seller or its property or the Originator or its property, or (C) any law,
rule, regulation, order, license requirement, writ, judgment, award, injunction,
or decree applicable to, binding on or affecting the Seller or its property or
the Originator or its property, and (iii) do not result in or require the
creation of any Adverse Claim upon or with respect to any of the property of the
Seller or the Originator (other than in favor of the Purchaser and the
Collateral Agent as contemplated hereunder).
(g) This Agreement and the Related Documents have each been duly
executed and delivered by the Seller.
(h) No consent of, notice to, filing with or permits, qualifications
or other action by any Governmental Authority or any other party is required (i)
for the due execution, delivery and performance by the Seller of this Agreement
or any of the Related Documents, (ii) for the perfection of or the exercise by
each of the Purchaser,
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the Operating Agent or the Collateral Agent of any of its rights or remedies
hereunder or thereunder, (iii) for the grant by the Seller of the security
interests granted under Section 8.01 of this Agreement, (iv) for the perfection
of or the exercise by each of the Purchaser or the Collateral Agent of its
rights and remedies provided for in this Agreement, or (v) to ensure the
legality, validity, enforceability or admissibility into evidence of this
Agreement in any jurisdiction in which any of the Collateral is located, in each
case other than consents, notices, filings and other actions which have been
obtained or made and complete copies of which have been provided to the
Purchaser, the Operating Agent or the Collateral Agent and continuation
statements in respect of any such filings.
(i) No transaction contemplated by this Agreement requires compliance
with any bulk sales act or similar law.
(j) Each of this Agreement and each Related Document is the legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms. Each of the Seller Assigned Agreements to
which the Originator or the Seller is a party constitutes the legal, valid and
binding obligation of such Person, enforceable against such Person in accordance
with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors' rights generally and
general equitable principles, whether applied in a proceeding at law or in
equity.
(k) There is no pending or threatened, nor any reasonable basis for
any, action, suit or proceeding against or affecting the Seller, its officers or
directors, or the property of the Seller, in any court or tribunal, before any
arbitrator of any kind or before or by any Governmental Authority.
(l) No injunction, writ, restraining order or other order of any
nature adverse to the Seller or the conduct of its business or which is
inconsistent with the due consummation of the transactions contemplated by this
Agreement or the Related Documents has been issued by a Governmental Authority
nor been sought by any Person.
(m) The principal place of business and chief executive office of the
Seller, and the offices where the Seller keeps its Records and the original
copies of the Seller Assigned Agreements are located at the address of the
Seller for notices under Section 14.01 and as set forth on Schedule 5 and there
are currently no, and during the past four months (or such shorter time as the
Seller has been in existence) there have not been, any other locations where the
Seller is located (as that term is used in the UCC of the jurisdiction where
such principal place of business is located) or keeps Records.
(n) The Seller does not have and has never conducted business using
tradenames, fictitious names, assumed names or "doing business as" names and has
not changed its name during the last five years.
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(o) The Seller does not have any Subsidiaries.
(p) The Seller is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Agreement and the Related
Documents. The Seller has no Debts to any Person other than pursuant to this
Agreement, the Related Documents and the Services Agreement. The Seller, after
giving effect to the transactions contemplated by this Agreement and the Related
Documents, will have an adequate amount of capital to conduct its business in
the foreseeable future.
(q) For federal income tax, reporting and accounting purposes, the
Seller will treat the purchase or assignment of each Transferred Receivable
pursuant to the Transfer Agreement as a purchase or absolute assignment of each
Originator's full right, title and ownership interest in such Transferred
Receivable to the Seller (and those Receivables contributed to the Seller by the
Originator pursuant to the Transfer Agreement shall be accounted for as an
increase in the stated capital of the Seller) and the Seller has not in any
other manner accounted for or treated the transactions in Transferred
Receivables.
(r) The Seller has complied and will comply in all respects with all
applicable laws, rules, regulations, judgments, agreements, decrees and orders
with respect to its business and properties and all Collateral.
(s) The Seller has filed on a timely basis all tax returns (federal,
state and local) required to be filed, is not liable for taxes payable by any
other Person (other than Affiliates of the Seller with whom the Seller files a
consolidated tax return for which the Seller is liable on a consolidated basis)
and has paid or made adequate provisions for the payment of all taxes,
assessments and other governmental charges due from the Seller (other than
taxes, fees, amendments or governmental charges which the Seller is contesting
in good faith with such taxing authority and in respect of which no final
unappealable order has been made against the Seller). No tax lien or similar
Adverse Claim has been filed, and no claim is being asserted, with respect to
any such tax, assessment or other governmental charge. Any taxes, fees and other
governmental charges payable by the Originator in connection with the execution
and delivery of this Agreement and the Related Documents and the transactions
contemplated hereby or thereby have been paid or shall have been paid if and
when due at or prior to such Transfer Date.
(t) Each Investment Base Certificate and Request Notice is accurate in
all material respects and the Investment Base as of the Effective Date is not
materially different than the Investment Base as reported in the Investment Base
Certificate delivered pursuant to 3.01(p).
(u) Each Transferred Receivable is owned by the Seller free and clear
of any Adverse Claim and the Seller has the full right, corporate power and
lawful authority to assign, transfer and pledge the same and interests therein
and all substitutions therefor and additions thereto pursuant to Section 8.01,
and upon making
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each Purchase, the Purchaser will have acquired a perfected, first priority and
valid ownership interest in such Transferred Receivables, free and clear of any
Adverse Claim. No effective financing statement or other instrument similar in
effect covering all or any part of the Seller Collateral is on file in any
recording office, except such as may have been filed in favor of the Purchaser
as "Secured Party/Purchaser" and the Collateral Agent as "Assignee" pursuant to
Article VIII of this Agreement or, with respect to the Transferred Receivables,
in favor of the Seller pursuant to the Transfer Agreement unless termination
statements or statements of release are provided thereto with respect to Section
3.01(f).
(v) Each Transferred Receivable was purchased by or contributed to the
Seller on the relevant Transfer Date pursuant to the Transfer Agreement.
(w) Each purchase of Receivables under the Transfer Agreement will
constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of
the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition
of notes, drafts, acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the Investment Company Act of
1940, as amended.
(x) All information heretofore or hereafter furnished by or on behalf
of the Seller to the Collateral Agent, the Operating Agent or the Purchaser in
connection with this Agreement or any transaction contemplated hereby is and
will be true and complete in all material respects and does not and will not
omit to state a material fact necessary to make the statements contained therein
not misleading, provided that any projections, pro forma or preliminary
financial information furnished are based on good faith estimates and
assumptions believed by the Seller to be reasonable at the time made and the
Collateral Agent, the Operating Agent and the Purchaser each acknowledge that
such projections as to future events are not to be viewed as facts and that
actual results for such period may differ from the projected results.
(y) The Seller is in compliance with ERISA and has not incurred and
does not expect to incur any liabilities (except for premium payments arising in
the ordinary course of business) payable to the PBGC (or any successor thereto)
under ERISA.
(z) (i) The Seller is not a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporation restriction that could have, and no provision of
applicable law or governmental regulation is reasonably likely to have, a
material adverse effect on the condition (financial or otherwise), business,
operations or properties of the Seller, or could have such an effect on the
ability of the Seller to carry out its obligations under this Agreement and the
other Related Documents to which the Seller is a party, (ii) the Seller is not
in default under or with respect to any contract, agreement, lease or other
instrument to which the Seller is a party and which is material to the Seller's
condition (financial or otherwise), business, operations or properties, and the
Seller has not delivered or received any notice of default thereunder, and (iii)
each contract,
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agreement, lease or other instrument to which the Seller is a party is listed on
Schedule 7.
(aa) The Seller is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended. The making of the Purchases by the Purchaser, the application of the
proceeds and repayment thereof by the Seller and the consummation of the
transactions contemplated by this Agreement and the other Related Documents to
which the Seller is a party will not violate any provision of such Act or any
rule, regulation or order issued by the Securities and Exchange Commission
thereunder.
(bb) Except as provided in the Services Agreement, there is not now,
nor will there be at any time in the future, any agreement or understanding
between the Originator or any other Affiliate of the Originator and the Seller
(other than as expressly set forth herein) providing for the allocation or
sharing of obligations to make payments or otherwise in respect of any taxes,
fees, assessments or other governmental charges.
(cc) Each of the representations and warranties of the Seller
contained in the Related Documents (other than this Agreement) is true and
correct in all material respects and the Seller hereby makes each such
representation and warranty to, and for the benefit of, the Collateral Agent,
the Operating Agent and the Purchaser as if the same were set forth in full
herein.
Section 4.02. Representations and Warranties of the Servicer. The
----------------------------------------------
Servicer represents and warrants to the Purchaser, the Operating Agent and the
Collateral Agent as follows as of the date hereof:
(a) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business, and is in good standing, in every jurisdiction in
which the nature of its business requires it to be so qualified except where the
failure to be so qualified would not materially and adversely affect (1) the
performance of the Servicer of its obligations under this Agreement or any of
the Related Documents, (2) the validity or enforceability of this Agreement or
any of the Related Documents, (3) the Transferred Receivables, the Contracts or
the interests of MCF, Redwood or their assigns therein, or (4) the business,
operations, financial condition or prospects of the Servicer.
(b) The Servicer has the power and authority to execute and deliver
this Agreement and to perform the transactions contemplated hereby.
(c) The execution, delivery and performance by the Servicer of this
Agreement, each other Related Document to which it is a party and the
transactions contemplated hereby and thereby (i) have been duly authorized by
all necessary corporate or other action on the part of the Servicer, (ii) do not
contravene or cause the Servicer to be in default under (A) its charter or by-
laws, (B) any contractual
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restriction contained in any or, in the case of the Originator only, any
material indenture, loan or credit agreement, lease, mortgage, security
agreement, bond, note or other or, in the case of the Originator only, any
material agreement or instrument binding on or affecting it or its property, or
(C) any law, rule, regulation, order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and (iii) do not result in or
require the creation of any Adverse Claim upon or with respect to any of its
properties (other than in favor of the Seller, Redwood and the Collateral
Agent).
(d) This Agreement and each other Related Document to which it is a
party has been duly executed and delivered by the Servicer.
(e) No consent of, notice to, filing with or permits, qualifications
or other action by any Governmental Authority or any other party is required for
the due execution, delivery and performance by the Servicer of this Agreement,
any Related Document to which it is a party other than any consents, notices,
permits, qualifications, filings or other actions which have been obtained or
made and complete copies of which have been provided to the Purchaser, the
Operating Agent and the Collateral Agent.
(f) This Agreement and each other Related Document to which it is a
party is the legal, valid and binding obligation of the Servicer enforceable
against the Servicer in accordance with its terms subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the enforceability of creditors'
rights generally and general equitable principles, whether applied in a
proceeding at law or in equity.
(g) There is no pending or, to the knowledge of the Servicer,
threatened, nor any reasonable basis for any, action, suit, investigation or
proceeding of a material nature against or affecting the Servicer, its officers
or directors, or the property of the Servicer, in any court or tribunal, before
any arbitrator of any kind or before or by any Governmental Authority (i)
asserting the invalidity of this Agreement or any Related Document, or (ii)
seeking any determination or ruling that might materially and adversely affect
(A) the performance by the Servicer of its obligations under this Agreement or
other Related Document, or (B) the validity or enforceability of this Agreement
or any Related Document.
(h) No injunction, writ, restraining order or other order of any
material nature adverse to the Servicer or the conduct of its business or which
is inconsistent with the due consummation of the transactions contemplated by
this Agreement and the Related Documents has been issued by a Governmental
Authority or, to the knowledge of the Servicer, has been sought by any other
Person.
(i) The Servicer has filed all tax returns (federal, state and local)
required to be filed by it and has paid or has made adequate provision for the
payment of all taxes, fees, assessments and other governmental charges due from
the Servicer, no tax lien or other similar Adverse Claim has been filed, and no
claim has
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been filed, and no claim is being asserted, with respect to any such tax, fee,
assessment or other governmental charge (other than taxes, fees, amendments or
governmental charges which the Servicer is contesting in good faith with such
taxing authority and in respect of which no final unappealable order has been
made against the Servicer). Any taxes, fees and other governmental charges
payable by the Servicer in connection with the transactions contemplated by this
Agreement and the Related Documents and the execution and delivery of this
Agreement and the Related Documents have been paid or shall have been paid at or
prior to the Effective Date.
(j) The Servicer is not required to be registered as an "investment
company" under the Investment Company Act of 1940. The Servicer is not subject
to the information reporting requirements of the Securities Exchange Act of 1934
or the Securities Act of 1933.
(k) Each of the representations and warranties of the Servicer
contained in this Agreement and the Related Documents is true and correct in all
material respects and the Servicer hereby makes each such representation and
warranty contained in the Related Documents to, and for the benefit of, the
Purchaser, the Operating Agent and the Collateral Agent.
ARTICLE V
GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller. The Seller shall,
-----------------------------------
unless the Operating Agent shall otherwise consent in writing:
(a) perform each of its obligations under this Agreement and the
Related Documents and comply in all respects with all of its obligations under
this Agreement and the Related Documents and comply with all material
requirements of applicable law, rules, regulations and orders with respect to
this Agreement, the Related Documents, to its business and properties and all
Transferred Receivables, related Contracts and Collections with respect thereto;
(b) preserve and maintain its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation and shall conduct its
business in accordance with the terms of its certificate of incorporation and
bylaws;
(c) continue to operate its business in the manner set forth in
Sections 4.01(d) and (e);
(d) deposit all Collections it may receive in respect of Transferred
Receivables into the Collection Account within one Business Day of receipt;
(e) use the proceeds of the Purchases made hereunder solely for (i)
the purchase of Receivables from the Originator, (ii) payment of dividends to
its
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shareholder, (iii) repayments and interest under the Subordinated Note, and
(iv) payment of administrative fees or Servicing Fees or expenses to the
Originator or the Parent or routine administrative expenses pursuant to this
Agreement, the Related Documents or the Services Agreement;
(f) permit the Purchaser, the Operating Agent and the Collateral Agent
to make or cause to be made (and, after the occurrence of and during the
continuance of a Termination Event, at the Seller's expense) inspections and
audits of any books, records and papers of the Seller and the Servicer and to
make extracts therefrom and copies thereof, or to make inspections and
examinations of any properties and facilities of the Seller and the Servicer, on
reasonable notice, at all such reasonable times and as often as reasonably
required in order to assure that the Seller is and will be in compliance with
its obligations under this Agreement and the Related Documents;
(g) pay, perform and discharge all of its obligations and liabilities,
including, without limitation, all taxes, assessments and governmental charges
upon its income and properties when due, unless and to the extent only that such
obligations, liabilities, taxes, assessments and governmental charges shall be
contested in good faith and by appropriate proceedings and that, to the extent
required by GAAP, proper and adequate book reserves relating thereto are
established by the Seller and then only to the extent that a bond is filed in
cases where the filing of a bond is necessary to avoid the creation of an
Adverse Claim against any of its properties;
(h) upon request of the Purchaser, the Collateral Agent or the
Operating Agent, mark its Records to show the interests of the Purchaser and
Collateral Agent; and
(i) pay the Purchaser's reasonable attorney's disbursements,
reasonable travel and entertainment expenses and rating agency fees (provided
that (x) such travel and entertainment expenses shall only be payable to the
extent they are consistent with the Parent's travel and entertainment policy and
(y) the liability of the Originator with respect to rating agency fees incurred
prior to the Effective Date shall not exceed $40,000).
Section 5.02. Reporting Requirements of the Seller. The Seller shall
------------------------------------
furnish, or cause to be furnished, to the Purchaser, the Operating Agent, the
Collateral Agent and (in the case of Section 5.02(f) only) the Rating Agencies:
(a) weekly, as soon as available, and in any event, within three
Business Days after the end of each week, an Investment Base Certificate in the
form of Exhibit C;
(b) monthly, as soon as available, and in any event, within 20 days
after the end of each fiscal month, a Monthly Report in the form of Exhibit G;
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(c) as soon as available and in any event within 95 days after the end
of each fiscal year, a copy of the audited consolidated financial statements
(exclusive of the management letter) for such year for the Parent and its
consolidated Subsidiaries, certified, in a manner acceptable to the Operating
Agent and the Collateral Agent, by Deloitte & Touche or other nationally
recognized independent public accountants acceptable to the Operating Agent and
the Collateral Agent (followed, within 105 days after the end of each fiscal
year, by consolidating financial information and followed, within 10 days of
completion thereof, a satisfactory management letter, together with management's
response) and each other report or statement sent to shareholders or publicly
filed by the Parent, the Originator or the Seller;
(d) as soon as available and in any event within 20 days after the end
of each fiscal month of the Parent, gross sales, gross profits, capital
expenditure, selling, general and administrative expenses, and interest expense;
(e) as soon as available and in any event within 50 days after the end
of each of the first three quarters of each fiscal year of the Parent, a
consolidated balance sheet of the Parent and its consolidated Subsidiaries as of
the end of such quarter and including the prior comparable period, and
consolidated statements of income and retained earnings, and of cash flow, of
the Parent and its consolidated Subsidiaries for such quarter and for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, certified by the chief financial officer, chief accounting officer
or treasurer of the Parent identifying such documents as being the documents
described in this paragraph (d) and stating that the information set forth
therein fairly presents the financial condition of the Parent and its
consolidated Subsidiaries as of and for the periods then ended, subject to year-
end adjustments consisting only of normal, recurring accruals and confirming
that the Servicer is in compliance with all financial covenants in this
Agreement;
(f) as soon as possible and in any event within seven days after the
occurrence of a Termination Event or an Incipient Event, the statement of the
chief executive officer, chief financial officer or treasurer of the Seller
setting forth complete details of such Termination Event or Incipient Event and
the action which the Seller has taken, is taking and proposes to take with
respect thereto;
(g) as soon as available and in any event within 105 days after the
end of each fiscal year, a statement of the President of the Seller (upon which
statement the Operating Agent and the Collateral Agent may rely) to the effect
that such officer has reviewed an examination by the internal auditors of the
Parent (the scope of which examination shall be consistent with the standards
for similar examinations conducted by nationally recognized independent public
accountants) of the Weekly Reports delivered during the period covered by such
report (including the Investment Base Certificates attached thereto) and such
Records relating to the Transferred Receivables as such officer deems necessary
as a basis for the statement contemplated by this Section 5.02(g) and that, on
the basis of such review, such
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Weekly Reports have been prepared in compliance with this Agreement, except for
such exceptions as shall be set forth in such statement;
(h) promptly, from time to time, such other information, documents,
records or reports respecting the Transferred Receivables or the Contracts or
the condition or operations, financial or otherwise, of the Seller, or the
Originator or any of its Subsidiaries, as the Purchaser, the Operating Agent or
the Collateral Agent may reasonably request from time to time;
(i) on or before 105 days after the end of each fiscal year, (i) an
Officer's Certificate of the Seller, dated the date of such delivery, bringing
down to such date the matters set forth in the Officer's Certificate in the form
of Exhibit E, and (ii) an Officer's Certificate of the Servicer, dated the date
of such delivery, bringing down to such date the matters set forth in the
Officer's Certificate in the form of Exhibit F; and
(j) promptly, notification in writing of any litigation, legal
proceeding or dispute, whether or not in the ordinary course of business,
affecting the Seller, whether or not fully covered by insurance, and regardless
of the subject matter thereof.
Section 5.03. Negative Covenants of the Seller. The Seller shall not,
--------------------------------
without the written consent of the Purchaser, the Operating Agent and the
Collateral Agent:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to, or assign any right to receive income in respect of, (i) any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
any Lockbox Account, any Lockbox, the Collection Account, the Retention Account
or other account in which any Collections of any Transferred Receivable are
deposited, or (ii) except as permitted in the Seller's articles of
incorporation, any of the Seller's property;
(b) extend, amend, forgive, discharge, compromise, waive, cancel or
otherwise modify the terms of the Transfer Agreement, any Related Document, the
Credit and Collection Policies or of any Transferred Receivable, or amend,
modify or waive any term or condition of any Contract related thereto provided
that the foregoing shall not prohibit the Seller from authorizing the Servicer
to take such actions to the extent permitted hereunder, under the Transfer
Agreement or by the Credit and Collection Policy;
(c) make any change in its instructions to Obligors regarding payments
to be made to the Seller or payments to be deposited to the Lockbox Account or
any Lockbox other than (i) changes of a purely administrative nature which do
not alter any directions to Obligors regarding the method, timing or place of
payment, or (ii) changes to the method or timing of payments which are in
accordance with the Credit and Collections Policy;
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(d) amend its articles or certificate of incorporation, its by-laws or
this Agreement, the Transfer Agreement or the Services Agreement;
(e) merge with or into, consolidate with or into, convey, transfer,
lease or otherwise dispose of all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, or any capital stock or other ownership interest of, any Person
(whether in one transaction or in a series of transactions), or own any
Subsidiary;
(f) prepare any financial statements which shall account for the
transactions contemplated by the Transfer Agreement in any manner other than as
a true sale or absolute assignment of the Transferred Receivables to the Seller
from the Originator, or in any other respect account for or treat the
transactions contemplated hereby (including but not limited to, for accounting,
tax and reporting purposes) in any manner other than as a true sale or absolute
assignment of the Transferred Receivables to the Seller from the Originator;
(g) at any time (i) advance credit to any Person), or (ii) declare any
dividends, repurchase any stock, return any capital, or otherwise make any
distribution of cash or any other property, if after giving effect to such
distribution, there would be a Purchase Excess;
(h) create, incur, permit to exist or have outstanding any
indebtedness, except:
(i) indebtedness of the Seller to the Purchaser, any Affected
Party, any Indemnified Party, the Servicer, the Originator or any other
Person under the Transfer Agreement, this Agreement and the Subordinated
Note;
(ii) taxes, assessments and governmental charges; and
(iii) the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(i) issue any additional shares or any right or option to acquire any
shares, or any security convertible into any shares, of the capital stock of the
Seller;
(j) enter into, or be a party to, any transaction with any Person,
other than pursuant to this Agreement, the Transfer Agreement or the Services
Agreement; or
(k) make or suffer to exist any purchases of assets or investments in
any Person, including, without limitation, any shareholder, director, officer or
employee of the Seller or any of the Originator's other Subsidiaries, except (i)
Transferred Receivables, (ii) Permitted Investments, (iii) purchases and
investments in an aggregate amount no greater than $25,000 per annum, and (iv)
investments received in satisfaction of Defaulted Receivables in connection with
any insolvency proceedings
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related to the Obligor thereof or out-of-court restructuring related to the
Obligor thereof.
ARTICLE VI
COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts.
-------------------------
(a) The Lockbox Account.
-------------------
(i) The Seller has established with a Lockbox Bank each Lockbox
Account, into which the Servicer shall deposit from time to time all
monies, instruments and other property received by it as Proceeds of the
Transferred Receivables. The Seller agrees that prior to a Termination
Event the Operating Agent, and upon the occurrence and during the
continuation of a Termination Event the Collateral Agent, shall have
exclusive dominion and control of each Lockbox Account and all monies,
instruments and other property from time to time in each Lockbox Account.
The Seller will not make or cause to be made, or have any ability to make
or cause, any withdrawals from any Lockbox Account, except as provided in
Section 6.01(b)(ii).
(ii) The Seller and the Servicer have instructed all existing
Obligors of Transferred Receivables, and will instruct all future Obligors,
to make payments in respect of Transferred Receivables only (A) by check or
money order mailed to one or more lockboxes or post office boxes under the
control of the Operating Agent (each such box being a "LOCKBOX"), or (B) by
wire transfer or moneygram directly to a Lockbox Account, or (C) by direct
debits from such Obligor's account to the Lockbox Account. The Lockboxes
and Lockbox Accounts to which mail payments are made as of the date hereof
are listed on the attached Schedule 6. The Seller and the Servicer shall
endorse, to the extent necessary, all checks or other instruments received
in any Lockbox so that the same can be deposited in the Lockbox Account, in
the form so received (with all necessary endorsements), on the next
Business Day after the Business Day on which such check or other
instruments are received. In addition, the Seller and Servicer shall
deposit or cause to be deposited in the Lockbox Account all cash, checks,
money orders or other Proceeds of Collateral received other than in a
Lockbox or by wire payments, in the form so received (with all necessary
endorsements), not later than the close of business on the Business Day
following the date of such receipt, and until so deposited all such items
or other Proceeds shall be held in trust for the Collateral Agent. Neither
the Seller nor the Servicer shall deposit any moneys not required or
permitted under this Agreement or the Related Documents into the Lockboxes
or Lockbox Accounts.
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(iii) If a Lockbox Agreement terminates for any reason or any
Lockbox Bank fails to comply with its obligations under the related Lockbox
Agreement for any reason, then the Seller shall promptly notify all
Obligors to make all future wire payments to a new Lockbox Account with
another Lockbox Bank. The Seller shall not close the Lockbox Account unless
it shall have (1) received the prior written consent of the Operating Agent
and the Collateral Agent, (2) established a new account with the same
Lockbox Bank or with a new depositary institution reasonably satisfactory
to the Operating Agent and the Collateral Agent, (3) entered into an
agreement covering such new account with the Lockbox Bank or with such new
depositary institution substantially in the form of the Lockbox Agreement
or which is otherwise satisfactory in all respects to the Operating Agent
and the Collateral Agent (whereupon, for all purposes of this Agreement and
the Related Documents, such new account shall become the Lockbox Account,
such new agreement shall become the Lockbox Agreement and any new
depositary institution shall become the Lockbox Bank), and (4) taken all
such action as the Collateral Agent shall require to grant and perfect a
first priority security interest in such new Lockbox Account to the
Collateral Agent under Section 8.01 of this Agreement. Other than pursuant
to this Section 6.01(a), the Seller or Servicer shall not open any new
Lockbox or Lockbox Account without the consent of the Operating Agent, the
Collateral Agent and the Purchaser.
(b) Collection Account.
------------------
(i) The Purchaser has established and shall maintain a segregated
deposit account with the Depositary titled "Redwood Receivables
Corporation - Collection Account (Merisel Capital Funding, Inc.)" (the
"COLLECTION ACCOUNT"). The Seller agrees that the Operating Agent shall
have exclusive dominion and control of the Collection Account and all
monies, instruments and other property from time to time in the Collection
Account.
(ii) Pursuant to Section 6.02, the Seller shall instruct the
Lockbox Bank to transfer, and the Seller hereby grants each of the
Operating Agent and the Collateral Agent the authority to instruct each
Lockbox Bank to transfer, on each Business Day in same day funds, all
available funds deposited in the Lockbox Account before such Business Day
to the Collection Account. The Purchaser, the Operating Agent and the
Collateral Agent may deposit into the Collection Account from time to time
all monies, instruments and other property received by any of them as
Proceeds of the Transferred Receivables. On each Business Day before the
Facility Termination Date, so long as no Termination Event shall have
occurred and be continuing, the Operating Agent shall instruct and cause
the Depositary (which instruction may be in writing or by telephone
confirmed promptly thereafter in writing) to release funds on deposit in
the Collection Account in the order of priority set forth in Section 6.03.
On each Business Day on and after the Facility Termination Date and on each
Business Day during any period while a Termination Event has occurred and
is continuing, the Collateral Agent may and the Operating Agent
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shall apply all amounts when received in the Collection Account in the order of
priority set forth in Section 6.05.
(iii) If the Depositary wishes to resign as depositary of the
Collection Account for any reason or fails to carry out the instructions of
the Operating Agent or the Collateral Agent for any reason, then the
Purchaser or the Operating Agent shall promptly notify the Purchaser
Secured Parties. The Purchaser shall not close the Collection Account
unless it shall have (1) received the prior written consent of the
Operating Agent and the Collateral Agent, (2) established a new account
with the Depositary or with a new depositary institution reasonably
satisfactory to the Operating Agent and the Collateral Agent, (3) entered
into an agreement covering such new account with such new depositary
institution satisfactory in all respects to the Operating Agent and the
Collateral Agent (whereupon such new account shall become the Collection
Account for all purposes of this Agreement and the Related Documents), and
(4) taken all such action as the Collateral Agent shall require to grant
and perfect a first priority security interest in such new Collection
Account to the Collateral Agent under this Agreement.
(c) Retention Account. The Purchaser has established and shall
-----------------
maintain a segregated deposit account with the Depositary and controlled by the
Operating Agent titled "Redwood Receivables Corporation - Retention Account
(Merisel Capital Funding, Inc.)" (the "RETENTION ACCOUNT").
(d) Collateral Account. The Purchaser has established and shall
------------------
maintain a segregated deposit account with the Depositary and controlled by the
Operating Agent titled "Redwood Receivables Corporation - Collateral Account"
(the "COLLATERAL ACCOUNT").
Section 6.02. Funding of Collection Account.
-----------------------------
(a) As soon as practicable and in any event, no later then 10:00
a.m., on each Business Day:
(i) the Operating Agent shall transfer all Collections deposited
in any Lockbox Account prior to such Business Day to the Collection
Account;
(ii) the Purchaser shall, or shall cause the Collateral Agent to
deposit in the Collection Account the amount required, pursuant to Section
2.04(b)(i);
(iii) the Purchaser shall, or shall cause the Collateral Agent
to, deposit any Seller LOC Draws made on such Business Day to the
Collection Account;
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(iv) if, on the prior Business Day, the Operating Agent has
notified the Seller of any Purchase Excess, the Seller shall deposit cash
in the amount of such Purchase Excess in the Collection Account;
(v) if on such Business Day the Seller is required to make other
payments under this Agreement not previously retained out of Collections
(including Indemnified Amounts not previously paid), the Seller shall
deposit an amount equal to such payments in the Collection Account;
(vi) if, on the prior Business Day, the Originator made a capital
contribution of a Rejected Amount or repurchased a Transferred Receivable,
pursuant to the Transfer Agreement, the Seller shall deposit cash in the
amount received from the Originator for such contribution or repurchase in
the Collection Account; and
(vii) the Servicer shall deposit into the Collection Account the
Outstanding Balance of any Transferred Receivable it elects to pay pursuant
to Section 7.04.
(b) If, two Business Days prior to any Settlement Date, the Operating
Agent notifies the Seller of any Retention Account Deficiency pursuant to
Section 6.04(b), the Seller shall deposit cash in the amount of such deficiency
into the Collection Account no later than 1:00 p.m. on such Settlement Date.
(c) On and after the Facility Termination Date, the Operating Agent
shall transfer all amounts held in the Retention Account as of that date to the
Collection Account.
Section 6.03. Daily Disbursements From the Collection Account - Revolving
-----------------------------------------------------------
Period. On each Business Day, as soon as practicable and in any event no later
- ------
than 12:00 p.m., during the Revolving Period, following the transfers made in
accordance with Section 6.02, the Operating Agent shall disburse all amounts in
the Collection Account in the following priority:
(a) transfer all amounts in the Collection Account in the following
priority:
(i) to the Retention Account for the account of the Purchaser,
the amount of any Retention Account Deficiency deposited pursuant to
Section 6.02(b);
(ii) to the Deferred Purchase Price Sub-Account, all Deferred
Purchase Price Collections;
(iii) to the Capital Investment Sub-Account, the balance;
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(b) transfer all amounts in the Deferred Purchase Price Sub-Account,
in the following priority:
(i) to the Retention Account for the account of the Purchaser, an
amount equal to the sum of
(A) Daily Yield;
(B) the Yield Shortfall for the prior Business Day;
(C) the Servicing Fee;
(D) the Servicing Fee Shortfall for the prior Business Day;
(E) the Unused Commitment Fee; and
(F) the Unused Commitment Fee Shortfall for the prior
Business Day;
(ii) to the Capital Investment Sub-Account, an amount equal to
the Dilution Funded Amount;
(iii) if the Deferred Purchase Price Adjustment is less than
zero, to the Capital Investment Sub-Account an amount equal to the absolute
value of the Deferred Purchase Price Adjustment; and
(iv) to an account previously designated by the Seller, in
partial payment of the Deferred Purchase Price, the balance, if any; and
(c) transfer all amounts in the Capital Investment Sub-Account, in the
following priority:
(i) to the Retention Account for the account of the Purchaser,
the Yield Shortfall, the Servicing Fee Shortfall and the Unused Commitment
Fee Shortfall, if any, following the transfer made pursuant to Section
6.03(b)(i);
(ii) to the Collateral Account for the account of the Purchaser
(or in the case of Indemnified Amounts, for the account of the Indemnified
Party), amounts deposited into the Collection Account pursuant to Section
6.02(a)(v);
(iii) to the Collateral Account for the account of the Purchaser,
in reduction of its Capital Investment if, as disclosed in the most
recently submitted Investment Base Certificate, there is a Purchase Excess,
by transfer of such Purchase Excess;
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(iv) if, pursuant to a Seller Notice, the Seller has requested to
reduce the Capital Investment of the Purchaser, to the Collateral Account
for the account of the Seller, the lesser of (A) the amount of such
request, in reduction of Capital Investment and the (B) the balance;
(v) if the Deferred Purchase Price Adjustment is greater than
zero, to the Seller an amount equal to the Deferred Purchase Price
Adjustment, as partial payment of the Deferred Purchase Price;
(vi) the balance, to an account previously designated by the
Seller, as payment of the Cash Purchase Price for Purchases made on such
day.
Section 6.04. Disbursements From the Retention Account - Settlement Date
----------------------------------------------------------
Procedures - Revolving Period.
- -----------------------------
(a) As soon as practicable and in any event no later than 12:00 p.m.
on each Settlement Date during the Revolving Period, the amounts held in the
Retention Account shall be disbursed or retained by the Operating Agent in the
following priority:
(i) to the Collateral Account for the account of the Purchaser
(or, if applicable, any Indemnified Party), in an amount equal to:
(A) an amount equal to the accrued and unpaid Daily Yield
minus the Margin to the end of the preceding Settlement Period;
(B) an amount equal to the Letter of Credit Fee for the
Preceding Settlement Period;
(C) all Additional Amounts incurred and payable to any
Affected Party through the end of the preceding Settlement Period;
(D) all other amounts accrued and payable under this
Agreement (including Indemnified Amounts incurred and payable to any
Indemnified Party) through the end of the preceding Settlement Period
to the extent not already transferred pursuant to Section 6.03(c)(ii);
and
(E) if there is a Purchase Excess, an amount equal to such
excess, in reduction of Capital Investment;
(ii) to the Operating Agent, the accrued and unpaid Margin to the
end of the preceding Settlement Period for distribution to the applicable
parties;
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(iii) to the Servicer on behalf of the Seller, in an amount equal
to its accrued and unpaid Servicing Fee to the end of the preceding
Settlement Period;
(iv) retained in the Retention Account, the Accrued Monthly
Yield, Accrued Unused Commitment Fee and Accrued Servicing Fee as of that
date; and
(v) to the extent that the balance in the Retention Account
exceeds the amount to be retained or disbursed under Sections 6.04(a)(i)
through (iv), the excess to an account previously designated by the Seller.
(b) No later than two Business Days prior to each Settlement Date, the
Operating Agent shall determine and notify the Seller of any Retention Account
Deficiency for the preceding Settlement Period, and the Seller shall deposit
funds in the amount of such Retention Account Deficiency to the Collection
Account pursuant to Section 6.02(b).
Section 6.05. Liquidation Settlement Procedures. On each Business Day on
---------------------------------
and after the Facility Termination Date, the Collateral Agent shall:
(a) transfer all amounts in the Collection Account in the following
priority:
(i) to the Deferred Purchase Price Sub-Account, all Deferred
Purchase Price Collections; and
(ii) to the Capital Investment Sub-Account, the balance;
(b) transfer all amounts in the Deferred Purchase Price Sub-Account,
in the following priority:
(i) if an Event of Servicer Termination has occurred and a
Successor Servicer has been appointed, to the Successor Servicer in an
amount equal to its accrued and unpaid Successor Servicing Fees and
Expenses;
(ii) to the Collateral Account for the account of the Purchaser,
in an amount equal to, on any such Business Day on which Capital Investment
is being maintained through the issuance of Commercial Paper (to the extent
such Capital Investment exceeds Transaction Liquidity Loans then
outstanding), accrued and unpaid CP Interest through and including such
date;
(iii) if there are Transaction Liquidity Loans outstanding, to
the Transaction Liquidity Agent on behalf of the Transaction Liquidity
Providers, in an amount equal to accrued and unpaid interest on the
Transaction Liquidity Loans;
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(iv) to the Capital Investment Sub-Account:
(A) amount equal to the Dilution Funded Amount; and
(B) if there are Transaction Liquidity Loans then
outstanding or Capital Investment exceeds the Transaction Liquidity
Loans then outstanding, the balance, if any;
(v) to the Letter of Credit Agent, if there are any outstanding
LOC Draws in respect of the Seller, in an amount equal to accrued and
unpaid interest on such outstanding LOC Draws;
(vi) to the Collateral Account, an amount equal to (A) accrued
and unpaid Daily Yield minus (B) the sum of (1) amounts paid pursuant to
Section 6.05(b)(ii), (2) amounts paid pursuant to 6.05(b)(iii) and (3)
amounts paid under 6.05(b)(v);
(vii) if an Event of Servicer Termination has not occurred, to
the Servicer in an amount equal to its accrued and unpaid Servicing Fee;
(viii) upon payment in full of all amounts set forth in clauses
(c)(i)-(c)(v) below, to an account previously designated by the Seller, in
partial payment of the Deferred Purchase Price, the balance, if any; and
(c) transfer all amounts in the Capital Investment Sub-Account, in
the following priority:
(i) to the Collateral Account for the account of the Purchaser,
in an amount equal to,
(A) on any such Business Day on which Capital Investment is
being maintained through the issuance of Commercial Paper (to the
extent such Capital Investment exceeds Transaction Liquidity Loans
then outstanding), accrued and unpaid CP Interest through and
including such date, to the extent not paid pursuant to Sections
6.05(b)(ii) and 6.05(b)(vi); and
(B) on any such Business Day on which Capital Investment is
being maintained through the issuance of Commercial Paper (to the
extent such Capital Investment exceeds Transaction Liquidity Loans
then outstanding), the principal of all Capital Investment in excess
of such Transaction Liquidity Loans;
(ii) if there are Transaction Liquidity Loans outstanding, to the
Transaction Liquidity Agent on behalf of the Transaction Liquidity
Providers, in an amount equal to:
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(A) accrued and unpaid interest on the Transaction
Liquidity Loans to the extent not paid pursuant to Section
6.05(b)(iii);
(B) the principal of outstanding Transaction Liquidity
Loans; and
(C) any other amounts, including any fees, owing to the
Transaction Liquidity Agent or Transaction Liquidity Providers in
connection with the Transaction Liquidity Loans to the extent not paid
pursuant to Section 6.05(b)(iii);
(iii) to the Collateral Account for the account of the Purchaser,
in an amount equal to:
(A) all Additional Amounts incurred and payable to any
Affected Party; and
(B) all Indemnified Amounts incurred and payable to any
Indemnified Party;
(iv) to the Letter of Credit Agent, if there are any outstanding
LOC Draws in respect of the Seller, in an amount equal to:
(A) accrued and unpaid interest on such outstanding LOC
Draws;
(B) the principal of such outstanding LOC Draws; and
(C) including fees, owing to the Letter of Credit Agent in
connection with such outstanding LOC Draws; and
(v) if an Event of Servicer Termination has not occurred, to the
Servicer in an amount equal to its accrued and unpaid Servicing Fee; and
(vi) upon payment in full of all amounts set forth in clauses
(c)(i)-(c)(v) above, to an account previously designated by the Seller, the
balance, if any.
(d) after the Facility Termination Date, on each day by no later than
11:00 a.m. the Operating Agent shall transfer all amounts then on deposit in the
Retention Account to the Collateral Account;
Section 6.06. Investment of Accounts. During the Revolving Period, to the
----------------------
extent there are uninvested amounts deposited in the Collateral Account or the
Retention Account, the Operating Agent shall invest all such amounts in
Permitted Investments selected by the Operating Agent that mature no later than
the immediately succeeding Business Day, in the case of the Collateral Account,
and the
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immediately succeeding Settlement Date, in the case of the Retention Account. On
or after the Facility Termination Date, any investment of such amounts shall be
solely at the discretion of the Operating Agent, subject to the restrictions
described above.
Section 6.07. Termination Procedure.
---------------------
(a) On the earlier of (i) the first Business Day after the Facility
Termination Date on which the Capital Investment has been reduced to zero or
(ii) the Final Purchase Date, if the payments required to be made pursuant to
Sections 6.05(a), (b) and (c) have not been made in full, the Seller shall
immediately deposit into the Collection Account an amount sufficient to make
such payments in full.
(b) On the first Business Day after the Facility Termination Date on
which the payments required pursuant to Subsections 6.05(a), (b) and (c) have
been made in full, all amounts held in the Collection Account and the Retention
Account, if any, shall be disbursed in immediately available funds to the Seller
and all security interests of the Purchaser and the Collateral Agent in all
Transferred Receivables owned by the Seller or other Seller Collateral shall be
released by the Purchaser and the Collateral Agent. Such disbursement shall
constitute the final payment to which the Seller is entitled pursuant to the
terms of this Agreement.
ARTICLE VII
APPOINTMENT OF THE SERVICER
Section 7.01. Appointment of the Servicer. The Purchaser hereby appoints
---------------------------
the Servicer as its agent to service the Transferred Receivables and enforce its
rights and interests in and under each Transferred Receivable and each related
Contract and to serve in such capacity until the termination of its
responsibilities pursuant to Sections 9.02 or 11.01. The Servicer hereby agrees
to perform the duties and obligations with respect thereto set forth herein.
The Servicer may, with the prior consent of the Purchaser, the Operating Agent,
and the Collateral Agent subcontract with a Sub-Servicer for collection,
servicing or administration of the Transferred Receivables, provided, that (a)
--------
the Servicer shall remain liable for the performance of the duties and
obligations of the Sub-Servicer pursuant to the terms hereof, and (b) any Sub-
Servicing Agreement that may be entered into and any other transactions or
services relating to the Transferred Receivables involving a Sub-Servicer shall
be deemed to be between the Sub-Servicer and the Servicer alone and the
Purchaser, Operating Agent and the Collateral Agent shall not be deemed parties
thereto and shall have no obligations, duties or liabilities with respect to the
Sub-Servicer.
Section 7.02. Duties and Responsibilities of the Servicer.
-------------------------------------------
(a) The Servicer shall conduct the servicing, administration and
collection of the Transferred Receivables and shall take, or cause to be taken,
all such actions (i) as may be necessary or advisable to service, administer and
collect each
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Transferred Receivable from time to time; (ii) as the Servicer would take if the
Transferred Receivables were owned and serviced by the Servicer, and (iii) as
are consistent with industry practice for the servicing of such Transferred
Receivables.
(b) The Purchaser, the Operating Agent and the Collateral Agent shall
not have any obligation or liability with respect to any Transferred Receivables
or related Contracts, nor shall any of them be obligated to perform any of the
obligations of the Servicer hereunder.
Section 7.03. Collections on Receivables. In the event that the Servicer
--------------------------
is unable to determine the specific Receivables on which Collections have been
received from an Obligor, for the purposes of this Agreement only, the parties
agree that such Collections shall be deemed to have been received on the
Receivables in the order in which they were originated with respect to such
Obligor. In the event that the Servicer is unable to determine the specific
Receivables on which discounts, offsets or other non-cash reductions have been
granted or made with respect to an Obligor, the parties agree that such
reductions shall be deemed to have been granted or made (i) prior to a
Termination Event, in the reasonable discretion of the Servicer, and (ii) after
a Termination Event, in the reverse order in which they were originated with
respect to such Obligor.
Section 7.04. Authorization of the Servicer. Each of the Seller and the
-----------------------------
Purchaser hereby authorizes the Servicer (including any successor thereto) to
take any and all reasonable steps in its name and on its behalf necessary or
desirable and not inconsistent with the ownership of the Transferred Receivables
by the Purchaser and the pledge to the Collateral Agent, in the determination of
the Servicer, to collect all amounts due under any and all such Transferred
Receivables, including, without limitation, endorsing any of their names on
checks and other instruments representing Collections, executing and delivering
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to such
Transferred Receivables and, after the delinquency of any such Transferred
Receivable and to the extent permitted under and in compliance with applicable
law and regulations, to commence proceedings with respect to enforcing payment
of such Transferred Receivables and the related Contracts, and adjusting,
settling or compromising the account or payment thereof, to the same extent as
the Originator could have done if it had continued to own such Receivable. Each
Originator, the Seller and the Purchaser shall furnish the Servicer (and any
successors thereto) with any powers of attorney and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder, and shall cooperate with the Servicer to the fullest extent in
order to ensure the collectibility of the Transferred Receivables.
Notwithstanding anything to the contrary contained herein, the Purchaser, the
Collateral Agent and the Operating Agent shall have the absolute and unlimited
right to direct the Servicer (whether the Servicer is the Originator or
otherwise) to commence or settle any legal action to enforce collection of any
such Transferred Receivable or to foreclose upon, repossess or take any other
action which the Collateral Agent or the Operating Agent deems necessary or
advisable with respect
34
<PAGE>
thereto; provided, that the Servicer may, rather than commencing such action or
taking other enforcement action, at its option elect to pay the Purchaser the
Outstanding Balance of such Transferred Receivable. In no event shall the
Servicer be entitled to make the Purchaser, the Collateral Agent or the
Operating Agent a party to any litigation without such party's express prior
written consent, or to make the Seller a party to any litigation without the
Operating Agent's consent.
Section 7.05. Servicing Fees. As compensation for its servicing
--------------
activities and as reimbursement for its expenses in connection therewith, the
Servicer shall be entitled to receive the Servicing Fees in the manner set forth
in Sections 6.04 and 6.05, payable monthly in arrears on each Settlement Date
with respect to the preceding Settlement Period. The Servicer shall be required
to pay for all expenses incurred by the Servicer in connection with its
activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment therefor other than the
Servicing Fees.
Section 7.06. Covenants of the Servicer. The Servicer shall (unless
-------------------------
having previously received the prior written consent of the Operating Agent and
the Collateral Agent):
(a) not sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to (and any such purported disposition shall be null and void), any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
the Lockbox Account, the Lockboxes, the Collection Account, the Retention
Account or any other account to which any Collections of any Transferred
Receivable are deposited, or assign any right to receive income in respect
thereof;
(b) not extend, amend or otherwise modify the terms of any Transferred
Receivable (other than adjusting, settling or compromising the account or
payment of a Transferred Receivable pursuant to Section 7.04 and except for
deferments in the ordinary course of business which are consistent with the
Credit and Collection Policies), or amend, modify or waive any term or condition
of any Contract related thereto except in the case of any such contracts for any
amendments, modifications or waivers that (i) do not affect the payment terms
for any Transferred Receivable or (ii) do not adversely affect the quality or
collectability of any such Transferred Receivable;
(c) not make any changes in the nature of its business, purposes or
operations which could reasonably result in a material adverse effect on its
ability to perform its servicing obligations hereunder;
(d) not make any change in its instructions to Obligors to make
payments to the Lockboxes or Lockbox Accounts other than (i) changes of a purely
administrative nature which do not alter any directions to Obligors regarding
the method, timing or place of payment, or (ii) changes to the method or timing
of payments which are in accordance with the Credit and Collections Policy;
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(e) not merge with or into, consolidate with or into, or convey,
transfer, lease or otherwise dispose of all or substantially all of its assets
(whether now owned or hereafter acquired) to, or acquire all or substantially
all of the assets or capital stock or other ownership interest of, any Person
(whether in one transaction or in a series of transactions) except where such
action would not have a material adverse effect on the business of the Servicer
or the ability of the Servicer to perform its obligations under this Agreement
or any Related Document;
(f) not make any change to its corporate name or use any tradenames,
fictitious names, assumed names or "doing business as" names except those
disclosed on Schedule 1 to the Transfer Agreement and after at least thirty days
prior written notice to the Operating Agent, Collateral Agent and Redwood;
(g) identify the Transferred Receivables clearly and unambiguously in
its Servicing Records to reflect that such Transferred Receivables are owned by
the Seller;
(h) comply in all material respects with the Credit and Collection
Policies in regard to each Transferred Receivable and the related Contracts; and
(i) comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Transferred Receivables, related Contracts and Collections with respect thereto,
provided that the Servicer shall be deemed to have complied with any such
requirements for as long as the Servicer contests in good faith the application
of such requirement, a stay has been granted with respect to any penalty imposed
on the Servicer in respect of such requirement and no final unappealable order
in respect of such requirement has been made against the Servicer.
Section 7.07. Reporting. During the term of this Agreement, if Merisel
---------
Americas, Inc. or any Affiliate thereof is not the Servicer, the Servicer shall
furnish to the Collateral Agent, the Operating Agent and the Purchaser:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Servicer, a copy of the audited consolidated
financial statement of the Servicer and its consolidated Subsidiaries as of the
end of such year and the related consolidated statements of income and retained
earnings, and of cash flow, of the Servicer and its consolidated Subsidiaries
for such year, in each case reported on by Deloitte & Touche or other firm of
nationally recognized independent public accountants acceptable to the Operating
Agent (accompanied by consolidating financial information received by such
accounting firm and a satisfactory management letter) and each other report or
statement sent to shareholders or publicly filed by the Servicer;
(b) on or before the 45th day after each quarter, an Officer's
Certificate stating, as to each signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar quarter and of its
performance under this
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Agreement has been made under such officer's supervision, (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such quarter, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof, (iii) the
Servicer has complied with the covenants set forth in Section 7.06 and Exhibit
H, and (iv) the representations and warranties of the Servicer in Section 4.02
are true and correct as if made on the date of such Officer's Certificate;
(c) written notification of the occurrence of a Termination Event
(including, without limitation, a material adverse change in the financial
condition of the Originator) or an Incipient Event;
(d) written notification of any action, suit, proceeding, dispute,
offset deduction, defense or counterclaim that is or may be asserted by an
Obligor with respect to any Transferred Receivable; and
(e) such other periodic, special or other reports or information as
the Purchaser, the Operating Agent or the Collateral Agent may require.
Section 7.08. Annual Statement as to Compliance. If Merisel Americas,
---------------------------------
Inc. or any Affiliate thereof is not the Servicer, the Servicer shall deliver to
the Collateral Agent, the Operating Agent and the Purchaser on or before 90 days
after the end of each fiscal year, an Officer's Certificate stating, as to each
signer thereof, that (a) a review of the activities of the Servicer during the
preceding calendar year and of its performance under this Agreement has been
made under such officer's supervision, (b) to the best of such officer's
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof, (c) the Servicer has complied with
the covenants set forth in Section 7.06 and Exhibit H, and (d) the
representations and warranties of the Servicer in Section 4.02 are true and
correct as if made on the date of such Officer's Certificate.
Section 7.09. Annual Independent Public Accountants' Servicing and
----------------------------------------------------
Compliance Report. If Merisel Americas, Inc. or any Affiliate thereof is not
- -----------------
the Servicer, the Servicer shall deliver to the Collateral Agent, the Operating
Agent and the Purchaser as soon as available and in any event within 90 days
after the end of each fiscal year, a report from Deloitte & Touche or other firm
of nationally recognized independent public accountants acceptable to the
Operating Agent (upon which report the Operating Agent and the Collateral Agent
may rely) to the effect that such firm:
(a) certifies that the Servicer is in compliance in all material
respects with its covenants and conditions as set forth herein (including those
covenants set forth on Exhibit H); and
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(b) such firm has examined the Weekly Reports delivered during the
period covered by such report (including the Investment Base Certificates
attached thereto) and such Records relating to the Transferred Receivables as
such firm deems necessary as a basis for the report contemplated by this Section
7.09(b) and that, on the basis of such examination, such Weekly Reports have
been prepared in compliance with this Agreement, except for such exceptions as
shall be set forth in such statement.
ARTICLE VIII
GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest. It is the intention of
-----------------------------------
the parties hereto that each payment by the Purchaser to the Seller with respect
to Transferred Receivables to be made hereunder shall constitute a purchase and
sale of such Transferred Receivables and not a loan. If, however, a court of
competent jurisdiction holds that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under applicable law. In
such regard and, in any event, as security for the prompt payment or performance
in full when due, whether at stated maturity, by acceleration or otherwise, of
all Seller Secured Obligations, the Seller hereby assigns and pledges to the
Purchaser, and grants to the Purchaser a security interest in and lien upon, all
of the Seller's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Seller now has or hereafter
acquires an interest and wherever the same may be located (collectively, the
"SELLER COLLATERAL"):
(a) all Transferred Receivables, Contracts and Collections;
(b) the Transfer Agreement, all Lockbox Agreements and all other
Related Documents now or hereafter in effect relating to the purchase, servicing
or processing of such Transferred Receivables (the "SELLER ASSIGNED
AGREEMENTS"), including (i) all rights of the Seller to receive moneys due and
to become due under or pursuant to the Seller Assigned Agreements, (ii) all
rights of the Seller to receive proceeds of any insurance, indemnity, warranty
or guaranty with respect to the Seller Assigned Agreements, (iii) claims of the
Seller for damages arising out of or for breach of or default under the Seller
Assigned Agreements, and (iv) the right of the Seller to amend, waive or
terminate the Seller Assigned Agreements, to perform under the Seller Assigned
Agreements and to compel performance and otherwise exercise all remedies under
the Seller Assigned Agreements;
(c) all of the following (the "SELLER ACCOUNT COLLATERAL"):
(i) the Lockbox Account, the Lockboxes and all funds held in the
Lockbox Account and the Lockboxes and all certificates and instruments, if
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any, from time to time representing or evidencing the Lockbox Account, the
Lockboxes or such funds,
(ii) the Collection Account and the Retention Account, all funds
held in the Collection Account and the Retention Account, and all
certificates and instruments, if any, from time to time representing or
evidencing the Collection Account, the Retention Account or such funds,
(iii) all Investments from time to time of amounts in the
Collection Account and the Retention Account, and all certificates and
instruments, if any, from time to time representing or evidencing such
Investments,
(iv) all notes, certificates of deposit and other instruments
related to the Receivables or the Related Documents from time to time
delivered to or otherwise possessed by the Purchaser or any assignee or
agent on behalf of the Purchaser in substitution for or in addition to any
of the then existing Seller Account Collateral, and
(v) all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any and all of the then existing Seller Account
Collateral;
(d) all additional property related to the Receivables and the Related
Documents that may from time to time hereafter be granted and pledged by the
Seller or by anyone on its behalf under this Agreement, including the deposit
with the Purchaser, the Operating Agent or the Collateral Agent of additional
moneys by the Seller; and
(e) all Proceeds, accessions, substitutions, rents and profits of any
and all of the foregoing Seller Collateral (including Proceeds that constitute
property of the types described in Sections 8.01(a) through (d) above) and, to
the extent not otherwise included, all payments under insurance (whether or not
the Purchaser or any assignee or agent on behalf of the Purchaser is the loss
payee thereof) or any indemnity, warranty or guaranty payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Seller
Collateral.
Section 8.02. Seller's Certification. The Seller hereby certifies that (a)
----------------------
the benefits of the representations and warranties of each Originator made under
the Transfer Agreement have been assigned to the Purchaser and the Collateral
Agent; (b) the rights of the Seller under the Transfer Agreement to require a
capital contribution or payment of a Rejected Amount from an Originator may be
enforced by the Purchaser and the Collateral Agent; and (c) the Transfer
Agreement provides that the representations, warranties and covenants described
in Sections 4.01 and 4.02 shall survive the sale of the Transferred Receivables
and the termination of the Transfer Agreement and this Agreement.
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Section 8.03. Consent to Assignment. Each of the Seller, each Originator
---------------------
and the Servicer acknowledges and consents to the security interest over the
Seller Collateral created pursuant to the Collateral Agent Agreement and
acknowledges the rights of the Collateral Agent and the covenants given by the
Purchaser in favor of the Collateral Agent set forth in the Collateral Agent
Agreement, and further acknowledges and consents that the Collateral Agent shall
be entitled to enforce the provisions of the Seller Assigned Agreements to which
the Seller, the Originator or the Servicer is a party and shall be entitled to
all the rights and remedies of the Purchaser thereunder. In addition, each of
the Seller, each Originator and the Servicer hereby authorizes the Collateral
Agent to rely on the representations and warranties of the Seller, each
Originator or the Servicer, respectively, contained in the Seller Assigned
Agreements to which the Seller, the Originator or the Servicer is a party and in
any other certificates and documents furnished by the Seller, the Originator or
the Servicer to any party in connection therewith.
Section 8.04. Delivery of Collateral. All certificates or instruments
----------------------
representing or evidencing Collateral shall be delivered to and held by or on
behalf of the Collateral Agent pursuant to the Collateral Agent Agreement and
shall be in suitable form for transfer by delivery or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent, and to the extent not
constituting an assignment shall be irrevocable powers of attorney coupled with
an interest. The Collateral Agent shall have the right, at any time in its
discretion following the occurrence of and during the continuation of a
Termination Event and without prior notice to the Seller or the Purchaser, to
transfer to or to register in the name of the Collateral Agent or any of its
nominees any or all of the Collateral. In addition, the Collateral Agent shall
have the right at any time to exchange certificates or instruments representing
or evidencing Collateral for certificates or instruments of smaller or larger
denominations.
Section 8.05. Seller Remains Liable. Notwithstanding anything in this
---------------------
Agreement, (a) each of the Seller and each Originator shall remain liable under
the Transferred Receivables, Contracts, Seller Assigned Agreements and other
agreements included in the Collateral to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Purchaser or the Collateral Agent of any of
its rights under this Agreement or the Collateral Agent Agreement shall not
release the Seller or the Servicer from any of their respective duties or
obligations under the Transferred Receivables, Contracts, Seller Assigned
Agreements or other agreements included in the Collateral, (c) the Purchaser,
the Collateral Agent and the Purchaser Secured Parties shall not have any
obligation or liability under the Transferred Receivables, Contracts, Seller
Assigned Agreements or other agreements included in the Collateral by reason of
this Agreement or the Collateral Agent Agreement, and (d) neither the
Collateral Agent nor any of the other Secured Parties shall be obligated to
perform any of the obligations or duties of the Seller or the Servicer under the
Transferred Receivables, Contracts, Seller Assigned Agreements or other
agreements included in the Collateral or to take any action to collect or
enforce any claim for payment assigned under this Agreement or the Collateral
Agent Agreement.
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Section 8.06. Covenants of the Seller and Servicer Regarding the
--------------------------------------------------
Collateral.
- ----------
(a) Offices and Records. The Seller shall keep its chief place of
-------------------
business and chief executive offices and the office where it keeps its Records
at the respective locations specified in Schedule 5 or, upon at least 30 days
prior written notice to the Collateral Agent, at such other location in a
jurisdiction where all action required by Section 8.06(f) shall have been taken
with respect to the Collateral. The Seller and the Servicer shall, for not less
than three years or for such longer period as may be required by law, from the
date on which any Transferred Receivable arose, maintain adequate Records with
respect to each Transferred Receivable, including records of all payments
received, credits granted and merchandise returned. Upon prior notice to the
Seller and the Servicer, except after the occurrence of any Termination Event,
the Seller and the Servicer will permit representatives of the Operating Agent
and the Collateral Agent at any time and from time to time during normal
business hours, and at such times outside of normal business hours as the
Operating Agent and the Collateral Agent shall reasonably request, (i) to
inspect and make copies of and abstracts from such records, and (ii) to visit
the properties of the Seller or the Servicer utilized in connection with the
collection, processing or servicing of the Transferred Receivables for the
purpose of examining such Records, and to discuss matters relating to the
Receivables or the Seller's or Servicer's performance under this Agreement with
any officer or employee of the Seller or Servicer having knowledge of such
matters. In connection therewith, the Operating Agent or the Collateral Agent
may institute procedures to permit it to confirm the Obligor balances in respect
of any Transferred Receivables. Each of the Seller and the Servicer agrees to
render to the Operating Agent and the Collateral Agent such clerical and other
assistance as may be requested with regard to the foregoing. If a Termination
Event shall have occurred and be continuing, promptly upon request therefor, the
Seller or the Servicer shall deliver to the Collateral Agent records reflecting
activity through the close of business on the immediately preceding Business
Day.
(b) Collection of Transferred Receivables. Except as otherwise
-------------------------------------
provided in this Section 8.06(b), the Seller shall continue to collect or cause
to be collected, at its own expense, all amounts due or to become due to the
Seller under the Transferred Receivables, the Seller Assigned Agreements and any
other Seller Collateral. In connection with such collections, the Seller may
take (and at the Collateral Agent's direction after a Termination Event has
occurred and is continuing, shall take) such action as the Seller or the
Collateral Agent may deem necessary or advisable to enforce collection of the
Transferred Receivables and the Seller Assigned Agreements; provided, however,
that the Collateral Agent may, at any time that a Termination Event has occurred
and is continuing, notify any Obligor with respect to any Transferred
Receivables or obligors under the Seller Assigned Agreements of the assignment
of such Transferred Receivables or Seller Assigned Agreements, as the case may
be, to the Collateral Agent and direct that payments of all amounts due or to
become due to the Seller thereunder be made directly to the Collateral Agent or
any servicer, collection agent or lockbox or other account designated by the
Collateral Agent and, upon such notification and at the expense of the Seller,
the Collateral Agent may enforce collection of any such Transferred Receivables
or the Seller
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Assigned Agreements and adjust, settle or compromise the amount or payment
thereof, provided that the Seller may, rather than commencing such action or
taking other enforcement action, at its option, elect to cause such Transferred
Receivable to be subject to options (i) to (iii) of Section 4.04 of the Transfer
Agreement.
(c) Maintain Records of Transferred Receivables. The Seller and the
-------------------------------------------
Servicer shall, at their own cost and expense, maintain satisfactory and
complete records of the Collateral, including a record of all payments received
and all credits granted with respect to the Collateral and all other dealings
with the Collateral. Each of the Seller and the Servicer will mark
conspicuously with a legend, in form and substance satisfactory to the
Collateral Agent, its aged receivables report, to evidence this Agreement and
the assignment and security interest granted by this Article VIII. Upon the
occurrence and during the continuation of a Termination Event, the Seller and
Servicer shall (i) deliver and turn over to the Collateral Agent or to its
representatives, or at the option of the Collateral Agent shall provide the
Collateral Agent or its representatives with access to, after the occurrence of
a Termination Event, at any time, and during all other times, during ordinary
business hours, on demand of the Collateral Agent, all of the Seller's and
Servicer's facilities, personnel, books and records pertaining to the
Collateral, including all Records, and (ii) allow the Collateral Agent to occupy
the premises of the Seller and the Servicer where such books, records and
Records are maintained, and utilize such premises, the equipment thereon and any
personnel of the Seller or the Servicer that the Collateral Agent may wish to
employ to administer, service and collect the Transferred Receivables.
(d) Performance of Seller Assigned Agreements. The Seller or the
-----------------------------------------
Servicer, as applicable, shall (i) perform and observe all the terms and
provisions of the Seller Assigned Agreements to be performed or observed by it,
maintain the Seller Assigned Agreements in full force and effect, enforce the
Seller Assigned Agreements in accordance with their terms and take all such
action to such end as may be from time to time reasonably requested by the
Collateral Agent, and (ii) upon request of the Operating Agent or the Collateral
Agent, make to any other party to the Seller Assigned Agreements such demands
and requests for information and reports or for action as the Seller is entitled
to make under the Seller Assigned Agreements.
(e) Notice of Adverse Claim. Each of the Seller and the Servicer
-----------------------
shall advise the Purchaser, the Operating Agent and the Collateral Agent
promptly, in reasonable detail, (i) of any Adverse Claim known to it made or
asserted against any of the Seller Collateral, (ii) of the occurrence of any
event which would have a material adverse effect on the aggregate value of the
Seller Collateral or on the assignments and security interests granted by the
Seller in this Agreement and (iii) of the occurrence of any event described in
Section 4.02(h)(iii), (iv) or (v) of the Transfer Agreement with respect to any
Obligor with an Outstanding Balance of Transferred Receivables of $1 million or
more at any one time.
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(f) Further Assurances; Financing Statements.
----------------------------------------
(i) Each of the Seller and the Servicer severally agrees that at
any time and from time to time, at its expense, it shall promptly execute
and deliver all further instruments and documents, and take all further
action, that may be necessary or reasonably desirable or that the
Purchaser, the Operating Agent or the Collateral Agent may reasonably
request to perfect and protect the assignments and security interests
granted or purported to be granted by this Article VIII or to enable the
Purchaser, the Operating Agent or the Collateral Agent to exercise and
enforce its rights and remedies under this Agreement and the Collateral
Agent Agreement with respect to any Collateral. Without limiting the
generality of the foregoing, the Seller shall execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices as may be necessary or, in the reasonable opinion of
the Purchaser, the Operating Agent or the Collateral Agent, desirable or
that the Purchaser, the Operating Agent or the Collateral Agent may
reasonably request to protect and preserve the assignments and security
interests granted by this Agreement and the Collateral Agent Agreement.
(ii) The Seller and the Purchaser hereby severally authorize the
Collateral Agent to file one or more financing or continuation statements,
and amendments thereto, relating to all or any part of the Collateral
without the signature of the Seller or the Purchaser where permitted by
law. A carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. The Collateral
Agent will promptly send to the Seller any financing or continuation
statements thereto which it files without the signature of the Seller and
will promptly send to the Purchaser any financing or continuation
statements thereto which it files without the signature of the Purchaser
except, in the case of filings of copies of this Agreement as financing
statements, the Collateral Agent will promptly send the Seller or the
Purchaser, as the case may be, the filing or recordation information with
respect thereto.
(iii) Each of the Seller and the Servicer shall furnish to the
Collateral Agent from time to time such statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
ARTICLE IX
TERMINATION EVENTS
Section 9.01. Termination Events. If any of the following events (each, a
------------------
"TERMINATION EVENT") shall occur and be continuing:
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(a) (i) the Seller shall default in the payment of any amount owed by
it hereunder and such failure shall remain unremedied for one Business Day, (ii)
the Seller shall fail to perform or observe any covenant in Sections 5.03(a),
(b), (c), (e), (g), (h) or (k), or (iii) the Seller shall fail to perform or
observe any other term, covenant or agreement contained in this Agreement or the
Related Documents and such failure shall remain unremedied for ten days, in each
case after written notice thereof shall have been given by the Operating Agent
or the Collateral Agent to the Seller; or
(b) (i) a payment default has occurred and is continuing under any
instrument or agreement to which GE Capital or any of its Affiliates is a party,
evidencing, securing or providing for the issuance of Debt of the Originator or
the Seller, or (ii) a party has accelerated any payment of Debt under any
instrument or agreement evidencing, securing or providing for the issuance of
Debt of the Originator or the Seller in an amount exceeding $1,000,000; or
(c) the Originator or the Seller shall generally not pay any of its
respective Debts as such Debts become due, or shall admit in writing its
inability to pay its Debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against the
Originator or the Seller seeking to adjudicate it bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or any of its Debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur, or the Originator or the Seller
shall take any corporate action to authorize any of the actions set forth in
this subsection; or
(d) judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $1,000,000 in the aggregate against the Originator
or any Affiliate of the Originator shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days or more; or
(e) a judgment or order for the payment of money is rendered against
the Seller; or
(f) there is a material breach of any of the representations and
warranties of the Seller set forth in Section 4.01; or
(g) any Governmental Authority (including the Internal Revenue Service
or the PBGC) shall file notice of a lien in an aggregate amount greater than
$1,000,000 with regard to any assets of the Originator (other than a lien (i)
limited by its terms to assets other than Receivables and (ii) not materially
adversely affecting
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the financial condition of such Originator or the Originator's ability to
perform as Servicer hereunder); or
(h) any Governmental Authority (including the Internal Revenue Service
or the PBGC) shall file notice of a lien with regard to any of the assets of the
Seller; or
(i) the Operating Agent or the Collateral Agent has determined that
any event which materially adversely affects the collectibility of the
Receivables has occurred, or that any other event which materially adversely
affects the financial condition of the Seller, the ability of the Originator or
the Seller to collect Receivables or the ability of the Seller to perform
hereunder has occurred; or
(j) there shall occur a failure of the Originator to make any payment,
repurchase any Transferred Receivables or substitute any Transferred Receivables
with Eligible Receivables as required under Section 4.04 of the Transfer
Agreement for one Business Day, or if the Transfer Agreement shall for any
reason cease to evidence the transfer to the Seller (or its assignees or
transferees) of the legal and equitable title to, and ownership of, the
Transferred Receivables; or
(k) any Lockbox Agreement or the Transfer Agreement have been amended
or terminated without the written consent of the Purchaser, the Operating Agent
and the Collateral Agent; or
(l) an Event of Servicer Termination has occurred; or
(m) the Operating Agent has determined that the funding of Receivables
hereunder is impracticable due to a drop in or withdrawal of any of the ratings
assigned to the Purchaser's Commercial Paper, the imposition of Additional
Amounts, restrictions on the amount of Transferred Receivables it may finance or
the inability of the Purchaser to issue Commercial Paper; or
(n) the Purchaser and the Collateral Agent cease to hold a first
priority, perfected ownership interest in the Transferred Receivables; or
(o) a Seller LOC Draw has occurred; or
(p) the obligations of the Transaction Liquidity Providers to make
Transaction Liquidity Loans, the proceeds of which may be used by the Purchaser
to make Purchases to the Seller, have terminated; or
(q) a breach of the covenants in Exhibit H has occurred; or
(r) a breach of a provision of the Transfer Agreement has occurred
that is not remedied within 1 Business Day in accordance with Section 4.04
thereof;
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(s) an Event of Default under the Collateral Agent Agreement has
occurred; or
(t) the short term debt rating of a Transaction Liquidity Provider has
been downgraded by a Rating Agency and such Transaction Liquidity Provider has
not been replaced in accordance with the Transaction Liquidity Agreement within
30 days; or
(u) the Purchase Discount Rate shall be less than 50% for two
consecutive Settlement Periods;
then and in any such event, the Operating Agent shall, at the request, or may
with the consent, of the Purchaser or the Collateral Agent, by notice to the
Seller declare the Facility Termination Date to have occurred, whereupon the
Facility Termination Date shall forthwith occur, without demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Seller; provided, that in the event that any of the Termination Events described
--------
in subsections (b)(i), (c), (o), (p), (s) or (t) have occurred or the
Termination Event described in subsection (a)(i) has occurred and remained
unremedied for four days, the Facility Termination Date shall automatically
occur, without demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Seller. The Operating Agent shall (i) give notice
to the Servicer of any downgrade of a Transaction Liquidity Provider pursuant to
subsection (t), and (ii) give notice as soon as practicable, but no later than
the later of (x) 60 days' before the date of termination or (y) promptly after
receipt of notice by the Transaction Liquidity Provider of termination of the
obligations of the Transaction Liquidity Provider to make Transaction Liquidity
Loans, the proceeds of which may be used by the Purchaser to make Purchases to
the Seller shall have terminated, notify the Seller and Servicer, provided that
the failure to give notice pursuant to (i) and (ii) above shall not affect the
operation of this Section 9.01.
Section 9.02. Events of Servicer Termination. If any of the following
------------------------------
events (each, an "EVENT OF SERVICER TERMINATION") shall occur and be continuing:
(a) the Servicer shall fail to perform or observe any term, covenant
or agreement contained in this Agreement and such failure shall remain
unremedied for ten days after written notice thereof shall have been given by
the Purchaser, the Collateral Agent or the Operating Agent to the Servicer; or
(b) (i) a default has occurred and is continuing under any instrument
or agreement to which GE Capital or any of its Affiliates is a party,
evidencing, securing or providing for the issuance of Debt of the Servicer, or
(ii) a party has accelerated any payment of Debt under any instrument or
agreement evidencing, securing or providing for the issuance of Debt of the
Servicer in an amount exceeding $1,000,000; or
(c) the Servicer shall generally not pay any of its Debts as such
Debts become due, or shall admit in writing its inability to pay its Debts
generally, or
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shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against the Servicer seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or any of its
Debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur, or
the Servicer shall take any corporate action to authorize any of the actions set
forth in this subsection; or
(d) judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $1,000,000 in the aggregate against the Servicer
or any of its Affiliates shall remain unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of 30 days or more; or
(e) there is a breach of any of the representations and warranties of
the Servicer set forth in Section 4.02 that is not remedied within 1 Business
Day in accordance with Section 4.04 of the Transfer Agreement; or
(f) the Operating Agent or the Collateral Agent shall have determined
that any event which materially adversely affects the ability of the Servicer to
collect Receivables or to otherwise perform hereunder has occurred; or
(g) a Termination Event shall have occurred or this Agreement shall
have been terminated; or
(h) a deterioration has taken place in the quality of servicing of
Transferred Receivables or other Receivables serviced by the Servicer which
either the Operating Agent or the Collateral Agent, each in its sole discretion,
determines to be material, and such material deterioration has not been
eliminated within thirty (30) days of Purchaser's written notice to Servicer of
such deterioration or the Operating Agent or the Collateral Agent determines
that an event has occurred which materially adversely affects the ability of the
Servicer to perform hereunder; or
(i) the Servicer shall assign or purport to assign any of its
obligations hereunder or under the Transfer Agreement without the prior written
consent of the Operating Agent and the Collateral Agent; or
(j) the Seller's board of directors has determined that it is in the
best interests of the Seller to terminate the Servicer and shall have given the
Servicer, the Operating Agent, the Purchaser and the Collateral Agent at least
30 days written notice thereof,
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then, and in any such event, the Operating Agent shall (on behalf of the
Seller), at the request, or may with the consent, of the Purchaser or the
Collateral Agent, by delivery of a Servicer Termination Notice to the Seller and
the Servicer, terminate the servicing responsibilities of the Servicer
hereunder, without demand, protest or further notice of any kind, all of which
are hereby waived by the Servicer. Upon any such declaration, all authority and
power of the Servicer under this Agreement and the Transfer Agreement shall pass
to and be vested in the Successor Servicer appointed pursuant to Section 11.02;
provided, that notwithstanding anything to the contrary herein, the Seller
- --------
agrees that it will continue to follow the procedures set forth in Section
7.02(a) with respect to Collections on Transferred Receivables.
ARTICLE X
REMEDIES
Section 10.01. Actions Upon Termination Event. If any Termination Event
------------------------------
shall have occurred and be continuing and the Operating Agent shall have
declared the Facility Termination Date to have occurred or the Facility
Termination Date shall have been deemed to have occurred pursuant to Section
9.01, then the Collateral Agent may exercise in respect of the Seller
Collateral, in addition to any and all other rights and remedies otherwise
available to it, all of the rights and remedies of a secured party upon default
under the UCC (such rights and remedies to be cumulative and nonexclusive), and,
in addition, may take the following remedial actions:
(a) The Collateral Agent may, without notice to the Seller except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Seller Secured Obligations against
amounts payable to the Seller from the Collection Account, the Lockbox Account,
the Retention Account or any part of such accounts in accordance with the
priorities required by Sections 6.03, 6.04 and 6.05.
(b) The Collateral Agent may, without notice except as specified
below, solicit and accept bids for and sell the Seller Collateral or any part of
the Seller Collateral in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Purchaser's, Operating Agent's or
Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable. The Seller agrees that, to the extent notice of sale
shall be required by law, at least ten Business Days' notice to the Seller of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Seller Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
for such sale, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Every such sale shall operate to divest
all right, title, interest, claim and demand whatsoever of the Seller in and to
the Seller Collateral so sold, and shall be a
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perpetual bar, both at law and in equity, against the Seller, the Originator,
any Person claiming the Seller Collateral sold through the Seller, the
Originator and their respective successors or assigns.
(c) Upon the completion of any sale under Section 10.01(b), the Seller
or the Servicer will deliver or cause to be delivered all of the Seller
Collateral sold to the purchaser or purchasers at such sale on the date of sale,
or within a reasonable time thereafter if it shall be impractical to make
immediate delivery, but in any event full title and right of possession to such
property shall pass to such purchaser or purchasers forthwith upon the
completion of such sale. Nevertheless, if so requested by the Collateral Agent
or by any purchaser, the Seller shall confirm any such sale or transfer by
executing and delivering to such purchaser all proper instruments of conveyance
and transfer and releases as may be designated in any such request.
(d) At any public sale under Section 10.01(b), the Purchaser, the
Collateral Agent or any Purchaser Secured Party may bid for and purchase the
property offered for sale and, upon compliance with the terms of sale, may hold,
retain and dispose of such property without further accountability therefor.
(e) The Collateral Agent may exercise at the Seller's expense any and
all rights and remedies of the Seller under or in connection with the Seller
Assigned Agreements or the other Seller Collateral, including any and all rights
of the Seller to demand or otherwise require payment of any amount under, or
performance of any provisions of, the Seller Assigned Agreements.
Section 10.02. Exercise of Remedies. No failure or delay on the part
--------------------
of the Collateral Agent to exercise any right, power or privilege under this
Agreement and no course of dealing between the Seller, the Servicer, the
Originator or the Operating Agent, on the one hand, and the Collateral Agent, on
the other hand, shall operate as a waiver of such right, power or privilege, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies expressly provided in this Agreement are cumulative and not
exclusive of any rights or remedies which the Collateral Agent or the Secured
Parties would otherwise have pursuant to law or equity. No notice to or demand
on any party in any case shall entitle such party to any other or further notice
or demand in similar or other circumstances, or constitute a waiver of the right
of the other party to any other or further action in any circumstances without
notice or demand.
Section 10.03. Severability of Remedies. The invalidity of any
------------------------
remedy in any jurisdiction shall not invalidate such remedy in any other
jurisdiction. The invalidity or unenforceability of the remedies herein
provided in any jurisdiction shall not in any way affect the right of the
enforcement in such jurisdiction or elsewhere of any of the other remedies
herein provided.
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Section 10.04. Power of Attorney. Each of the Originator and the Servicer
-----------------
hereby irrevocably appoints the Collateral Agent its true and lawful attorney
(with full power of substitution) in its name, place and stead and at its
expense, in connection with the enforcement of the rights and remedies provided
for in this Article X, such power of attorney to take effect from the date and
during the continuance of any Termination Event, including with the following
powers: (a) to give any necessary receipts or acquittance for amounts collected
or received hereunder, (b) to make all necessary transfers of the Originator
Collateral in connection with any sale or other disposition made pursuant
hereto, (c) to execute and deliver for value all necessary or appropriate bills
of sale, assignments and other instruments in connection with any such sale or
other disposition, the Originator and the Servicer hereby ratifying and
confirming all that such attorney (or any substitute) shall lawfully do
hereunder and pursuant hereto, and (d) to sign any agreements, orders or other
documents in connection with or pursuant to this Agreement and any Related
Document. Nevertheless, if so requested by the Collateral Agent or a purchaser
of Originator Collateral, the Originator shall ratify and confirm any such sale
or other disposition by executing and delivering to the Collateral Agent or such
purchaser all proper bills of sale, assignments, releases and other instruments
as may be designated in any such request.
Section 10.05. Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Collateral until the satisfaction of Section
6.07(b).
ARTICLE XI
SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign. The Servicer shall not resign
----------------------
from the obligations and duties hereby imposed on it except upon determination
that (a) the performance of its duties hereunder has become impermissible under
applicable law or regulation, and (b) there is no reasonable action which the
Servicer could take to make the performance of its duties hereunder become
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to clause (a) above by an
opinion of counsel to such effect delivered to the Purchaser, the Collateral
Agent and the Operating Agent. No such resignation shall become effective until
a successor servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 11.02.
Section 11.02. Appointment of the Successor Servicer. In connection with
-------------------------------------
the termination of the Servicer's responsibilities under this Agreement pursuant
to Section 9.02 or 11.01, the Operating Agent shall (a) succeed to and assume
all of the Servicer's responsibilities, rights, duties and obligations as
Servicer (but not in any other capacity, including specifically not its
obligations under Section 12.02) under this Agreement (and except that the
Operating Agent makes no representations and warranties pursuant to Section
4.02), or (b) appoint a successor servicer to the Servicer which shall be
acceptable to the Collateral Agent and shall succeed to all
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rights and assume all of the responsibilities, duties and liabilities of the
Servicer under this Agreement (the Operating Agent, in such capacity, or such
successor servicer being referred to as the "SUCCESSOR SERVICER"); provided,
that the Successor Servicer shall have no responsibility for any actions of the
Servicer prior to the date of its appointment as Successor Servicer. In
selecting a Successor Servicer, the Operating Agent may obtain bids from any
potential Successor Servicer and may agree to any bid it deems appropriate. The
Successor Servicer shall accept its appointment by executing, acknowledging and
delivering to the Operating Agent and the Collateral Agent an instrument in form
and substance acceptable to the Operating Agent and the Collateral Agent.
Section 11.03. Duties of the Servicer. At any time following the
----------------------
appointment of a Successor Servicer:
(a) The Servicer agrees that it will terminate its activities as
Servicer hereunder in a manner acceptable to the Collateral Agent so as to
facilitate the transfer of servicing to the Successor Servicer including,
without limitation, timely delivery (i) to the Collateral Agent of any funds
that were required to be remitted to the Collateral Agent for deposit in the
Collection Account, and (ii) to the Successor Servicer, at a place selected by
the Successor Servicer, of all Servicing Records and other information with
respect to the Transferred Receivables. The Servicer shall account for all
funds and shall execute and deliver such instruments and do such other things as
may be required to more fully and definitely vest and confirm in the Successor
Servicer all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer.
(b) The Servicer shall terminate each Sub-Servicing Agreement that may
have been entered into and the Successor Servicer shall not be deemed to have
assumed any of the Servicer's interest therein or to have replaced the Servicer
as a party to any such Sub-Servicing Agreement.
Section 11.04. Effect of Termination or Resignation. Any termination or
------------------------------------
resignation of the Servicer under this Agreement shall not affect any claims
that the Originator, the Collateral Agent, the Purchaser or the Operating Agent
may have against the Servicer for events or actions taken or not taken by the
Servicer arising prior to any such termination or resignation.
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ARTICLE XII
INDEMNIFICATION
Section 12.01. Indemnities by the Seller.
-------------------------
(a) Without limiting any other rights that the Collateral Agent, the
Purchaser, the Operating Agent, the Transaction Liquidity Agent, any Transaction
Liquidity Lender, the Letter of Credit Agent or any Letter of Credit Provider or
any director, officer, employee, agent or incorporator of such party (each an
"INDEMNIFIED PARTY") may have hereunder or under applicable law, the Seller
hereby agrees to indemnify each Indemnified Party from and against any and all
claims, losses, liabilities, obligations, damages, penalties, actions,
judgments, suits, and reasonable costs and expenses of any nature whatsoever
related thereto, including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS"), which
may be imposed on, incurred by or asserted against an Indemnified Party in any
way arising out of or relating to (i) any breach of the Seller's obligations
under this Agreement or any Related Document, (ii) the sale or the pledge of the
Transferred Receivables, or (iii) any Receivable or any Contract, excluding,
however, (A) Indemnified Amounts to the extent resulting solely from gross
negligence or willful misconduct on the part of such Indemnified Party or (B)
consequential, indirect, punitive or exemplary damages; provided, however, that
--------
if a court of competent jurisdiction in a final non-appealable order determines
that such Indemnified Amounts arose in part from such Indemnified Party's gross
negligence or wilful misconduct, the Seller shall reimburse such Indemnified
Party for the portion of such Claim not resulting from such Indemnified Party's
gross negligence or wilful misconduct. To the extent such a determination of
gross negligence or wilful misconduct is made after payment of any Indemnified
Amounts related thereto, the Seller shall be repaid any amounts reimbursed under
the preceding clause that due to such determination it should not have paid.
Without limiting or being limited by the foregoing, the Seller shall pay on
demand to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from:
(A) reliance on any representation or warranty made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement, any Related Document or any report or other information
delivered by the Seller pursuant hereto which shall have been incorrect in
any material respect when made or deemed made or delivered;
(B) the failure by the Seller to comply with any term, provision or
covenant contained in this Agreement, any Related Document or any agreement
executed by it in connection with this Agreement or with any applicable
law, rule or regulation with respect to any Transferred Receivable or its
related Contract, or the nonconformity of any Transferred Receivable or its
related Contract with any such applicable law, rule or regulation; or
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(C) the failure to vest and maintain vested in the Purchaser legal and
equitable title to and ownership of the Receivables which are, or are
purported to be, Transferred Receivables, together with all Collections in
respect thereof, free and clear of any Adverse Claim (except as permitted
hereunder) whether existing at the time of the purchase of such Receivable
or at any time thereafter, and to maintain or transfer to the Collateral
Agent a first priority, perfected security interest therein,
excluding, however, (A) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party or (B)
consequential, indirect, punitive or exemplary damages provided, however, that
--------
if a court of competent jurisdiction in a final non-appealable order determines
that such Indemnified Amounts arose in part from such Indemnified Party's gross
negligence or wilful misconduct, the Seller shall reimburse such Indemnified
Party for the portion of such Claim not resulting from such Indemnified Party's
gross negligence or wilful misconduct. To the extent such a determination of
gross negligence or wilful misconduct is made after payment of any Indemnified
Amounts related thereto, the Seller shall be repaid any amounts reimbursed under
the preceding clause that due to such determination it should not have paid.
(b) Any Indemnified Amounts subject to the indemnification provisions
of this Section 12.01 not paid in accordance with Article VI, to the extent that
funds are available therefor in accordance with the provisions of Article VI,
shall be paid to the Indemnified Party within five Business Days following
demand therefor.
(c) If indemnification is to be sought hereunder by an Indemnified
Party, then such Indemnified Party shall promptly notify the Seller of the
commencement of any litigation, proceeding or other action in respect thereof;
provided, however, that the failure to notify the Seller shall not relieve the
Seller from any liability or obligation that it may have hereunder or otherwise
to such Indemnified Party, except to the extent the Seller is actually
prejudiced thereby. Each Indemnified Party shall have the right to control its
own defense, but shall consult from time to time with the Seller and in no event
shall the Seller, in connection with any one action or proceeding or separate
but substantially similar or related actions or proceedings arising out of the
same general allegations or circumstances, be liable for the fees and expense of
more than one firm of attorneys (together with any appropriate local counsel) at
any time acting for GE Capital, GE Capital Markets Group Inc. or their
employees, directors or officers (collectively "GE PERSONS"), unless any such GE
Person has been advised by legal counsel that (a) the representation of such GE
Person by legal counsel acting for other GE Persons would be inappropriate due
to actual or potential conflicts of interest or (b) there may be legal defenses
available to such GE Person that are different from or additional to those
available to any other GE Person represented by such legal counsel; provided,
that any Indemnified Party other than any GE Person shall not be restricted from
hiring separate legal counsel the fees and expenses for which the Seller shall
be liable as provided herein. Notwithstanding anything to the contrary contained
--------
herein, the Seller shall not have any obligation to hold harmless or indemnify
any Indemnified Party for the amount of
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any cash settlement if any Indemnified Party enters into any such cash
settlement of a claim without the prior written consent of the Seller, which
consent will not be unreasonably withheld or delayed and in the event the Seller
shall not consent to any proposed settlement, then the Seller shall notify such
Indemnified Party in writing of the amount which the Seller is willing to pay
(and if no such written notification is provided, the Seller will be deemed to
consent to the entire cash settlement); provided that the Seller shall in any
--------
event continue to be obligated to hold harmless and indemnify such Indemnified
Party for legal costs in relation to such Indemnified Amount as provided herein.
If, for any reason, no settlement is made, all indemnity obligations under this
Section 12.01 shall continue.
Section 12.02. Indemnities by the Servicer.
---------------------------
(a) Without limiting any other rights that an Indemnified Party may
have hereunder or under applicable law, the Servicer hereby agrees to indemnify
each Indemnified Party from and against any and all Indemnified Amounts which
may be imposed on, incurred by or asserted against an Indemnified Party in any
way arising out of or relating to any breach of the Servicer's obligations under
this Agreement, excluding, however, (A) Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of such
Indemnified Party, (B) recourse solely for uncollectible and uncollected
Transferred Receivables and (C) consequential, indirect, punitive or exemplary
damages; provided, however, that if a court of competent jurisdiction in a final
--------
non-appealable order determines that such Indemnified Amounts arose in part from
such Indemnified Party's gross negligence or wilful misconduct, the Servicer
shall reimburse such Indemnified Party for the portion of such Claim not
resulting from such Indemnified Party's gross negligence or wilful misconduct.
To the extent such a determination of gross negligence or wilful misconduct is
made after payment of any Indemnified Amounts related thereto, the Servicer
shall be repaid any amounts reimbursed under the preceding clause that due to
such determination it should not have paid. Without limiting or being limited
by the foregoing, the Servicer shall pay on demand to each Indemnified Party any
and all amounts necessary to indemnify such Indemnified Party from and against
any and all Indemnified Amounts relating to or resulting from:
(i) reliance on any representation or warranty made or deemed
made by the Servicer (or any of its officers) under or in connection with
this Agreement, any Related Document or any report or other information
delivered by the Servicer pursuant hereto which shall have been incorrect
in any material respect when made or deemed made or delivered; or
(ii) the failure by the Servicer to comply with any term,
provision or covenant contained in this Agreement, any Related Document or
any agreement executed by it in connection with this Agreement or with any
applicable law, rule or regulation with respect to any Transferred
Receivable or its related Contract, or the imposition of any Adverse Claim
(except as permitted hereunder) with respect to a Transferred Receivable as
a result of the Servicer's actions hereunder,
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excluding, however, (A) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party (B)
recourse solely for uncollectible and uncollected Transferred Receivables and
(C) consequential, indirect, punitive or exemplary damages; provided, however,
--------
that if a court of competent jurisdiction in a final non-appealable order
determines that such Indemnified Amounts arose in part from such Indemnified
Party's gross negligence or wilful misconduct, the Servicer shall reimburse such
Indemnified Party for the portion of such Claim not resulting from such
Indemnified Party's gross negligence or wilful misconduct. To the extent such a
determination of gross negligence or wilful misconduct is made after payment of
any Indemnified Amounts related thereto, the Servicer shall be repaid any
amounts reimbursed under the preceding clause that due to such determination it
should not have paid.
(b) Any Indemnified Amounts subject to the indemnification provisions
of this Section 12.02 shall be paid to the Indemnified Party within five
Business Days following demand therefor.
(c) If indemnification is to be sought hereunder by an Indemnified
Party, then such Indemnified Party shall promptly notify the Servicer of the
commencement of any litigation, proceeding or other action in respect thereof;
provided, however, that the failure to notify the Servicer shall not relieve the
Servicer from any liability or obligation that it may have hereunder or
otherwise to such Indemnified Party, except to the extent the Servicer is
actually prejudiced thereby. Each Indemnified Party shall have the right to
control its own defense, but shall consult from time to time with the Servicer
and in no event shall the Servicer, in connection with any one action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances, be
liable for the fees and expense of more than one firm of attorneys (together
with any appropriate local counsel) at any time acting for GE Persons, unless
any such GE Person has been advised by legal counsel that (a) the representation
of such GE Person by legal counsel acting for other GE Persons would be
inappropriate due to actual or potential conflicts of interest or (b) there may
be legal defenses available to such GE Person that are different from or
additional to those available to any other GE Person represented by such legal
counsel; provided, that any Indemnified Party other than any GE Person shall not
--------
be restricted from hiring separate legal counsel the fees and expenses for which
the Servicer shall be liable as provided herein. Notwithstanding anything to the
contrary contained herein, the Servicer shall not have any obligation to hold
harmless or indemnify any Indemnified Party for the amount of any cash
settlement if any Indemnified Party enters into any such cash settlement of a
claim without the prior written consent of the Servicer, which consent will not
be unreasonably withheld or delayed and in the event the Servicer shall not
consent to any proposed settlement, then the Servicer shall notify such
Indemnified Party in writing of the amount which the Servicer is willing to pay
(and if no such written notification is provided, the Servicer will be deemed to
consent to the entire cash settlement); provided that the Servicer shall in any
--------
event continue to be obligated to hold harmless and indemnify such Indemnified
Party for legal costs in relation to such Indemnified Amount as provided herein.
If, for any
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reason, no settlement is made, all indemnity obligations under this Article V
shall continue.
ARTICLE XIII
OPERATING AGENT
Section 13.01. Authorization and Action. The Operating Agent may take such
------------------------
action and carry out such functions under this Agreement as are delegated to it
by the terms hereof, pursuant to the Operating Agent Agreement or otherwise
contemplated hereby or thereby or are reasonably incidental thereto; provided,
--------
that the duties of the Operating Agent shall be determined solely by the express
provisions of this Agreement and other than the duties set forth in Section
13.02 any permissive right of the Operating Agent hereunder shall not be
construed as a duty.
Section 13.02. Reliance, etc. None of the Operating Agent, any Affiliate
-------------
thereof nor any of their respective directors, officers, agents or employees
will be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement, the Program Documents or the Related
Documents, except when caused solely by their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, and
notwithstanding any term or provision hereof to the contrary, the Seller, the
Servicer and the Purchaser hereby acknowledge and agree that the Operating Agent
(a) acts as agent hereunder for the Purchaser and has no duties or obligations
to, will incur no liabilities or obligations to, and does not act as anagent in
any capacity for, the Seller or the Originator, (b) may consult with legal
counsel, independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts, (c)
makes no warranty or representation hereunder and shall not be responsible for
any statements, warranties or representations made in or in connection with this
Agreement, the Program Documents or the Related Documents, (d) shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement, the Program Documents
or Related Documents on the part of the Seller, the Servicer or the Purchaser or
to inspect the property (including the books and records) of the Seller, the
Servicer or the Purchaser, (e) shall not be responsible to the Seller, the
Servicer or the Purchaser for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto (including the Related
Documents), (f) shall incur no liability under or in respect of this Agreement,
the Program Documents or the Related Documents by acting upon any notice or
communication (including a communication by telephone), consent, certificate or
other instrument or writing believed by it to be genuine and signed, sent or
communicated by the proper party or parties and (g) shall not be bound to make
any investigation into the facts or matters stated in any notice or other
communication hereunder and may rely on the accuracy of such facts or matters.
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Section 13.03. GE Capital and Affiliates. GE Capital and its
-------------------------
Affiliates may generally engage in any kind of business with the Seller, the
Originator, the Servicer, the Purchaser or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of such
parties or any of their respective Affiliates, all as if GE Capital were not the
Operating Agent, and without the duty to account therefor to the Seller, the
Originator, the Servicer, the Purchaser or any other Person.
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Notices, Etc. All notices and other communications
------------
provided for hereunder, unless otherwise stated herein, shall be in writing and
mailed or telecommunicated, or delivered as to each party hereto, at its address
set forth below or at such other address as shall be designated by such party in
a written notice to the other parties hereto. All such notices and
communications shall not be effective until received by the party to whom such
notice or communication is addressed.
Section 14.02. Binding Effect; Assignability. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the Seller, the Servicer, the
Purchaser, the Operating Agent and their respective permitted successors and
assigns. Neither the Seller nor the Servicer may assign any of their rights and
obligations hereunder or any interest herein without the prior written consent
of the Purchaser, the Collateral Agent and the Operating Agent and unless each
Rating Agency shall have confirmed in writing to the Purchaser and the Operating
Agent that such assignment would not result in a withdrawal or reduction of the
then current rating by such Rating Agency of the Commercial Paper. The
Purchaser, the Collateral Agent and the Operating Agent may, at any time,
without the consent of the Seller, the Originator or the Servicer, assign any of
their respective rights and obligations hereunder or interest herein to any
Affiliate of GE Capital or any party to any Program Document. Any such assignee
may further assign at any time its rights and obligations hereunder or interests
herein to any other Affiliate of GE Capital or any party to any Program Document
without the consent of the Seller, any Originator or the Servicer. Otherwise,
the Purchaser, the Collateral Agent and the Operating Agent may not assign any
of their rights hereunder or their interests herein without the prior written
consent of the Seller. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until its termination; provided, that the
--------
rights and remedies with respect to any breach of any representation and
warranty made by the Seller or the Servicer pursuant to Article IV and the
indemnification and payment provisions of Article XII shall be continuing and
shall survive any termination of this Agreement.
Section 14.03. Costs, Expenses and Taxes.
-------------------------
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(a) In addition to the rights of indemnification under Article XII
hereof, the Seller agrees to pay upon demand all reasonable costs and expenses
and taxes (excluding income and similar taxes) incurred by the Purchaser, the
Operating Agent or the Collateral Agent in connection with the administration
(including periodic auditing after a Termination Event, Rating Agency
requirements, modification and amendment) of this Agreement, the Related
Documents and the other documents to be delivered hereunder. The Seller further
agrees to pay on demand reasonable fees and out-of-pocket expenses of counsel
for the Purchaser, the Operating Agent and the Collateral Agent incurred after
the Effective Date with respect thereto and with respect to advising the
Purchaser, the Operating Agent or the Collateral Agent as to its rights and
remedies under this Agreement, the Related Documents and the other agreements
executed pursuant hereto. The Seller further agrees to pay within 20 Business
Days after demand all reasonable and documented costs, counsel fees and expenses
in connection with the enforcement (whether through negotiation, legal
proceedings or otherwise) of this Agreement, the Related Documents and the other
agreements and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 14.03 in accordance with the provisions
of Article VI to the extent that funds are available therefor in accordance
therewith.
(b) In addition, the Seller shall pay on demand any and all stamp,
sales, excise and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing or recording of this Agreement,
the Related Documents or the other agreements and documents to be delivered
hereunder, and agrees to indemnify and save each Indemnified Party from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
(c) In the event that the Operating Agent reasonably determines that
any of the costs referred to in paragraphs (a) or (b) above were in any part
incurred on behalf of, or are attributable to the actions of, borrowers or
sellers under Other Purchase Agreements, the Seller shall have no liability
hereunder in excess of the Seller's Share of such costs.
(d) If the Seller or the Servicer fails to perform any agreement or
obligation contained herein, the Purchaser, the Collateral Agent or the
Operating Agent may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of such party
incurred in connection therewith shall be payable by the party which has failed
to so perform upon such party's demand therefor.
Section 14.04. Confidentiality.
---------------
(a) The Servicer and the Seller agree to maintain the confidentiality
of this Agreement (and all drafts of this agreement and documents ancillary to
this Agreement) in their communications with third parties other than any
Affected Party or any Indemnified Party and otherwise and not to disclose,
deliver or otherwise make
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available to any third party (other than its directors, officers, employees,
accountants or counsel) the original or any copy of all or any part of this
Agreement (or any draft of this Agreement and documents ancillary to this
Agreement) except to an Affected Party or an Indemnified Party. The Purchaser
and the Operating Agent agree to maintain the confidentiality of this Agreement
and any information furnished by the Seller, the Servicer or any Originator
pursuant to this Agreement or the Transfer Agreement (and all drafts of this
agreement and documents ancillary to this Agreement) in their communications
with third parties other than any Affected Party or any Indemnified Party and
otherwise and not to disclose, deliver or otherwise make available to any third
party (other than its directors, officers, employees, accountants or counsel)
the original or any copy of all or any part of this Agreement (or any draft of
this Agreement and documents ancillary to this Agreement) except to an Affected
Party or an Indemnified Party.
(b) Notwithstanding Section 14.04(a), (i) the general terms of the
transactions contemplated by this Agreement and the Related Documents may be
disclosed to any existing lender to or potential investor in the Parent that has
agreed in writing not to disclose such terms, and (ii) this Agreement and the
Related Documents may be disclosed (A) if required to be filed publicly with the
Securities and Exchange Commission, (B) to the certified public accountants of
the Parent to the extent necessary, (C) to the extent otherwise required by
applicable law, rule or regulation, (D) to the extent required under a valid and
appropriately limited subpoena or equivalent legal process or (E) if the
Affected Party otherwise consents in writing.
(c) The Seller and the Servicer agree that they shall not (and the
Servicer shall not permit any of its Subsidiaries to) issue any news release or
make any public announcement pertaining to the transactions contemplated by this
Agreement and the Related Documents without the prior written consent of the
Operating Agent and its assignees (which consent shall not be unreasonably
withheld) unless such news release or public announcement is required by law, in
which case the Seller and the Servicer shall consult with the Operating Agent
and its assignees prior to the issuance of such news release or public
announcement.
Section 14.05. No Proceedings. The Seller and the Servicer each hereby
--------------
agrees that it will not, directly or indirectly, institute, or cause to be
instituted, against the Purchaser any proceeding of the type referred to in
Section 9.01(c) so long as there shall not have elapsed one year plus one day
since the latest maturing Commercial Paper has been paid in full in cash.
Section 14.06. Amendments; Waivers; Consents. No modification,
-----------------------------
amendment or waiver of or with respect to any provision of this Agreement, the
Related Documents or any other agreements, instruments and documents delivered
pursuant hereto or thereto, nor consent to any departure by the Seller or the
Servicer from any of the terms or conditions hereof or thereof, shall be
effective unless it shall be in writing and signed by each of the parties hereto
and with respect to any material modification, amendment or waiver, satisfies
the Rating Agency Condition. Any waiver or consent shall be effective only in
the specific instance and for the purpose for which
59
<PAGE>
given. No consent to or demand on the Seller, the Originator or the Servicer in
any case shall, in itself, entitle it to any other consent or further notice or
demand in similar or other circumstances. This Agreement, the Related Documents
and the documents referred to therein embody the entire agreement among the
Seller, the Purchaser, the Operating Agent, the Collateral Agent and the
Servicer and supersede all prior agreements and understandings relating to the
subject hereof.
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
------------------------------------------------------
TRIAL.
- -----
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS THEREOF).
(b) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA, AND EACH WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESSES SET
FORTH BELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER
THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. EACH OF
THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
---------
CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND
- ----------
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 14.07(b) SHALL AFFECT THE
RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY.
Section 14.08. Execution in Counterparts; Severability. This
---------------------------------------
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation
shall not in any way be affected or impaired thereby in such jurisdiction and
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation shall not be impaired thereby in
any other jurisdiction.
60
<PAGE>
Section 14.09. Descriptive Headings. The descriptive headings of the
--------------------
various sections of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 14.10. Limited Recourse. The obligations of the Purchaser under
----------------
this Agreement and all Related Documents are solely the corporate obligations of
the Purchaser. No recourse shall be had for the payment of any amount owing in
respect of Purchases or for the payment of any fee hereunder or any other
obligation or claim arising out of or based upon this Agreement or any other
Related Document against any shareholder, employee, officer, director, agent or
incorporator of the Purchaser. Any accrued obligations owing by the Purchaser
under this Agreement shall be payable by the Purchaser solely to the extent that
funds are available therefor from time to time in accordance with the provisions
of Article VI of the Collateral Agent Agreement and Article VI of this Agreement
(and such accrued obligations shall not be extinguished until paid in full).
61
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables Purchase and
Servicing Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
MERISEL AMERICAS, INC., as Servicer
By______________________________
Name: ______________________
Title: _____________________
Address: 200 Continental Boulevard
El Segundo, CA 90245
Attention: Timothy Jenson, Treasurer
Phone number: (310) 615-6850
Telecopier number: (310) 615-6882
REDWOOD RECEIVABLES CORPORATION, as Purchaser
By______________________________
Name: ______________________
Title: _____________________
Address: c/o General Electric Capital
Corporation
260 Long Ridge Road
Stamford, Connecticut 06727
Attention: Redwood Administrator
Phone number: (203) 961-5488
Telecopier number: (203) 357-6330
or (203) 961-2953
MERISEL CAPITAL FUNDING, INC., as
Seller
By______________________________
Name: ______________________
Title: _____________________
Address: 200 Continental Boulevard
Suite 301
El Segundo, CA 90245
Attention: Charles Freedman
Phone number: (310) 615-6861
Telecopier number: (310) 615-6882
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
By______________________________
Name: ______________________
Title: _____________________
Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attention: Vice President -
Portfolio/Merisel
Phone number: (203) 316-7606
Telecopier number: (203) 316-7821
<PAGE>
Schedule 1
----------
CONCENTRATION LIMITS
--------------------
Obligor Long-Term Concentration Limit
Debt Rating/1/ Percentage
----------- ----------
AA/Aa2 or higher 15%
A/A3 8%
Less than A/A3 4%
- --------------
/1/ An Obligor may have a deemed rating equivalent to the debt rating of its
parent corporation (provided that the parent is liable for the debts of the
Obligor) or an unconditional third party insurer or guarantor under an
insurance contract or a guarantee acceptable to the Operating Agreement and
the Collateral Agreement.
64
<PAGE>
Schedule 2
----------
EXCLUDED OBLIGORS
-----------------
None
<PAGE>
Annex A
-------
to
--
Schedule 2
----------
FORM OF AMENDING LETTER
-----------------------
[Insert Date]
Merisel Capital Funding, Inc.
200 Continental Boulevard
El Segundo, California 90245
Attention:
Redwood Receivables Corporation
c/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06727
Attention: Redwood Administrator
Merisel Americas, Inc.
200 Continental Boulevard
El Segundo, California 90245
Re: Receivables Purchase and Servicing Agreement,
dated as of ____________, 1995
Ladies and Gentlemen:
This notice is given pursuant to the Receivables Purchase and
Servicing Agreement, dated as of ____________, 1995 (the "Purchase Agreement"),
between Redwood Receivables Corporation (the "Purchaser"), General Electric
Capital Corporation, as agent for the Company (in such capacity, the "Operating
Agent") and as collateral agent for the Purchaser Secured Parties (in such
capacity, the "Collateral Agent"), Merisel Capital Funding, Inc. (the "Seller")
and Merisel Americas, Inc. (the "Originator"). Capitalized terms used but not
defined in this notice have the meanings ascribed to such terms in the Purchase
Agreement.
The Operating Agent hereby amends Schedule 2 to the Purchase Agreement
as follows:
[The following Obligors are added to Schedule 2 as "Excluded
Obligors":]
[The following Obligors are removed from Schedule 2:]
<PAGE>
The effective date of this amendment to Schedule 2 is ____________,
199_.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By:___________________________
Name:
Title:
2
<PAGE>
Schedule 3
----------
DETERMINATION OF "DAILY YIELD"
------------------------------
<TABLE>
<CAPTION>
<C> <C> <S>
#1) Daily Yield = Daily Yield Rate x Capital Investment on the
preceding day
#2) Daily Yield Rate
(a) Pre-Termination = Daily Base Yield Rate + Daily Margin
(b) Post-Termination = Daily Termination Yield Rate + Daily Default
Margin
#3) Daily Base Yield Rate = (Daily Weighted Average CP Rate + Daily
Weighted Average Liquidity Rate) x Redwood
Funding Factor
#4) Daily Termination Yield Rate = Average of Liquidity Rates (being the greater
Liquidity Rate of NYCHA Prime or 30 Day CP + 1.00%) of
Transaction Liquidity Loans Outstanding
weighted by the amount of each Transaction
Liquidity Loan
#5) Daily Weighted Average = (CP Outstanding/Senior Debt) x (Weighted
CP Rate Average CP Rate/360)
#6) Weighted Average = Average of CP Rates for all tranches of CP
CP Rate Outstanding issued by the Purchaser,
weighted by CP Outstanding in each tranche
#7) Daily Weighted Average = (Liquidity Loans Outstanding/Senior Debt) x
Liquidity Rate (Weighted Average Liquidity Rate/360 Days)
#8) Weighted Average = Average of Liquidity Rates (being the greater
Liquidity Rate of NYCHA Prime or 30 Day CP + 1.00%) of
Liquidity Loans Outstanding weighted by the
amount of each Liquidity Loan
#9) Senior Debt = CP Outstanding + Liquidity Loans Outstanding
#10) Redwood Funding = Total Redwood Debt/Total Purchases
Factor Outstanding
</TABLE>
<PAGE>
Definitions
- -----------
"CP Interest" means (a) the Daily Weighted Average CP Rate times (b)(i) the
-----------
Capital Investment outstanding at the beginning of the day minus (ii)
Transaction Liquidity Loans outstanding at the beginning of the day.
"CP Outstanding" means the sum of the face value of all Commercial Paper.
--------------
"CP Rates" means the rate of interest on Commercial Paper.
--------
"Daily Margin" means 0.45% divided by 360.
------------
"Daily Default Margin" means 2.45% divided by 360.
--------------------
"Liquidity Loans Outstanding" means the sum of all Liquidity Loans.
---------------------------
"LOC Deposits" means, for any day, the amount, if any, of proceeds from LOC
------------
Draws Outstanding not used to pay maturing Commercial Paper or Liquidity Loans
and remaining in the Collateral Account at the end of such day.
"LOC Draws" means any payments made to the Purchaser in respect of the
---------
Letter of Credit.
"LOC Draws Outstanding" means, at any time, (a) any LOC Draws to date minus
---------------------
(b) any payments made prior to such time to reimburse such LOC Draws.
"RFC" means a receivables financing company that either sells receivables
---
to the Purchaser, or makes borrowings from the Purchaser secured by receivables.
"Total Purchases Outstanding" means, at any time, the aggregate of the
---------------------------
Capital Investment at such time, plus the amounts corresponding to advances
outstanding for all other RFCs other than the Seller that have pledged
receivables as collateral for such advances from the Purchaser at such time,
plus the purchases outstanding for all RFCs other than the Seller as sellers of
receivables to the Purchaser at such time.
"Total Redwood Debt" means, at any time, the aggregate of the Purchaser's
------------------
Senior Debt, plus LOC Draws Outstanding, minus LOC Deposits for all RFCs at such
time.
2
<PAGE>
Schedule 4
----------
YIELD DISCOUNT AMOUNT
---------------------
<TABLE>
<CAPTION>
<C> <S>
Yield Discount Amount = Purchase Rate Discount Amount
+ Yield Volatility Discount Amount
+ Unused Commitment Fee Discount Amount
+ Servicing Fee Discount Amount
#1 Purchase Rate = Capital Investment
Discount Amount x Daily Yield Rate (see Schedule 3)
x Liquidation Term Factor
x 360
#2 Yield Volatility = Capital Investment
Discount Amount x Yield Volatility Percentage
x Liquidation Term Factor
#3 Unused Commitment Fee = Capital Investment Available
Discount Amount x Unused Commitment Fee Rate
x Liquidation Term Factor
#4 Servicing Fee = Outstanding Balances of Transferred
Discount Amount Receivables
x Servicing Fee Rate
x Liquidation Term Factor
#5 Liquidation Term = Expected Liquidation Period/360
Factor
#6 Unused Purchase = Adjusted Purchase Limit
Amount - Capital Investment Outstanding
</TABLE>
- ------------
"Adjusted Purchase Limit" means, for any day,
-----------------------
(i) $200,000,000, if the Capital Investment on such day is less than
$200,000,000;
(ii) $250,000,000, if the Capital Investment on such day is equal to
or exceeds $200,000,000, but is less than $250,000,000; or
(iii) $300,000,000, if the Capital Investment on such day is equal to
or exceeds $250,000,000.
"Expected Liquidation Period" means the product of (i) the weighted
---------------------------
average number of days from the date of the Investment Base Certificate to the
invoice due date for the Outstanding Balance of Transferred Receivables and
(ii) 2.
<PAGE>
"Yield Volatility Percentage" means the maximum increase in interest rates
---------------------------
anticipated over the Expected Liquidation Period, as determined from time to
time by the Collateral Agent.
2
<PAGE>
Schedule 5
----------
ADDRESSES OF THE SELLER
-----------------------
Merisel Capital Funding, Inc.
200 Continental Blvd.
Suite 301
El Segundo, California 90245
<PAGE>
Schedule 6
----------
LOCKBOXES AND LOCKBOX ACCOUNTS
------------------------------
FIRST CHICAGO
- -------------------
<TABLE>
<CAPTION>
Lockbox Type Lockbox Address Street Address
- -------- -------- ------------------------- ------------------------------
<C> <C> <C> <S>
70826 TERMS P.O. Box 70826 First National Bank of Chicago
Chicago, IL 60661 525 West Monroe
Seventh Floor Mailroom
Chicago, IL 60661
Attn: Merisel Box 70826
100006 TERMS P.O. Box 100006 First Chicago National
Pasadena, CA 91189 Processing Center
First Floor
1111 Arroyo Parkway Plaza
Pasadena, CA 92205
13534 TERMS P. O. Box 13534 First Chicago National
Newark, NJ 07188 Processing Center
Third Floor
300 Harmon Meadow Blvd.
Secaucus, NJ 07094
905031 TERMS P.O. Box 905031 First Chicago National
Charlotte, NC 28290-5031 Processing Center
Suite 108
806 Tyzola Road
Charlotte, NC 28217
730203 TERMS P.O. Box 730203 First Chicago National
Dallas, TX 75373-0203 Processing Center
Suite 600
1801 Royal Lane
Dallas, TX 75229
52-73900 DDA (N/A) LOCKBOX CONCENTRATION
First Chicago
525 W. Monroe
Chicago, IL 60671
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lockbox Type Lockbox Address Street Address
- -------- -------- ------------------------- -----------------------------
<C> <C> <C> <S>
CITIBANK
- --------
7798 TERMS P.O. Box 7247-7798 Citibank (Delaware)
Philadelphia, PA Citicorp Plaza
19170-7798 One Penn's Way
New Castle, DE 19720
3846-8303 DDA (N/A) Citibank, N.A. (NY)
399 Park Ave.
New York, NY 10020
UNION BANK
- ----------
33595- DDA Union Bank Union Bank
00962 P.O. Box 90098 S. Figueroa
Los Angeles, CA Los Angeles, CA 90051
90009
MCF CONC- For GECC to Remit No direct customer receipts
ENTRATION Funds to: intended for this account:
ACCOUNT
4066-0417 DDA (N/A) Citibank, N.A. (NY)
399 Park Ave.
New York, NY 10020
N/A Credit N/A Harris Bank
Card 700 East Lake Cook Road
Agree- Buffalo Grove, IL 60089
ment
</TABLE>
2
<PAGE>
Schedule 7
----------
LIST OF SELLER AGREEMENTS
-------------------------
1. Amended and Restated Trade Receivables Purchase and Sale Agreement
Dated as of November 29, 1994
Merisel Capital Funding, Inc. as Seller
Corporate Receivables Corporation as Investor
Citicorp North Americas, Inc. as Agent
2. Receivables Contribution and Sale Agreement
Dated as of November 29, 1994
Merisel Americas, Inc. as Seller
Merisel Capital Funding, Inc. as Buyer
3. Amended and Restated Ancillary Services Agreement
Dated as of October 2, 1995
Merisel, Inc.
Merisel Capital Funding, Inc.
4. Consent and Assignment
Dated November 29, 1994
Merisel Capital Funding, Inc.
5. Subordinated Promissory Note
Dated November 29, 1994
Merisel Capital Funding, Inc., as Buyer
Merisel Americas, Inc., as Seller
6. Purchase and Sale Assignment and Assumption Agreement
Dated as of November 29, 1994
Merisel Americas, Inc., as the Assignor
Merisel Capital Funding, Inc., as the Assignee
<PAGE>
Schedule 8
----------
LIST OF ORIGINATOR/SERVICER TRADE,
FICTITIOUS, ASSUMED AND "DOING BUSINESS
AS" NAMES
-----------------------------------------
1. Merisel Americas, Inc. dba Channel Services Group
2. E. Information Company, trade name of Merisel Americas, Inc.
3. Merchandising Solutions, trade name of Merisel Americas, Inc.
<PAGE>
Exhibit A-1
to
Purchase Agreement
FORM OF SELLER NOTICE - Request for Purchase
--------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06727
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Merisel
Re: Receivables Purchase and Servicing Agreement,
dated as of ____________, 1995
Ladies and Gentlemen:
This notice is given pursuant to Section 2.03(b) of the Receivables
Purchase and Servicing Agreement, dated as of ____________, 1995 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties (in
such capacity, the "Collateral Agent"), Merisel Capital Funding, Inc. (the
"Seller") and Merisel Americas, Inc. (the "Originator"). Capitalized terms used
but not defined in this notice have the meanings ascribed to such terms in the
Purchase Agreement.
The Seller hereby requests that the Purchaser make a Purchase from the
Seller on ___________, 19__ pursuant to Section 2.01 of the Purchase Agreement
in the amount of $____________ to be disbursed to the Seller in accordance with
Section 2.04 of the Purchase Agreement. The Company hereby
<PAGE>
confirms that the conditions set forth in Section 3.02 of the Purchase Agreement
for the making of such Purchase have been met.
Very truly yours,
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
2
<PAGE>
Exhibit A-2
to
Purchase Agreement
FORM OF SELLER NOTICE - Reduction of Commitment
-----------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06727
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Merisel
Re: Receivables Purchase and Servicing Agreement,
dated as of ____________, 1995
Ladies and Gentlemen:
This notice is given pursuant to Section 2.03(b) of the Receivables
Purchase and Servicing Agreement, dated as of ____________, 1995 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties (in
such capacity, the "Collateral Agent"), Merisel Capital Funding, Inc. (the
"Seller") and Merisel Americas, Inc. (the "Originator"). Capitalized terms used
but not defined in this notice have the meanings ascribed to such terms in the
Purchase Agreement.
The Seller hereby irrevocably notifies the Purchaser and the Operating
Agent pursuant to Section 2.02(a) of the Purchase Agreement that on
____________, 19__ (which is a Business Day) the Maximum Purchase Limit shall be
reduced to $_________. This reduction is the [first] [second] reduction
permitted by Section 2.02(a) of the Purchase Agreement. After such reduction,
the Maximum
<PAGE>
Purchase Limit will not be less than the Capital Investment [after giving effect
to, and conditioned upon, the repayment of Purchases set forth in the attached
notice].
Very truly yours,
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
2
<PAGE>
Exhibit A-3
to
Purchase Agreement
FORM OF SELLER NOTICE - Termination of Commitment
-------------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06727
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Merisel
Re: Receivables Purchase and Servicing Agreement,
dated as of ____________, 1995
Ladies and Gentlemen:
This notice is given pursuant to Section 2.03(b) of the Receivables
Purchase and Servicing Agreement, dated as of ____________, 1995 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties (in
such capacity, the "Collateral Agent"), Merisel Capital Funding, Inc. (the
"Seller") and Merisel Americas, Inc. (the "Originator"). Capitalized terms used
but not defined in this notice have the meanings ascribed to such terms in the
Purchase Agreement.
<PAGE>
The Seller hereby irrevocably notifies the Purchaser and the Operating
Agent pursuant to Section 2.02(a) of the Purchase Agreement that on
____________, 19__ (which is a Business Day at least 90 days after the date this
notice is given) the Maximum Purchase Limit shall be terminated.
Very truly yours,
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
2
<PAGE>
Exhibit A-4
to
Purchase Agreement
FORM OF SELLER NOTICE - Repayment of Capital Investment
-------------------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06727
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Merisel
Re: Receivables Purchase and Servicing Agreement,
dated as of ____________, 1995
Ladies and Gentlemen:
This notice is given pursuant to Section 2.03(b) of the Receivables
Purchase and Servicing Agreement, dated as of ____________, 1995 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties (in
such capacity, the "Collateral Agent"), Merisel Capital Funding, Inc. (the
"Seller") and Merisel Americas, Inc. (the "Originator"). Capitalized terms used
but not defined in this notice have the meanings ascribed to such terms in the
Purchase Agreement.
The Seller hereby notifies the Purchaser and the Operating Agent that on
___________, 19__ (which is a Business Day) the Seller intends to repay
$__________ of Purchases currently outstanding to the Seller pursuant to Section
2.06(b) of the Purchase Agreement, including (i) all Interest accrued on the
principal amount of Purchases being repaid through the date of repayment, and
<PAGE>
(ii) any and all Breakage Costs payable under Section 2.11 of the Purchase
Agreement.
Very truly yours,
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
2
<PAGE>
Exhibit B
to
Purchase Agreement
FORM OF PURCHASE ASSIGNMENT
---------------------------
ASSIGNMENT, dated as of October 2, 1995 between MERISEL CAPITAL FUNDING,
INC. (the "Seller") and REDWOOD RECEIVABLES CORPORATION (the "Purchaser").
1. We refer to the Receivables Purchase and Servicing Agreement (the
"PURCHASE AGREEMENT") dated as of October 2, 1995 among the Seller, the
Purchaser, Merisel Americas, Inc. and General Electric Capital Corporation. All
provisions of such Purchase Agreement are incorporated herein by reference. All
capitalized terms shall have the meanings set forth in the Purchase Agreement.
2. The Seller does hereby sell to the Purchaser all right, title and
interest of the Seller in and to all Transferred Receivables transferred to the
Seller from time to time pursuant to the Receivables Transfer Agreement dated as
of October 2, 1995 between Merisel Americas, Inc. and the Seller.
3. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
MERISEL CAPITAL FUNDING, INC. REDWOOD RECEIVABLES
CORPORATION
By: ________________________ By: _________________________
Name: Name:
Title: Title:
<PAGE>
Exhibit C
to
Purchase Agreement
FORM OF INVESTMENT BASE CERTIFICATE
-----------------------------------
<PAGE>
Exhibit D
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE AS TO SOLVENCY
--------------------------------------------
MERISEL AMERICAS, INC.
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Merisel
Americas, Inc. (the "Originator"), hereby certify in connection with the
Receivables Purchase and Servicing Agreement, dated as of ____________, 1995
(the "Purchase Agreement"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in the Purchase Agreement),
between Merisel Capital Funding, Inc. (the "Seller"), the Originator, Redwood
Receivables Corporation (the "Purchaser") and General Electric Capital
Corporation, as agent for the Purchaser (in such capacity, the "Operating
Agent") and as collateral agent for the Purchaser Secured Parties (in such
capacity, the "Collateral Agent"), and for the benefit of the Purchaser, the
Operating Agent and the Collateral Agent, as follows:
(1) the performance of the Transfer Agreement, dated as of
____________, 1995, between the Originator, as seller, and the Seller, as
buyer, will not render the Seller insolvent; and
(2) the Seller will be able to remain economically viable without
further investments by the Originator for the foreseeable future.
IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate
this _____ day of ___________, 1995;
MERISEL AMERICAS, INC.
By:____________________________
Name:
Title:
<PAGE>
Exhibit E
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE OF SELLER
---------------------------------------
MERISEL CAPITAL FUNDING, INC.
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Merisel Capital
Funding, Inc. (the "Seller"), hereby certify pursuant to Section 3.01(c)(iv) of
the Receivables Purchase and Servicing Agreement, dated as of ____________, 1995
(the "Purchase Agreement"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in the Purchase Agreement),
between the Seller, Merisel Americas, Inc., Redwood Receivables Corporation (the
"Purchaser") and General Electric Capital Corporation, as agent for the
Purchaser (in such capacity, the "Operating Agent") and as collateral agent (in
such capacity, the "Collateral Agent") for the Purchaser Secured Parties (as
defined in the Purchase Agreement), and for the benefit of the Purchaser, the
Operating Agent and the Collateral Agent, as follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Termination Event or Incipient Event will have occurred and
be continuing; and
(2) the representations and warranties of the Seller contained in
Section 4.01 of the Purchase Agreement, in the Transfer Agreement and in
any other document, certificate or financial or other statement delivered
by the Seller in connection with the Purchase Agreement or the Transfer
Agreement are true and correct in all material respects and with the same
force and effect as though such representations and warranties had been
made as of such date, except to the extent any such representations and
warranties relate solely to an earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate
this _____ day of ___________, 1995.
MERISEL CAPITAL FUNDING, INC.
By:____________________________
Name:
Title:
<PAGE>
Exhibit F
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE OF SERVICER
-----------------------------------------
MERISEL AMERICAS, INC.
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Merisel Americas,
Inc. (the "Servicer"), hereby certify pursuant to Section 3.01(d)(iv) of the
Receivables Purchase and Servicing Agreement, dated as of ____________, 1995
(the "Purchase Agreement"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in the Purchase Agreement),
between Merisel Capital Funding, Inc. (the "Seller"), the Servicer, Redwood
Receivables Corporation (the "Purchaser") and General Electric Capital
Corporation, as agent for the Purchaser (in such capacity, the "Operating
Agent") and as collateral agent (in such capacity, the "Collateral Agent") for
the Purchaser Secured Parties (as defined in the Purchase Agreement), and for
the benefit of the Purchaser, the Operating Agent and the Collateral Agent, as
follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Event of Servicer Termination or event which, with the giving
of notice or lapse of time, or both, will have occurred and be continuing;
and
(2) the representations and warranties of the Servicer contained in
Section 4.02 of the Purchase Agreement and in any other document,
certificate or financial or other statement delivered by the Servicer in
connection with the Purchase Agreement are true and correct in all material
respects and with the same force and effect as though such representations
and warranties had been made as of such date, except to the extent any such
representations and warranties relate solely to an earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate
this _____ day of _____________, 1995.
MERISEL AMERICAS, INC.
By:____________________________
Name:
Title:
<PAGE>
Exhibit G
to
Purchase Agreement
FORM OF MONTHLY REPORT
----------------------
MERISEL CAPITAL FUNDING, INC.
<PAGE>
Exhibit H
to
Purchase Agreement
FINANCIAL COVENANTS
-------------------
<TABLE>
<CAPTION>
Covenant Covenant Level
-------- --------------
<C> <S> <C>
I. Parent Tangible Net Worth
Effective Date to $100,000,000
12/30/1996
12/31/1996 to $125,000,000
12/30/1997
12/31/1997 to $150,000,000
termination
Fixed Charge
Coverage Ratio
Effective Date to 1.0 to 1.0
9/30/1996
10/1/1996 to 1.4 to 1.0
6/30/1997
6/30/1997 to 1.5 to 1.0
termination
II. Seller Net Worth Percentage 15%
Receivable Collection 50.0 days
Turnover
Default Ratio 3.5%
Delinquency Ratio 10.0%
Gross Dilution Ratio 15.0%
Net Dilution Ratio 8.0%
</TABLE>
Capitalized terms used above and not otherwise defined below shall have the
meanings specified in Annex X to the Purchase Agreement.
"Capital Expenditures" means all payments for any fixed amounts or
--------------------
improvements or for replacements, substitution, or additions thereto, which are
<PAGE>
required to be capitalized in accordance with GAAP, except for capital amounts
financed.
"Cash Interest Expense" means, with respect to any Person and its
---------------------
consolidated subsidiaries for any period, (i) the sum of the amount of cash
interest payable on all Debt of such Person and its consolidated Subsidiaries
(other than interest expense eliminated in consolidation in accordance with
GAAP) and (ii) Redwood Yield, if any, for such Person.
"EBITDA" means, for any Person with respect to any period, (a) consolidated
------
net income of such Person and its consolidated subsidiaries for such period,
plus to the extent deducted in determining net income, (b) the sum of (i) such
Person's and its consolidated subsidiaries' depreciation and amortization for
such period, (ii) Cash Interest Expense for such period, (iii) any provision for
taxes based on income or profits that was deducted in computing consolidated net
income for such period, and (iv) any other non-cash charges.
"Fixed Charges" means, with respect to any Person for any period, the sum
-------------
of the following amounts payable during such period by such Person and its
consolidated subsidiaries: (i) Cash Interest Expense in respect of Funded Debt;
(ii) regularly scheduled principal payments on Funded Debt; and (iii) Capital
Expenditures.
"Fixed Charge Coverage Ratio" means with respect to any Person and its
---------------------------
consolidated subsidiaries, the ratio of (i) EBITDA to (ii) Fixed Charges for the
fiscal quarter ending December 31, 1995, for the two fiscal quarter period
ending March 31, 1995, for the three fiscal quarter period ending June 30, 1996
and for each four fiscal quarter period on the last day of each fiscal quarter
thereafter.
"Funded Debt" means, with respect to any Person and its consolidated
-----------
subsidiaries, all Debt of such Person and its consolidated subsidiaries which by
the terms of the agreement governing or instrument evidencing such Debt matures
more than one year from, or is directly or indirectly renewable or extendible at
the option of the debtor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of more than one
year from, the date of creation thereof, including current maturities of long-
term debt, revolving credit, and short-term debt extendable beyond one year at
the option of such Person and its consolidated subsidiaries.
"Net Worth Percentage" means a fraction (expressed as a percentage) (i)
--------------------
the numerator of which is the excess of assets over liabilities, each determined
in accordance with GAAP on a basis consistent with the last audited financial
statements and (ii) the denominator of which is the Outstanding Balance of
Transferred Receivables.
"Tangible Net Worth" means, with respect to any Person and its consolidated
------------------
subsidiaries, (i) the excess of consolidated assets over consolidated
liabilities, calculated without giving any effect to any foreign currency
translation
2
<PAGE>
adjustments, each determined in accordance with GAAP on a basis consistent with
the last audited financial statements, minus (ii) the total amount of all assets
which would be classified in accordance with GAAP as "intangible" including
goodwill and covenants not to compete, plus (iii) Subordinated Debt, plus (iii)
LIFO reserve net of taxes.
For purposes of these financial covenants "Debt" shall not include indebtedness,
obligations and liabilities of any Person under any interest rate, swap, "cap",
"collar" or other hedging agreement.
3
<PAGE>
Exhibit I
to
Purchase Agreement
FORM OF FLOOR PLAN OBLIGOR ACKNOWLEDGEMENT
------------------------------------------
[LETTERHEAD OF MERISEL, INC.]/2/
[Date]
[Name and Address of Floor
Plan Financing Company]
Re: [TITLE, DATE AND PARTIES TO
FLOOR PLAN FINANCING AGREEMENT]
------------------------------
Dear __________:
We refer to the agreement referenced above (the "Agreement") pursuant to
which [Floor Plan Financing Company] has agreed to extend financing to certain
dealers or distributors to which Merisel Americas, Inc. ("Merisel") currently
sells inventory and equipment. Notwithstanding any term or provision of the
Agreement, our understanding of the transactions contemplated thereby and the
respective rights and obligations of the parties thereto is set forth herein.
Merisel receives an order from a dealer or distributor. Merisel
processes the order by verifying whether or not such retailer is approved for
financing by your company. In the event such dealer or distributor is approved
for financing, Merisel issues an invoice for the amount of such order to your
company and delivers the goods ordered to the dealer or distributor on your
behalf. Your company is then obligated as purchaser of such goods, pursuant to
the terms of the invoice. In the event all or any portion of the goods sold to
you are returned by you or the dealer or distributor, on your behalf, in
accordance with the Agreement, Merisel is obligated to repurchase the returned
goods in accordance with the Agreement.
- ------------
/2/ Please note that this letter should be sent on Merisel Americas, Inc.
letterhead for the Nationscredit and Deutsche Financial floor plan
agreements.
<PAGE>
If the foregoing represents your understanding of the agreement between
your company and us, please evidence your consent and agreement by signing and
returning the enclosed copy of this letter.
Very truly yours,
[MERISEL]
By:______________________
Title:___________________
Acknowledged and Accepted as of
, 1995
[Floor Plan Financing Company]
By:__________________________
Title:_______________________
5
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
ANNEX X
TO
RECEIVABLES TRANSFER AGREEMENT
AND
RECEIVABLES PURCHASE AND SERVICING AGREEMENT
Dated as of
October 2, 1995
DEFINITIONS AND INTERPRETATION
<PAGE>
SECTION 1. Definitions and Conventions. As used in the Transfer Agreement
---------------------------
and the Purchase Agreement, the following terms shall have the following
meanings:
"Accession Agreement" means an Accession Agreement substantially in the
-------------------
form of Exhibit A to the Collateral Agent Agreement.
"Accountants' Letter" has the meaning specified in Section 4.02(a) of the
-------------------
Transfer Agreement.
"Accrued Monthly Yield" means for any day within a Settlement Period, the
---------------------
Daily Yield calculated for each day from and including the first day of the
Settlement Period through and including the day for which the calculation is
being made.
"Accrued Servicing Fee" means for any day within a Settlement Period, the
---------------------
Servicing Fee calculated for each day from and including the first day of the
Settlement Period through and including the day for which the calculation is
being made.
"Accrued Unused Commitment Fee" means for any day within a Settlement
-----------------------------
Period, the Unused Commitment Fee calculated for each day from and including the
first day of the Settlement Period through and including the day for which the
calculation is being made.
"Accumulated Funding Deficiency" has the meaning provided in Section 412 of
------------------------------
the Internal Revenue Code and Section 302 of ERISA, whether or not waived.
"Additional Amounts" means any amounts payable to any Affected Party under
------------------
Sections 2.10 and 2.11 of the Purchase Agreement.
"Additional Costs" has the meaning specified in Section 2.10(b) of the
----------------
Purchase Agreement.
"Adjusted Dilution Ratio" means, on any date of determination, the ratio
-----------------------
(expressed as a percentage) computed by dividing:
(a) an amount equal to (i) the aggregate amount of Dilution Factors, minus
(ii) the sum of the overstocked returns, refused shipments and defective
returns, each of (i) and (ii) as reflected on the books of each Originator
during the Settlement Period preceding such day
by
--
(b) Adjusted Generated Receivables as of the third Settlement Period
preceding such day.
<PAGE>
"Adjusted Generated Receivables" means the Outstanding Balance of all
------------------------------
Transferred Receivables generated during the Settlement Period minus the sum of
refused shipments and overstocked returns reflected on the books of the
Originator during such Settlement Period.
"Administration Fee" means a fee payable by the Seller to the Purchaser in
------------------
respect of each Settlement Period as set out in the Fee Letter between the
Seller and the Purchaser.
"Adverse Claim" means any claim of ownership or any lien, security
-------------
interest, title retention, trust or other charge or encumbrance, or other type
of preferential arrangement having the effect or purpose of creating a lien or
security interest, other than the ownership or security interest created under
the Purchase Agreement or under the Collateral Agent Agreement.
"Affected Party" means the Purchaser, any of the Liquidity Lenders, the
--------------
Operating Agent, any of the Letter of Credit Providers, the Collateral Agent, or
any Affiliate of the foregoing persons.
"Affiliate" means, as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities Act
of 1933, as amended.
"Agreement" means the Transfer Agreement or the Purchase Agreement, as the
---------
case may be.
"Assignment" has the meaning specified in Section 2.01(a) of the Transfer
----------
Agreement.
"Authorized Officer" means, with respect to any corporation, the Chairman
------------------
or Vice-Chairman of the Board, the President, any Vice President, the Secretary,
the Treasurer, any Assistant Secretary, any Assistant Treasurer and each other
officer of such corporation specifically authorized in resolutions of the Board
of Directors of such corporation to sign agreements, instruments or other
documents in connection with the Transfer Agreement or the Purchase Agreement.
"Availability" means, as of any date, the lesser of:
------------
(a) an amount equal to:
(i) the Investment Base
times
-----
(ii) the Purchase Discount Rate
2
<PAGE>
minus
-----
(iii) the Yield Discount Amount,
and
---
(b) the Maximum Purchase Limit then in effect.
"Billed Amount" means, with respect to any Receivable, the amount billed on
-------------
the Billing Date to the related Obligor with respect thereto.
"Billing Date" means the date on which the invoice with respect to a
------------
Receivable was generated.
"Breakage Costs" has the meaning specified in Section 2.11 of the Purchase
--------------
Agreement.
"Business Day" means any day of the year other than a Saturday, Sunday or
------------
any day on which banks generally are required, or authorized, to close in New
York, New York.
"Capital Investment" means, as of the date of any calculation, an amount
------------------
equal to (a) the aggregate deposits made in the Collection Account pursuant to
Section 2.04(b)(i) of the Purchase Agreement on or before such date minus (b)
-----
any amount disbursed to the Purchaser in reduction of Capital Investment
pursuant to Section 6.02, 6.03 or 6.05 of the Purchase Agreement on or before
such date.
"Capital Investment Available" means, as of the date of any calculation,
----------------------------
the excess, if any of Availability over Capital Investment at the opening of
business on such date.
"Capital Investment Shortfall" means, for any day with respect to which the
----------------------------
prior day the Deferred Purchase Price Adjustment for the prior day was greater
than zero and was not satisfied, the amount, if any, by which the Deferred
Purchase Price Adjustment calculated as of such prior day exceeded the amount of
Collections on deposit in the Capital Investment Sub-Account of the Collection
Account as of such prior day after disbursement of amounts set forth in Sections
6.03(c)(i) and (ii) of the Purchase Agreement.
"Capital Investment Sub-Account" means a sub-account of the Collection
------------------------------
Account designated as such.
"Cash Purchase Price" means, as of any date of Purchase, the amount
-------------------
distributable to the Seller pursuant to Section 6.03(c)(vii) of the Purchase
Agreement.
"CIESCO Agreement" means the Amended and Restated Trade Receivables
----------------
Purchase and Sale Agreement dated as of November 29, 1994 among
3
<PAGE>
Merisel Capital Funding, Inc., Corporate Receivables Corporation and Citicorp
North America, Inc. and the documents delivered in connection therewith.
"Collateral" means the Seller Collateral assigned and pledged by the Seller
----------
in Section 8.01 of the Purchase Agreement.
"Collateral Account" means the account maintained with the Depositary
------------------
described in Section 6.01(d) of the Purchase Agreement.
"Collateral Agent" means GE Capital or such other party designated as agent
----------------
for the secured parties under the Collateral Agent Agreement.
"Collateral Agent Agreement" means the Second Amended and Restated
--------------------------
Collateral Agent and Security Agreement, dated as of June 29, 1995, among the
Redwood, the Collateral Agent, the Letter of Credit Agent, the Liquidity Agent
and the Depositary.
"Collection Account" means the account maintained with the Depositary
------------------
described in Section 6.01(b) of the Purchase Agreement.
"Collections" means, with respect to any Receivable, all cash collections
-----------
and other Proceeds of such Receivable (including late charges, fees and interest
arising thereon, and all recoveries with respect to Receivables that have been
written off as uncollectible).
"Commercial Paper" means promissory notes issued by the Purchaser.
----------------
"Commonly Controlled Entity" means the Originators and any entity, whether
--------------------------
or not incorporated, affiliated with the Originators pursuant to Section 414(b),
(c), (m) or (o) of the Internal Revenue Code.
"Concentration Discount Amount" means, with respect to any Obligor, on any
-----------------------------
date after giving effect to all Eligible Receivables to be purchased on such
date, the amount by which the Outstanding Balance of Eligible Receivables
payable by such Obligor exceeds the lesser of either (a) the dollar amount (if
any) set forth on Schedule 1 to the Purchase Agreement, or (b) the product of
(i) such Obligor's percentage set forth on Schedule 1 to the Purchase Agreement
and (ii) the Outstanding Balance of all Transferred Receivables that are
Eligible Receivables on such date. The Concentration Discount Amount may be
changed at any time at the sole discretion of the Operating Agent and upon
satisfaction of the Rating Agency Condition.
"Contract" means (i) an agreement (including an invoice) pursuant to, or
--------
under which, an Obligor shall be obligated to pay for Receivables of such
Obligor to any Originator from time to time or (ii) any floor plan repurchase
agreement, repurchase agreement, inventory financing agreement or other floor
plan agreement, guarantee, insurance or other agreement from time to time
financing or otherwise
4
<PAGE>
supporting or securing payment of a Receivable to any Originator, in the case of
clause (ii) substantially the form of one of the forms of written contract
delivered to the Operating Agent prior to the date hereof (or in substantially
the form of any other form of written contract delivered from time to time to
the Operating Agent by the Seller after the date hereof if such other form shall
have been approved by the Operating Agent in its reasonable discretion).
"Contributed Receivable" has the meaning specified in Section 2.01(b) of
----------------------
the Transfer Agreement.
"CP Holder" means any Person holding record or beneficial ownership of
---------
Commercial Paper.
"CP Interest" has the meaning specified in Schedule 3.
-----------
"Credit and Collection Policies" means the credit and collection policies
------------------------------
of the Originator in effect on the Effective Date as such policies may hereafter
be amended, modified or supplemented from time to time with the written consent
of the Operating Agent.
"Daily Yield" has the meaning specified in Schedule 3 to the Purchase
-----------
Agreement.
"Daily Yield Rate" has the meaning specified in Schedule 3 to the Purchase
----------------
Agreement.
"Dealer" means any dealer under a Dealer Agreement.
------
"Dealer Agreement" means any dealer agreement entered into by the Purchaser
----------------
for the distribution of Commercial Paper.
"Debt" of any Person means indebtedness, obligations and liabilities of
----
such Person (a) for borrowed money, (b) evidenced by bonds, debentures, notes or
other similar instruments (excluding accrued interest), (c) to pay the deferred
purchase price of property or services (it being understood that Debt shall not
include obligations both (i) classified as accounts payable, accrued liabilities
or income taxes payable under GAAP, (ii) incurred in the ordinary course of
business and (iii) not delinquent or otherwise past due), (d) principal
obligations as lessee under leases which have been or should be, in accordance
with GAAP, recorded as capital leases, (e) secured by any lien or other charge
upon property or assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations (but only to the
extent of the fair market value of such property or assets), (f) under any
interest rate, swap, "cap", "collar" or other hedging agreement, (g) under
reimbursement agreements or similar agreements with respect to the issuance of
letters of credit (other than obligations in respect of letters of credit opened
to provide for payment of goods and services purchased in the ordinary course of
business), (h) under direct or indirect guaranties in respect of, and
5
<PAGE>
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (h) above,
and (i) liabilities in respect of unfunded vested benefits under plans covered
by ERISA, provided that no obligation, indebtedness or liability included in
-------- ----
Debt shall be included in more than one of clauses (a) through (i). For the
purposes hereof, the term "guarantee" shall include any agreement, whether such
agreement is on a contingency or otherwise, to purchase, repurchase or otherwise
acquire Debt of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose of
enabling another person to make payment of Debt, or to make any payment (whether
as an advance, capital contribution, purchase of an equity interest or
otherwise) to assure a minimum equity, asset base, working capital or other
balance sheet or financial condition, in connection with the Debt of another
Person, or to supply funds to or in any manner invest in another Person in
connection with Debt of such Person.
"Deemed Defaults" means for any Settlement Period, the sum of (i) the
---------------
aggregate Outstanding Balance of Transferred Receivables which were from 61 to
90 days past Maturity Date as of the last day of such Settlement Period, plus
(ii) the aggregate Outstanding Balances of Transferred Receivables which were
(A) written off as uncollectible during such Settlement Period and (B) not more
than 60 days past Maturity Date of the time of such write-off.
"Default Ratio" means, as of any date, the ratio (expressed as a
-------------
percentage) computed by dividing:
(a) the sum of (i) the Outstanding Balance of Transferred Receivables which
were more than 90 days past Maturity Date on the last day of each of the three
Settlement Periods preceding such date plus (ii) the Outstanding Balance of
Transferred Receivables written off as uncollectible during the three Settlement
Periods preceding such date
by
--
(b) the sum of the Outstanding Balance of all Transferred Receivables on
the last day of each of the three Settlement Periods preceding such day.
"Defaulted Receivable" means a Receivable (a) as to which any payment, or
--------------------
part thereof, remains unpaid for more than 90 days after the Maturity Date of
such Receivable, or (b) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 9.01(c) of the
Purchase Agreement in respect of the Obligor, or (c) which otherwise would be
determined to be uncollectible and written off in accordance with the Credit and
Collection Policies.
"Defective Goods Reserves" means, as of any date, an amount equal to the
------------------------
product of highest DRR for the twelve preceding Settlement Periods multiplied by
6
<PAGE>
the Outstanding Balance of Transferred Receivables transferred during the
preceding three Settlement Periods where "DRR" equals the fraction (expressed as
a percentage) where the numerator of which is the aggregate amount of defective
returns for the preceding Settlement Period shown on the books and records of
the Servicer and the denominator of which is the Outstanding Balance of
Transferred Receivables transferred during the preceding three Settlement
Periods.
"Deferred Purchase Price" means, as of any date of Purchase, an amount
-----------------------
equal to the product of (a) the Outstanding Balance of Receivables to be sold
and (b) the Deferred Purchase Price Rate, in each case as of such date.
"Deferred Purchase Price Adjustment" means, as of the end of any date
----------------------------------
during the Revolving Period, an amount (positive or negative) equal to (a) the
product of (i)(A) the Deferred Purchase Price Rate calculated as of the end of
the previous date on which a Deferred Purchase Price Adjustment was calculated
minus (B) the Deferred Purchase Price Rate as of the end of such date; and (ii)
- -----
(A) the aggregate Outstanding Balance of Transferred Receivables as of the end
of the previous date on which a Deferred Purchase Price Adjustment was
calculated, minus (B) Collections received since the end of the previous date on
which a Deferred Purchase Price Adjustment was calculated minus (C) Defaults and
other non-cash dilutions since the end of the previous date on which a Deferred
Purchase Price Adjustment was calculated, minus (b) the Deferred Purchase Price
Shortfall, if any, plus (c) the Capital Investment Shortfall, if any.
"Deferred Purchase Price Collections" means, as of the end of the previous
-----------------------------------
date, an amount equal to the product of (a) Collections and (b) the Deferred
Purchase Price Rate, in each case as of such date.
"Deferred Purchase Price Outstanding" means, as of the end of any date, an
-----------------------------------
amount equal to the product of (a) the Outstanding Balance of Transferred
Receivables and (b) the Deferred Purchase Price Rate, in each case of such date.
"Deferred Purchase Price Shortfall" means, for any day with respect to
---------------------------------
which the prior day the Deferred Purchase Price Adjustment for the prior day was
less than zero and was not satisfied, the amount, if any, by which the Deferred
Purchase Price Adjustment calculated as of such prior day exceeded the amount of
Collections on deposit in the Deferred Purchase Price Sub-Account of the
Collection Account as of such prior day after disbursement of amounts set forth
in Sections 6.03(b)(i) and (ii) of the Purchase Agreement.
"Deferred Purchase Price Sub-Account" means a sub-account of the Collection
-----------------------------------
Account designated as such.
"Deferred Purchase Price Rate" means:
----------------------------
(a) as of the end of any date during the Revolving Period, a fraction
(expressed as a percentage) (i) the numerator of which equals the Outstanding
7
<PAGE>
Balance of Transferred Receivables minus Availability, in each case on such
-----
date, and (ii) the denominator of which is the Outstanding Balance of
Transferred Receivables on such date; and
(b) on any date after the Facility Termination Date, the Deferred Purchase
Price Rate calculated according to clause (a) immediately prior to the Facility
Termination Date.
"Delinquency Ratio" means, on any date of determination, the ratio
-----------------
(expressed as a percentage) computed by dividing:
(a) the Outstanding Balance of all Transferred Receivables that were
outstanding more than 30 days past their Maturity Date on the last day of each
of the last three Settlement Periods preceding such day
by
--
(b) the sum of the Outstanding Balance of all Transferred Receivables on
the last day of each of the three such Settlement Periods preceding such day.
"Delinquent Receivable" means any Receivable, other than a Defaulted
---------------------
Receivable, as to which any payment, or part thereof, remains unpaid for more
than 60 days past its Maturity Date.
"Depositary" means Bankers Trust Company, or any other Person designated as
----------
the successor Depositary from time to time in its capacity as issuing and paying
agent or trustee in connection with the issuance of Commercial Paper by Redwood.
"Dilution Factors" means, with respect to the Transferred Receivables, any
----------------
net credits, rebates, freight charges, cash discounts, volume discounts,
cooperative advertising expenses, royalty payments, warranties, cost of parts
required to be maintained by agreement (whether express or implied), warehouse
and other allowances, disputes, chargebacks, defective returns, other returned
or repossessed goods, inventory transfers, allowances for early payments and
other similar allowances that are made or coordinated with an Originator's usual
practices, in each case after, in the case of any Receivable, such Receivable
first became a "Receivable" hereunder; provided that any allowances or
adjustments in accordance with the Credit and Collection Policies made on
account of an Obligor's insolvency or inability to pay shall not constitute a
Dilution Factor.
"Dilution Funded Amount" means, for any date, an amount equal to (a) (i)
----------------------
(A) the Outstanding Balance of previously Transferred Receivables which have
become Defaulted Receivables plus (B) other non-cash reductions of the
Outstanding Balance of Transferred Receivables since the preceding Business Day,
times (ii) 1 minus the Deferred Purchase Price Rate as of the end of the
- -----
preceding Business Day,
8
<PAGE>
plus (b) the Dilution Funded Amount Shortfall, if any, outstanding at the end of
- ----
the preceding Business Day.
"Dilution Funded Amount Shortfall" means, for any date, an amount equal to
--------------------------------
the amount, if any, by which (a) the Dilution Funded Amount exceeds (b) (i) the
amount, if any, by which Deferred Purchase Price Collections exceed the sum of
the amounts set forth in Section 6.03(b)(i) of the Purchase Agreement.
"Dilution Reserve Ratio" means, on any date of determination, an amount
----------------------
(expressed as a percentage) calculated in accordance with the following formula:
HDR DILHOR
[(ADR x 2.00) + [(HDR - ADR) x ---]] x ------
ADR NRPB
where:
ADR = the ratio (expressed as a percentage) computed by dividing:
(a) an amount equal to (i) the aggregate amount of Dilution
Factors minus (ii) the sum of the overstocked returns,
refused shipments and defective returns, each of (i) and
(ii) as reflected on the books of the Originator during the
prior twelve Settlement Periods
by
--
(b) Adjusted Generated Receivables during the period commencing
on the first day of the fourteenth Settlement Period prior
to such day and ending on the last day of the third
Settlement Period prior to such day.
HDR = the highest Adjusted Dilution Ratio within the last twelve
Settlement Periods
DILHOR = Adjusted Generated Receivables recorded during the prior two
Settlement Periods
NRPB = the Outstanding Balance of Eligible Receivables on the last
day of the preceding Settlement Period.
The Dilution Reserve Ratio from the closing until the first month shall be
established by the Operating Agent at closing and the underlying calculations
for each of the twelve months preceding the first month after closing to be used
in future calculations of the Dilution Reserve Ratio shall be established by the
Operating Agent at closing in accordance with Schedule 1 attached to this Annex
X.
9
<PAGE>
"Effective Date" means the date of the Purchase Agreement.
--------------
"Eligible Receivable" means, at any time, a Transferred Receivable:
-------------------
(a) which is not the liability of an Excluded Obligor;
(b) which is a liability of an Obligor organized under the laws of any
jurisdiction in the United States and having its principal office in the United
States;
(c) which is denominated and payable in United States dollars;
(d) which is not a Delinquent Receivable or a Defaulted Receivable;
(e) as to which the representations and warranties of Section 4.01(b) of
the Transfer Agreement are true and correct in all respects as of the related
Transfer Date; and
(f) which complies with such other criteria and requirements as the
Operating Agent may from time to time specify to the Seller following 30 days'
notice or, if so required by either Rating Agency, upon the number of days
notice specified by such Rating Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it
-----
may be amended from time to time, and the regulations promulgated thereunder.
"Event of Servicer Termination" has the meaning specified in Section 9.02
-----------------------------
of the Purchase Agreement.
"Excluded Obligor" means an Obligor which is (a) an Affiliate of any
----------------
Originator or the Seller, (b) a Governmental Authority, (c) an Obligor of which
more than 50% of its Receivables are Delinquent Receivables or Defaulted
Receivables, (d) a Floor Plan Obligor, provided that no Floor Plan Obligor
shall be an Excluded Obligor for 90 days from the Effective Date and thereafter,
from the date that the Seller has obtained an acknowledgement from such Floor
Plan Obligor, or (e) an Obligor listed on Schedule 2 to the Purchase Agreement
as revised from time to time pursuant to a letter in the form of Annex A
thereto.
"Facility Termination Date" means the earlier of (a) the date so designated
-------------------------
pursuant to Section 9.01 of the Purchase Agreement as a result of a Termination
Event, and (b) 90 days prior to the Final Purchase Date.
"Fee Letter" means the letter dated October 2, 1995 between the Seller and
----------
the Purchaser.
"Final Purchase Date" means October 2, 2000.
-------------------
10
<PAGE>
"Floor Plan Obligor" means any Obligor referred to in clause (ii) of the
------------------
definition of "Obligor" contained in this Section 1.
"GAAP" means generally accepted accounting principles as in effect in the
----
United States, consistently applied, as of the date of such application.
"GE Capital" means General Electric Capital Corporation.
----------
"GE Persons" has the meaning specified in Section 5.01(b) of the Transfer
----------
Agreement.
"Governmental Authority" means the United States of America, any state,
----------------------
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
"Gross Dilution Ratio" means on any date of determination, the ratio
--------------------
(expressed as a percentage) computed by dividing:
(a) an amount equal to the aggregate amount of Dilution Factors reflected
on the books of the Originator during the three Settlement Periods preceding
such day
by
--
(b) the Outstanding Balance of all Transferred Receivables generated during
the third, fourth and fifth Settlement Periods preceding such day.
"Incipient Event" means an event which, upon the giving of notice or the
---------------
passage of time, or both, may become a Termination Event.
"Indemnified Amounts" has the meaning specified in Section 12.01(a) of the
-------------------
Purchase Agreement.
"Indemnified Party" has the meaning specified in Section 12.01(a) of the
-----------------
Purchase Agreement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
---------------------
from time to time.
"Investment Base" means, for any date, as disclosed in the most recently
---------------
submitted Investment Base Certificate, an amount equal to the Outstanding
Balance of Transferred Receivables that are Eligible Receivables minus the
Reserves in respect of such Eligible Receivables.
"Investment Base Certificate" means an Officer's Certificate in the form of
---------------------------
Exhibit B to the Purchase Agreement.
11
<PAGE>
"Investments" means, with respect to any Seller Account Collateral, the
-----------
certificates, instruments or other Permitted Investments in which amounts in
such account are invested from time to time.
"Letter of Credit" means the letter of credit, dated June 29, 1995,
----------------
provided by the Letter of Credit Providers pursuant to the Letter of Credit
Agreement.
"Letter of Credit Agent" means GE Capital, in its capacity as agent for the
----------------------
Letter of Credit Providers under the Letter of Credit Agreement, and its
successors and permitted assigns in such capacity.
"Letter of Credit Agreement" means the Second Amended and Restated Letter
--------------------------
of Credit Reimbursement Agreement, dated as of June 29, 1995, among the Redwood,
the Letter of Credit Agent and the Letter of Credit Providers.
"Letter of Credit Fee" has the meaning specified in the Fee Letter.
--------------------
"Letter of Credit Providers" means, initially, GE Capital, as provider of
--------------------------
the Letter of Credit under the Letter of Credit Agreement, and thereafter its
successors and any permitted assigns in such capacity.
"Liquidity Agent" means GE Capital and its successors and assigns as agent
---------------
for the Liquidity Lenders pursuant to the Liquidity Loan Agreement.
"Liquidity Lenders" means, collectively, GE Capital and any other provider
-----------------
of Liquidity Loans under the Liquidity Loan Agreement.
"Liquidity Loan Agreement" means the Second Amended and Restated Liquidity
------------------------
Loan Agreement, dated as of June 29, 1995 among Redwood, the Liquidity Lenders
and the Liquidity Agent in connection with the provision of liquidity support
for Redwood.
"Liquidity Loans" means borrowings by Redwood under the Liquidity Loan
---------------
Agreement.
"LOC Draw" means a draw under the Letter of Credit Agreement.
--------
"Lockbox" has the meaning specified in Section 6.01(a)(ii) of the Purchase
-------
Agreement.
"Lockbox Account" means one or more segregated deposit accounts described
---------------
in Section 6.01(a) of the Purchase Agreement in the name of the Operating Agent,
into which all Collections in respect of Transferred Receivables shall be
deposited.
"Lockbox Agreement" means one or more agreements among an Originator, the
-----------------
Seller, the Operating Agent, the Purchaser and a Lockbox Bank with
12
<PAGE>
respect to a Lockbox Account, (a) providing that all Collections therein shall
be remitted directly to the Collection Account within one Business Day of
receipt, (b) providing that such depositary institution waives its rights of
set-off with respect to such Lockbox Account, and (c) otherwise reasonably
satisfactory to the Operating Agent.
"Lockbox Bank" means any of the banks or other financial institutions
------------
holding one or more Lockbox Accounts.
"Loss Reserve Ratio" means, on any date of determination, an amount
------------------
(expressed as a percentage) calculated in accordance with the following formula:
DEFHOR
2.00 x ARR x ------
NRPB
where:
ARR = the highest Three Month Aged Receivables Ratio that occurred
during the last twelve Settlement Periods.
DEFHOR = Adjusted Generated Receivables recorded during the prior three
Settlement Periods.
NRPB = the Outstanding Balance of Eligible Receivables on the last day
of the preceding Settlement Period.
The underlying calculations for the Loss Reserve Ratio for each of the twelve
months preceding the first month after closing to be used in future calculations
of the Loss Reserve Ratio shall be established by the Operating Agent at closing
in accordance with Schedule 1 attached to this Annex X.
"Margin" means, for any period, the sum of the "Daily Margin Amounts" for
------
each day in such period, where the "Daily Margin Amount" equals the Daily Margin
(as specified in Schedule 3 to the Purchase Agreement) for each such day
multiplied by the Capital Investment on each such day.
"Maturity Date", for any Receivable, means the due date for payment
-------------
specified in the related Contract, or, if no date is specified, 60 days from the
Billing Date.
"Maximum Purchase Limit" means $300,000,000, as such amount may be subject
----------------------
to reduction in accordance with Section 2.02(a) of the Purchase Agreement.
"MCF" means Merisel Capital Funding, Inc. as a purchaser and transferee of
---
Transferred Receivables under the Transfer Agreement and the Seller under the
Purchase Agreement.
13
<PAGE>
"Monthly Report" means the Monthly Report in the form of Exhibit G to the
--------------
Purchase Agreement.
"Moody's" means Moody's Investors Service, Inc. or any successor thereto.
-------
"Multiemployer Plan" means a multiemployer plan (within the meaning of
------------------
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"Net Dilution Ratio" means, on any date of determination, the ratio
------------------
(expressed as a percentage) computed by dividing:
(a) an amount equal to (i) the aggregate amount of Dilution Factors, minus
(ii) the sum of the overstocked returns and the refused shipments, each of (i)
and (ii) as reflected on the books of the Originator during the prior three
Settlement Periods
by
--
(b) the Adjusted Generated Receivables recorded during the third, fourth
and fifth Settlement Periods preceding such day.
"Net Proceeds Amount" means the face amount of Commercial Paper minus the
-------------------
discount on the price to the public and Dealer fees for such Commercial Paper.
"Obligor" means a Person (other than the Seller or the Originator) either
-------
(i) which is obligated to make payments pursuant to a Contract of the type
described in clause (i) of the definition of the term "Contract" contained in
this Section 1 or (ii) which has financed or is obligated to finance (by lending
to an Obligor referred to in clause (i) above, or by purchasing from the
Originator, if the consideration to be paid by such Person for such purchase is
in the form of indebtedness, or the Seller, if such consideration is in the form
of cash, or otherwise), or is a party to an agreement that contemplates that
such Person may so finance, a Receivable.
"Officer's Certificate" means, with respect to any Person, a certificate
---------------------
signed by and Authorized Officer.
"Operating Agent" means GE Capital, as Operating Agent under the Purchase
---------------
Agreement, together with its successors and assigns.
"Operating Agent Agreement" means the Operating Agent Agreement, dated as
-------------------------
of March 15, 1994, between Redwood and the Operating Agent.
"Orders" has the meaning specified in Section 4.01(a)(viii) of the Transfer
------
Agreement.
14
<PAGE>
"Original Obligor" means any Obligor referred to in clause (i) of the
----------------
definition of "Obligor" contained in this Section 1.
"Originator" means individually or collectively, as the case may be (i)
----------
initially, Merisel Americas, Inc., a Delaware corporation, and (ii) if any other
Affiliate of the Parent becomes an Originator under Section 2.03 of the Transfer
Agreement, such other Affiliate.
"Other Purchase Agreements" means other agreements for the purchase or
-------------------------
funding of receivables entered into from time to time by the Purchaser in which
it is contemplated that such purchases or fundings will be financed in a similar
manner as contemplated hereunder.
"Outstanding Balance" of any Receivable at any time means an amount (not
-------------------
less than zero) equal to (a) its Billed Amount, minus (b) all payments received
from the Obligor with respect thereto, minus (c) all discounts to or any other
modifications that reduce the Billed Amount; provided, that if the Operating
--------
Agent or the Servicer reasonably makes a determination that all payments by the
Obligor with respect to such Billed Amount have been made, the Outstanding
Balance shall be zero.
"Parent" means Merisel, Inc., a Delaware corporation.
------
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Permitted Investments" means one or more of the following:
---------------------
(a) obligations of, or guaranteed as to the full and timely payment of
principal and interest by, the United States or obligations of any agency or
instrumentality thereof, when such obligations are backed by the full faith and
credit of the United States;
(b) repurchase agreements on obligations specified in clause (a); provided,
that the short-term debt obligations of the party agreeing to repurchase are
rated at least A-1+ by S&P and P-1 by Moody's;
(c) federal funds, certificates of deposit, time deposits and bankers'
acceptances (which shall each have an original maturity of not more than 90 days
or, in the case of bankers' acceptances, shall in no event have an original
maturity of more than 365 days) of any United States depository institution or
trust company incorporated under the laws of the United States or any state;
provided, that the short-term obligations of such depository institution or
trust company are rated at least A-1+ by S&P and P-1 by Moody's;
15
<PAGE>
(d) commercial paper (having original maturities of not more than 30 days)
of any corporation incorporated under the laws of the United States or any state
thereof which on the date of acquisition are rated at least A-1+ by S&P and P-1
by Moody's;
(e) securities of money market funds rated at least Aam by S&P and P-1 by
Moody's; and
(f) such other investments with respect to which each Rating Agency shall
have confirmed in writing to the Purchaser and Collateral Agent that such
investments shall not result in a withdrawal or reduction of the then current
rating by such Rating Agency of the Commercial Paper.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, association, joint venture,
Governmental Authority or any other entity of whatever nature.
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
----
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Price Protection Reserve" means, for any day, the amount shown on the
------------------------
Servicer's books and records as the "Reserve for Price Protection" as of the
preceding Settlement Period.
"Proceeds" means, with respect to any Collateral, whatever is receivable or
--------
received when such Collateral is sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
all rights to payment, including returned premiums, with respect to any
insurance relating to such Collateral.
"Program Documents" means the Letter of Credit Agreement, the Liquidity
-----------------
Loan Agreement, the Collateral Agent Agreement, the Depositary Agreement,
Commercial Paper Notes, the Operating Agent Agreement, each Accession Agreement
and the Dealer Agreements.
"Purchase" means a purchase of Receivables (or interests therein) by the
--------
Purchaser from the Seller pursuant to Section 2.01 of the Purchase Agreement.
"Purchase Agreement" means the Receivables Purchase and Servicing
------------------
Agreement, dated as of October 2, 1995 among the Seller, Redwood (as the
Purchaser), the Operating Agent, the Collateral Agent and the Originator, as
Servicer.
"Purchase Assignment" means the Assignment entered into by the Seller and
-------------------
the Purchaser in the form attached as Exhibit B to the Purchase Agreement.
"Purchase Date" means each day on which a Purchase is made.
-------------
16
<PAGE>
"Purchase Discount Rate" means a rate, as of any date, equal to 100% minus
----------------------
the greater of (a) (i) the sum of the Loss Reserve Ratio and the Dilution
Reserve Ratio minus (ii) 15%, or (b) 25%.
"Purchase Excess" means, for any date, as disclosed in the most recently
---------------
submitted Investment Base Certificate, the extent to which the then Capital
Investment exceeds the Availability as of such date.
"Purchaser" means Redwood Receivables Corporation, a Delaware corporation.
---------
"Purchaser Secured Parties" means the CP Holders, the Depositary, the
-------------------------
Transaction Liquidity Agent, the Transaction Liquidity Lenders, the Letter of
Credit Agent and the Letter of Credit Providers.
"Rating Agency" means each of Moody's and S&P.
-------------
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency has notified the Operating Agent and the Purchaser in writing that
such action will not result in a reduction or withdrawal of the rating of any
outstanding Commercial Paper.
"Receivable" means:
----------
(a) indebtedness of an Obligor (whether constituting an account, chattel
paper, instrument or general intangible) arising from the provision of
merchandise, goods or services by an Originator from the U.S. General
Distribution Division (as such may be renamed from time to time) and such other
divisions and businesses as may be added from time to time pursuant to the
Transfer Agreement to such Obligor, including the right to payment of any
interest or finance charges and other obligations of such Obligor with respect
thereto including, without limitation, (i) the indebtedness of any Original
Obligor under a Contract of the type described in clause (i) of the definition
of the term "Contract" arising from a sale of merchandise by the Seller to such
Original Obligor, including without limitation any such indebtedness which may
be financed by any Floor Plan Obligor, and (ii) the indebtedness of any Floor
Plan Obligor arising from the sale by the Originator of any indebtedness
referred to in clause (i) above to such Floor Plan Obligor under the agreement
or arrangement of the type described in clause (c) hereof relating to such
indebtedness;
(b) all security interests or liens and property subject thereto from time
to time securing or purporting to secure payment by the Obligor;
(c) all rights under any floor plan repurchase agreements, repurchase
agreements, inventory financing agreements, and other floor plan agreements, and
all guarantees, indemnities and warranties and proceeds thereof, proceeds of
insurance policies, financing statements and other agreements or arrangements of
whatever
17
<PAGE>
character, in each case from time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to such Receivable or
otherwise;
(d) all Collections with respect to any of the foregoing;
(e) all Records with respect to any of the foregoing; and
(f) all Proceeds of any of the foregoing.
Unless otherwise stated, the term "Obligor" of any Receivable refers to both the
Original Obligor that owes such Receivable and, if applicable, the Floor Plan
Obligor that finances, or may finance, such Receivable.
"Receivable Collection Turnover" means, on any date of determination, a
------------------------------
number of days equal to:
(a) a fraction, the numerator of which is equal to the average of the
Outstanding Balance of Transferred Receivables on the first day of each
Settlement Period during the prior twelve Settlement Periods and the denominator
of which is equal to aggregate Collections received during such twelve
Settlement Periods with respect to all Receivables originated by the
Originators,
multiplied by
-------------
(b) the number of days in such prior twelve month period.
"Records" means all Contracts and other documents, books, records and other
-------
information (including, without limitation, computer programs, tapes, disks,
data processing software and related property and rights) prepared and
maintained by any Originator, the Servicer or the Seller with respect to
Receivables and the related Obligors.
"Redwood" means Redwood Receivables Corporation, a Delaware corporation.
-------
"Redwood Yield" for any period means the sum of the Daily Yield for each
-------------
day in such period, as more fully specified in Schedule 3 of the Purchase
Agreement.
"Refused Shipment Reserves" means, for any day, an amount equal to the
-------------------------
product of highest RSP for the preceding twelve Settlement Periods multiplied by
the Outstanding Balance of Transferred Receivables transferred during the
preceding Settlement Period, where "RSP" equals the fraction (expressed as a
percentage) where the numerator of which is the aggregate amount of refused
shipments for the preceding three Settlement Periods shown on the books and
records of the Servicer and the denominator of which is the Outstanding Balance
of Transferred Receivables transferred during the preceding three Settlement
Periods.
18
<PAGE>
"Regulatory Change" means any change after the Effective Date in federal,
-----------------
state or foreign law or regulations (including, without limitation, Regulation D
of the Federal Reserve Board) or the adoption or making after such date of any
interpretation, directive or request applying to any Affected Party of or under
any federal, state or foreign law or regulations (whether or not having the
force of law) by any Governmental Authority charged with the interpretation or
administration thereof.
"Rejected Amount" means the amount of the capital contribution which the
---------------
Originator is required to make to the Seller (as determined by the Operating
Agent) as a result of breaches of representations and warranties with respect to
Receivables transferred to the Seller by the Originator pursuant to Section 4.04
of the Transfer Agreement.
"Related Documents" means each Lockbox Agreement, the Transfer Agreement,
-----------------
the Purchase Agreement, the Subordinated Note. the Assignment and all
agreements, instruments, certificates, financing statements or other documents
required to be delivered thereunder.
"Reportable Event" means any of the events set forth in Section 4043(c) of
----------------
ERISA or the regulations thereunder.
"Requested Amount" means the amount which an Originator wishes to receive
----------------
from the sale of Receivables on any Transfer Date.
"Request Notice" means, as more fully described in Section 2.01(b) of the
--------------
Transfer Agreement, a notice in the form of a computer print-out, tape or other
form of communication acceptable to the Operating Agent, which (a) enables
identification of the amount of Receivables sold and contributed on a Transfer
Date by an Originator to the Seller, (b) sets forth the amount of payments
received the Transferred Receivables since the prior Transfer Date, and (c) sets
forth the Requested Amount for the following Transfer Date.
"Reserves" means, for any day, the sum of the Concentration Discount
--------
Amount, the Defective Goods Reserve, the Refused Shipment Reserve and the Price
Protection Reserve.
"Retained Monthly Yield" means, for any day within a Settlement Period, the
----------------------
sum of all amounts transferred to or retained in the Retention Account with
respect to Daily Yield calculated as of the previous day in accordance with
Section 6.03(b)(i)(A) of the Purchase Agreement.
"Retained Servicing Fee" means, for any day within a Settlement Period, the
----------------------
sum of all amounts transferred to or retained in the Retention Account with
respect to the Servicing Fee calculated as of the previous day in accordance
with Section 6.03(b)(i)(C) of the Purchase Agreement.
19
<PAGE>
"Retained Unused Commitment Fee" means, for any day within a Settlement
------------------------------
Period, the sum of all amounts transferred to or retained in the Retention
Account with respect to the Unused Commitment Fee calculated as of the previous
day in accordance with Section 6.03(b)(i)(E) of the Purchase Agreement.
"Retention Account" means the account maintained with the Depositary
-----------------
described in Section 6.01(c) of the Purchase Agreement.
"Retention Account Deficiency" means, for any Settlement Date, any
----------------------------
deficiency in the amounts on deposit in the Retention Account necessary to make
the payments required under Sections 6.04(a)(i), (ii), (iii) and (iv) of the
Purchase Agreement.
"Revolving Period" means the period commencing on the Effective Date and
----------------
ending on the day prior to the Facility Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
---
Hill Companies, Inc. or any successor thereto.
"Sale" means a sale of Receivables by an Originator to the Seller under the
----
Transfer Agreement.
"Sale Price" means with respect to the Receivables to be sold by any
----------
Originator to the Seller on any Transfer Date, the price calculated by the
Seller and the Originator and approved from time to time by the Operating Agent,
equal to the product of:
(a) the Outstanding Balance of Receivables to be sold by such Originator to
the Seller on such date, times
-----
(b) a discount reflecting (i) the expected costs to be incurred by the
Seller of financing such purchase of such Sold Receivables until the Outstanding
Balance of such Sold Receivable is paid in full, (ii) the portion of such Sold
Receivables that are reasonably expected by such Originator to become Defaulted
Receivables, (iii) the portion of such Sold Receivables that are reasonably
expected by such Originator to be reduced by means other than receipt of
Collections on such Sold Receivables or pursuant to (ii) above, and (iv) a
profit margin agreed by the Seller and Originator reasonably calculated to
provide to the Seller at least an annual yield of no less than 10% and no more
than 15% on the equity of the Seller,
in each of (i), (ii) and (iii) determined based on historical experience of
such Originator. As of the Effective Date until the Settlement Date
occurring three months after the Effective Date, the Sale Price shall equal
96.4% and shall thereafter be recalculated on the Settlement Date occurring
after the end of each successive three month period. If the Seller and
Originator fail to agree on, or the Operating Agent fails to approve, a new
Sale Price, the previously calculated Sale Price shall be used until such
agreement is reached or approval
20
<PAGE>
is given; provided that the Operating Agent shall be deemed to have
approved any calculation of the Sale Price if, on any date, the Sale Price
shall be an amount less than or equal to 100% less the dilution and default
experience on the Transferred Receivables, in each case as shown on the
books and records of the Servicer, for the three Settlement Periods prior
to such date.
"Seller" means Merisel Capital Funding, Inc., a wholly owned Subsidiary of
------
the Originator.
"Seller Account Collateral" has the meaning specified in Section 8.01(c) of
-------------------------
the Purchase Agreement.
"Seller Assigned Agreements" has the meaning specified in Section 8.01(b)
--------------------------
of the Purchase Agreement.
"Seller Collateral" has the meaning specified in Section 8.01 of the
-----------------
Purchase Agreement.
"Seller LOC Draws" means any payments made to the Purchaser in connection
----------------
with the Letter of Credit and allocated to the Seller.
"Seller Notice" means a notice in the form of Exhibit A, setting forth the
-------------
information required by Section 2.03(b) of the Purchase Agreement.
"Seller Secured Obligations" means all obligations of every nature of the
--------------------------
Seller (other than to the Originator or Servicer), now or hereafter existing,
under the Purchase Agreement and any promissory note or other document or
instrument delivered pursuant to such documents, and all amendments, extensions
or renewals thereof, whether for principal, interest, fees, expenses or
otherwise, whether now existing or hereafter arising, voluntary or involuntary,
whether or not jointly owed with others, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether or not from time to time
decreased or extinguished and later increased, created or incurred and all or
any portion of such obligations that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Redwood, the
Operating Agent or the Collateral Agent as a preference, fraudulent transfer or
otherwise.
"Seller's Share" means the ratio of the Maximum Purchase Limit under the
--------------
Purchase Agreement to the aggregate maximum purchase limits or commitments under
the Purchase Agreement and all Other Purchase Agreements.
"Servicer" means the Originator, or any Person designated as Successor
--------
Servicer, and its successors and assigns from time to time hereunder.
"Servicer Termination Notice" means notice by the Operating Agent to the
---------------------------
Servicer that an Event of Servicer Termination has occurred and that the
Servicer's appointment hereunder has been terminated.
21
<PAGE>
"Services Agreement" means the Amended and Restated Ancillary Services
------------------
Agreement dated as of the date hereof between the Merisel, Inc. and MCF.
"Servicing Fee" means a fee payable by the Seller to the Servicer on each
-------------
Settlement Date equal to the product of (i) the Servicing Fee Rate, (ii) the
Outstanding Balance of all Transferred Receivables on such Settlement Date, and
(iii) the actual number of days in such period divided by 360.
"Servicing Fee Rate" means 1%.
------------------
"Servicing Fee Shortfall" means, for any day within a Settlement Period,
-----------------------
the amount, if any, by which the Accrued Servicing Fee calculated as of that day
exceeds the Retained Servicing Fee as of that same day.
"Servicing Officer" means any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Transferred Receivables
whose name appears on an Officer's Certificate listing servicing officers
furnished to the Operating Agent by the Servicer, as amended from time to time.
"Servicing Records" means all documents, books, records and other
-----------------
information (including, without limitation, computer programs, tapes, disks,
data processing software and related property and rights) prepared and
maintained by the Servicer with respect to the Transferred Receivables and the
related Obligors.
"Settlement Date" means the tenth Business Day following the end of each
---------------
Settlement Period.
"Settlement Period" means, in the case of the initial Settlement Period,
-----------------
the period beginning with the Effective Date to and including the last day of
the fiscal month in which such Effective Date occurs; with respect to the final
Settlement Period, the period ending on the Final Purchase Date and beginning
with the first day of the fiscal month in which the Final Purchase Date occurs;
and with respect to all other Settlement Periods, each fiscal month.
"Sold Receivable" has the meaning specified in Section 2.01(b) of the
---------------
Transfer Agreement.
"Sub-Servicer" means any Person with whom the Servicer enters into a Sub-
------------
Servicing Agreement.
"Sub-Servicing Agreement" means any written contract between the Servicer
-----------------------
and any Sub-Servicer, relating to servicing, administration or collection of
Transferred Receivables as provided in Section 7.01 of the Purchase Agreement.
"Subordinated Note" has the meaning specified in Section 2.01(c) of the
-----------------
Transfer Agreement.
22
<PAGE>
"Subsidiary" means, as to any Person, any corporation or other entity (a)
----------
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person, or (b) is
directly or indirectly controlled by such Person within the meaning of control
under Section 15 of the Securities Act of 1933, as amended.
"Successor Servicer" has the meaning specified in Section 11.02 of the
------------------
Purchase Agreement.
"Successor Servicing Fees and Expenses" means the fees and expenses payable
-------------------------------------
by the Seller to the Purchaser, as agreed to by the Seller, the Purchaser, the
Operating Agent, the Liquidity Agent and the Letter of Credit Agent.
"Terminating Originator" has the meaning specified in Section 2.04(a)(i) of
----------------------
the Transfer Agreement.
"Termination Event" has the meaning specified in Section 9.01 of the
-----------------
Purchase Agreement.
"Three Month Aged Receivables Ratio" means, on any date of determination,
----------------------------------
the ratio (expressed as a percentage) equal to a fraction,
(a) the numerator of which equals the sum of the Deemed Defaults for the
three Settlement Periods preceding such day;
(b) the denominator of which equals sum of the Adjusted Generated
Receivables for the fourth, fifth and sixth Settlement Periods immediately
preceding such day.
The underlying calculations for the Three Month Aged Receivables Ratio for each
of the twelve Settlement Periods preceding the first Settlement Period after
closing to be used in future calculations of the Aged Receivables Ratio shall be
established by the Operating Agent at closing.
"Transaction Liquidity Loans" means the obligations of the Purchaser to pay
---------------------------
principal, interest, fees and other amounts in respect of any liquidity support
by whatever means given by a Transaction Liquidity Provider pursuant to a
Transaction Liquidity Agreement.
"Transaction Liquidity Agent" means the agent for the Transaction Liquidity
---------------------------
Providers appointed under the Transaction Liquidity Agreement.
"Transaction Liquidity Agreement" means the agreement executed by
-------------------------------
Transaction Liquidity Providers, the Operating Agent, the Transaction Liquidity
Agent and Redwood for the provision of Transaction Liquidity with respect to the
Purchase Agreement.
23
<PAGE>
"Transaction Liquidity Provider" means any party that has executed an
------------------------------
Accession Agreement to the Collateral Agent Agreement as a transaction liquidity
provider with respect to the Transaction Liquidity Agreement.
"Transfer Agreement" means the Receivables Transfer Agreement, dated
------------------
October 2, 1995, between the Originator and the Seller.
"Transfer Date" has the meaning specified in Section 2.01(b) of the
-------------
Transfer Agreement.
"Transferred Receivable" means any Sold Receivable or Contributed
----------------------
Receivable provided that any Receivable repurchased by the Originator pursuant
to Section 4.04(i) of the Transfer Agreement shall not be deemed a Transferred
Receivable from and after the date of repurchase unless such Receivable has been
repurchased by or recontributed to the Seller.
"UCC" means, for any jurisdiction, the Uniform Commercial Code as from time
---
to time in effect in such jurisdiction.
"Underfunded Plan" means any Plan that has an Underfunding.
----------------
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
------------
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Unused Commitment Fee" has the meaning set forth in the Fee Letter.
---------------------
"Unused Commitment Fee Shortfall" means, for any day within a Settlement
-------------------------------
Period, the amount, if any, by which the Accrued Unused Commitment Fee
calculated as of that day exceeds the Retained Unused Commitment Fee as of that
same day.
"Yield Discount Amount" means the amount calculated by the Operating Agent,
---------------------
from time to time at its discretion, as set forth on Schedule 4 of the Purchase
Agreement.
"Yield Shortfall" means, for any day within a Settlement Period, the
---------------
amount, if any, by which the Accrued Monthly Yield calculated as of that day
exceeds the Retained Monthly Yield as of that same day.
SECTION 2. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with GAAP. All terms used in Article 9
of the UCC of the State of New York, and not specifically defined herein, are
used herein as defined in such Article 9. All hourly references herein shall
refer to New York City
24
<PAGE>
time. All references to "dollar" or "$" are to the lawful currency of the United
States of America.
SECTION 3. Interpretation. Unless the context otherwise requires:
--------------
(a) All references to agreements and acts refer to the same as from time to
time amended or supplemented or as the terms of such agreements are waived or
modified in accordance with their terms.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in the Transfer Agreement or the Purchase Agreement shall refer
to such Agreement as a whole and not to any particular provision of such
Agreement.
(c) References to any Section, Schedule or Exhibit are references to
Sections, Schedules and Exhibits in or to the Agreement in which the reference
is made.
(d) The term "including" means "including without limitation."
(e) Definitions of terms are applicable to the singular forms of such terms
as well as the plural forms and vice versa.
(f) References to a gender include references to each other gender.
25
<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, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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 Identification No.)
incorporation or organization)
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 8, 1995
Common Stock, $.01 par value 29,863,495 Shares
<PAGE>
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets as of 1-2
September 30, 1995 and December 31, 1994
Consolidated Statements of Operations for the 3
Three Months and Nine Months Ended September 30,
1995 and 1994
Consolidated Statements of Cash Flows for the 4
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of 9-18
Financial Condition and Results of Operations
PART II OTHER INFORMATION 19-20
SIGNATURES 21
<PAGE>
PART 1. FINANCIAL INFORMATION
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,467 $3,533
Accounts receivable (net of
allowance for doubtful accounts of $23,242
and $21,815 for 1995 and 1994,
respectively) 550,787 451,246
Inventories 664,348 517,706
Prepaid expenses and other current
assets 14,557 13,256
Income taxes receivable 4,692
Deferred income tax benefit 12,977 12,128
---------- ---------
Total current assets 1,248,828 997,869
PROPERTY AND EQUIPMENT - NET 98,253 69,511
COST IN EXCESS OF NET ASSETS
ACQUIRED - NET 110,431 113,115
OTHER ASSETS 11,246 11,375
---------- ----------
TOTAL ASSETS $1,468,758 $1,191,870
---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $845,579 $509,226
Accrued liabilities 65,039 46,502
Subordinated debt - current 4,400
Short-term bank debt 59,187 37,871
Income taxes payable 4,422
-------- --------
Total current liabilities 974,205 598,021
Long-term debt 245,000 335,685
Subordinated debt 17,600 22,000
Deferred income tax liability 699
--------- --------
TOTAL LIABILITIES 1,237,504 955,706
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
29,825,600 and 29,716,600
for 1995 and 1994, respectively 298 297
Additional paid-in capital 141,575 141,249
Retained earnings 96,467 103,122
Cumulative translation adjustment (7,086) (8,504)
--------- -------
Total stockholders' equity 231,254 236,164
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,468,758 $1,191,870
---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $1,544,018 $1,230,562 $4,378,776 $3,595,683
COST OF SALES 1,454,765 1,146,836 4,110,825 3,347,886
---------- --------- --------- ---------
GROSS PROFIT 89,253 83,726 267,951 247,797
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 75,205 68,211 226,314 196,867
RESTRUCTURING CHARGE 9,333
--------- ---------- -------- ---------
OPERATING INCOME 14,048 15,515 32,304 50,930
INTEREST EXPENSE 11,229 7,410 30,962 19,968
OTHER EXPENSE 2,953 3,171 9,774 8,084
--------- ---------- -------- ---------
(LOSS) INCOME BEFORE
INCOME TAXES (134) 4,934 (8,432) 22,878
INCOME TAX PROVISION
(BENEFIT) 119 2,141 (1,777) 8,769
--------- -------- ------- --------
NET (LOSS) INCOME $(253) $2,793 $(6,655) $14,109
--------- -------- ------- --------
NET (LOSS) INCOME PER
SHARE $(0.01) $0.09 $(0.22) $0.46
---------- -------- -------- -------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 29,819 30,353 29,756 30,645
---------- -------- ------- -------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income $(6,655) $14,109
Adjustments to reconcile net (loss)
income to net cash provided by (used for)
operating activities:
Depreciation and amortization 15,289 11,895
Provision for bad debts 12,216 12,505
Deferred income taxes (150) (245)
Changes in operating assets and
liabilities:
Accounts receivable (112,044) (61,529)
Inventories (146,642) (56,066)
Prepaid expenses and other assets (2,376) 4,490
Income taxes receivable (4,692)
Accounts payable 336,353 17,059
Accrued liabilities 18,537 21,129
Income taxes payable (4,422) (6,144)
-------- -------
Net cash provided by (used for)
operating activities 105,414 (42,797)
-------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (39,235) (23,910)
Acquisition of ComputerLand Business (87,424)
Sale of unconsolidated investment 800
Other investing activities (753)
-------- --------
Net cash used for investing
activities (39,188) (111,334)
-------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under revolving line of
credit 673,641 1,250,550
Repayments under revolving line of
credit (764,326) (1,246,600)
Borrowings of local bank credit
lines 21,316 6,143
Borrowings in connection with
acquisition 65,000
Proceeds from sale of accounts
receivable 75,000
Proceeds from issuance of common
stock 327 390
-------- --------
Net cash (used for) provided by
financing activities (69,042) 150,483
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 750 3,695
-------- --------
NET (DECREASE) INCREASE IN CASH &
CASH EQUIVALENTS (2,066) 47
CASH & CASH EQUIVALENTS, BEGINNING OF
PERIOD 3,533 14
-------- --------
CASH & CASH EQUIVALENTS, END OF PERIOD $1,467 $61
-------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<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. The Company, through its wholly-owned subsidiary,
Merisel FAB, Inc. ("Merisel FAB"), is also a leading aggregator,
or master reseller, of computer systems and related products from
major microcomputer manufacturers to ComputerLand franchisees and
Datago resellers. The consolidated financial statements include
the accounts of Merisel and its consolidated subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. Operating results for the three and
nine months ended September 30, 1995 may not be indicative of the
results of operations expected for the fiscal year ended December
31, 1995.
The information for the three and nine months ended September 30,
1995 and 1994 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
reclassifications have been made to the 1994 amounts to conform
with 1995 presentations.
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, 1994.
2. Fiscal Year
The Company's fiscal year is the 52 or 53 week period ending on
the Saturday nearest to December 31. The Company's three and
nine month periods ended September 30, 1995 and 1994 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.
3. Restructuring Charge
In the six months ended June 30, 1995 the Company recorded total
restructuring charges of $9,333,000. This amount consists of
$4,578,000 of severance charges for the involuntary termination
of approximately 240 employees, $2,830,000 for warehouse closures
in North America and $1,925,000 for the consolidation of certain
warehouses in Europe. As of September 30, 1995, $6,609,000 of
this amount remained in accrued liabilities.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. 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 $2.1 million of direct acquisition costs. In
addition, the Company has agreed to make an additional payment in
1996 of up to $30 million (the "Earn Out"), 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 ComputerLand 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 an independent valuation prepared for the Company, $82
million of the purchase price has been allocated to intangible
assets with an estimated aggregate life of 25 years.
Merisel FAB has also entered into a Distribution and Services
Agreement (the "Services Agreement") with Vanstar whereby Vanstar
will provide products and distribution and other support services
to Merisel FAB until January 31, 1996. Under the Services
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 (6.75% at September 30, 1995), payable monthly,
with the principal balance due on February 1, 1996.
On July 12, 1995 Merisel entered into a non-binding letter of
intent with Vanstar to extend the Services Agreement until
January 31, 1997. Upon negotiation and execution of definitive
documentation amending the Services Agreement, Merisel and
Vanstar have agreed that (i) the Earn Out Amount will be
approximately $13.9 million and will be paid upon such execution
and (ii) the extended credit terms under the Services Agreement
will be increased to approximately $31.4 million. The amount of
the extended credit will be reduced by a scheduled amount
monthly, until a final $20 million balance will be payable on
February 1, 1997.
Following is summarized pro forma operating results for the nine
months ended September 30, 1994, assuming that the Company had
acquired the F&D Division on January 1, 1994 (in thousands,
except per share data):
Nine Months Ended
September 30, 1994
(in thousands)
Net sales $3,697,415
Income before taxes 23,043
Net income 14,208
Net income per share $0.46
Weighted average shares 30,645
outstanding
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
The summarized pro forma operating results are based, in part, on
historical income statement information obtained from the F&D
Division's statement of revenues and operating expenses for the
month ended January 31, 1994. Such historical statement presents
the revenues, direct expenses and general and administrative
expenses allocated from Vanstar. The pro forma information for
1994 includes actual operating results for the period from
February 1, 1994 to September 30, 1994 already incorporated in
the Company's Consolidated Results of Operations. 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 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
Corporation and Vanstar's management's estimate of the time spent
by shared employees of Vanstar Corporation. 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%
effective 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.
5. Sale of Accounts Receivable
The Company's wholly-owned subsidiary Merisel Americas, Inc.
("Merisel Americas") on an ongoing basis, sells trade receivables
to its wholly-owned subsidiary, Merisel Capital Funding, Inc.
("Merisel Capital Funding"). Pursuant to a trade receivables
purchase and sale agreement with a securitization company,
Merisel Capital Funding, in turn, sells the receivables to a
syndicate of purchasers who purchase on an ongoing basis up to
$150 million of an undivided interest in such receivables. At
September 30, 1995, $150 million of net accounts receivable were
sold to the securitization company. Effective October 2, 1995,
Merisel Capital Funding entered into a new receivables purchase
and servicing agreement with a securitization company to replace
the existing facility. In accordance with this agreement,
Merisel Capital Funding sells receivables to an investor on an
ongoing basis, which yields proceeds of up to $300 million.
Merisel Capital Funding's sole business is the purchase of trade
receivables from Merisel Americas. Merisel Capital Funding is a
separate corporate entity with its own separate creditors, which
upon its liquidation will be entitled to be satisfied out of
Merisel Capital Funding's assets prior to any value in Merisel
Capital Funding becoming available to Merisel Capital Funding's
equityholders. This facility expires in October 2000. Effective
October 16, 1995, Merisel U.K. Ltd. entered into a new
receivables purchase agreement with a securitization company to
provide funding for Merisel's U.K. subsidiary. In accordance
with this agreement, Merisel U.K. sells receivables to the
securitization company on an ongoing basis which yields proceeds
of up to 25 million pounds sterling. The facility has no fixed
expiration date but will expire no earlier than 18 months from
the effective date following three to six months prior written
notice from the securitization company. Under both
securitization facilities, the receivables are sold at face value
with payment of a portion of the purchased price being deferred.
Fees paid in connection with such sales are recorded as other
expense. Fees incurred in connection with the sale of accounts
receivable for the three months and nine months ended September
30, 1994 were $2,171,000 and $4,850,000, respectively, compared
to $2,652,000 and $7,747,000 incurred for the three and nine
months ended September 30, 1995, respectively.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
6. Debt
The Company and its subsidiaries maintain a number of credit
facilities, including a $150 million unsecured revolving bank
credit facility expiring on May 31, 1997 and a $50 million
Canadian dollar unsecured revolving bank credit facility expiring
on January 4, 1996. At September 30, 1995, $20 million and $27.2
million, respectively, were outstanding under these facilities.
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, 1995 was $32
million.
The Company and its subsidiaries also have outstanding $125
million of 12 1/2% senior notes due December 31, 2004, $100
million of 8.58% senior notes due September 30, 1997, and $22
million of 11.28% subordinated notes due in five equal annual
principal installments, beginning in March 1996.
7. 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.
8. Supplemental Disclosure of Cash Flow Information
Cash paid for interest and income taxes for the nine month
periods ended September 30, 1995 and 1994 was as follows:
1995 1994
(in thousands)
Interest $29,498 $ 15,276
Income Taxes $7,034 $ 10,717
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Merisel, Inc. (together with its subsidiaries, "Merisel" or the
"Company") is the largest worldwide publicly-held wholesale
distributor of microcomputer hardware and software products.
Through its full-line, channel-specialized distribution business,
Merisel combines the comprehensive product selection and
operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated
sales organizations to each of its customer groups. On January
31, 1994, the Company completed the acquisition (the
"ComputerLand Acquisition") of certain assets of Vanstar
Corporation's (formerly ComputerLand Corporation) United States
Franchise and Distribution Division (the "ComputerLand Franchise
and Aggregation Business"). The ComputerLand Franchise and
Aggregation Business is a leading aggregator, or master reseller,
of computer systems and related products from major microcomputer
manufacturers, including Apple, Compaq, Hewlett-Packard and IBM,
to a network of approximately 750 independently-owned computer
product resellers in the United States.
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 operations for the Company
for the three and nine months ended September 30, 1995 and 1994:
PERCENTAGE OF NET SALES
Three Months Nine Months
Ended Ended
September 30, September 30,
1995 1994 1995 1994
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 94.2 93.2 93.9 93.1
----- ----- ----- -----
Gross profit 5.8 6.8 6.1 6.9
Selling, gen'l. and
admin. expenses 4.9 5.5 5.2 5.5
Restructuring charge 0.2
----- ----- ----- -----
Operating income 0.9 1.3 0.7 1.4
Interest expense 0.7 0.6 0.7 0.6
Other expense 0.2 0.3 0.2 0.2
----- ----- ----- -----
(Loss) income before
income taxes 0.0 0.4 (0.2) 0.6
Income tax
provision(benefit) 0.0 0.2 0.0 0.2
----- ----- ----- -----
Net (loss) income 0.0 0.2% (0.2) 0.4%
----- ----- ----- -----
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 as Compared to the Three
Months Ended September 30, 1994
Net sales increased 25.5% from $1.2 billion in 1994 to $1.5
billion in 1995. Of the $1.5 billion, the launch of Microsoft
Windows'95 product line in August, 1995 generated approximately
$160 million. This launch was a unique event and the Company
does not expect the Microsoft Windows'95 products to have a
similar effect in the fourth quarter. The remaining increase in
net sales was primarily due to sales growth in existing
distribution operations in the United States and Europe resulting
from the growth of the overall market for hardware products and
an increase in the number of products certain vendors are selling
through distribution. Net sales for the ComputerLand Franchise
and Aggregation Business were $286.9 million or 23.3% of
consolidated net sales for the quarter ended September 30, 1994
compared to $285.6 million or 18.5% in 1995.
Geographically, the Company's net sales for the quarter ended
September 30, 1995, were as follows: United States, $1,082.3
million, or 70.1%; Canada, $127.7 million, or 8.3%; Europe,
$240.8 million, or 15.6%; and other international markets, $93.2
million, or 6.0%. From 1994 to 1995, these geographic regions
experienced sales growth rates of 25.6% (38.5% without the
ComputerLand Franchise and Aggregation Business), 18.1%, 32.5%,
and 18.3%, respectively. The Company's higher sales growth rate
in Europe was partially the result of the strengthening of the
European currencies against the dollar in 1995 compared to 1994.
In periods when the U.S. dollar is weakening, the effect of the
translation of the financial statements of the consolidated
foreign subsidiaries into U.S. dollars is that of higher sales,
costs and net income. The effect of a weaker U.S. dollar when
compared to European currencies represented 8.8% of the sales
growth rate in European sales. The fluctuation of the U.S.
dollar when compared to other world currencies did not have a
material impact upon sales.
The Company's sales of hardware and related accessories,
including ComputerLand Franchise and Aggregation Business,
accounted for 75% of net sales and software accounted for 25% in
1994 as compared to 71% and 29%, respectively, in 1995.
Excluding ComputerLand Franchise and Aggregation Business,
hardware and related accessories accounted for 69% of net sales
and software accounted for 31% of net sales in 1994 versus 65%
and 35%, respectively, in 1995. The increase in software sales
was primarily due to the launch of Microsoft Windows'95.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Gross profit increased 6.6% from $83.7 million in 1994 to $89.3
million in 1995. Gross profit as a percentage of sales, or gross
margin, decreased from 6.8% in 1994 to 5.8% in 1995. The launch
of Microsoft Windows'95 resulted in a 0.2% decrease in gross
margin in the quarter ended September 1995. In 1994, gross
margin as a percentage of sales for the ComputerLand Franchise
and Aggregation Business and the Company's core distribution
business was 4.7% and 7.4%, respectively, compared to 3.5% and
6.3%, respectively, in 1995. The Company's core distribution
business continued to experience competitive pressures on pricing
worldwide. The decrease in the ComputerLand Franchise and
Aggregation Business gross margin was the result of intense price
competition and the effect of a revised pricing structure offered
to new and existing franchisees to deal with this competition.
The Company anticipates that it will continue to experience
downward pressure on gross margin due to industry price
competition.
Selling, general and administrative expenses ("SG&A") increased
10.3% from $68.2 million in 1994 to $75.2 million in 1995. SG&A
as a percentage of net sales decreased from 5.5% in 1994 to 4.9%
in 1995. SG&A as a percentage of sales for the ComputerLand
Franchise and Aggregation Business and the Company's core
distribution business was 3.7% and 6.1%, respectively in 1994,
compared to 3.4% and 5.2%, respectively, in 1995. The absolute
dollar increase in SG&A is primarily due to the costs associated
with the Company's 25.5% increase in net sales. The decrease in
SG&A expense as a percentage of net sales was a result of
economies of scale resulting from higher sales volumes. The
decrease in SG&A as a percentage of sales for the ComputerLand
Franchise and Aggregation Business resulted from an increase in
marketing and promotion revenue and a decrease in the
distribution fee incurred under the existing Distribution and
Services Agreement with Vanstar. To the extent the gross margin
continues to decline and the Company is not successful in
reducing SG&A as a percentage of sales, the Company will
experience a negative effect on its operating income.
Operating income decreased 9.5% from $15.5 million in 1994 to
$14.0 million in 1995. Operating income as a percentage of net
sales was 1.3% in 1994 and 0.9% in 1995. In 1994, operating
income as a percentage of sales for the ComputerLand Franchise
and Aggregation Business and the Company's core distribution
business was 1.0% and 1.3%, respectively, compared to 0.1% and
1.1%, respectively, in 1995. The decrease in operating income
was the result of lower gross margins in both the ComputerLand
Franchise and Aggregation Business and the core distribution
business, partially offset by a decrease in operating expense as
a percentage of sales.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Interest expense increased 51.5% from $7.4 million in 1994 to
$11.2 million in 1995, and increased from 0.6% to 0.7% as a
percentage of net sales in 1994 compared to 1995. The increase
in interest expense was attributable to both the Company's higher
average borrowings and an increase in interest rates in 1995.
The Company's average month-end bank borrowings increased 14.8%
from $337 million in 1994 to $387 million in 1995. The increase
in average borrowings in 1995 reflected the need to finance
higher levels of working capital to support increased sales and
property and equipment expenditures. In addition, the Company
experienced an increase in interest rates, primarily resulting
from the issuance of $125 million principal amount of 12 1/2%
senior notes in October 1994, the proceeds of which were used to
repay indebtedness under outstanding credit lines having an
average interest rate of approximately 6.75% at September 30,
1994.
Other expense decreased 6.9% from $3.2 million in 1994 to $3.0
million in 1995. The change is primarily the result of a $0.5
million decrease in amortization of financing fees and other
expenses, $0.2 million of income in an unconsolidated subsidiary,
offset by $0.5 million increase in asset securitization fees
incurred in connection with trade receivables securitizations in
1995. Higher amounts of net receivables sold and securitization
yield contributed to the increased securitization fees of $2.2
million in 1994 compared to $2.7 million in 1995. The weighted
average amount of accounts receivable sold to the securitization
company was $150 million in 1994 and 1995 while the
securitization yield increased from 5.8% to 7.2% at September
30, 1994 and September 30, 1995, respectively.
The Company incurred $0.1 million of tax expense for the period
ended September 30, 1995. This was effected by certain foreign
subsidiaries deriving no tax benefit for losses under local tax
laws.
Net income decreased from $2.8 million in 1994 to a loss of $0.3
million in 1995. Net income per share decreased from $0.09 in
1994 to a loss of $0.01 in 1995.
Nine Months Ended September 30, 1995 as Compared to the Nine
Months Ended September 30, 1994
Net sales increased 21.8% from $3.6 billion in 1994 to $4.4
billion in 1995. Of the $4.4 billion, the launch of Microsoft
Windows'95 product line in August, 1995 generated approximately
$160 million. The remaining increase in net sales was primarily
due to sales growth in existing distribution operations in all
geographic regions resulting from the growth of the overall
market for hardware and software products and an increase in the
number of products certain vendors are selling through
distribution and the impact of an additional month of revenue
from the ComputerLand Franchise and Aggregation Business. Net
sales for ComputerLand Franchise and Aggregation Business were
$863.8 million or 19.7% of consolidated net sales for the nine
months ended September 30, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Geographically, the Company's net sales for the nine months ended
September 30, 1995 were generated as follows: United States,
$2,943.5 million, or 67.2%; Canada, $424.3 million, or 9.7%;
Europe, $761.6 million, or 17.4%; and other international
markets, $249.4 million, or 5.7%. From 1994 to 1995, these
geographic regions experienced sales growth rates as follows:
United States, 19.8% (22.5% excluding ComputerLand Franchise and
Aggregation Business), Canada, 15.4%, Europe, 39.0% and other
international markets, 12.2%. The Company's higher sales growth
rate in Europe was partially the result of the strengthening of
the European currencies against the dollar in 1995 compared to
1994. In periods when the U.S. dollar is weakening, the effect
of the translation of the financial statements of the
consolidated foreign subsidiaries into U.S. dollars is that of
higher sales, costs and net income. The effect of a weaker U.S.
dollar when compared to European currencies represented 14.0% of
the sales growth rate in European sales. The fluctuation of the
U.S. dollar when compared to other world currencies did not have
a material impact upon sales.
The Company's hardware and accessories, including ComputerLand
Franchise and Aggregation Business, accounted for 74% of net
sales, and software accounted for 26% of net sales in both 1994
and 1995.
Gross profit increased 8.1% from $247.8 million in 1994 to $267.9
million in 1995. Gross profit as a percentage of sales or gross
margin, decreased from 6.9% in 1994 to 6.1% in 1995. In 1994,
the gross margin as a percentage of sales for the ComputerLand
Franchise and Aggregation business and the Company's core
distribution business was 4.8% and 7.4%, respectively, compared
to 4.0% and 6.6%, respectively in 1995. The decrease in gross
margin was due to the same factors summarized in the discussion
of gross profit for the Three Months Ended September 30, 1995 and
1994 and the impact of an additional month of revenue from the
ComputerLand Franchise and Aggregation Business, which operates
at lower gross margins that those of the Company's core
distribution business. The Company anticipates that it will
continue to experience downward pressure on gross margin due to
industry price competition.
SG&A increased 15.0% from $196.9 million in 1994 to $226.3
million in 1995. SG&A as a percentage of sales decreased from
5.5% in 1994 to 5.2% in 1995. In 1994, SG&A as a percentage of
sales for the ComputerLand Franchise and Aggregation Business and
the Company's core distribution was 3.6% and 6.0%, respectively,
compared to 3.5% and 5.6%, respectively, in 1995. The absolute
dollar increase in SG&A was primarily due to the costs associated
with the Company's 21.8% increase in sales and the impact of an
additional month of SG&A from the ComputerLand Franchise and
Aggregation Business. The decrease in SG&A expense as a
percentage of net sales was a result of economies of scale
resulting from higher sales volumes. To the extent the gross
margin continues to decline and the Company is not successful in
reducing SG&A as a percentage of sales, the Company will
experience a negative effect in its operating income.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In the first quarter of 1995, the Company announced its intent to
adopt a restructuring plan to address its current cost structure
in response to pricing and gross margin pressures and the
anticipated recording of a total restructuring charge of
approximately $10 million. As of September 30, 1995, this plan
resulted in a restructuring charge of $9.3 million. The
restructuring charge as a percentage of net sales was 0.2%. The
restructuring charge represents costs incurred to reduce
personnel and the closure and consolidation of warehouses. See
Note 3 to Notes to Consolidated Financial Statements.
Operating income decreased 36.6% from $50.9 million in 1994 to
$32.3 million in 1995. Operating income as a percentage of net
sales was 1.4% in 1994 and 0.7% in 1995. In 1994, operating
income as a percentage of sales for the ComputerLand Franchise
and Aggregation Business and the Company's core distribution
business was 1.2% and 1.5%, respectively, compared to 0.4% and
0.8%, respectively, in 1995. The decrease in operating income as
a percentage of net sales was primarily due to restructuring
charges and the same factors summarized in the discussion of
operating income for the three months ended September 30, 1994
and 1995.
Interest expense increased 55.1% from $20.0 million in 1994 to
$31.0 million in 1995 and increased from 0.6% to 0.7% as a
percentage of net sales in 1994 compared to 1995. The increase
in interest expense and in interest as a percentage of net sales
was due primarily to the same factors summarized in the
discussion of interest expense for the three months ended
September 30, 1994 and 1995.
Other expense increased 20.9% from $8.1 million in 1994 to $9.8
million in 1995. Other expense as a percentage of net sales
remained constant at 0.2% in both 1994 and 1995. The absolute
dollar increase is primarily due to an increase in fees of $2.9
million incurred in connection with accounts receivable
securitizations in 1995, partially offset by a $0.5 million write-
off of offering costs incurred in connection with the Company
withdrawing its common stock offering in May 1994 and decreases
in various other expenses.
The Company's effective tax rate was a benefit of 21.1%. This
rate was impacted by certain foreign subsidiaries deriving no tax
benefit for losses under local tax laws. The Company's effective
tax rate for the period ended September 30, 1994 was 37.0%.
Net income decreased from $14.1 million in 1994 to a loss of $6.7
million in 1995. Net income per share decreased from $0.46 in
1994 to a loss of $0.22 in 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 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. For example see the discussion of the Windows'95 product
launch contained herein.
Additionally, the Company's net sales in the fourth quarter have
been historically higher than in the prior 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.
OPERATING SYSTEMS
In addition to continuing the design and implementation of a new
computer operating system, the Company has completed certain
modifications to its existing computer system designed to process
the increased sales volumes anticipated for the fourth quarter of
1995 and thereafter. If the system, as modified, performs below
anticipated service levels, the existing system may not be able
to accommodate the sales volumes and transaction requirements in
the fourth quarter of 1995 and thereafter, which in turn could
have a negative effect on the Company's business and financial
results.
In the third quarter of 1995, the Company installed a new
computer operating system in its Canadian subsidiary. In
addition Merisel opened its new European Distribution Center
("EDC") and installed a new operating system and a warehouse
management system as part of its long term strategy to centralize
and integrate its European operations. Merisel closed its German
warehouse in August 1995 and now ships to Germany out of the EDC,
located in the Netherlands. If these systems do not perform as
anticipated, the Canadian and German subsidiaries may not be able
to accommodate the sales volume and transaction requirements
anticipated for the fourth quarter of 1995 and thereafter, which
in turn could have a negative effect on the Company's business
and financial results.
The conversion to new operating systems and the installation of
new warehouse management systems will continue through 1996. The
design and implementation of these new systems are complex
projects and involve risks that unanticipated problems may delay
implementation of the new systems or cause them to perform below
anticipated service levels. In the event that the Company
experiences delays in implementation of these new systems or such
systems fail to perform at anticipated service levels, the
Company may not be able to accommodate anticipated increases in
sales volumes and transaction processing requirements, which in
turn could have a negative effect on the Company's business and
financial results.
<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 and the public and private sales of
its securities and securitizations of its trade receivables.
Net cash provided by operating activities during the nine months
ended September 30, 1995 was $105.4 million. Sources of cash
from operating activities consisted of $27.4 million non-cash
adjustments, $336.4 million increase in accounts payable and
$18.5 million increase in accrued liabilities. The primary uses
of cash during the period were a net loss of $6.7 million and
increases in accounts receivable and inventories of $112.0
million and $146.6 million, respectively. The increase in
inventories and accounts receivable were primarily related to
purchases and sales of Microsoft Windows'95 product in August.
The impact of Windows'95 contributed approximately half of the
increase in accounts payable. The remaining increase was due to
improved accounts payable management.
Net cash used for investing activities in 1995 was $39.2 million,
reflecting property and equipment expenditures. The expenditures
for property and equipment were primarily for the upgrading of
the Company's computer systems, expenditures for a new warehouse
management system, and the upgrading of existing facilities and
leasehold improvements. The Company intends to make significant
investments in computer systems and facilities in 1996.
Net cash used for financing activities was $69.0 million,
primarily comprised of net repayments under domestic revolving
lines of credit of $90.7 million, partially offset by increased
borrowings under local subsidiaries' lines of credit of $21.3
million.
The Company's wholly-owned subsidiary Merisel Americas, Inc.
("Merisel Americas") on an ongoing basis, sells trade receivables
to its wholly-owned subsidiary, Merisel Capital Funding, Inc.
("Merisel Capital Funding"). Pursuant to a trade receivables
purchase and sale agreement with a securitization company,
Merisel Capital Funding, in turn, sells the receivables to a
syndicate of purchasers who purchase on an ongoing basis up to
$150 million of an undivided interest in such receivables. At
September 30, 1995, $150 million of net accounts receivable were
sold to the securitization company. Effective October 2, 1995,
Merisel Capital Funding entered into a new receivables purchase
and servicing agreement with a securitization company to replace
the existing facility. In accordance with this agreement,
Merisel Capital Funding sells receivables to an investor on an
ongoing basis, which yields proceeds of up to $300 million.
Merisel Capital Funding's sole business is the purchase of trade
receivables from Merisel Americas. Merisel Capital Funding is a
separate corporate entity with its own separate creditors, which
upon its liquidation will be entitled to be satisfied out of
Merisel Capital Funding's assets prior to any value in Merisel
Capital Funding becoming available to Merisel Capital Funding's
equityholders. This facility expires in October 2000. Effective
October 16, 1995, Merisel U.K. Ltd. entered into a new
receivables purchase agreement with a securitization company to
provide funding for Merisel's U.K. subsidiary. In accordance
with this agreement, Merisel U.K. sells receivables to the
securitization company on an ongoing basis which yield proceeds
of up to 25 million pounds sterling. The facility has no fixed
expiration date but will expire no earlier than 18 months from
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
the effective date following three to six months prior written
notice from the securitization company. Under both
securitization facilities, the receivables are sold at face
value, with payment of a portion of the purchased price being
deferred. Fees paid in connection with such sales are recorded as
other expense. As of November 3, 1995, the total amount
outstanding for the U.S. and U.K. securitization facilities were
$180 million and $21.7 million, respectively.
To provide capital for the Company's operating and investing
activities, the Company and its subsidiaries maintain a number of
credit facilities including a $150 million unsecured revolving
bank credit facility expiring on May 31, 1997 and a $50 million
Canadian dollar unsecured revolving bank credit facility expiring
on January 4, 1996. At November 3, 1995, $93.7 million and
$27.2 million, respectively, were outstanding under these
facilities. 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, 1995 was $32
million.
The Company and its subsidiaries also have outstanding $125
million of 12 1/2% Senior Notes due December 31, 2004, $100
million of 8.58% senior notes due September 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, a subsidiary of
the Company and Vanstar entered into the Services Agreement
pursuant to which Vanstar will provide significant distribution
and other support services until January 31, 1996 to the
ComputerLand Franchise and Aggregation Business for a
contractually agreed upon fee. Under the Services Agreement, the
ComputerLand Franchise and Aggregation Business has been granted
$20 million in extended credit terms on its product purchases
from Vanstar. The Vanstar payable currently accrues interest at
the prime rate, less 2% per annum (6.75% at September 30, 1995),
with the principal balance due on February 1, 1996. In addition,
the Company has agreed to make an additional payment in 1996 of
up to $30 million (the "Earn Out"), 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.
On July 12, 1995 Merisel entered into a non-binding letter of
intent with Vanstar to extend the Services Agreement until
January 31, 1997. Upon negotiation and execution of definitive
documentation amending the Services Agreement, Merisel and
Vanstar have agreed that (i) the Earn Out Amount will be
approximately $13.9 million and will be paid upon such execution
and (ii) the extended credit terms under the Services Agreement
will be increased to approximately $31.4 million. The amount of
the extended credit will be reduced by a scheduled amount
monthly, until a final $20 million balance will be payable on
February 1, 1997.
<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 and the
ability to sell additional trade receivables under its new trade
receivables purchase and servicing agreement, its ability to
borrow under existing lines of credit and obtain additional
financing, including additional receivables securitization
facilities will be sufficient to meet its working capital and
capital investment needs through the next twelve months.
However, no assurances can be given that such additional
financings can be obtained.
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 that a manufacturer reduces its pricing, 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. The
Company also offers financing for its sales to certain of its
customers through various floor plan financing companies. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1994, Merisel, Inc. 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 November 8, 1993 and
September 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 Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Following the granting of defendant's first motion to dismiss on
December 5, 1994, plaintiffs filed a second consolidated and
amended complaint on December 22, 1994. On April 3, 1995,
Federal District Judge Real dismissed the complaint with
prejudice. The plaintiffs have appealed the dismissal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Receivable Transfer Agreement dated as of October
2, 1995 by and between Merisel Americas, Inc. and Merisel
Capital Funding, Inc.
10.2 Receivable Purchase and Servicing Agreement dated
as of October 2, 1995 by and among Merisel Capital Funding, Inc.,
Redwood Receivables Corporation, Merisel Americas, Inc. and
General Electric Capital Corporation.
10.3 Annex X to Receivable Transfer Agreement and
Receivables Purchase and Servicing Agreement dated as of
October 2, 1995.
10.4 Credit Agreement among Merisel Canada Inc. and
Citibank Canada, Canadian Imperial Bank of Commerce and
NBD Bank, Canada dated January 4, 1995.
10.5 Form of Employment Agreement between
Merisel, Inc. and the following:
James L. Brill
Verilyn Smith
Susan Miller-Smith
Paul Lemerise
John Thompson
Tom Reeves
Martin D. Wolf
<PAGE>
PART II - OTHER INFORMATION
(Continued)
10.6 Form of Retention Agreement between
Merisel, Inc. and the following:
James L. Brill
Verilyn Smith
Susan Miller-Smith
Paul Lemerise
John Thompson
Tom Reeves
Martin D. Wolf
(b) Reports on Form 8-K
- There were no reports on Form 8-K filed by the
Company during the quarter ended September 30, 1995.
<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 13, 1995
Merisel, Inc.
By: /s/James L. Brill
James L. Brill
Senior Vice President,Finance,
(Duly Authorized Officer and
Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Finanical Statements for Merisel, Inc. for the quarterly period
ended September 30, 1995 and is qualified in its entirety by reference to such
financial statement.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,467
<SECURITIES> 0
<RECEIVABLES> 574,029
<ALLOWANCES> 23,242
<INVENTORY> 664,348
<CURRENT-ASSETS> 1,248,828
<PP&E> 148,888
<DEPRECIATION> 50,635
<TOTAL-ASSETS> 1,468,758
<CURRENT-LIABILITIES> 974,205
<BONDS> 262,600
<COMMON> 298
0
0
<OTHER-SE> 230,956
<TOTAL-LIABILITY-AND-EQUITY> 1,468,758
<SALES> 4,378,776
<TOTAL-REVENUES> 4,378,776
<CGS> 4,110,825
<TOTAL-COSTS> 4,110,825
<OTHER-EXPENSES> 9,333
<LOSS-PROVISION> 12,216
<INTEREST-EXPENSE> 30,962
<INCOME-PRETAX> (8,432)
<INCOME-TAX> (1,777)
<INCOME-CONTINUING> (6,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,655)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
<PAGE>
CREDIT AGREEMENT
among
MERISEL CANADA INC.
as Borrower
- and -
CITIBANK CANADA
CANADIAN IMPERIAL BANK OF COMMERCE
NBD BANK, CANADA
as Banks
- and -
CITIBANK CANADA
as Administrative Agent
January 4, 1995
Tory Tory DesLauriers & McCarthy, Tetrault
Binnington Toronto,Ontario
Toronto, Ontario Solicitors for the
Solicitors for the Banks Borrower
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
INTERPRETATION
1.1 Definitions 1
1.2 Gender and Number 12
1.3 Certificate of the Administrative Agent as to Rates, etc. 12
1.4 Interest Act 12
1.5 Invalidity, etc. 12
1.6 Headings, etc. 13
1.7 Governing Law 13
1.8 Attornment 13
1.9 Currency 13
1.10 This Agreement to Govern 13
1.11 Generally Accepted Accounting Principles 14
1.12 Determination of Amount of Loans 14
1.13 Actions on Days Other Than Banking Days 14
1.14 Oral Instructions 14
1.15 Incorporation of Schedules 15
ARTICLE 2
CREDIT FACILITY
2.1 Establishment of Credit Facility 15
2.2 Revolving Nature of Credit Facility 15
2.3 Repayment 16
2.4 Voluntary Reduction in Credit Facility 16
2.5 Extension of Credit Facility 16
2.6 Advances 17
2.7 Selection of Interest Periods and BA Periods 17
2.8 Rollover and Conversion 18
2.9 Mandatory Repayment for Currency Excess 19
2.10 Payments Generally 19
2.11 Overdraft Facility 19
ARTICLE 3
GENERAL PROVISIONS RELATING TO THE CREDIT FACILITY
3.1 Disturbance of Libor Market 21
3.2 Payments - No Deduction 21
3.3 Change in Circumstances 23
3.4 Illegality 25
3.5 General Indemnity 25
<PAGE>
3.6 Environmental Indemnity 26
3.7 Evidence of Indebtedness 26
3.8 Individual Obligations 27
ARTICLE 4
BANKERS' ACCEPTANCES
4.1 Procedure Relating to Bankers' Acceptances 27
ARTICLE 5
LETTERS OF CREDIT
5.1 Procedures Relating to Letters of Credit 30
5.2 Reimbursement 30
5.3 Banks Not Liable 30
5.4 Letter of Credit Fees 31
5.5 Overdue Amounts 32
5.6 Acceleration 32
5.7 Conflict 33
ARTICLE 6
INTEREST AND FEES
6.1 Interest Rates 33
6.2 Calculation and Payment of Interest 33
6.3 Determination of Reference Rates 34
6.4 Commitment Fee 34
6.5 Structuring Fee 35
6.6 Agency Fee 35
6.7 Payment of Costs and Expenses 35
6.8 Interest on Overdue Amounts 35
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties 36
7.2 Survival of Representations and Warranties 38
ARTICLE 8
COVENANTS
8.1 Affirmative Covenants 38
8.2 Banks Entitled to Perform Covenants 40
<PAGE>
8.3 Negative Covenants 41
ARTICLE 9
CONDITIONS PRECEDENT
9.1 Conditions
Precedent to Initial Advance 42
9.2 Conditions Precedent to Subsequent Advances 43
ARTICLE 10
EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default 44
10.2 Remedies Upon Default 46
10.3 Set-Off 47
10.4 Distributions 47
ARTICLE 11
THE ADMINISTRATIVE AGENT AND THE ADMINISTRATION OF
THE CREDIT FACILITIES
11.1 Appointment and Authorization 47
11.2 Duties and Obligations of Administrative Agent 48
11.3 Prompt Notice to the Banks 49
11.4 Administrative Agent's Authority to Deal with Borrower 49
11.5 Dealings by Borrower with Administrative Agent 49
11.6 Independent Credit Decisions 49
11.7 Indemnification 50
11.8 Successor Administrative Agent 50
11.9 Action by and Consent of Banks; Waiver and Amendments 51
11.10 Funding of Advances 52
11.11 Remittance of Payments 53
11.12 Redistribution of Payments 53
11.13 Notification of Default 54
11.14 Taking and Enforcement of Remedies 54
11.15 Adjustments to Reflect Rateable Portions 55
11.16 No Partnership 56
ARTICLE 12
GENERAL
12.1 Reliance and Non-Merger 56
12.2 No Set-Off by the Borrower 56
12.3 Notices 56
<PAGE>
12.4 Time 58
12.5 Further Assurances 59
12.6 Assignment 59
12.7 Exchange of Information 61
12.8 Currency Conversion and Indemnity 61
12.9 Counterparts 61
12.10 Entire Agreement 61
<PAGE>
THIS AGREEMENT is made as of January 4, 1995
AMONG:
MERISEL CANADA INC., as Borrower
- and -
CITIBANK CANADA, CANADIAN IMPERIAL BANK
OF COMMERCE and NBD Bank, Canada, as Banks
- and -
CITIBANK CANADA, as Administrative Agent
RECITALS:
A. The Borrower has requested the Banks to make available a
Credit Facility to accommodate the Borrower's short term cash
needs;
B. The Banks have agreed to provide the Credit Facility to the
Borrower on the terms and conditions herein set forth and in
reliance upon the Guarantee;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in
consideration of the covenants and agreements herein contained,
the parties hereto agree as follows:
C. INTERPRETATION
C.(a) Definitions
For the purposes of this Agreement:
"Acceptance Fee" means, in respect of each Bankers'
Acceptance accepted by a Bank, a fee calculated on the basis
of a 365 day year on the face amount of such Bankers'
Acceptance at a rate per annum for the actual number of days
in the relevant BA Period equal to the BA Base Rate plus the
Applicable Margin;
<PAGE>
"Advance" means any utilization of the Credit Facility by
the Borrower (other than by way of Rollover or Conversion of
a Loan already outstanding), whether by way of advance of a
Prime Rate Loan, Base Rate Loan or Libor Loan or by way of
issuance of Bankers' Acceptances or a Letter of Credit;
"Administrative Agent" means Citibank Canada in its capacity
as administrative agent hereunder or any successor
administrative agent as provided in section 11.8;
"Affiliate" means, in respect of any corporation, any Person
which, directly or indirectly, controls or is controlled by
or is under common control with the corporation; and for the
purpose of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under
common control with") means the power to direct, or cause to
be directed, the management and policies of a corporation
whether through the ownership of Voting Shares or by
contract or otherwise;
"Aggregate Commitment" means, at any time, Cdn. $50,000,000
or the U.S. Dollar Equivalent, as adjusted to give effect to
all reductions effected from time to time pursuant to
sections 2.2, 2.4, 2.12, 3.2.5, 3.3 or 3.4;
"Agreement" means this agreement and all schedules attached
to this agreement, in each case as they may be amended or
supplemented from time to time, and the expressions
"hereof", "herein", "hereto", "hereunder", "hereby" and
similar expressions refer to this Agreement as a whole and
not to any particular article, section, schedule or other
portion hereof;
"Applicable Law" means, in respect of any Person, property,
transaction or event, all applicable laws, statutes, rules,
by-laws and regulations, and all applicable official
directives, orders, judgments and decrees of Governmental
Bodies (and, in the case of section 3.4, whether or not
having the force of law);
"Applicable Margin" means, for any period and type of Loan
set forth below, the percentage set forth in the table
below:
Level 1 Period Level 2 Period Level 3 Period Level 4 Period
Prime Rate Loans nil nil nil nil
Base Rate Loans nil nil nil nil
Libor Loans .50 .675 .75 1.25
Bankers' Acceptance .50 .675 .75 1.25
Loans
<PAGE>
"Average BA Discount Rate" means, for any day, the average,
rounded upwards to the nearest whole multiple of one-
hundredth of one percent (if already not such a multiple),
of the BA Discount Rates which, subject to section 6.3.2,
each of the Banks has quoted for that day to the
Administrative Agent, pro rated on the basis of each Bank's
Rateable Portion;
"BA Discount Rate" means, in respect of Canadian dollar
banker's acceptances accepted by a Bank on a particular day
for a particular BA period, the market bid rate quoted
therefor by such Bank at or about 10:00 a.m. (Toronto time)
on such day on a 365-day yield basis;
"BA Base Rate" means, at any time, the rate, expressed as a
rate per annum, which the Administrative Agent establishes
at its principal office in Toronto as the reference rate to
determine fees it will charge at such time for accepting
Canadian dollar bankers' acceptances drawn by its customers
in Canada, such rate to be adjusted automatically and
without the necessity of any notice to the Borrower upon
each change to such rate;
"BA Period" means, with respect to a Bankers' Acceptance,
the duration thereof as selected by the Borrower in
accordance with the provisions hereof, in each case
commencing on the date the Bankers' Acceptance is accepted
and expiring on a Banking Day not less than 30 nor more than
180 days thereafter;
"Bankers' Acceptance" means a bill of exchange drawn by the
Borrower and accepted by a Bank in accordance with the
provisions of Article 4;
"Bankers' Acceptance Loan" means, at any time, any Loan
which at such time is outstanding by way of one or more
Bankers' Acceptances and, for greater certainty, refers to
the aggregate face amount of such Bankers' Acceptances, and
"Bankers' Acceptance Loans" means, at any time, all Bankers'
Acceptance Loans at such time;
"Banking Day" means a day on which (i) for all purposes
other than in connection with a Base Rate Loan or Libor
Loan, banks are generally open for business in Toronto,
Ontario and Los Angeles, California; (ii) in connection with
a Base Rate Loan, banks are generally open for business in
Toronto, Ontario, Los Angeles, California and New York, New
York; and (iii) in connection with a Libor Loan, banks are
generally open for business and on which dealings in foreign
currency and exchange between banks may be carried on in
Toronto, Ontario, Los Angeles, California, New York, New
York and London, England and on which dealings in U.S.
dollar deposits are transacted in the London interbank
market;
"Banks" means Citibank Canada, Canadian Imperial Bank of
Commerce, NBD Bank, Canada and any financial institution
which takes an assignment in accordance with section 12.7
from a Bank, so long as any of the Obligations are owed to
them or they have any obligation hereunder, and "Bank" means
any one of them;
<PAGE>
"Base Rate" means, at any time, the annual rate of interest
which the Administrative Agent establishes at its principal
office in Toronto as the reference rate of interest in order
to determine interest rates it will charge at such time for
demand loans in U.S. dollars made to its customers in Canada
and which it refers to as its "U.S. Base Rate", such rate to
be adjusted automatically and without the necessity of any
notice to the Borrower upon each change to such rate;
"Base Rate Loan" means, at any time, any Loan which is
outstanding at such time and in respect of which interest is
to be calculated based on the Base Rate and "Base Rate
Loans" means, at any time, all Base Rate Loans at such time;
"Borrower" means Merisel Canada Inc., a corporation
incorporated under the laws of the Province of Ontario, and
its successors and permitted assigns;
"Borrowing Date" means any Banking Day on which an Advance
is made;
"Borrowing Notice" means a notice substantially in the form
of Schedule B;
"Branch of Account" means the Administrative Agent's branch
located at Citibank Place, 123 Front Street West, Toronto,
or such other branch of the Administrative Agent as the
Administrative Agent may designate in writing to the
Borrower;
"Canadian Dollar Value" means, in relation to any particular
amount of money at any time, the value thereof at such time
in Canadian dollars, determined as follows:
(a) for that portion of such amount which is Canadian
dollars, the face amount thereof; and
(b) for that portion of such amount which is U.S.
dollars, the Canadian dollar equivalent thereof
converted for such purposes at the Conversion Rate;
"Canadian Taxes" means all Taxes imposed, levied, collected,
withheld or assessed by any Governmental Body of or within
Canada or any political subdivision thereof;
"Commitment", means, in respect of each Bank at any time,
the amount set forth opposite the name of such Bank in
Schedule A, as adjusted to give effect to such Bank's
Rateable Portion of all reductions effected from time to
time pursuant to sections 2.2, 2.4, 2.12, 3.2.5, 3.3 or 3.4;
"Conversion" means, in respect of any Loan, the conversion
of the method for calculating interest or fees on such Loan
from one method to another, and includes a conversion to or
from a Bankers' Acceptance Loan;
<PAGE>
"Conversion Date" means, in respect of any Loan, the Banking
Day on which a Conversion thereof is made;
"Conversion Rate" means, in relation to the conversion of
one Currency to another on a particular day, the rate of
exchange quoted by the Administrative Agent as its spot rate
of exchange for the conversion of the one Currency to the
other at 10:00 a.m. (Toronto time) or shortly thereafter on
such day;
"Credit Facility" means the revolving credit facility made
available to the Borrower by the Banks pursuant to section
2.1.1;
"Currency" means either Canadian dollars or U.S. dollars;
"Default" means any event which, but for the lapse of time,
giving of notice or both, would constitute an Event of
Default;
"Discount Proceeds" means the net cash proceeds which are
realized on the sale of a Bankers' Acceptance, which amount
shall be calculated by discounting the face amount of such
Banker's Acceptance at the Average BA Discount Rate;
"Due Date" means that date which is 364 days from the date
hereof or such later date to which the Credit Facility has
been extended pursuant to section 2.5;
"Event of Default" has the meaning attributed to such term
in section 10.1;
"Excluded Taxes" means any Canadian Taxes which are imposed
on the Administrative Agent or a Bank as a result of the
Administrative Agent or such Bank:
(a) having a permanent establishment in Canada,
(b) being organized under the laws of Canada or any
political subdivision thereof, or
(c) being resident in Canada by virtue of its domicile
or place of management being in Canada;
"Governmental Body" means any government, parliament,
legislature, or any regulatory authority, agency, commission
or board of any government, parliament or legislature, or
any court or (without limitation to the foregoing) any other
law, regulation or rule-making entity (including, without
limitation, any central bank, fiscal or monetary authority
or authority regulating banks), having or purporting to have
jurisdiction in the relevant circumstances, or any Person
acting or purporting to act under the authority of any of
the foregoing (including, without limitation, any
arbitrator);
<PAGE>
"Guarantee" means the unconditional guarantee by the
Guarantor of all the Obligations substantially in the form
of Schedule C, as amended or supplemented from time to time;
"Guarantor" means Merisel Americas, Inc., a corporation
incorporated under the laws of Delaware, and its successors
and permitted assigns;
"Indebtedness" means, at any time with respect to the
Borrower or the Guarantor, as the case may be, the
following:
(a) indebtedness for money borrowed and indebtedness
represented by notes payable and drafts accepted
representing extensions of credit;
(b) all obligations (whether or not with respect to
the borrowing of money) which are evidenced by bonds,
debentures, notes or other similar instruments or not
so evidenced but which would be considered to be
indebtedness for borrowed money in accordance with
generally accepted accounting principles;
(c) all indebtedness upon which interest charges are
customarily paid;
(d) principal obligations as lessee under capital
leases and all other indebtedness issued or assumed as
full or partial payment for property or services or by
way of capital contribution; and
(e) any guarantee (other than by endorsement of
negotiable instruments for collection or deposit in the
ordinary course of business) relating to an obligation
of a type referred to in (a) to (d) above, and any
contingent liability in respect of letters of credit,
letters of guarantee and surety bonds;
of the Borrower or the Guarantor, as the case may be, at
such time, including (without limitation) the aggregate of
all Loans at such time; for greater certainty, trade
payables (including, without limitation, amounts owing under
inventory flooring agreements with suppliers), expenses
accrued in the ordinary course of business, customer advance
payments and deposits received in the ordinary course of
business and any obligations under or resulting from any
agreement for the securitization of accounts receivable
(provided that the Agent on behalf of the Banks shall have
received, not less than 5 days prior to the date of such
securitization, an opinion from a firm of chartered
accountants acceptable to the Banks that the sale of
accounts receivable pursuant to such securitization
constitutes a sale for accounting purposes, which opinion
shall be substantially in the form of a schedule to be
agreed upon by the parties hereto by February 28, 1995 and
to be attached to this Agreement) shall not constitute
Indebtedness;
"Interest Period" means, with respect to each Libor Loan,
the period selected by the Borrower in accordance with the
provisions hereof and being of a duration of one, two, three
<PAGE>
or six months, commencing on the Borrowing Date, Rollover
Date or Conversion Date (as the case may be) of such Loan;
"Letter of Credit" means a letter of credit or letter of
guarantee issued by the Administrative Agent on behalf of
the Banks in accordance with the provisions hereof;
"Letter of Credit Fee" means, at any time, in respect of
each Letter of Credit, a fee calculated on the basis of a
365 day year for the period from the date of issue thereof
to the expiry date thereof, at a rate per annum which the
Administrative Agent establishes at its principal office in
Toronto as the reference rate to determine the fee it will
charge at such time to its customers in Canada for issuing
irrevocable documentary letters of credit denominated in
Canadian dollars or U.S. dollars (as the case may be and
which it refers to as its "commission fee"), such fee to be
adjusted automatically and without the necessity of any
notice to the Borrower upon each change to such fee;
"Level 1 Period", "Level 2 Period", "Level 3 Period" and
"Level 4 Period" means a period of time during which the
Consolidated Debt/Capital Ratio of Merisel Parent is as set
forth in the table below:
Ratio Period
equal to or less than .55:1.00 Level 1
greater than .55:1.00 but equal Level 2
to or less than .60:1.00
greater than .60:1.00 but equal Level 3
to or less than .625:1.00
greater than .625:1.00 Level 4
For purposes of this definition, (a) "Consolidated
Debt/Capital Ratio" means the ratio described in respect of
Merisel Parent in section 7.01(g) of the U.S. Credit
Agreement, as set out in the financial statements of the
Guarantor; (b) each change in such ratio shall be deemed to
have occurred as of the date of the most recent financial
statements delivered by the Guarantor to the Banks pursuant
to section 8.1 of the Guarantee; and (c) any change in the
Applicable Margin shall be calculated and applied
prospectively from the first day of the month following the
month in which financial statements of the Guarantor
reflecting such a change were delivered to the Banks (or
were required by the Guarantee to have been so delivered);
"Libor" means, in respect of a particular Libor Loan and
Interest Period, the interest rate which, pursuant to
section 6.3.1, the Administrative Agent has determined, at
or about 11:00 a.m. (Toronto time) on the day which is two
Banking Days prior to the first day of such Interest Period,
<PAGE>
is the rate at which it is prepared to offer deposits to
leading banks in the London interbank eurocurrency market in
U.S. dollars in an amount approximately equal to the amount
of the particular Libor Loan for substantially the same
number of days as such Interest Period for delivery on the
first day of such Interest Period;
"Libor Loan" means, at any time, any Loan which is
outstanding at such time in U.S. dollars and in respect of
which interest is to be calculated based on Libor, and
"Libor Loans" means, at any time, all Libor Loans at such
time;
"Lien" means any mortgage, lien, pledge, assignment, charge,
security interest, lease intended as security (but
specifically not including operating leases), title
retention agreement, right reserved in any Governmental
Body, hypothec, levy, execution, seizure, attachment,
garnishment or other similar encumbrance and includes any
contractual restriction which, if contravened, may give rise
to an encumbrance;
"Loan" means, at any time, the principal amount of all
Obligations then outstanding under the Credit Facility
pursuant to the same availment option, denominated in the
same Currency, and,
(a) in the case of a Bankers' Acceptance Loan,
relating to all Bankers' Acceptances accepted in
respect of a single Borrowing Notice;
(b) in the case of a Libor Loan, pursuant to an
Advance, Rollover or Conversion made on the same date
and having the same Maturity Date; and
(c) in the case of a Letter of Credit, relating to a
single Letter of Credit;
and "Loans" means, at any time, all Loans then outstanding
under the Credit Facility at such time;
"Loan Documents" means this Agreement, the Guarantee and any
other agreements, instruments and documents delivered from
time to time (both before and after the date of this
Agreement) to the Administrative Agent on behalf of the
Banks or to the Banks by the Borrower, the Guarantor or any
other Person in connection with this Agreement or the
Guarantee, other than opinions of counsel, in each case as
amended or supplemented from time to time, and "Loan
Document" means any one of them;
"Majority Banks" means, at any time, such of the Banks which
are owed principal amounts under the Credit Facility or the
Overdraft Facility aggregating at least 66 2/3% of the
aggregate of the Loans under the Credit Facility and the
maximum amount of the Overdraft Facility pursuant to section
2.11.1 or, if no Loans are then outstanding, such of the
Banks having or having made available, as the case may be,
at least 66 2/3% of the aggregate of the Aggregate
Commitment and the maximum amount of the Overdraft Facility
pursuant to section 2.11.1. For purposes of this
definition, the principal amount owed and the amount having
<PAGE>
been made available under the Overdraft Facility at any time
shall be deemed to be the maximum amount thereof pursuant to
section 2.11.1;
"Maturity Date" means the last day of an Interest Period, BA
Period or Letter of Credit term (as applicable);
"Merisel Parent" means Merisel, Inc., a corporation
incorporated under the laws of Delaware, and its successors;
"Obligations" means all indebtedness (including any
operating account debit balances in favour of any Bank),
liabilities and other obligations of the Borrower to the
Administrative Agent and the Banks or any of them hereunder
and of the Borrower or the Guarantor under any other Loan
Document (including any amendments or supplements thereto),
whether actual or contingent, direct or indirect, matured or
not, now existing or arising hereafter, including, for
greater certainty, obligations to the Overdraft Bank in
respect of the Overdraft Facility;
"Overdraft Bank" means Citibank Canada;
"Overdraft Facility" means the overdraft facility made
available to the Borrower by the Overdraft Bank pursuant to
section 2.11;
"Permitted Encumbrances" means:
(a) Liens for taxes, assessments or governmental
charges incurred in the ordinary course of business
that are not yet due and payable or the validity of
which is being actively and diligently contested in
good faith by the Borrower;
(b) construction, mechanics', carriers',
warehousemen's and materialmen's Liens and Liens in
respect of vacation pay, workers' compensation,
unemployment insurance or similar statutory
obligations, provided the obligations secured by such
Liens are not yet due and payable and, in the case of
construction Liens, which have not yet been filed or
for which the Borrower has not received written notice
of a Lien;
(c) deposits to secure public or statutory obligations
or in connection with any matter giving rise to a Lien
described in (b) above;
(d) Liens arising from court or arbitral proceedings,
provided that any such Lien has not resulted in an
Event of Default;
(e) good faith deposits made in the ordinary course of
business to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed
money), leases, surety, customs, performance bonds and
other similar obligations;
<PAGE>
(f) utility easements, rights of way, servitudes,
building restrictions, title defects and irregularities
and other such Liens against real property as are of a
nature generally existing with respect to properties of
a similar character and which do not in any material
way affect the marketability of the same or interfere
with the use thereof in the business of the Borrower;
(g) Purchase Money Security Interests, provided the
aggregate principal amount of the obligations secured
in respect of Purchase Money Security Interests which
are not in respect of inventory flooring agreements at
no time exceeds $1,000,000;
(h) capital leases, provided the aggregate principal
amount thereof does not at any time exceed $10,000,000;
(i) any other Lien which the Banks approve in writing
as a Permitted Encumbrance;
(j) any other Liens provided that the aggregate
principal amount secured thereby at any time does not
exceed $100,000; and
(k) Liens in respect of accounts receivable (and in
property securing or otherwise supporting accounts
receivable) in connection with agreements for the
securitization of accounts receivable (or interests
therein), provided that the Agent on behalf of the
Banks shall have received, not less than 5 days prior
to the date of such securitization, an opinion from a
firm of chartered accountants acceptable to the Banks
that the sale of accounts receivable pursuant to such
securitization constitutes a sale for accounting
purposes, which opinion shall be substantially in the
form of a schedule to be agreed upon by the parties
hereto by February 28, 1995 and to be attached to this
Agreement;
"Person" means any individual, partnership, limited
partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital,
unincorporated association, trust, trustee, executor,
administrator or other legal personal representative or
Governmental Body;
"Prime Rate" means, at any time, the annual rate of interest
which the Administrative Agent establishes at its principal
office in Toronto as the reference rate of interest to
determine interest rates it will charge at such time for
demand loans in Canadian dollars made to its customers in
Canada and which it refers to as its "prime rate of
interest", such rate to be adjusted automatically and
without the necessity of any notice to the Borrower upon
each change to such rate;
"Prime Rate Loan" means, at any time, any Loan which is
outstanding at such time and in respect of which interest is
to be calculated based on the Prime Rate and "Prime Rate
Loans" means, at any time, all Prime Rate Loans at such
time;
<PAGE>
"Purchase Money Security Interest" means any Lien given,
assumed or arising by operation of law to provide or secure,
or to provide the obligor with funds to pay, the whole or
any part of the consideration for the acquisition of
property where the principal amount of the obligation
secured by such Lien (i) is not in excess of the cost
(including, without limitation, taxes, delivery and
transaction costs) to the obligor of the property encumbered
thereby and (ii) is secured only by the property being
acquired by the obligor, and includes the renewal or
refinancing of any such Lien upon the same property provided
that the indebtedness secured and the security therefor are
not increased thereby, and also includes, for greater
certainty, Liens in respect of inventory flooring agreements
with suppliers;
"Rateable Portion" means in respect of each Bank at any
time, the proportion that its Commitment at such time bears
to the Aggregate Commitment at such time, and the terms
"rateable" and "rateably" shall have the corresponding
meanings;
"Responsible Officer" means, in respect of the Borrower, any
of the Chief Executive Officer and the Chief Financial
Officer;
"Rollover" means, in respect of a Libor Loan or Bankers'
Acceptance Loan, the continuation of such Loan or any
portion thereof for a succeeding Interest Period or BA
Period, as the case may be, in accordance with the
provisions hereof;
"Rollover Date" means, in respect of a Libor Loan or
Bankers' Acceptance Loan, a Banking Day on which a Rollover
of all or a portion thereof is made;
"Subsidiary" means, with respect to any Person at any time,
any corporation of which at least a majority of the Voting
Shares are at the time, directly or indirectly, owned by
such Person, and includes any corporation in like
relationship to a Subsidiary;
"Taxes" means all taxes of any kind or nature whatsoever
including, without limitation, income taxes, sales or value-
added taxes, levies, stamp taxes, royalties, duties, and all
fees, deductions and withholdings imposed, levied,
collected, withheld or assessed as of the date hereof or at
any time in the future, by any Governmental Body of or
within Canada or any other jurisdiction whatsoever having
power to tax, together with penalties, fines, additions to
tax and interest thereon;
"U.S. Credit Agreement" means the revolving credit agreement
dated as of December 23, 1993 among the Guarantor and
Merisel Europe, Inc. as co-borrowers, Merisel Parent as
guarantor, and the lenders and other parties listed therein,
as amended to the date hereof;
"U.S. Dollar Equivalent" means, in relation to any
particular amount of money in Canadian dollars at any
particular time, the value thereof at such time in U.S.
dollars determined at the Conversion Rate; and
<PAGE>
"Voting Shares" means capital stock of any class of a
corporation which carries voting rights under any
circumstances, provided that shares which carry the right to
vote conditionally upon the happening of an event shall not
be considered Voting Shares until the occurrence of such
event and then only during the continuance of such event.
C.(b) Gender and Number
Words importing the singular include the plural and
vice versa and words importing gender include all genders.
C.(c) Certificate of the Administrative Agent as to
Rates, etc.
A certificate of the Administrative Agent certifying
the amount of the Applicable Margin, the BA Base Rate, the
Average BA Discount Rate, the Base Rate, the Prime Rate, the
Acceptance Fee, the Letter of Credit Fee or Libor at any
particular time in respect of any Loan made or maintained or to
be made or maintained by the Banks or any of them hereunder or
the Conversion Rate in respect of any calculation hereunder shall
be binding and conclusive for all purposes, absent manifest
error. A certificate of a Bank certifying the amount of the BA
Discount Rate quoted by it on any particular day, as notified by
it to the Administrative Agent for the purposes hereof, shall be
binding and conclusive for all purposes, absent manifest error.
No provision hereof shall be construed so as to require the
Administrative Agent or any Bank to issue a certificate at any
particular time.
C.(d) Interest Act
For purposes of the Interest Act (Canada), where in any
Loan Document (i) a rate of interest is to be calculated on the
basis of a year of 360 days, the yearly rate of interest to which
the 360 day rate is equivalent is such rate multiplied by the
number of days in the year for which such calculation is made and
divided by 360, or (ii) an annual rate of interest is to be
calculated during a leap year, the yearly rate of interest to
which such rate is equivalent is such rate multiplied by 366 and
divided by 365.
<PAGE>
C.(e) Invalidity, etc.
Each of the provisions contained in any Loan Document
is distinct and severable and a declaration of invalidity,
illegality or unenforceability of any such provision or part
thereof by a court of competent jurisdiction shall not affect the
validity or enforceability of any other provision of such Loan
Document or of any other Loan Document. Without limiting the
generality of the foregoing, if any amounts on account of
interest or fees or otherwise payable by the Borrower to the
Administrative Agent or the Banks hereunder exceed the maximum
amount recoverable under Applicable Law, the amounts so payable
hereunder shall be reduced to the maximum amount recoverable
under Applicable Law.
C.(f) Headings, etc.
The division of a Loan Document into articles, sections
and clauses, the inclusion of a table of contents and the
insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of such Loan
Document.
C.(g) Governing Law
The Loan Documents, other than the Guarantee, shall be
governed by and construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein.
The Guarantee shall be governed by and construed in accordance
with the laws of the State of California.
C.(h) Attornment
The parties hereto irrevocably submit and attorn to the
non-exclusive jurisdiction of the courts of the Province of
Ontario for all matters arising out of or in connection with this
Agreement and the other Loan Documents.
C.(i) Currency
Except as otherwise specifically provided herein, all
monetary amounts in this Agreement are stated in Canadian
dollars.
C.(j) This Agreement to Govern
If there is any inconsistency between the terms of this
Agreement and the terms of any other Loan Document, the
provisions hereof shall prevail to the extent of the
inconsistency, but the
<PAGE>
foregoing shall not apply to limit or restrict in any way the rights and
remedies of the Administrative Agent or the Banks under the terms of
the Loan Documents.
C.(k) Generally Accepted Accounting Principles
Except as otherwise specifically provided herein, all
accounting terms shall be applied and construed in accordance
with generally accepted accounting principles consistently
applied. References herein to "generally accepted accounting
principles" mean, for all principles stated from time to time in
the Handbook of the Canadian Institute of Chartered Accountants,
such principles so stated.
C.(l) Determination of Amount of Loans
For the purpose of determining the amount of Loans or
any Loan at any time, there shall be deemed to be outstanding and
advanced in addition to amounts outstanding and directly
advanced, without duplication and without affecting other
provisions hereof regarding the basis for the calculation of
interest or fees, (i) the face amount of all Bankers' Acceptances
then outstanding, and (ii) the maximum amount of all contingent
liabilities of the Banks pursuant to Letters of Credit then
outstanding. Where any amount denominated in U.S. dollars is or
is deemed to be outstanding, the applicable rate of exchange for
purposes of calculating the total Canadian dollar amount of the
Loans or any Loan at any time shall be the then most recently
available Conversion Rate.
C.(m) Actions on Days Other Than Banking Days
Except as otherwise specifically provided herein, where
any payment is required to be made or any other action is
required to be taken on a particular day and such day is not a
Banking Day and, as a result, such payment cannot be made or
action cannot be taken on such day, then this Agreement shall be
deemed to provide that such payment shall be made or such action
shall be taken on the first Banking Day after such day; provided
that if such deferral would cause such payment to be made or such
action to be taken in the following calendar month, such payment
shall be made or such action shall be taken on the next preceding
Banking Day and interest and fees shall be calculated
accordingly.
C.(n) Oral Instructions
Notwithstanding any other provision herein regarding
the delivery of notices, including Borrowing Notices, by the
Borrower, the Administrative Agent shall in its sole discretion
be entitled to act upon the oral instructions of the Borrower, or
any Person reasonably believed by the Administrative Agent to be
a Person authorized by the Borrower to give instructions,
regarding any request for an Advance, Rollover, Conversion,
<PAGE>
completion and issuance of Bankers' Acceptances or issuance of
Letters of Credit. All such oral instructions shall be at the
risk of the Borrower and must be confirmed in writing by the
Borrower prior to the time the Administrative Agent is required
to act on such oral instructions. The Administrative Agent shall
not be responsible for any error or omission in such instructions
or in the performance thereof except in the case of negligence or
wilful misconduct by the Administrative Agent.
C.(o) Incorporation of Schedules
The following schedules annexed hereto shall, for all
purposes hereof, form part of this Agreement:
Schedule A - Commitments (1.1)
Schedule B - Borrowing Notice (2.6)
Schedule C - Guarantee (9.1.3.5)
Schedule D - Opinion of Borrower's Counsel
(9.1.3.7)
Schedule E - Opinion of Guarantor's Counsel
(9.1.3.8)
D. CREDIT FACILITY
D.(a) Establishment of Credit Facility
D.(a)(i) Subject to the terms and conditions of this
Agreement, the Banks hereby severally establish a revolving
credit facility (the "Credit Facility") in favour of the Borrower
in the amount of their respective Commitments.
D.(a)(ii) The Credit Facility shall be available, at the
option of the Borrower, by way of Advances of: (i) Prime Rate
Loans in Canadian dollars; (ii) Base Rate Loans in U.S. dollars;
(iii) Bankers' Acceptances in Canadian dollars; (iv) Libor Loans
in U.S. Dollars; and (v) Letters of Credit in Canadian or U.S.
dollars.
D.(a)(iii) Notwithstanding any other provision of this
Agreement, no Bank shall be obligated to make its Rateable
Portion of any Advance (and the Borrower shall not request any
Advance to be made) to the extent that on any relevant Borrowing
Date, after giving effect to any Advance requested: (i) the
Canadian Dollar Value of the aggregate principal amount of such
Bank's Rateable Portion of all Loans would exceed its Commitment
at such time; or (ii) the Canadian Dollar Value of the aggregate
principal amount of all Loans would exceed the Aggregate
Commitment at such time.
<PAGE>
D.(b) Revolving Nature of Credit Facility
The Borrower may, until the Due Date, increase or
decrease the Obligations under the Credit Facility by making
drawdowns, repayments and further drawdowns up to the amount of
the Aggregate Commitment from time to time. The Aggregate
Commitment and each of the Commitments shall be automatically
reduced to nil on the Due Date, and the Borrower shall repay to
the Administrative Agent for the account of the Banks on the Due
Date all Obligations then outstanding.
D.(c) Repayment
The Borrower may from time to time (without bonus or
penalty) on any Banking Day repay to the Administrative Agent,
for the account of the Banks, Prime Rate Loans or Base Rate Loans
or portions thereof provided that any such repayment made by the
Borrower on any particular day shall (unless such payment is
required to be made under any particular provision hereof) only
be effected if notice of such repayment is provided to the
Administrative Agent by (i) in the case of a repayment of under
$5,000,000, 12:00 noon, and (ii) in the case of a repayment of
$5,000,000 or more, 11:00 a.m., in each case on such day, which
notice, once given, shall in each case be irrevocable and binding
upon the Borrower. The Borrower shall repay Bankers' Acceptance
Loans and Libor Loans in accordance with the provisions of
section 2.8.2.
D.(d) Voluntary Reduction in Credit Facility
The Borrower shall have the right at any time and from
time to time, by giving at least three Banking Days' notice to
the Administrative Agent which notice, once given, shall be
irrevocable and binding upon the Borrower, to reduce the then
applicable Aggregate Commitment to a lower amount which is not
less than the principal amount of all Obligations then
outstanding. Such notice shall specify the amount of the
reduction, which shall be in an integral multiple of $5,000,000.
The amount of any such reduction so made by the Borrower shall be
permanent and irrevocable and each Bank's Commitment shall be
reduced rateably.
D.(e) Extension of Credit Facility
The Borrower may, by written request to the
Administrative Agent at least 30 days prior to the end of each
successive 6 month period commencing from the date hereof,
request that the Credit Facility be extended for a further period
of 6 months from the Due Date at such time. The Administrative
Agent shall forthwith notify each Bank of such request and the
Banks may, in their sole discretion and regardless of whether or
not there is any Default hereunder, approve or decline such
request (approval being deemed to have been given only if all of
the Banks give such approval). The Administrative Agent shall,
<PAGE>
not later than 6 months prior to the Due Date at such time,
notify the Borrower whether or not such extension has been
granted and, if such extension has been granted, confirm the new
Due Date. If no request for an extension of the Credit Facility
is received from the Borrower or if such request is not approved
by all of the Banks, the Credit Facility shall terminate on the
then current Due Date.
D.(f) Advances
D.(f)(i) Other than in the case of Advances made pursuant
to section 2.11, each request by the Borrower for an Advance
under the Credit Facility shall be made by the delivery of a duly
completed and executed Borrowing Notice to the Administrative
Agent at its Branch of Account:
D.(f)(i)(A) in the case of Advances of Prime Rate Loans
and Base Rate Loans, not later than 10:30 a.m. (Toronto time) on
the proposed Borrowing Date;
D.(f)(i)(B) in the case of Advances of Libor Loans or
Bankers' Acceptance Loans, not later than 11:00 a.m. (Toronto
time) on the second Banking Day prior to the proposed Borrowing
Date; and
In the case of Advances of Letters of Credit, the Borrower
shall deliver a duly completed and executed Borrowing Notice
to the Agent at its Branch of Account and the Agent shall,
as soon as reasonably practicable, prepare and provide to
the Borrower a draft of the Letter of Credit. The Borrowing
Date in respect of the Letter of Credit shall be not sooner
than the fifth Banking Day following the receipt by the
Agent of written notice from the Borrower that the form of
the draft Letter of Credit is acceptable to the Borrower.
D.(f)(ii) Any notice in respect of a proposed Advance shall
be irrevocable and binding on the Borrower.
D.(f)(iii) Subject to section 2.11, all Advances shall
be in an amount which is an integral multiple of $100,000 (or
U.S. $100,000 in the case of an Advance in U.S. dollars) and, in
the case of Advances of Bankers' Acceptance Loans, shall also be
in a minimum amount of $500,000.
D.(g) Selection of Interest Periods and BA Periods
Notwithstanding any other provision hereof:
D.(g)(i) the Borrower may not select any Interest Period or
BA Period with a Maturity Date which is later than the Due Date;
and
<PAGE>
D.(g)(ii) the number of Interest Periods and BA Periods in
effect at any time shall not exceed 40 in the aggregate.
D.(h) Rollover and Conversion
D.(h)(i) Subject to the terms and conditions of this
Agreement and provided that no declaration or demand has been
made by the Administrative Agent under section 10.2, the Borrower
may from time to time request that a Loan or any portion thereof
be rolled over or converted to another form of Loan in accordance
with the provisions hereof.
D.(h)(ii) The Borrower shall repay to the Administrative
Agent for the account of the Banks the full amount of each
Bankers' Acceptance Loan and Libor Loan on the Maturity Date of
the BA Period or Interest Period applicable thereto, in
accordance with the provisions hereof governing repayment and
prepayment, unless such Loan shall be rolled over or converted to
another form of Loan on such Maturity Date in accordance with the
provisions hereof.
D.(h)(iii) Each request by the Borrower for a Rollover
or Conversion shall be made by the delivery of a duly completed
and executed Borrowing Notice to the Administrative Agent at the
Branch of Account, and the provisions of section 2.6 shall apply
to the Rollover or Conversion as if such Rollover or Conversion
were an Advance.
D.(h)(iv) Each Rollover or Conversion of a Libor Loan or
Bankers' Acceptance Loan shall be made effective as of the
Maturity Date of the Interest Period or BA Period applicable
thereto.
D.(h)(v) If the Borrower does not deliver a Borrowing
Notice at or before the time required by section 2.8.3 and
D.(h)(v)(A) in the case of a Bankers' Acceptance Loan,
fails to pay to the Administrative Agent for the account of the
Banks the face amount thereof on the Maturity Date of the
relevant BA Period, or
D.(h)(v)(B) in the case of a Libor Loan, fails to pay to
the Administrative Agent for the account of the Banks the
principal amount thereof on the Maturity Date of the relevant
Interest Period,
the Borrower shall be deemed to have requested a Conversion
of such Loan to a Prime Rate Loan (if the maturing Loan is a
Bankers' Acceptance Loan) or a Base Rate Loan (if the
maturing Loan is a Libor Loan), and all of the provisions
hereof applicable to Prime Rate Loans and Base Rate Loans,
as the case may be, shall apply thereto.
D.(h)(vi) A Rollover or Conversion shall not constitute a
repayment of the relevant Loan but shall result in a change in
the basis of calculation of interest or fees (as the case may be)
<PAGE>
for such Loan and, where applicable, the Currency of the Loan, in
accordance with the provisions hereof.
D.(i) Mandatory Repayment for Currency Excess
The Administrative Agent shall, on such dates as it may
select in its sole discretion, determine the Canadian Dollar
Value of the principal amount of all Obligations then
outstanding. If the Canadian Dollar Value of the principal
amount of all such Obligations exceeds the Aggregate Commitment,
the Administrative Agent shall notify the Borrower of the amount
of the excess (the "Excess Borrowing") and the Borrower shall,
within five Banking Days of the giving of such notice, repay the
amount of the Excess Borrowing in Canadian dollars to the
Administrative Agent on behalf of the Banks.
D.(j) Payments Generally
All payments (in respect of principal, interest, fees
or otherwise) shall be made by the Borrower to the Administrative
Agent (on behalf of the Banks) no later than 12:00 noon (Toronto
time) on the due date thereof to the account specified therefor
by the Administrative Agent at its Branch of Account or to such
other accounts as may be specified by the Administrative Agent to
the Borrower from time to time. Any payments received after such
time shall be considered for all purposes as having been made on
the next following Banking Day unless the Administrative Agent
otherwise agrees in writing. All payments shall be made in
immediately available funds in the same Currency as the Currency
of the Loan to which such payments relate.
D.(k) Overdraft Facility
D.(k)(i) Subject to the terms and conditions of this
Agreement, the Overdraft Bank agrees to establish an overdraft
facility (the "Overdraft Facility") in favour of the Borrower in
an amount up to $10,000,000. The Overdraft Facility is subject
to cancellation in whole or in part by the Overdraft Bank at any
time and the amount available thereunder shall automatically be
reduced to nil on the Due Date, and the Borrower shall repay to
the Overdraft Bank on the earlier of the date of such
cancellation and the Due Date all Obligations then outstanding
thereunder. The Borrower may, until the earlier of the
cancellation of the Overdraft Facility and the Due Date, increase
or decrease the Obligations under the Overdraft Facility by
making drawdowns, repayments and further drawdowns up to the
maximum amount available thereunder from time to time.
D.(k)(ii) The Borrower shall open and maintain with the
Overdraft Bank at the Branch of Account at least one Canadian
dollar and one U.S. dollar operating account (each such operating
account herein called an "operating account"). The Borrower
<PAGE>
shall execute the Overdraft Bank's standard operation of account
agreements and other necessary account documents. Availment
under the Overdraft Facility may be made by the Overdraft Bank
honouring cheques of the Borrower drawn on an operating account
on the terms set out in section 2.11.3. Overdrafts in the
Canadian dollar operating account and the U.S. dollar operating
account shall bear interest at the rate applicable to Prime Rate
Loans and Base Rate Loans, respectively.
D.(k)(iii) The Borrower authorizes the Overdraft Bank,
daily or otherwise as and when determined by the Overdraft Bank
from time to time, to ascertain the net position between the
Borrower and the Overdraft Bank in respect of all operating
accounts. If such net position is a debit in excess of
$10,000,000 (or the U.S. Dollar Equivalent) in favour of the
Overdraft Bank, the Overdraft Bank shall forthwith notify the
Administrative Agent of the amount of such debit position.
Receipt of such notice shall be deemed to be receipt by the
Administrative Agent of a Borrowing Notice from the Borrower
under the Credit Facility requesting an Advance of a Prime Rate
Loan (or, if the Borrower so advises the Administrative Agent in
sufficient time prior to the Advance, a Base Rate Loan) in the
amount of $10,000,000 (or the U.S. Dollar Equivalent), and the
provisions of this Agreement applicable to such Advance shall
thereupon apply, except that the Administrative Agent shall
credit the Overdraft Bank with the amount of such Advance (which
the Overdraft Bank shall in turn credit to the relevant operating
account or accounts).
D.(k)(iv) The provisions of sections 3.5, 3.7, 6.2.1, 6.2.2,
6.4, 6.7, 6.8, 8.1, 8.3, 9.1 and 10.2 of this Agreement shall
apply to the Overdraft Facility, mutatis mutandis. For greater
certainty, in applying such sections to the Overdraft Facility,
all references therein to Loans shall be deemed to be references
to amounts outstanding under the Overdraft Facility; all
references to the Credit Facility shall be deemed to be
references to the Overdraft Facility; all references to Prime
Rate Loans and Base Rate Loans shall be deemed to be references
to Canadian dollar overdrafts or U.S. dollar overdrafts,
respectively; all references to the Administrative Agent and/or
the Banks shall be deemed to be references to the Overdraft Bank;
and all references to the Aggregate Commitment shall be deemed to
be references to the maximum amount available under the Overdraft
Facility at such time.
D.(k)(v) Subject to section 2.11.3, the Overdraft Bank shall
be solely responsible for the funding and administration of the
Overdraft Facility, and all interest, fees and other amounts
payable by the Borrower in respect of the Overdraft Facility
shall be for the account of the Overdraft Bank.
<PAGE>
E. GENERAL PROVISIONS RELATING TO THE CREDIT FACILITY
E.(a) Disturbance of Libor Market
Notwithstanding any other provision hereof, if at any
time prior to the commencement of an Interest Period in respect
of any proposed Libor Loan, any Bank determines in good faith
(which determination shall be conclusive and binding), and
provides a certificate to the Administrative Agent with respect
to such determination, that with respect to such Libor Loan:
E.(a)(i) Libor will not adequately and fairly reflect the
cost to such Bank of funding such Libor Loan for the relevant
Interest Period, or
E.(a)(ii) deposits in U.S. dollars are not available to such
Bank in the London interbank market in sufficient amounts in the
ordinary course of business, or
E.(a)(iii) by reason of circumstances affecting the
London interbank market, adequate and fair means do not exist for
ascertaining Libor for the relevant Interest Period;
then the Administrative Agent shall forthwith (but in any case
not later than the Banking Day on which such Libor Loan was to be
made) give notice of such determination to the Borrower, and from
and after the date of commencement of such Interest Period and
for so long as such conditions shall continue to exist the
Borrower shall not have the right to obtain such Libor Loan and
the Borrowing Notice received by the Administrative Agent in
respect of such Libor Loan shall be deemed to be a request of the
Borrower for a Base Rate Loan (unless the Borrower notifies the
Administrative Agent, within the time periods required by section
2.6.1, that it wishes another type of Loan (other than a Libor
Loan)).
E.(b) Payments - No Deduction
E.(b)(i) All payments made by the Borrower to the
Administrative Agent or any of the Banks under this Agreement
shall be made in full, without set-off or counterclaim, and free
of and without deduction or withholding for or on account of any
present or future Canadian Taxes (other than Excluded Taxes)
provided that, if the Borrower shall be required by law to deduct
or withhold any Canadian Taxes (other than Excluded Taxes) from
or in respect of any payment or sum payable to the Administrative
Agent or the Banks, the payment or sum payable shall be increased
as may be necessary so that after making all required deductions
or withholdings (including deductions or withholdings applicable
to additional amounts paid under this section 3.2) the
Administrative Agent or the Banks receive an amount equal to the
<PAGE>
sum they would have received if no deduction or withholding to
the relevant taxation or other authority in accordance with
Applicable Law.
E.(b)(ii) The Borrower shall indemnify the Administrative
Agent and the Banks (any of the same being an "Indemnified
Person") in respect of:
E.(b)(ii)(A) the full amount of Canadian Taxes (other than
Excluded Taxes) imposed or levied upon any such Indemnified
Person in respect of any payment received or receivable by it
hereunder from or on behalf of the Borrower or from the Guarantor
as guarantor of the Obligations of the Borrower, whether or not
such Canadian Taxes (other than Excluded Taxes) were correctly or
legally asserted; and
E.(b)(ii)(B) any net Taxes imposed by any jurisdiction on
any increased amounts payable under section 3.2.1 after taking
into account any refund, credit, allowance, remission or
deduction from income otherwise determined or tax otherwise
payable available to such Indemnified Person in respect of the
Canadian Taxes deducted or withheld as contemplated by section
3.2.1 (whether or not claimed by such Indemnified Person).
Payment under this indemnification shall be made within ten
Banking Days from the date the relevant Indemnified Person
makes written demand therefor accompanied by a certificate
of the relevant Indemnified Person stating the amount of the
relevant Taxes and the calculation thereof. Provided that
payment in full shall have been made to the relevant
Indemnified Person in accordance with this section, the
Borrower shall have the sole right to determine whether and
to what extent the assessment shall be objected to, appealed
or otherwise contested or a refund sought of all or part of
any amount paid to any Canadian taxing authority under the
assessment and to take any proceedings in respect of such
contestation or refund in the name of the Indemnified Person
and to obtain and instruct counsel of its choice, all for
the sole account and at the sole expense of the Borrower.
E.(b)(iii) As soon as practicable after receipt of each
payment made pursuant to sections 3.2.1 or 3.2.2, the relevant
Indemnified Person shall take all reasonable steps to obtain any
refund, credit, allowance, remission or deduction from income
otherwise determined or tax otherwise payable, to which it may be
entitled from the taxation authorities of any relevant taxing
jurisdictions in respect of any payment of Canadian Taxes
referred to in section 3.2.1 or any payment of Taxes referred to
in section 3.2.2. If any such refund shall be received or due
payment of tax reduced by reason of such refund, credit,
allowance, remission or deduction, such Indemnified Person shall,
to the extent that it can do so without prejudice to its ability
to retain the amount of such refund, credit, allowance, remission
or deduction, forthwith notify the Borrower and simultaneously
account to it for an amount equal to the refund received or
credit, allowance, remission or deduction given (to the extent
the same shall not already have been taken into account under
section 3.2.2.2).
<PAGE>
E.(b)(iv) Nothing contained in this section 3.2 shall
interfere with the right of a Bank to arrange its tax affairs in
whatever manner it may think fit and, in particular, it shall not
be under any obligation to claim relief from its tax liability in
respect of its payments, deductions or withholdings in priority
to any other claims, reliefs, credits or deductions available to
it.
E.(b)(v) If an Indemnified Person shall demand payment from
the Borrower under this Section 3.2, the Borrower may, upon
giving two Banking Days' notice to the Administrative Agent and
to such Indemnified Person within 30 Banking Days after receiving
such notice from the Indemnified Person requiring such payment,
elect to prepay to such Indemnified Person all or such part of
the amount of the Loans owing to such Indemnified Person as may
be specified by the Borrower in such notice. Any such notice so
given shall be irrevocable and the Borrower shall, on the second
Business Day after the giving of such notice, prepay to such
Indemnified Person the amount of the Loans required to be paid
pursuant to the giving of such notice together with all interest
accrued thereon and all amounts payable to such Indemnified
Person in connection with such prepayment pursuant to Section
3.5. Such Indemnified Person's Commitment so required to be
prepaid shall be correspondingly permanently reduced or
terminated (as the case may be) on the second Banking Day after
the giving of such notice (and, for greater certainty, no other
Indemnified Person shall be responsible therefor), and the
Aggregate Commitment shall be reduced by the amount and at the
time of any prepayments so required to be made.
E.(c) Change in Circumstances
If the introduction of or any change, subsequent to the
initial Borrowing Date, in any Applicable Law relating to any
Bank, or any change, subsequent to the initial Borrowing Date, in
the interpretation or application thereof by any Governmental
Body or compliance by any Bank with any request or direction of
any Governmental Body:
E.(c)(i) subjects such Bank to, or causes the withdrawal or
termination of a previously granted exemption with respect to,
any Taxes or changes the basis of taxation of payments due to any
Bank or increases any existing Taxes on payments of the
Obligations (other than Taxes of application to the overall
income of such Bank);
E.(c)(ii) imposes, modifies or deems applicable any reserve,
liquidity, cash margin, capital, special deposit, deposit
insurance or assessment, or any other regulatory or similar
requirement against assets held by, or deposits in or for the
account of, or loans by, or any other acquisition of funds for
loans by, such Bank;
E.(c)(iii) imposes any Taxes on reserves or deemed
reserves in respect of the undrawn portion of such Bank's
Rateable Portion of the Credit Facility;
<PAGE>
E.(c)(iv) imposes on such Bank or requires there to be
maintained by such Bank any capital adequacy or additional
capital requirement (including, without limitation, a requirement
which affects such Bank's allocation of capital resources to its
obligations) in respect of such Bank's obligations hereunder or
imposes any other condition or requirement with respect to the
maintenance by such Bank of a contingent liability with respect
to any Bankers' Acceptance issued by it hereunder; or
E.(c)(v) imposes on such Bank any other condition or
requirement with respect to this Agreement (other than Taxes of
application to the overall income of such Bank);
and such occurrence has the effect of:
E.(c)(vi) increasing the cost to such Bank of agreeing to
make or making, maintaining or funding the Credit Facility, any
Advance, any Loan or any portion thereof;
E.(c)(vii) reducing the amount of the Obligations;
E.(c)(viii) directly or indirectly reducing the effective
return to such Bank under this Agreement or on its overall
capital as a result of entering into this Agreement or as a
result of any of the transactions or obligations contemplated by
this Agreement (other than a reduction resulting from a higher
rate of income tax being imposed on such Bank's overall income);
or
E.(c)(ix) causing such Bank to make any payment or to forego
any interest, fees or other return on or calculated by reference
to any sum received or receivable by such Bank hereunder;
then such Bank shall so advise the Administrative Agent, and the
Administrative Agent shall in each case forthwith advise the
Borrower accordingly and the Borrower shall promptly upon demand
by the Administrative Agent pay to the Administrative Agent on
behalf of such Bank such additional amounts as shall be
sufficient to fully indemnify such Bank for such additional cost,
reduction, payment, foregone interest or other return. A
certificate of such Bank documenting the relevant calculations
and submitted to the Borrower by the Administrative Agent shall
be conclusive and binding for all purposes, absent manifest
error. If the Administrative Agent shall demand payment of
additional amounts by the Borrower under this section in respect
of any Bank, the Borrower may, upon giving 2 Banking Days' notice
to the Administrative Agent within 30 Banking Days after
receiving notice from the Administrative Agent requiring payment
of such additional amounts, elect to prepay all such or part of
the amount of the Loans owing to such Bank as may be specified by
the Borrower in such notice. Any such notice so given shall be
irrevocable and the Borrower shall, on the second Banking Day
after the giving of such notice, prepay to such Bank the amount
of the Loans required to be paid pursuant to the giving of such
notice together with all interest accrued thereon and all amounts
payable to such Bank in connection with such prepayment pursuant
to section 3.5. Such Bank's Commitment so required to be prepaid
shall be correspondingly permanently reduced or terminated (as
the case may be) on the second Banking Day after the giving of
such notice (and, for greater certainty, no other Bank shall be
<PAGE>
responsible therefor), and the Aggregate Commitment shall be
reduced by the amount and at the time of any prepayments so
required to be made.
E.(d) Illegality
If the introduction of or change, subsequent to the
initial Borrowing Date, to any present or future Applicable Law,
or any change, subsequent to the initial Borrowing Date, in the
interpretation or application thereof by any Governmental Body,
shall make it unlawful for any Bank to make or maintain any Loan
or any relevant portion thereof or to give effect to its
obligations in respect of such Loan as contemplated hereby, such
Bank may, by notice to the Borrower and to the Administrative
Agent, declare that its obligations hereunder in respect of such
Loan shall be terminated, and thereupon the Borrower shall prepay
to such Bank forthwith (or at the end of such period to which the
Bank shall in its discretion have agreed) all of the Obligations
to such Bank in respect of such Loan including all amounts
payable in connection with such prepayment pursuant to section
3.5. Such Bank's Commitment so required to be prepaid shall be
correspondingly permanently reduced or terminated (as the case
may be) on the giving of such notice (and, for greater certainty,
no other Bank shall be responsible therefor) and the Aggregate
Commitment shall be reduced by the amount and at the time of any
prepayments so required to be made. If there are any types of
Loans hereunder that are not so affected, the Borrower may
convert the Loans which are affected into one of the types of
Loans that are not affected.
E.(e) General Indemnity
The Borrower shall indemnify each Bank for all losses
(excluding lost profits), costs, expenses, damages and
liabilities (including, without limitation, any loss, cost,
expense, damage or liability sustained by such Bank in connection
with the liquidation or re-employment in whole or in part of
deposits or funds borrowed or acquired by it to make its Rateable
Portion of any Loan), which such Bank may sustain or incur: (i)
if for any reason a utilization does not occur on a date
specified therefor in any Borrowing Notice, (ii) if the Borrower
fails to give any notice required to be given by it hereunder, in
the manner and at the time specified herein, (iii) if for any
reason any payment of any Libor Loan or Bankers' Acceptance Loan,
or any portion thereof, occurs on a date which is not a Maturity
Date in respect thereof, or (iv) as a consequence of any other
default by the Borrower to repay any Obligations when required by
the terms of this Agreement, other than, in each case, as a
result of such Bank's gross negligence or wilful misconduct. A
certificate of the relevant Bank setting forth the amounts
necessary to indemnify such Bank in respect of such losses,
costs, expenses, damages or liabilities shall be prima facie
evidence of the amounts owing under this section 3.5.
E.(f) Environmental Indemnity
<PAGE>
The Borrower shall indemnify the Administrative Agent
and each of the Banks and their respective officers, directors,
employees, agents and shareholders and shall hold each of them
harmless from and against any and all losses, liabilities,
damages, costs, expenses and claims (including legal fees on a
solicitor and his own client basis) in respect of (a) any
Applicable Law relating to the environment, including the
assertion of any Lien thereunder, (b) the presence of any
hazardous substance affecting the Borrower's property or any
adjacent real estate, or (c) the release of any hazardous
substance into the environment, other than as a result of the
gross negligence or wilful misconduct of the Agent or any of the
Banks. The Borrower's obligations and indemnification under this
section 3.6 shall survive the payment and satisfaction of all
Obligations and the termination of this Agreement. The
Administrative Agent and the Banks shall hold the benefit of this
indemnity in trust for those indemnified parties who are not
parties to this Agreement.
E.(g) Evidence of Indebtedness
E.(g)(i) The Administrative Agent shall maintain and
keep, at its Branch of Account, accounts showing the amount of
all Loans advanced by each of the Banks, including all Bankers'
Acceptances accepted by each of the Banks, from time to time and
the dates thereof and the interest, fees and other charges
accrued thereon or applicable thereto from time to time, and all
payments of principal (including prepayments), interest and fees
and other payments made by the Borrower to the Administrative
Agent from time to time. Such accounts maintained by the
Administrative Agent on behalf of itself and each of the Banks
shall, at all times and for all purposes, constitute prima facie
evidence, in the absence of manifest error, of the matters
recorded therein.
E.(g)(ii) The Obligations owing by the Borrower shall be
evidenced by a non-negotiable promissory note or other evidence
of obligation if, as and when required by the Administrative
Agent at the request of any Bank in accordance with its customary
practice, such promissory note to be duly executed and delivered
by the Borrower and to be in form and substance satisfactory to
such Bank. In the event that any such promissory note or other
evidence of obligation contains provisions which are inconsistent
with the terms of this Agreement, the provisions hereof shall
prevail to the extent of the inconsistency.
E.(h) Individual Obligations
The obligations of each Bank under this Agreement are
several. No Bank shall be responsible for any failure or alleged
failure on the part of any other Bank to duly perform its
obligations under the terms of this Agreement, nor shall the
obligations of the Borrower to any Bank be diminished or affected
by any failure or alleged failure on the part of any other Bank
to duly perform its obligations under the terms of this
Agreement.
<PAGE>
F. BANKERS' ACCEPTANCES
F.(a) Procedure Relating to Bankers' Acceptances
Subject to the terms and conditions of this Agreement,
the Banks shall accept Bankers' Acceptances of the Borrower
denominated in Canadian dollars on the following terms and
conditions:
F.(a)(i) each Bankers' Acceptance presented by the Borrower
for acceptance by a Bank shall be properly drawn and executed on
the appropriate form of such Bank in amounts of $100,000 or
integral multiples thereof and shall mature on a Banking Day.
The Borrower shall be deemed to have presented Bankers'
Acceptances for acceptance by a Bank in any case where a
Borrowing Notice requesting a Bankers' Acceptance Loan has been
duly given to the Administrative Agent, provided such Bank has
drafts duly endorsed in blank by the Borrower in quantities
sufficient for such Bank to fulfil its obligations in respect of
the relevant Advance, Rollover or Conversion hereunder;
F.(a)(ii) the face amount of each draft of a Bankers'
Acceptance to be accepted by the Banks in connection with a
Bankers' Acceptance Loan shall be determined by the
Administrative Agent on a rateable basis as amongst the Banks,
except that if a draft that would otherwise be accepted by a Bank
would not have a face amount of $100,000 or an integral multiple
thereof, such face amount shall be reduced or increased at the
discretion of the Administrative Agent to an integral multiple of
$100,000;
F.(a)(iii) each draft of a Banker's Acceptance to be
accepted by the Banks in respect of a single Bankers' Acceptance
Loan shall have an identical BA Period;
F.(a)(iv) the Borrower shall not claim any days of grace for
the payment at maturity of any Bankers' Acceptance;
F.(a)(v) upon acceptance of any draft by a Bank as a
Bankers' Acceptance, the Borrower shall pay to such Bank the
Acceptance Fee applicable to such Bankers' Acceptance. Payment of
such fee shall be effected by such Bank deducting the amount
thereof from the Discount Proceeds realized by the purchase by
such Bank of such Banker's Acceptance;
F.(a)(vi) on each Borrowing Date, Rollover Date or
Conversion Date on which a Bankers' Acceptance Loan is to be
made, the Administrative Agent shall in accordance with section
6.3.2 advise the Borrower and each Bank of the Average BA
Discount Rate, and shall at the same time advise each Bank of the
amount of the Discount Proceeds in respect of the draft of the
Borrower to be accepted by it on such date;
<PAGE>
F.(a)(vii) all Bankers' Acceptances accepted by a Bank
shall be purchased by such Bank. Upon the fulfilment of all
applicable conditions set out herein on the Borrowing Date, the
Bank shall accept the relevant draft of the Borrower as a
Bankers' Acceptance and shall, in case of an Advance of a
Bankers' Acceptance Loan, credit the appropriate account of the
Administrative Agent with an amount equal to the Discount
Proceeds, less the applicable Acceptance Fee. The Administrative
Agent shall make available to the Borrower in full the amounts so
credited for value on the same date;
F.(a)(viii) each Bank may at any time or from time to
time hold, sell, rediscount or otherwise dispose of any or all
Bankers' Acceptances purchased by it;
F.(a)(ix) in the case of a Rollover of a Bankers' Acceptance
Loan or portion thereof, each Bank accepting and purchasing a
Banker's Acceptance shall receive for its own account the
Discount Proceeds applicable to the new Bankers' Acceptance in
order to satisfy the continuing liability of the Borrower to such
Bank for the face amount of the maturing Bankers' Acceptance, and
the Borrower shall on the Maturity Date of the maturing Bankers'
Acceptance pay to the Administrative Agent for the account of
such Bank an amount equal to the difference between the face
amount of the maturing Bankers' Acceptance and the Discount
Proceeds from the new Bankers' Acceptance, together with the
Acceptance Fee applicable to the new Bankers' Acceptance;
F.(a)(x) in the case of a Conversion of a Loan to a
Bankers' Acceptance Loan, each Bank accepting and purchasing a
Bankers' Acceptance shall receive for its own account the
Discount Proceeds applicable to the Bankers' Acceptance in order
to satisfy the liability of the Borrower to such Bank for the
amount of its Rateable Portion of the converted Loan, and the
Borrower shall on the Conversion Date pay to the Administrative
Agent for the account of such Bank an amount equal to the
difference between the amount of such Bank's Rateable Portion of
the converted Loan and the Discount Proceeds from the Bankers'
Acceptance, together with the Acceptance Fee applicable to the
Bankers' Acceptance;
F.(a)(xi) upon the Administrative Agent making a declaration
or demand under section 10.2, the maximum amount of the
contingent liability of the Banks under all outstanding Bankers'
Acceptances shall immediately become due and payable by the
Borrower to the Administrative Agent for the account of the Banks
notwithstanding that the Banks have not at such date been
required to make payment under any such Bankers' Acceptances.
Any such amount paid to the Administrative Agent on behalf of the
Banks shall be held by the Administrative Agent in a separate
collateral account of the Borrower for set-off against future
indebtedness owing by the Borrower to the Banks in respect of
such Bankers' Acceptances and, pending such application, any
amounts paid to the Administrative Agent for the account of the
Banks shall bear interest at the rate established by the
Administrative Agent from time to time as that payable for
deposits of comparable size and having a term approximating the
period to the Maturity Date of such Bankers' Acceptance;
<PAGE>
F.(a)(xii) to facilitate the acceptance of Bankers'
Acceptances, the Borrower shall from time to time as required
provide to each Bank instruments duly endorsed in blank by
authorized signatories of the Borrower, in quantities sufficient
for each such Bank to fulfil its obligations hereunder. Each
Bank shall use reasonable efforts to notify the Administrative
Agent, which shall in turn notify the Borrower, at any time such
Bank determines that it is holding an insufficient quantity of
drafts of the Borrower for the purposes hereof. No Bank shall be
responsible or liable for its failure to accept a Bankers'
Acceptance if the cause of such failure is, in whole or in part,
due to the failure of the Borrower to provide such instruments to
such Bank on a timely basis nor shall any Bank be liable for any
damage, loss or other claim arising by reason of any loss or
improper use of any such instrument except a loss or improper use
arising by reason of the gross negligence or wilful misconduct of
such Bank. In case any authorized signatory of the Borrower
whose signature shall appear on any draft shall cease to have
such authority before the acceptance of such draft, such
signature shall nevertheless be valid and sufficient for all
purposes as if such authority had remained in force at the time
of such acceptance;
F.(a)(xiii) the Borrower shall execute and deliver a
Bank's customary banker's acceptance reimbursement agreement upon
request of such Bank. To the extent that the provisions set
forth in such Bank's standard form bankers' acceptance
documentation are inconsistent with those set out herein, the
provisions of this Agreement shall prevail;
F.(a)(xiv) if, in the reasonable judgment of the Banks,
at any time or from time to time there no longer exists an active
market for bankers' acceptances accepted by the Banks, the Banks
shall not be obliged to accept drafts of the Borrower presented
under this Article 4, and, upon the making of such determination,
the Administrative Agent shall (at the direction of the Banks)
notify the Borrower thereof and the Bankers' Acceptance availment
option shall thereupon terminate.
G. LETTERS OF CREDIT
G.(a) Procedures Relating to Letters of Credit
G.(a)(i) Each Letter of Credit shall be issued by the
Administrative Agent in its name on behalf of all of the Banks in
accordance with their respective Rateable Portions.
G.(a)(ii) Notwithstanding any other provision hereof, the
Borrower may not request the issuance of any Letter of Credit
having a term which would extend beyond the Due Date.
G.(b) Reimbursement
<PAGE>
G.(b)(i) The Borrower unconditionally and irrevocably
authorizes the Administrative Agent on behalf of the Banks to pay
the amount of any demand made on the Administrative Agent under
and in accordance with the terms of any Letter of Credit on
demand without requiring proof of the Borrower's agreement that
the amount so demanded was due and notwithstanding that the
Borrower may dispute the validity of any such demand or payment.
G.(b)(ii) The Borrower shall reimburse the Administrative
Agent (for the account of the Banks) on demand for any amounts
paid by it from time to time as contemplated by section 5.2.1
and, without limiting the foregoing, the Borrower shall indemnify
and save the Administrative Agent and the Banks harmless on
demand from and against any and all other losses (other than lost
profits), costs, damages, expenses, claims, demands or
liabilities which any of them may suffer or incur arising in any
manner whatsoever in connection with the making of any such
payments (including, without limitation, in connection with
proceedings to restrain the Administrative Agent from making, or
to compel the Administrative Agent to make, any such payment).
G.(c) Banks Not Liable
G.(c)(i) Neither the Administrative Agent nor any Bank
shall have any responsibility or liability for, or duty to
inquire into, the authorization, execution, signature,
endorsement, correctness, genuineness or legal effect of any
certificate or other document presented to the Administrative
Agent pursuant to any Letter of Credit and the Borrower fully and
unconditionally assumes all risks with respect to the same and,
without limiting the generality of the foregoing, all risks of
the acts or omissions of any beneficiary of any Letter of Credit
with respect to the use by any beneficiary of any Letter of
Credit. Neither the Administrative Agent nor any Bank shall not
be responsible:
G.(c)(i)(A) for the validity of certificates or other
documents delivered under or in connection with any Letter of
Credit that appear on their face to be in order, even if such
certificates or other documents should in fact prove to be
invalid, fraudulent or forged;
G.(c)(i)(B) for errors, omissions, interruptions or
delays in transmission or delivery of any messages by mail,
cable, telegraph, telefax or otherwise, whether or not they are
in code;
G.(c)(i)(C) for errors in translation or for errors in
interpretation of technical terms or for errors in the
calculation of amounts demanded under any Letter of Credit;
G.(c)(i)(D) for any failure or inability of the
Administrative Agent or any other Person to make payment under
any Letter of Credit as a result of any Applicable Law or by
<PAGE>
reason of any control or restriction rightfully or wrongfully
exercised by any Person asserting or exercising governmental or
paramount powers; or
G.(c)(i)(E) for any other consequences arising in respect
of a failure by the Administrative Agent to honour a Letter of
Credit due to causes beyond the control of the Administrative
Agent;
and none of the above shall affect or impair any of the
rights or powers of the Banks hereunder or the obligations
of the Borrower under section 5.2.2. In furtherance and not
in limitation of the foregoing provisions, it is agreed that
any payment made by the Administrative Agent in good faith
under and in accordance with the terms of a Letter of Credit
shall be binding upon the Borrower and shall not result in
any liability of the Administrative Agent or any of the
Banks to the Borrower and shall not lessen the obligations
of the Borrower under section 5.2.2.
G.(c)(ii) Notwithstanding the provisions of this section
5.3, the Borrower shall not be responsible for, and neither the
Administrative Agent nor any Bank shall be relieved of
responsibility for, any wilful misconduct or gross negligence of
or by the Administrative Agent or any Bank.
G.(d) Letter of Credit Fees
The Borrower shall pay the Letter of Credit Fee to the
Administrative Agent for the account of the Banks in accordance
with their respective Rateable Portions in advance (i) in the
case of a Letter of Credit having a term of 3 months or less, for
the period from and including the date of issuance of the Letter
of Credit to and including the stated expiry date thereof, on the
date of issuance of the Letter of Credit, and (ii) in the case of
a Letter of Credit having a term longer than 3 months, on the
date of issuance of the Letter of Credit for the initial 3 month
period, and thereafter not later than the first Banking Day of
each subsequent 3 month period for such 3 month period (or lesser
period remaining in the term of such Letter of Credit), in each
case on an amount equal to the stated amount of the Letter of
Credit. Such Letter of Credit Fee shall be payable in the
Currency in which the applicable Letter of Credit is denominated.
The Borrower shall be entitled to a full pro rata rebate of the
Letter of Credit Fee paid if a Letter of Credit is cancelled
prior to the end of the period in respect of which the Letter of
Credit Fee has been paid. Any rebate shall be remitted to the
Agent by the issuing Bank promptly on demand and shall be
forwarded by the Agent to the Borrower promptly on receipt by the
Agent.
G.(e) Overdue Amounts
Without limiting any other provision of this Agreement,
if the Borrower shall fail to reimburse the Administrative Agent
on behalf of the Banks in respect of any payments made by the
Administrative Agent under a Letter of Credit as contemplated in
section 5.2.2, the Administrative Agent may at any time
<PAGE>
thereafter notify the Banks of such failure and such notification
shall be deemed to have been delivery of a Borrowing Notice in
the amount and Currency of such payments on and subject to the
terms hereof. Each Bank shall forthwith credit the account of
the Administrative Agent with such Bank's Rateable Portion of
such payments, the amount of such payments shall be deemed to
constitute a Prime Rate Loan (if such payments were made in
Canadian dollars) or a Base Rate Loan (if such payments were made
in U.S. dollars) and, without limiting the terms and conditions
applicable to such Prime Rate Loan or Base Rate Loan, shall be
due and payable when such Prime Rate Loan or Base Rate Loan is
due and payable in accordance with the provisions hereof.
G.(f) Acceleration
Upon the Administrative Agent making a declaration or
demand under section 10.2, the maximum amount of the contingent
liability of the Administrative Agent and the Banks under any
Letter of Credit which is then outstanding shall immediately
become due and payable notwithstanding that the Administrative
Agent has not at such date been required to make payment on
behalf of the Banks under any such Letter of Credit. Any such
amount paid to the Administrative Agent for the account of the
Banks shall be held by the Administrative Agent for the account
of the Banks in a separate collateral account of the Borrower as
security for the repayment of future indebtedness of the Borrower
to the Banks in respect of Letters of Credit which are drawn
down, and, pending the expiry of all outstanding Letters of
Credit, any amounts paid to the Administrative Agent for the
account of the Banks shall bear interest at the rate established
by the Administrative Agent from time to time as that payable in
respect of 30 day deposits for similar amounts.
G.(g) Conflict
Each Letter of Credit shall be subject to the
Administrative Agent's customary letter of credit terms and
procedures from time to time in effect and shall be in a form
acceptable to the Administrative Agent and the Borrower. The
Borrower shall execute and deliver such standard form
indemnities, bonds and other assurances as the Administrative
Agent or any of the Banks may reasonably require from time to
time with respect to Letters of Credit. A Letter of Credit shall
in no event contain provisions requiring the Administrative Agent
to satisfy itself, prior to payment thereunder, as to any
conditions for a drawing thereunder other than the presentation
of prescribed documents. If the provisions set forth in the
Administrative Agent's customary letter of credit documentation
set forth terms of availability or cross-collateralization of
security beyond or inconsistent with that set forth herein, the
provisions of this Agreement in respect thereof shall prevail.
H.
INTEREST AND FEES
H.(a) Interest Rates
<PAGE>
H.(a)(i) Prime Rate Loans shall bear interest at the Prime
Rate plus the Applicable Margin.
H.(a)(ii) Base Rate Loans shall bear interest at the Base
Rate plus the Applicable Margin.
H.(a)(iii) Libor Loans shall bear interest at Libor plus
the Applicable Margin.
H.(b) Calculation and Payment of Interest
H.(b)(i) Interest on Prime Rate Loans shall accrue from day
to day, shall be calculated on the basis of the actual number of
days elapsed and on the basis of a year of 365 or 366 days, as
the case may be, and shall be payable to the Administrative Agent
for the account of the Banks in Canadian dollars in arrears on
the last Banking Day of each calendar month (or, if not a Banking
Day, on the immediately preceding Banking Day). For greater
certainty, where the rate applicable to a Prime Rate Loan is
changed, interest shall be charged for the day on which such
change is effective on the basis of the new rate.
H.(b)(ii) Interest on Base Rate Loans shall accrue from day
to day, shall be calculated on the basis of the actual number of
days elapsed and on the basis of a year of 365 or 366 days, as
the case may be days, and shall be payable to the Administrative
Agent for the account of the Banks in U.S. dollars in arrears on
the last Banking Day of each calendar month (or, if not a Banking
Day, on the immediately preceding Banking Day). For greater
certainty, where the rate applicable to a Base Rate Loan is
changed, interest shall be charged for the day on which such
change is effective on the basis of the new rate.
H.(b)(iii) Interest on Libor Loans shall accrue from day
to day, shall be calculated on the basis of the actual number of
days elapsed and on the basis of a year of 360 days, and shall be
payable to the Administrative Agent for the account of the Banks
in U.S. dollars in arrears (i) on the last day of the relevant
Interest Period, and (ii) if any Interest Period is longer than
three months, the last Banking Day of each three month period
during such Interest Period.
H.(c) Determination of Reference Rates
H.(c)(i) The Administrative Agent shall, at or about 12:00
noon (Toronto time) on the second Banking Day prior to the first
day of each Interest Period, determine Libor for such Interest
Period, and as soon thereafter as is reasonably practicable
notify the Borrower and each Bank of Libor as determined by the
Administrative Agent on such date.
H.(c)(ii) The Administrative Agent shall, at or about 10:00
a.m. (Toronto time) on the first day of each BA Period, contact
each Bank in order to ascertain its BA Discount Rate for such day
for the purposes of determining the Average BA Discount Rate;
provided that if one or more of the Banks does not furnish a
<PAGE>
quotation of its BA Discount Rate to the Administrative Agent for
any BA Period, the Average BA Discount Rate for such BA Period
shall be based upon any quotations furnished to the
Administrative Agent by the other Banks or Bank. The
Administrative Agent shall as soon thereafter as is reasonably
practicable on the first day of each BA Period notify the
Borrower and each Bank of the Average BA Discount Rate as
determined by the Administrative Agent on such date.
H.(c)(iii) Notices required to be given by the
Administrative Agent to the Borrower and the Banks from time to
time of Libor under subsection 6.3.1 and of the Average BA
Discount Rate under subsection 6.3.2 shall be deemed to be duly
given if given in accordance with Section 12.4.
H.(d) Commitment Fee
From and after the date of this Agreement, the Borrower
shall pay to the Administrative Agent for the account of the
Banks on the last Banking Day of each calendar month, in arrears,
a commitment fee equal to one-quarter percent (0.25%) per annum
calculated daily (and based on a year of 365 days) on the amount
by which the Aggregate Commitment exceeds the Canadian Dollar
Value of the Loans outstanding on each day in such month.
H.(e) Structuring Fee
The Borrower shall pay a structuring fee of $75,000 to
the Administrative Agent for the account of the Banks upon
execution of this Agreement.
H.(f) Agency Fee
The Borrower shall pay to the Administrative Agent, in
consideration for its services as Administrative Agent hereunder
and for its own account, an agency fee at the times, in the
amounts and in the manner set forth in the letter agreement
between the Borrower and the Administrative Agent dated the date
hereof.
H.(g) Payment of Costs and Expenses
Whether or not the Borrower takes advantage of the
Credit Facility, the Borrower shall pay to the Administrative
Agent and each of the Banks on demand all costs and expenses of
the Administrative Agent, the Banks, their respective agents,
officers, employees and representatives and any receiver or
receiver-manager appointed by any of them or by a court in
connection with this Agreement or the Credit Facility, including,
without limitation:
<PAGE>
H.(g)(i) the preparation of any of the Loan Documents, any
actual or proposed amendment or modification hereof or thereof or
any waiver hereunder or thereunder and all instruments
supplemental or ancillary thereto; and
H.(g)(ii) the defence, establishment, protection or
enforcement of any of the rights or remedies of the
Administrative Agent or any of the Banks under any of the Loan
Documents including, without limitation, all costs and expenses
of establishing the validity and enforceability of, or of
collection of amounts owing under, any of the Loan Documents;
including, without limitation, all of the fees, expenses and
disbursements of counsel to the Banks, on a solicitor and his own
client basis, incurred in connection therewith, and including all
sales or value-added taxes payable by the Administrative Agent or
any of the Banks (whether refundable or not) on all such costs
and expenses.
H.(h) Interest on Overdue Amounts
The Borrower acknowledges that if any Obligations
become overdue it shall be in the best interests of both the
Banks and the Borrower for the Banks to fund such overdue
Obligations on a floating rate basis, notwithstanding that the
Obligations may not have been floating rate obligations before
becoming due. Therefore, all overdue amounts owing or deemed to
be owing hereunder ("overdue amounts"), whether in respect of
principal, interest, fees, expenses or otherwise, both before and
after judgment, and in the case of expenses from the date which
is 20 days after the date on which an invoice in respect of such
expenses is submitted to the Borrower, shall bear interest at a
rate per annum determined on a daily basis that is equal to the
Prime Rate (in the case of overdue amounts denominated in
Canadian dollars) or the Base Rate (in the case of overdue
amounts denominated in U.S. dollars) plus (in each case) 3%, in
each case calculated on the basis of the actual number of days
elapsed in a year of 365 days or 366 days in the case of a leap
year. Such interest on overdue amounts shall accrue from day to
day, be payable in arrears on demand and shall be compounded
monthly on the last Banking Day of each calendar month.
I. REPRESENTATIONS AND WARRANTIES
I.(a) Representations and Warranties
The Borrower represents and warrants to the
Administrative Agent and the Banks as follows:
I.(a)(i) Incorporation and Status. It is duly incorporated
and validly existing under the laws of its jurisdiction of
incorporation and has the corporate power and capacity to own its
properties and assets and to carry on its business as presently
carried on by it;
<PAGE>
I.(a)(ii) Power and Capacity. It has the corporate power
and capacity to enter into, and perform its obligations under,
each of the Loan Documents to which it is a party;
I.(a)(iii) Due Authorization. It has taken all
necessary corporate action to authorize the execution, delivery
and performance of each of the Loan Documents to which it is a
party;
I.(a)(iv) No Contravention. The execution and delivery of
this Agreement and the other Loan Documents and the performance
by the Borrower of its obligations thereunder (i) does not and
will not contravene, breach or result in any default under the
articles or by-laws of the Borrower or under any agreement,
instrument, license or permit to which the Borrower is a party or
to which the Borrower is subject or under any Applicable Law,
except to the extent that any contravention or breach of or
default under such agreement, instrument, license, permit or
Applicable Law would not, in the aggregate, have a material
adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents, and (ii) will not result in
or permit the acceleration of the maturity of any indebtedness,
liability or obligation of the Borrower;
I.(a)(v) No Consents Required. No authorization, consent
or approval of, or filing with or notice to, any Person
(including any Governmental Body) is required in connection with
the execution, delivery or performance of any of the Loan
Documents by the Borrower;
I.(a)(vi) Enforceability. Each of the Loan Documents to
which the Borrower is a party constitutes, or upon execution and
delivery will constitute, a valid and binding obligation of the
Borrower enforceable against it in accordance with its terms;
I.(a)(vii) Title. Subject only to Permitted
Encumbrances, the Borrower has good and marketable title to its
real and personal property, free and clear of any Liens;
I.(a)(viii) Financial Statements. The unaudited
financial statements of the Borrower dated as of and for the
period ending September 30, 1994, in the form delivered by the
Borrower to the Banks, have been prepared in accordance with
generally accepted accounting principles (subject to the absence
of footnotes, to normal year-end adjustments and to the fact that
the financial statements may not conform with generally accepted
accounting principles in respect only of presentation) and fairly
present the financial condition of the Borrower and the financial
information presented therein for the period and as at the date
thereof. Since the date of the last financial statements
delivered to the Banks there has been no development which has
had or will have a material adverse effect upon the business,
property, financial condition or prospects of the Borrower;
I.(a)(ix) No Litigation. There is no court, administrative,
regulatory or similar proceeding (whether civil, quasi-criminal,
or criminal); arbitration or other dispute settlement procedure;
investigation or enquiry by any Governmental Body; or any similar
<PAGE>
matter or proceeding (collectively "proceedings") against or
involving the Borrower (whether in progress or threatened) which,
if determined adversely to the Borrower, would materially
adversely affect its business, property, financial condition or
prospects; no event has occurred which might give rise to any
proceedings and there is no judgment, decree, injunction, rule,
award or order of any Governmental Body outstanding against the
Borrower which has or may have a material adverse affect on its
business, property, financial condition or prospects;
I.(a)(x) No Default. The Borrower is not in default or
breach under any material commitment or obligation and there
exists no state of facts which, after notice or the passage of
time or both, would constitute such a default or breach;
I.(a)(xi) All Material Information Supplied. As of the date
hereof, the Borrower has provided to each of the Banks all
material financial information relating to the financial
condition, business and prospects of the Borrower and the
Guarantor (other than projections) and all such information is
true, accurate and complete in all material respects and omits no
material fact necessary to make such information not misleading.
With respect to all projections furnished by or on behalf of the
Borrower and made available to the Banks relating to the
business, prospects, properties, financial condition or
operations of the Borrower or the Guarantor: (i) all facts
stated as such therein were true and complete in all material
respects as of the date of such projections, (ii) all facts upon
which the projections therein contained are based were true and
complete in all material respects as of the date of such
projections and no material fact was omitted from that basis, and
(iii) all estimates and assumptions made on that basis were made
in good faith and believed to be reasonable at the time made, it
being recognized by the Banks that such projections as to future
events are not to be viewed as facts and that actual results
during the period or periods covered thereby may differ from such
projections;
I.(a)(xii) Authorized and Issued Capital. No Person has
any agreement, right or option to acquire any shares or
securities convertible into, or other rights to acquire, shares
in the capital stock of the Borrower. As of the date hereof, the
Borrower has no Subsidiaries.
I.(b) Survival of Representations and Warranties
The Borrower covenants that the representations and
warranties made by it in this Article 7 shall be true and correct
on the date that this Agreement is signed, on each Borrowing Date
and on each date of an availment by the Borrower under the
Overdraft Facility with the same effect as if such
representations and warranties had been made and given on and as
of such day, notwithstanding any investigation made at any time
by or on behalf of the Administrative Agent or any of the Banks;
except that if any such representation and warranty is
specifically given in respect of a particular date or particular
period of time and relates only to such date or period of time,
then such representation and warranty shall continue to be given
as at such date or for such period of time.
<PAGE>
J. COVENANTS
J.(a) Affirmative Covenants
So long as any Obligations remain outstanding or so
long as the Borrower has the right to utilize the Credit
Facility, the Borrower covenants and agrees to and in favour of
the Administrative Agent and the Banks that:
J.(a)(i) Punctual Payment. The Borrower shall pay or cause
to be paid all Obligations falling due hereunder on the dates and
in the manner specified herein;
J.(a)(ii) Conduct of Business. The Borrower shall do or
cause to be done all things necessary or desirable to maintain
its corporate existence in its present jurisdiction of
incorporation, to maintain its corporate power and capacity to
own its properties and assets, and to carry on its business in a
commercially reasonable manner in accordance with normal industry
standards;
J.(a)(iii) Compliance with Applicable Law and Contracts.
The Borrower shall comply with the requirements of all Applicable
Law, all obligations which, if contravened, could give rise to a
Lien, other than a Permitted Encumbrance, over any of its
property, and all insurance policies and all contracts to which
it is a party or by which it or its properties are bound, in each
case non-compliance with which would, singly or in the aggregate,
have a material adverse effect upon its business, property,
financial condition or prospects;
J.(a)(iv) Maintenance of Property. The Borrower shall
maintain its property in good repair, working order and condition
(reasonable wear and tear excepted);
J.(a)(v) Inspections. The Borrower shall permit each of
the Banks and their authorized employees, representatives and
agents, upon giving at least 24 hours' prior notice, to (i) visit
and inspect its properties during normal business hours, (ii)
inspect and make extracts from and copies of its books and
records, and (iii) discuss with management of the Borrower its
businesses, property, financial condition and prospects;
J.(a)(vi) Notice of Litigation and Other Matters. The
Borrower shall, as soon as practicable after a Responsible
Officer shall become aware of the same, give notice to the
Administrative Agent of the following events:
J.(a)(vi)(A) the commencement of any action, proceeding,
arbitration or investigation against or in any other way relating
adversely to the Borrower or any of its properties or assets
which, if adversely determined, could singly or when aggregated
with all other such actions, proceedings, arbitrations and
investigations have a material adverse effect on its business,
property, financial condition or prospects;
<PAGE>
J.(a)(vi)(B) any development which has had or will have a
material adverse effect upon its business, property, financial
condition or prospects; and
J.(a)(vi)(C) any Default or Event of Default, or the
occurrence or non-occurrence of any event which constitutes, or
which with the passage of time or giving of notice or both would
constitute, a material default under any other agreement to which
the Borrower is a party or by which it or any of its properties
may be bound, giving in each case the details thereof and
specifying the action proposed to be taken with respect thereto;
J.(a)(vii) Interim Financial Statements. The Borrower
shall, as soon as practicable and in any event within 50 days
after the end of each of the first three quarters of each fiscal
year, deliver to the Administrative Agent (in a sufficient number
of copies to permit delivery thereof to each of the Banks) the
interim unaudited financial statements of the Borrower;
J.(a)(viii) Annual Financial Statements. The Borrower
shall, as soon as practicable and in any event within 100 days
after the end of each fiscal year, deliver to the Administrative
Agent (in a sufficient number of copies to permit delivery
thereof to each of the Banks) the annual unaudited financial
statements of the Borrower;
J.(a)(ix) Officers' Certificate. The Borrower shall deliver
to the Administrative Agent (in a sufficient number of copies to
permit delivery to each of the Banks), together with the
financial statements in sections 8.1.7 and 8.1.8, an officers'
certificate certifying (i) that such financial statements were
prepared in accordance with generally accepted accounting
principles (subject to the absence of footnotes, to normal year-
end adjustments in the case of interim unaudited financial
statements and to the fact that the financial statements may not
conform with generally accepted accounting principles in respect
only of presentation) and fairly present the financial condition
of the Borrower and the financial information presented therein
for the period and as at the date thereof, and (ii) that no
Default or Event of Default has occurred hereunder or, if any
Default or Event of Default has occurred, specifying the relevant
particulars and the period of existence thereof and the action
taken or proposed to be taken by the Borrower with respect
thereto;
J.(a)(x) Other Financial Information. As soon as
practicable following a request therefor from the Administrative
Agent, the Borrower shall furnish to the Administrative Agent and
each of the Banks such other financial information and
projections as the Administrative Agent may reasonably request
from time to time;
J.(a)(xi) Insurance. The Borrower shall keep its
properties and assets insured with reputable insurers, in amounts
not less than the replacement cost thereof and against such
losses as the Administrative Agent (at the direction of the
Banks) shall reasonably require or, in the absence of such
requirement, against such losses as are insured against by
comparable corporations engaged in comparable businesses. The
Borrower shall maintain public liability insurance in such
amounts and against such risks as is normally carried by
comparable corporations engaged in comparable businesses. The
<PAGE>
Borrower shall, on request, provide the Administrative Agent with
copies of all insurance policies.
J.(b) Banks Entitled to Perform Covenants
If the Borrower fails to perform any covenant contained
in section 8.1, or in any other provision of any Loan Document,
and an Event of Default has occurred and is continuing, the
Administrative Agent or any Bank may, in its discretion, perform
any such covenant capable of being performed by it and if any
such covenant requires the payment of money it may make such
payment. All sums so expended by the Administrative Agent or any
Bank shall be deemed to be a Prime Rate Loan payable by the
Borrower on demand. If no Event of Default has occurred and is
continuing, the Administrative Agent shall first give the
Borrower five Banking Days' prior notice in writing of such
failure to perform any covenant before it makes any payment to
remedy such default.
J.(c) Negative Covenants
So long as any Obligations remain outstanding or so
long as the Borrower has the right to utilize the Credit
Facility, the Borrower covenants and agrees to and in favour of
the Administrative Agent and the Banks that it shall not:
J.(c)(i) Encumber Property. create, grant, assume or
suffer to exist any Lien upon any of its properties or assets
other than Permitted Encumbrances;
J.(c)(ii) Amalgamations, etc. enter into any transaction by
way of reorganization, consolidation, amalgamation, liquidation,
or transfer or sale in connection with such reorganization,
consolidation, amalgamation or liquidation whereby all or any
material portion of the property and assets of the Borrower would
become the property of any other Person or, in the case of any
such amalgamation, of the continuing corporation resulting
therefrom;
J.(c)(iii) Indebtedness. create, incur, assume, or
otherwise become directly or indirectly liable upon or in respect
of, or suffer to exist, Indebtedness ranking or purporting to
rank prior to the Obligations, other than Indebtedness secured by
Permitted Encumbrances; or
J.(c)(iv) Disposition of Assets. sell, lease, consign or
otherwise dispose of, or agree to sell, lease, consign or dispose
of, any assets out of the ordinary course of business, other than
(i) assets which are worn out, unserviceable, obsolete or no
longer required in the operation of the Borrower's business, (ii)
accounts receivable disposed of pursuant to a securitization
thereof in respect of which the Agent shall have received, not
less than 5 days prior to the date of such securitization, an
opinion from a firm of chartered accountants acceptable to the
Banks that the sale of accounts receivable pursuant to such
securitization constitutes a sale for accounting purposes, which
opinion shall be substantially in the form of a schedule to be
agreed upon by the parties hereto by February 28, 1995 and to be
attached to this Agreement, and (iii) other assets to the extent
<PAGE>
such dispositions do not, in the aggregate, have a material
adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents.
K. CONDITIONS PRECEDENT
K.(a) Conditions Precedent to Initial Advance
The obligations of the Banks to make available the
Credit Facility or any part thereof to the Borrower are subject
to compliance, on or before the initial Borrowing Date, with each
of the following conditions precedent, which conditions precedent
are for the sole and exclusive benefit of the Banks and may be
waived in writing by the Administrative Agent (at the direction
of all of the Banks in their sole discretion):
K.(a)(i) the representations and warranties set out in
Article 7 shall be true and correct on the initial Borrowing Date
as if made on and as of such date;
K.(a)(ii) no Default or Event of Default shall have occurred
and be continuing nor shall there be any Default or Event of
Default after giving effect to the proposed Advance on the
initial Borrowing Date;
K.(a)(iii) the Administrative Agent shall have received
the following in form and substance satisfactory to the Banks:
K.(a)(iii)(A) a Borrowing Notice;
K.(a)(iii)(B) officers' certificates dated the initial
Borrowing Date certifying that attached thereto are true and
correct copies of the following documents, and that such
documents are in full force and effect, unamended:
K.(a)(iii)(B)(I) the articles or other charter documents
and by-laws of the Borrower and the Guarantor;
K.(a)(iii)(B)(II) certificates of incumbency including
sample signatures of officers and directors of the Borrower and
the Guarantor who have executed any of the Loan Documents; and
K.(a)(iii)(B)(III) the resolutions or other documentation
evidencing that all necessary action, corporate or otherwise,
has been taken by each of the Borrower and the Guarantor to
authorize the execution, delivery and performance of the Loan
Documents to which it is a party;
<PAGE>
K.(a)(iii)(C) a certificate of status, certificate of good
standing or similar certificate with respect to the jurisdiction
of incorporation of the Borrower and the Guarantor;
K.(a)(iii)(D) an officers' certificate of the Borrower
dated the initial Borrowing Date confirming sections 9.1.1 and
9.1.2;
K.(a)(iii)(E) the Guarantee;
K.(a)(iii)(F) promissory notes, if requested by any Bank;
K.(a)(iii)(G) an opinion of counsel acceptable to the Banks
as to matters relating to the Borrower in the form set out in
Schedule D dated the initial Borrowing Date;
K.(a)(iii)(H) an opinion of counsel to the Guarantor,
Riordan & McKinzie of Los Angeles, California, as to matters
relating to the Guarantor in the form set out in Schedule E dated
the initial Borrowing Date;
K.(a)(iii)(I) such other documentation or information as
the Administrative Agent shall have reasonably requested;
K.(a)(iv) the Administrative Agent shall have received
payment in full of all fees payable by the Borrower on or prior
to the initial Borrowing Date hereunder or under any other Loan
Document; and
K.(a)(v) the Borrower shall have executed the letter
agreement referred to in section 6.6 and shall have delivered the
same to the Administrative Agent.
K.(b) Conditions Precedent to Subsequent Advances
The obligation of the Banks to make any subsequent
Advances under the Credit Facility is subject to compliance, on
or before the relevant Borrowing Date, with each of the following
conditions precedent, which conditions precedent are for the sole
and exclusive benefit of the Banks and may be waived in writing
by the Administrative Agent (at the direction of the Majority
Banks in their sole discretion):
K.(b)(i) the representations and warranties set out in
Article 7 shall be true and correct on the relevant Borrowing
Date as if made on and as of such date;
K.(b)(ii) no Default or Event of Default shall have occurred
and be continuing nor shall there be any Default or Event of
Default after giving effect to the proposed Advance;
K.(b)(iii) the Administrative Agent shall have received
a Borrowing Notice and an officers' certificate of the Borrower,
dated as of the relevant Borrowing Date, confirming sections
<PAGE>
9.2.1 and 9.2.2 and such other documentation or information as
the Administrative Agent shall have reasonably requested.
L. EVENTS OF DEFAULT AND REMEDIES
L.(a) Events of Default
The occurrence of any of the following events shall
constitute an Event of Default:
L.(a)(i) default by the Borrower in payment (i) when due of
any principal amount of any Loans or (ii) within three days of
the due date of any interest or any other amounts due under this
Agreement;
L.(a)(ii) default by the Borrower in the observance of the
covenant in section 8.3.1;
L.(a)(iii) default by the Borrower or the Guarantor in
the performance or observance of any other covenant, condition or
obligation contained in any Loan Document to which it is a party
unless such default is remedied within 10 days after notice
thereof by the Administrative Agent to the Borrower or the
Guarantor, as the case may be;
L.(a)(iv) any representation or warranty made by the
Borrower or the Guarantor herein or in any other Loan Document is
found to be false or incorrect in any way so as to make it
materially misleading when made or deemed to have been made;
L.(a)(v) the Borrower or the Guarantor fails to pay to any
Person any Indebtedness (other than Obligations or obligations
under the U.S. Credit Agreement, as hereafter amended,
supplemented or restated from time to time, or under any
replacement of such agreement pursuant to which one or more of
the current lenders under such agreement lends or agrees to lend
money to the Guarantor or an Affiliate of the Guarantor) in
excess of $5,000,000 in aggregate when due (whether at scheduled
maturity or by required prepayment, acceleration, demand or
otherwise) and such failure continues after any applicable grace
period;
L.(a)(vi) the Borrower or the Guarantor admits its inability
to pay its debts generally as they become due or otherwise
acknowledges its insolvency;
L.(a)(vii) the Borrower or the Guarantor institutes any
proceeding or takes any corporate action or executes any
agreement to authorize its participation in or commencement of
any proceeding:
L.(a)(vii)(A) seeking to adjudicate it a bankrupt or
insolvent, or
<PAGE>
L.(a)(vii)(B) seeking liquidation, dissolution, winding up,
reorganization, arrangement, protection, relief or composition of
it or any of its property or debt or making a proposal with
respect to it under any law relating to bankruptcy, insolvency,
reorganization or compromise of debts or other similar laws
(including, without limitation, any application under the
Companies' Creditors Arrangement Act (Canada) or any
reorganization, arrangement or compromise of debt under the laws
of its jurisdiction of incorporation);
L.(a)(viii) any proceeding is commenced against or
affecting the Borrower or the Guarantor:
L.(a)(viii)(A) seeking to adjudicate it a bankrupt or
insolvent;
L.(a)(viii)(B) seeking liquidation, dissolution, winding up,
reorganization, arrangement, protection, relief or composition of
it or any of its property or debt or making a proposal with
respect to it under any law relating to bankruptcy, insolvency,
reorganization or compromise of debts or other similar laws
(including, without limitation, any reorganization, arrangement
or compromise of debt under the laws of its jurisdiction of
incorporation); or
L.(a)(viii)(C) seeking appointment of a receiver, trustee,
agent, custodian or other similar official for it or for any
substantial part of its properties and assets;
and such proceeding is not being contested in good faith by
appropriate proceedings promptly initiated and diligently
conducted by the Borrower or the Guarantor, as the case may
be;
L.(a)(ix) any creditor of the Borrower or the Guarantor, or
any other Person, shall privately appoint a receiver, trustee or
similar official for any substantial part of the properties and
assets of the Borrower or the Guarantor, and such appointment is
not being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted by the Borrower or
the Guarantor, as the case may be;
L.(a)(x) any execution, distress or other enforcement
process, whether by court order or otherwise, becomes enforceable
against any substantial property of the Borrower or the Guarantor
and remains unsatisfied for such period as would permit such
property to be sold thereunder, unless such process is being
contested in good faith by appropriate proceedings promptly
initiated and diligently conducted by the Borrower or the
Guarantor, as the case may be;
L.(a)(xi) if there is any material adverse change in the
business, earnings, properties, condition (financial or
otherwise) or operations of the Guarantor and its Subsidiaries,
taken as a whole;
L.(a)(xii) if, at any time after execution and delivery
thereof, this Agreement or the Guarantee ceases to be in full
force and effect (unless within five days of notice of the same
<PAGE>
being given by the Administrative Agent to the Borrower such Loan
Document again has full force and effect as if it had always had
full force and effect) or if this Agreement or the Guarantee is
declared by a court or tribunal of competent jurisdiction to be
null and void or the validity or enforceability thereof is
contested by the Borrower or the Guarantor, or the Borrower or
the Guarantor denies in writing that it has any or further
liability or obligations thereunder;
L.(a)(xiii) the Guarantor ceases to beneficially own,
directly or indirectly, at least 51% of the issued and
outstanding Voting Shares of the Borrower; or
L.(a)(xiv) an event of default or any other event which
entitles a lender to accelerate payment of amounts outstanding
occurs and is not waived under the U.S. Credit Agreement, as
hereafter amended, supplemented or restated from time to time or
under any replacement of such agreement pursuant to which one or
more of the current lenders under such agreement lends or agrees
to lend money to the Guarantor or an Affiliate of the Guarantor.
L.(b) Remedies Upon Default
Upon the occurrence of any Event of Default, the
Administrative Agent may, and at the direction of the Banks
shall, by notice given to the Borrower or the Guarantor, as the
case may be:
L.(b)(i) declare the unutilized portion (if any) of the
Aggregate Commitment to be terminated;
L.(b)(ii) declare all Obligations to be immediately due and
payable;
L.(b)(iii) demand payment under the Guarantee;
L.(b)(iv) demand that funds in the aggregate face amounts
and the applicable Currency of all outstanding Bankers'
Acceptances and Letters of Credit be forthwith deposited by the
Borrower into a cash collateral account established with the
Administrative Agent on behalf of the Banks on terms and
conditions satisfactory to the Administrative Agent; and
L.(b)(v) take such actions and commence such proceedings as
may be permitted at law or in equity (whether or not provided for
herein or in the Loan Documents) at such times and in such manner
as the Administrative Agent (at the direction of the Banks in
their sole discretion) may consider expedient,
all without, except as may be required by Applicable Law, any
additional notice, presentment, demand, protest, notice of
protest, dishonour or any other action. The rights and remedies
of the Administrative Agent and the Banks hereunder are
cumulative and are in addition to and not in substitution for any
other rights or remedies provided by Applicable Law or by any of
the Loan Documents.
L.(c) Set-Off
<PAGE>
Upon the occurrence of an Event of Default and a
declaration or demand by the Administrative Agent pursuant to
section 10.2, each Bank is hereby authorized by the Borrower at
any time and from time to time without notice to the Borrower to
combine, consolidate and merge all or any of the Borrower's
accounts with, and liabilities to, such Bank and to set off,
appropriate and apply any and all deposits by or for the benefit
of the Borrower with any branch of such Bank, general or special,
matured or unmatured, and any other indebtedness and liability of
such Bank to the Borrower, matured or unmatured, against and on
account of the Obligations when due, notwithstanding that the
balances of the accounts, deposits or Obligations may or may not
be expressed in the same Currency.
L.(d) Distributions
All distributions under or in respect of any of the
Loan Documents shall be held by the Administrative Agent on
account of the Obligations without prejudice to any claim by the
Administrative Agent and the Banks for any deficiency after such
distributions are received by the Administrative Agent and the
Borrower shall remain liable for any such deficiency. All such
distributions shall be applied promptly to such part of the
Obligations as is determined by the Banks in their sole
discretion or, in the event the Banks fail to advise the
Administrative Agent of their determination, by the
Administrative Agent. The Banks may at any time change any
appropriation of any such distributions or other moneys received
by the Administrative Agent and may reapply the same to any other
part of the Obligations as the Banks may from time to time in
their absolute discretion determine.
M. THE ADMINISTRATIVE AGENT AND THE ADMINISTRATION OF
THE CREDIT FACILITIES
M.(a) Appointment and Authorization
M.(a)(i) Each Bank hereby irrevocably appoints and
authorizes the Administrative Agent to be its attorney in its
name and on its behalf to exercise such rights or powers granted
to such Bank under this Agreement and the other Loan Documents on
the terms hereof and thereof, together with such powers as are
reasonably incidental thereto.
M.(a)(ii) As to any matters not expressly provided for by
this Agreement or the Loan Documents (including, without
limitation, enforcement thereof), the Administrative Agent shall
not be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall
be fully protected in so acting or refraining from acting) upon
the instructions of the Majority Banks, and such instructions
shall be binding upon all of the Banks. The Administrative Agent
shall not be required to take any action which exposes the
Administrative Agent to liability in such capacity, which could
result in the Administrative Agent's incurring any costs and
expenses not contemplated by this Agreement or which is contrary
to this Agreement or Applicable Law.
M.(b) Duties and Obligations of Administrative Agent
Neither the Administrative Agent nor any of its
directors, officers, agents or employees (and, for purposes
hereof, the Administrative Agent shall be deemed to be
contracting as agent for and on behalf of such Persons) shall be
liable to any Bank for any action taken or omitted to be taken by
it or them under or in connection with this Agreement or any of
the other Loan Documents except for its or their own gross
negligence or wilful misconduct. Without limiting the generality
of the foregoing, the Administrative Agent:
i. may assume that there has been no assignment or transfer by
any Bank of its rights hereunder unless and until all of the
requirements of section 12.7 have been complied with;
ii. may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants
or experts;
iii. shall incur no liability under or in respect of this
Agreement or any of the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing
(which may be by facsimile or other means of electronic
communication) believed by it to be genuine and signed or sent by
the proper party or parties or by acting upon any representation
or warranty of the Borrower made or deemed to be made hereunder
or thereunder;
iv. may assume that no Default or Event of Default has occurred
and is continuing unless it has actual knowledge to the contrary;
v. may rely as to any matters of fact which might reasonably be
expected to be within the knowledge of any Person upon a
certificate signed by or on behalf of such Person;
vi. does not make any warranty or representation to any Bank nor
shall it be responsible to any Bank for the accuracy or
completeness of the data made available to any of the Banks in
connection with the negotiation of this Agreement, or for any
statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement;
vii. shall not have any duty to ascertain or to enquire as to the
performance or observance of any of the terms, covenants or
conditions of this Agreement or any of the other Loan Documents
on the part of the Borrower or the Guarantor or to inspect the
property (including the books and records) of the Borrower or the
Guarantor; and
<PAGE>
viii. shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any of the other Loan
Documents or any instrument or document furnished pursuant hereto
or thereto.
M.(c) Prompt Notice to the Banks
The Administrative Agent shall provide to the Banks
copies of all information, notices and reports given to the
Administrative Agent by the Borrower or the Guarantor as soon as
possible after receipt of the same, except information, notices
and reports (i) relating solely to the role of Administrative
Agent hereunder, (ii) distributed directly by the Borrower or the
Guarantor to the Banks as required by the Loan Documents, or
(iii) otherwise considered by the Administrative Agent to be
irrelevant or immaterial to the Banks.
M.(d) Administrative Agent's Authority to Deal with Borrower
With respect to its own participation in the Credit
Facility, the Administrative Agent shall have the same rights and
powers under this Agreement as any other Bank and may exercise
the same as though it were not the Administrative Agent. The
Administrative Agent may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower and
its Affiliates and any Person which may do business with any of
them, all as if the Administrative Agent were not the
Administrative Agent hereunder and without any duties to account
therefor to the Banks or to any other Person.
M.(e) Dealings by Borrower with Administrative Agent
Unless otherwise specifically provided herein, the
Borrower shall deal with the Administrative Agent in lieu of the
Banks for all purposes of this Agreement. The Borrower may rely,
and shall be fully protected in so relying, without any
obligation to inquire into the correctness thereof, upon any
action taken, notice, direction, waiver, consent, determination,
communication or agreement by the Administrative Agent purporting
to be on behalf of the Majority Banks or the Banks hereunder, as
the case may be, any of which shall, as regards the Borrower, be
deemed to be an action, notice, direction, waiver, consent,
determination, communication or agreement of the Majority Banks
or the Banks, as applicable.
M.(f) Independent Credit Decisions
It is understood and agreed by each Bank that it has
itself been, and will continue to be, solely responsible for
making its own independent appraisal of and investigations into
the financial condition, creditworthiness, condition, affairs,
status and nature of the Borrower and the Guarantor.
Accordingly, each Bank confirms with the Administrative Agent
that is has not relied, and will not hereafter rely, on the
Administrative Agent (i) to check or enquire on its behalf into
the adequacy, accuracy or completeness of any information
provided by the Borrower or any other Person under or in
connection with this Agreement or the transactions herein
contemplated (whether or not such information has been or is
<PAGE>
hereafter distributed to such Bank by the Administrative Agent),
or (ii) to assess or keep under review on its behalf the
financial condition, creditworthiness, condition, affairs, status
or nature of the Borrower or the Guarantor.
M.(g) Indemnification
Each Bank hereby agrees to indemnify the Administrative
Agent (to the extent not reimbursed by the Borrower), in
accordance with its Rateable Portion, from and against any and
all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any of the other
Loan Documents or any action taken or omitted by the
Administrative Agent hereunder or thereunder or in respect hereof
or thereof; provided that no Bank shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or
wilful misconduct. Without limiting the generality of the
foregoing, each Bank agrees to reimburse the Administrative Agent
promptly upon demand for its Rateable Portion of any out-of-
pocket expenses (including counsel fees) incurred by the
Administrative Agent in connection with the preservation of any
rights of the Administrative Agent or the Banks as against the
Borrower under, or the enforcement of, or legal advice in respect
of rights or responsibilities under, this Agreement and the other
Loan Documents, to the extent that the Administrative Agent is
not reimbursed for such expenses by the Borrower.
M.(h) Successor Administrative Agent
The Administrative Agent may, as hereinafter provided,
resign at any time by giving written notice thereof to the Banks
and the Borrower. Upon any such resignation, the Banks shall
have the right to appoint a successor agent (the "Successor
Administrative Agent") which shall be one of the Banks. If no
Successor Administrative Agent shall have been so appointed by
the Banks and shall have accepted such appointment within 30 days
after the retiring Administrative Agent's giving of notice of
resignation, then the retiring Administrative Agent may, on
behalf of the Banks, appoint a Successor Administrative Agent
from among the Banks acceptable to the Borrower acting
reasonably. Upon the acceptance of any appointment as
Administrative Agent hereunder by a Successor Administrative
Agent, such Successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall thereupon be discharged
from its further duties and obligations as Administrative Agent
under this Agreement. The retiring Administrative Agent shall
cooperate with the Successor Administrative Agent in the
performance of its duties for a reasonable period of time after
such resignation. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent, the provisions of
this Article 11 shall continue to enure to its benefit as to any
actions taken or omitted to be taken by it while it was
Administrative Agent hereunder.
M.(i) Action by and Consent of Banks; Waiver and Amendments
<PAGE>
M.(i)(i) Subject to section 11.9.3, where the terms of this
Agreement or any of the other Loan Documents refer to any action
to be taken hereunder or thereunder by the Banks or to any such
action that requires the consent or other determination of the
Banks, the action taken by and the consent or other determination
given or made by the Majority Banks shall, except to the extent
that this Agreement expressly provides to the contrary,
constitute the action or consent or other determination of the
Banks herein or therein referred to, and the Administrative Agent
may exercise its powers under section 11.1 based upon such
action, consent or other determination.
M.(i)(ii) Subject to section 11.9.3, this Agreement and any
other Loan Document may be amended only if the Borrower and the
Majority Banks so agree in writing, any consent under this
Agreement or any other Loan Document shall be given only by the
Administrative Agent (at the direction of the Majority Banks) in
writing, and any Event of Default may be waived before or after
it occurs only if the Administrative Agent (at the direction of
the Majority Banks) so agrees in writing. Any amendment, consent
or waiver so made shall be binding upon all of the Banks.
M.(i)(iii) Any amendment or waiver which changes or
relates to:
(a) the amount, term or Currency of the Loans
available hereunder or any Bank's Commitment;
(b) the amount or dates of payment of principal or interest;
(c) the amount or dates of payment of any fees;
(d) the Currency of any payment;
(e) the release in whole or in part of the Guarantee;
(f) the definition of "Majority Banks"; or
(g) this section 11.9;
shall require the agreement of all of the Banks and also (in
the case of an amendment) of the Borrower. An amendment or
waiver which changes or relates to the rights and/or
obligations of the Administrative Agent shall also require
the agreement of the Administrative Agent thereto.
M.(i)(iv) Any waiver and any consent by the Administrative
Agent or any Bank under any provision of this Agreement or any
other Loan Document may be given subject to any conditions
thought fit by the Person giving that waiver or consent. Any
waiver or consent shall be effective only in the instance and for
the purpose for which it is given.
<PAGE>
M.(j) Funding of Advances
M.(j)(i) Upon receipt of a Borrowing Notice, the
Administrative Agent shall forthwith notify each Bank of the
proposed Borrowing Date, Rollover Date or Conversion Date, as the
case may be, the principal amount of the relevant Advance,
Rollover or Conversion, as the case may be, each Bank's Rateable
Portion of any Advance (or, in the case of a Bankers' Acceptance
Loan, the face amount of the draft to be accepted by such Bank as
determined in accordance with section 4.1.2,), the account of the
Administrative Agent to be credited by such Bank (if applicable)
and all other relevant particulars thereof.
M.(j)(ii) Each Bank shall, not later than 12:00 noon
(Toronto time) on the relevant Borrowing Date (or, in the case of
a Bankers' Acceptance Loan, upon fulfilment of all applicable
conditions set out in Article 4), credit the Administrative
Agent's account specified in the Administrative Agent's notice
given under this section with such Bank's Rateable Portion of
each Advance in immediately available funds. The Administrative
Agent will, as soon as reasonably practicable after receiving
such funds from the Banks and upon fulfilment of all applicable
conditions set forth in this Agreement, make the full amount of
such funds available to the Borrower by crediting the Borrower's
account maintained with the Administrative Agent at the Branch of
Account (or causing such account to be credited).
M.(j)(iii) Unless the Administrative Agent has been
notified by a Bank prior to 12:00 noon (Toronto time) on the
Borrowing Date of any Loan requested by the Borrower that such
Bank will not make available to the Administrative Agent its
Rateable Portion of such Loan, the Administrative Agent may
assume that such Bank has made such portion of the Loan available
to the Administrative Agent on the Borrowing Date in accordance
with the provisions hereof and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent such Bank
shall not have so made its Rateable Portion of a Loan available
to the Administrative Agent, such Bank agrees to pay to the
Administrative Agent forthwith on demand such Bank's Rateable
Portion of the Loan and all reasonable costs and expenses
incurred by the Administrative Agent in connection therewith
together with interest thereon (at the rate payable hereunder by
the Borrower in respect of such Loan) for each day from the date
such amount is made available to the Borrower until the date such
amount is paid to the Administrative Agent, provided, however,
that notwithstanding such obligation if such Bank fails to so
pay, the Borrower shall, without prejudice to any rights the
Borrower may have against such Bank, repay such amount to the
Administrative Agent forthwith after demand therefor by the
Administrative Agent. The amount payable to the Administrative
Agent pursuant hereto shall be as set forth in a certificate
delivered by the Administrative Agent to such Bank and the
Borrower (which certificate shall contain reasonable details of
how the amount payable is calculated) and shall be conclusive and
binding for all purposes, absent manifest error. If such Bank
makes the payment to the Administrative Agent required herein,
the amount so paid (otherwise than in respect of such costs,
charges and expenses of the Administrative Agent) shall
<PAGE>
constitute such Bank's Rateable Portion of the Loan for purposes
of this Agreement. If the Administrative Agent has been notified
by a Bank that such Bank will not make available to the
Administrative Agent its Rateable Portion of any Loan, the
Administrative Agent shall have no obligation to make available
such amount to the Borrower under any provision of this
Agreement.
M.(j)(iv) The failure of any Bank to funds its Rateable
Portion of a Loan shall not relieve any other Bank of its
obligation, if any, hereunder to fund its Rateable Portion of the
Loan on the relevant Borrowing Date.
M.(k) Remittance of Payments
M.(k)(i) As soon as practicable after receipt of any notice
of payment by the Borrower hereunder, the Administrative Agent
shall give notice to each Bank of the amount of the payment to be
made to it on such day and all other relevant particulars of such
payment. Subject to section 11.15, as soon as practicable after
receipt of any repayment or prepayment of any Loans or any
payment of interest or any other amount payable by the Borrower
hereunder, the Administrative Agent shall remit to each Bank its
Rateable Portion of such payment or prepayment and its respective
entitlement, if any, to any other amount payable by the Borrower
hereunder.
M.(k)(ii) If the Administrative Agent, on the assumption
that it will receive on any particular date a payment of
principal, interest or fees hereunder, remits any amount to the
relevant Banks and the Borrower fails to make such payment, each
such Bank agrees to repay to the Administrative Agent forthwith
on demand the amount so received by it together with all
reasonable costs and expenses incurred by the Administrative
Agent in connection therewith (to the extent not reimbursed by
the Borrower) and interest thereon at the rate and calculated in
the manner applicable to the Loan in respect of which such
payment was made for each day from the date such amount is
remitted to the relevant Bank. The amount payable to the
Administrative Agent pursuant hereto shall be as set forth in a
certificate delivered by the Administrative Agent to each such
Bank, which certificate shall be conclusive and binding for all
purposes, absent manifest error.
<PAGE>
M.(l) Redistribution of Payments
A Bank (a "Remitting Bank") which obtains any payment
(whether voluntary, involuntary, by way of set-off or otherwise)
on account of its portion of a Loan which has not been repaid to
the other Banks in accordance with their respective Rateable
Portions shall, and the Borrower hereby irrevocably authorizes
any such Bank to, remit such payment or portion thereof to the
Administrative Agent for redistribution to the Banks in
accordance with their respective Rateable Portions. In any such
case, the Remitting Bank, upon such payment by it to the
Administrative Agent, shall be deemed for all purposes not to
have received from the Borrower that payment so remitted to the
Administrative Agent, and the Bank or Banks (the "Receiving
Banks") receiving such payment or portions thereof upon a
redistribution thereof by the Administrative Agent shall be
deemed for the purposes hereof to have received such payment or
portion thereof (as the case may be) from the Borrower. If all
or part of any such payment made by such Remitting Bank shall be
recovered by the Borrower from such Remitting Bank, such amount
so paid by such Remitting Bank to the Administrative Agent shall
forthwith be repaid by the Receiving Banks to the Administrative
Agent (for the benefit of the Remitting Bank). The Borrower
shall and does hereby waive any defence, counterclaim or right of
set-off which it may have against any Bank with respect to any
such payment so received by any such Bank.
M.(m) Notification of Default
Each Bank shall promptly notify the Administrative
Agent, and the Administrative Agent shall promptly notify each of
the Banks, of any event of which it has actual notice which
constitutes a Default or an Event of Default.
M.(n) Taking and Enforcement of Remedies
M.(n)(i) Each of the Banks hereby acknowledges that, to the
extent permitted by Applicable Law, the remedies provided
hereunder and under the other Loan Documents to the Banks are for
the benefit of the Banks collectively and acting together and not
severally and further acknowledges that its rights hereunder and
thereunder are to be exercised collectively by the Administrative
Agent upon the instructions of the Majority Banks. Accordingly,
notwithstanding any of the provisions contained herein or
therein, each of the Banks hereby covenants and agrees that it
shall not be entitled to take any action with respect to the
Credit Facility, including, without limitation, any election of
remedies in respect of an Event of Default hereunder, but that
any such action shall be taken only by the Administrative Agent
upon the instructions of the Majority Banks as provided herein.
Notwithstanding the foregoing, in the absence of instructions
from the Majority Banks (or, to the extent section 11.9.3 is
applicable, all of the Banks) where the Administrative Agent has
requested instructions and in its sole opinion the exigencies of
the situation warrant such action, the Administrative Agent may
without notice to or consent of the Banks take such action on
behalf of the Banks as it deems appropriate or desirable in the
interests of the Banks. Each of the Banks further covenants and
agrees, that, upon any such instructions being given to the
<PAGE>
Administrative Agent by the Majority Banks, it shall cooperate
fully with the Administrative Agent to the extent requested by
the Administrative Agent in any collective realization hereunder
including, without limitation, the appointment of a receiver and
manager to act for their collective benefit. Each Bank covenants
and agrees to do all acts and things and to make, execute and
deliver all agreements and other instruments, including, without
limitation, any instruments necessary to effect any
registrations, so as to fully carry out the intent and purposes
of this section 11.14.1.
M.(n)(ii) Each Bank hereby covenants and agrees that it has
not heretofore sought, taken, accepted or received and shall not
hereafter seek, take, accept or receive any security for any of
the obligations and liabilities of the Borrower hereunder or
under the other Loan Documents or under any other document,
instrument, writing or agreement ancillary hereto or thereto
other than such security as is provided hereunder or thereunder
and shall not enter into any agreement with any of the parties
hereto or thereto relating in any manner whatsoever to the Credit
Facility, unless all of the Banks shall at the same time obtain
the benefit of any such security or agreement.
M.(n)(iii) Each of the Banks and the Borrower further
covenants and agrees that all proceeds from the exercise of the
rights and remedies provided hereunder and under the Loan
Documents, to the extent permitted by Applicable Law, are held
for the benefit of all of the Banks and, after deduction
therefrom of all costs of realization, shall be shared among the
Banks proportionately based upon the respective aggregate amounts
of the Obligations which are outstanding to each of the Banks at
the relevant time or times of sharing. To the extent any Bank
receives or is entitled to receive any amount hereunder in excess
of the amount of the Obligations owed to it hereunder it shall
hold such excess in trust on behalf of and for the benefit of the
other Banks entitled thereto.
M.(n)(iv) Each of the Banks agrees with each of the other
Banks that if it exercises any right of set-off in accordance
with section 10.3 hereof in connection with any Obligations, it
shall promptly so advise the Administrative Agent and each of the
other Banks and, to the extent permitted by Applicable Law, the
Banks shall share all such set-offs in accordance with the
provisions of section 11.14.3 hereof, provided that none of the
Banks shall be liable hereunder to any of the other Banks by
reason of failure to exercise or validly exercise any right of
set-off or by reason of any restriction upon any such sharing.
M.(o) Adjustments to Reflect Rateable Portions
All Loans shall be maintained as between the Banks
according to their respective Rateable Portions, except to the
extent that the Administrative Agent deems any variations
therefrom to be immaterial. The Administrative Agent shall
determine all adjustments to amounts required to be advanced by
the Banks or to amounts of payments to which the respective Banks
are entitled to reflect as nearly as practicable the respective
Rateable Portions of the Banks.
<PAGE>
M.(p) No Partnership
Nothing contained in this Agreement and no action taken
by the Banks pursuant hereto shall be deemed to constitute the
Banks a partnership, association, joint venture or other
collective entity.
N. GENERAL
N.(a) Reliance and Non-Merger
All covenants, agreements, representations and
warranties of the Borrower made herein or in any other Loan
Document or in any certificate or other document signed by any of
its directors or officers and delivered by or on behalf of either
of them pursuant hereto or thereto are material, shall be deemed
to have been relied upon by the Administrative Agent and each
Bank notwithstanding any investigation heretofore or hereafter
made by the Administrative Agent, the Banks or their counsel or
any employee or other representative of any of them and shall
survive the execution and delivery of this Agreement and the
other Loan Documents until the Borrower shall have satisfied and
performed all of its obligations hereunder and shall have no
further ability to utilize the Credit Facility.
N.(b) No Set-Off by the Borrower
The amounts payable by the Borrower hereunder shall not
be subject to any deduction, withholding, set-off or counterclaim
by the Borrower for any reason whatsoever.
<PAGE>
N.(c) Notices
N.(c)(i) Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
given by prepaid first-class mail, by facsimile or other means of
electronic communication or by hand-delivery as hereinafter
provided. Subject to section 12.4.2, any such notice, if mailed
by prepaid first-class mail, shall be deemed to have been
received on the fourth Banking Day after the post-marked date
thereof, or if sent by facsimile or other means of electronic
communication, shall be deemed to have been received on the day
of sending, or if delivered by hand shall be deemed to have been
received at the time it is delivered to the applicable address
noted below either to the individual designated below or to a
senior employee of the addressee at such address (and, in the
case of the Administrative Agent or any Bank, at the same
department within such Bank) with responsibility for matters to
which the information relates, provided in each case that if such
day is not a Banking Day such notice shall be deemed to have been
received on the next succeeding Banking Day. Notice of change of
address shall also be governed by this section. In the event of
a general discontinuance of postal service due to strike, lock-
out or otherwise, notices or other communications shall be
delivered by hand or sent by facsimile or other means of
electronic communication only. Notices and other communications
shall be addressed as follows:
N.(c)(ii)
i. if to the Borrower:
Merisel Canada Inc.
200 Ronson Drive, 4th Floor
Etobicoke, Ontario
M9W 5Z9
Attention: Vice President, Finance
Facsimile number: (416) 240-2777
with a copy to:
Merisel Americas, Inc.
200 Continental Boulevard
El Segundo, California
U.S.A. 90245-0984
Attention: Treasurer
Facsimile number: (310) 615-6882
<PAGE>
ii. if to the Administrative Agent:
Citibank Canada
Citibank Place
17th Floor
123 Front Street West
Toronto, Ontario
M5J 2M3
Attention: Customer Service Representative
Facsimile number: (416) 947-5674
<PAGE>
iii. if to the Banks:
Citibank Canada
Citibank Place
17th Floor
123 Front Street West
Toronto, Ontario
M5J 2M3
Attention: Vice-President, Corporate Finance
Facsimile Number: (416) 947-5802
Canadian Imperial Bank of Commerce
7th Floor
Commerce Court West
Toronto, Ontario
M5L 1A2
Attention: Managing Director
Facsimile number: (416) 980-2804
NBD Bank, Canada
Canada Trust Tower
BCE Place
161 Bay Street
Suite 4240
Toronto, Ontario
M5J 2S1
Attention: Trading Room
Facsimile Number: (416) 363-7574
N.(c)(ii) Where any notice or other communication required
or permitted to be given by the Borrower hereunder (including
without limitation, a Borrowing Notice) on any date is required
to be given by a stipulated time on such date, it must be given
by such time in order to be considered effective on such date,
unless the Administrative Agent otherwise agrees. Any notice
actually given after that time will be deemed to be given on the
immediately following Banking Day.
N.(d) Time
Time is of the essence of the Loan Documents.
<PAGE>
N.(e) Further Assurances
Whether before or after the happening of an Event of
Default, the Borrower shall at its own expense do, make, execute
or deliver, or cause to be done, made, executed or delivered by
other Persons, all such further acts, documents and things in
connection with the Credit Facility and the Loan Documents as the
Administrative Agent may reasonably require from time to time for
the purpose of giving effect to the Loan Documents, all forthwith
upon the request of the Administrative Agent.
N.(f) Assignment
N.(f)(i) This Agreement and the other Loan Documents shall
enure to the benefit of and be binding on the parties hereto and
thereto, their respective successors (including any successor
Administrative Agent appointed pursuant to the provisions hereof)
and any assignee or transferee of some or all of the parties'
rights or obligations under this Agreement and the other Loan
Documents as permitted under this section 12.7.
N.(f)(ii) The Borrower shall not assign or transfer all or
any part of its rights or obligations under this Agreement or any
of the other Loan Documents without the prior written consent of
all of the Banks.
N.(f)(iii) Any Bank (a "Grantor") may grant
participations in all or part of its rights and obligations in
respect of the Credit Facility and the Loan Documents at such
times and upon such terms as it may deem fit to any Person with
the prior written consent of the Borrower (which consent shall
not be unreasonably withheld and shall be provided as soon as
practicable), (any such Person, a "Participant"), provided in
each case that:
(a) the Grantor shall remain fully liable
for all of its obligations and responsibilities
hereunder to the same extent as if such
participation had not been granted; and
(b) the Grantor shall administer the
participation of the Participant and neither the
Participant nor the Borrower shall have any rights
against or obligations to, or deal directly with,
each other in respect of the participation of the
Participant.
N.(f)(iv) Any Bank (an "Assignor") may assign or transfer
all or part of its rights in respect of the Credit Facility and
the Loan Documents to, and may have its corresponding obligations
in respect thereof assumed by, (i) any other Bank at such times
and upon such terms as it may deem fit, without any obligation to
obtain any consent of the Borrower, or (ii) any other Person with
the prior written consent of the Borrower (which consent shall
not be unreasonably withheld and shall be provided as soon as
practicable), provided in each case that:
(a) the Assignor shall obtain from the
assignee or transferee (the "Assignee") an
undertaking (the "Undertaking") of the Assignee,
addressed to the parties to this Agreement (as the
same may be constituted at such time) and in form
and substance satisfactory to the Administrative
Agent and the Assignor, whereby the Assignee
<PAGE>
agrees to be bound by this Agreement and all Loan
Documents relating to the obligations of the Banks
in the place and stead of the Assignor to the
extent that the rights and obligations of the
Assignor shall have been assigned to and assumed
by the Assignee;
(b) the assignment or transfer to the
Assignee executing such Undertaking shall be
effective upon the date provided in the assignment
agreement between the Assignor and the Assignee
(which shall not be earlier than the date the
Undertaking is delivered to the Administrative
Agent), and the Assignee shall thereafter be and
be treated as a Bank for all purposes of this
Agreement and the other Loan Documents and shall
be entitled to the full benefit hereof and thereof
to the extent of such benefits as are transferred
to it by the Assignor and subject to the
obligations of the Assignor to the same extent as
if the Assignee were an original party in respect
of the rights and obligations transferred to and
assumed by it, and the Assignor in respect of such
assignment shall be released and discharged
accordingly; and
(c) the Administrative Agent shall notify
the Borrower of the identity of the Assignee
substituted for such Bank and the rights and
obligations assigned or transferred to the
Assignee prior to the assignment or transfer
becoming effective and shall prepare and
distribute to the Banks and to the Borrower an
amendment to Schedule A reflecting the adjustments
to the Commitments after such transfer or
assignment, to which amendment the Borrower hereby
agrees and the Borrower shall, upon request made
by the Administrative Agent, execute and deliver
such assurances as may be reasonably requested by
the Administrative Agent to confirm the release
and discharge provided for in clause (b) above.
N.(f)(v) the Borrower and each of the Banks hereby consent
to each and every assignment or transfer which may be made on or
after the date hereof in accordance with the terms of section
12.7.4 and to the release and discharge of every Assignor
provided for in clause (b) thereof;
N.(f)(vi) any assignment, transfer or grant by a Bank as
contemplated by this section 12.7 will not constitute a repayment
by the Borrower to the Grantor or Assignor, as the case may be,
of the assigned or participated portion of the Credit Facility,
nor an Advance to the Borrower by the Assignee or Participant, as
the case may be, and the parties acknowledge that the Borrower's
obligations hereunder with respect to the assigned, transferred
or participated portion of Loans will continue and not constitute
new obligations.
N.(g) Exchange of Information
Each Bank may provide to any proposed assignee or
participant approved by the Borrower such information concerning
the financial position and the operations of the Borrower and the
Guarantor as, in the opinion of such Bank, may be relevant or
useful in connection with
<PAGE>
the Credit Facility or any portion thereof proposed to be
acquired by such assignee or participant, provided that each
recipient of such information agrees in writing not to disclose
such information to any other Person.
N.(h) Currency Conversion and Indemnity
If, in connection with any action or proceeding brought
in connection with this Agreement or any of the Loan Documents or
any judgment or order obtained as a result thereof, it becomes
necessary to convert any amount due hereunder in one Currency
(the "first Currency") into another Currency (the "second
Currency"), then the conversion shall be made at the Conversion
Rate on the first Banking Day prior to the day on which payment
is received.
If the conversion is not able to be made in the manner
contemplated by the preceding paragraph in the jurisdiction in
which the action or proceeding is brought, then the conversion
shall be made at the Conversion Rate on the day on which the
judgment is given.
If the Conversion Rate on the date of payment is
different from the Conversion Rate on such first Banking Day or
on the date of judgment, as the case may be, the Borrower shall
pay such additional amount (if any) in the second Currency as may
be necessary to ensure that the amount paid on such payment date
is the aggregate amount in the second Currency which, when
converted at the Conversion Rate on the date of payment, is the
amount due in the first Currency, together with all costs,
charges and expenses of conversion. Any additional amount owing
by the Borrower to the Banks pursuant to the provisions of this
section shall be due as a separate debt and shall give rise to a
separate cause of action and shall not be affected by or merged
into any judgment obtained for any other amounts due under or in
respect of this Agreement or any of the other Loan Documents.
N.(i) Counterparts
This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be an original,
but all such separate counterparts shall together constitute one
and the same instrument.
N.(j) Entire Agreement
The Loan Documents constitute the entire agreement
between the parties hereto pertaining to the matters therein set
forth and supersede and replace any prior understandings or
arrangements pertaining to the Credit Facility. There are no
warranties, representations or
<PAGE>
agreements between the parties with such matters
except as specifically set forth or referred to in the Loan
Documents.
IN WITNESS WHEREOF this Agreement has been executed by
the parties hereto as of the date first written above.
MERISEL CANADA INC.
By:
Title:
CITIBANK CANADA, AS ADMINISTRATIVE AGENT
By:
Title:
By:
Title:
CITIBANK CANADA
By:
Title:
By:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
Title:
<PAGE>
NBD BANK, CANADA
By:
Title:
<PAGE>
SCHEDULE A
Commitments
(section 1.1)
Bank Commitment
Citibank Canada Cdn.$10,000,000
Canadian Imperial Bank of Commerce Cdn.$30,000,000
NBD Bank, Canada Cdn.$10,000,000
Cdn. $50,000,000
(or the U.S. Dollar Equivalent in each case)
<PAGE>
SCHEDULE B
Borrowing Notice
(section 2.6)
TO: Citibank Canada, as Administrative Agent (the
"Administrative Agent")
Re: Merisel Canada Inc.
Reference is made to a credit agreement (the "Credit
Agreement") dated as of January 4, 1995 between Merisel Canada
Inc., as Borrower, the Banks and the Administrative Agent. All
terms used in this Borrowing Notice which are defined in the
Credit Agreement have the meanings attributed thereto in the
Credit Agreement.
The Borrower hereby requests a Loan as follows:
1. Type of Loan:
2. Amount of Loan:
3. Currency of Loan:
4. Borrowing Date:
5. Interest Period,
BA Period or Letter
of Credit term, as
applicable:
6. Payment instructions (if any):
7. If Rollover or Conversion of another Loan, provide
details of other Loan:
i. Type:
ii. Amount:
iii. Maturity Date:
All of the representations and warranties of the
Borrower in Article 7 of the Credit Agreement are true and
correct on the date hereof as if made on and as of the date
hereof.
<PAGE>
No Default or Event of Default has occurred and is
continuing nor will any Default or Event of Default occur after
giving effect to the aforementioned Loan.
DATED this 4TH day of January, 1995.
MERISEL CANADA INC.
By: c/s
Title:
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of _______, 1995
and is between Merisel, Inc. (the "Company"), a Delaware
corporation, and the undersigned executive officer of the
Company ("Executive").
Executive and the Company desire to set forth certain
of the terms and conditions governing Executive's employment
by the Company. Accordingly, Executive and the Company
hereby agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Base Salary" shall mean Executive's annual base
salary, exclusive of any bonus or incentive compensation,
benefits (whether standard or special), automobile
allowances, relocation or tax equalization payments, pension
payments or reimbursements for professional services.
"Biweekly Base Salary" shall mean one-twenty-sixth (1/26) of
the Base Salary at the time in question.
(b) "Company" shall mean Merisel, Inc., a Delaware
corporation, and each of its successor enterprises that
result from any merger, consolidation, reorganization, sale
of assets or otherwise.
(c) "CEO Event" shall mean if Michael D. Pickett, in
his capacity as the Chief Executive Officer of the Company
is terminated by the Board of Directors.
(d) "Covered Termination" shall mean any cessation of
the Executive's employment by the Company that occurs prior
to a CEO Event other than as a result of (i) Termination
for Cause or (ii) Executive's death or permanent disability.
(e) "CEO Covered Termination" shall mean any
cessation of the Executive's employment by the Company that
occurs after a CEO Event other than as a result of (i)
Termination for Cause, (ii) Executive's death or permanent
disability, or (iii) Executive's resignation without Good
Reason (as hereinafter defined).
(f) A resignation by Executive shall be with "Good
Reason" if after a CEO Event (i) there has been a material
reduction in Executive's job responsibilities from those
that existed immediately prior to the CEO Event, it being
understood that a mere change in title alone shall not
constitute a material reduction in Executive's job
responsibilities, (ii) without Executive's prior written
approval, the Company requires Executive to be based
anywhere other than the Executive's then current location,
it being understood that required travel on the Company's
business to an extent consistent with Executive's business
travel obligation prior to the CEO Event does not constitute
"Good Reason", (iii) there is a reduction in Executive's
Base Salary from that in effect on the date hereof or as the
same may be increased from time to time, except that an
across-the-board reduction in the salary level of all of the
<PAGE>
Company's executive officers in the same percentage amount
as part of a general salary level reduction shall not
constitute "Good Reason," or (iv) a successor to all or
substantially all of the business and assets of the Company
fails to furnish Executive with the assumption agreement
required by Section 8 hereof; provided, however, that if the
Company elects to take one of the actions described in the
foregoing clauses (i), (ii), or (iii) in lieu of a
Termination of the Executive for Cause, then if the
Executive subsequently resigns as a result of such action
being taken such resignation shall not be for "Good Reason."
(g) "Termination for Cause" shall mean if the Company
terminates Executive's employment for any of the following
reasons: Executive misconduct (misconduct includes, but is
not limited to, physical assault, insubordination,
falsification or misrepresentation of facts on company
records, fraud, dishonesty, willful destruction of company
property or assets, or sexual harassment of another
Associate by Executive); poor job performance; excessive
absenteeism; abuse of sick time; creating or contributing to
unsafe working conditions; violation of company policy; or
Executive conviction for or a plea of nolo contendere by
Executive to a felony or any crime involving moral
turpitude.
(h) "Benefit Period" shall mean a period of one year
commencing with the day next following the effectiveness of
a Termination Event.
(i) "Expiration Date" shall mean August 15, 1998.
(j) "Termination Event" shall mean any Covered
Termination or CEO Covered Termination.
2. "AT-WILL" EMPLOYMENT. Subject to the express
provisions of this Agreement, the Company shall have no
obligation to retain or continue Executive as an employee
and Executive's employment status as an "at-will" employee
of Company is not affected by this Agreement.
3. Covered Termination. If a Covered Termination
shall occur on or before the Expiration Date and if
Executive is not otherwise eligible to receive compensation
under Section 4 below:
(a) The Company shall promptly pay Executive all
salary and other compensation, including unused vacation
pay, earned by him or her through the effective date of such
Covered Termination;
(b) During the Benefit Period, the Company shall pay
to Executive, every two weeks in accordance with Company'
standard payroll practices, Executive's Biweekly Base Salary
immediately prior to the effective date of such Covered
Termination. In the event that Executive dies during such
Benefit Period, Company agrees that it shall pay any
payments remaining unpaid under this Section 3(b) as a death
benefit to Executive's estate on the same terms;
<PAGE>
(c) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Covered
Termination equal to the average of the annual performance
bonus received by the Executive over the three year period
preceding the effective date of the Covered Termination;
(d) Company will reimburse Executive for the cost of
Executive's COBRA payments under Company's health insurance
plans during the Payment Period. The amount of such
reimbursement will be grossed up so that Executive will
receive an amount equal to the COBRA payments, after taking
into account all applicable taxes; and
(e) Company will recommend to the Company's Option
Committee for such Option Committee to cause the next
installment of unvested options to purchase the stock of
the Company previously granted to Executive to vest as of
the date of such Covered Termination.
4. CEO Covered Termination. If a CEO Event shall
occur on or before the Expiration Date and if a CEO Covered
Termination shall occur within one year after the CEO Event:
(a) The Company shall promptly pay Executive all
salary and other compensation, including unused vacation
pay, earned by him or her through the effective date of such
CEO Covered Termination;
(b) During the Benefit Period, the Company shall pay
to Executive, every two weeks in accordance with Company'
standard payroll practices, Executive's Biweekly Base Salary
immediately prior to the effective date of such CEO Covered
Termination. In the event that Executive dies during such
Period, Company agrees that it shall pay any payments
remaining unpaid under this Section 4(b) as a death benefit
to Executive's estate on the same terms.
(c) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the CEO Covered
Termination equal to the average of the annual performance
bonus received by the Executive over the three year period
preceding the effective date of the CEO Covered Termination;
(d) Company will reimburse Executive for the cost of
Executive's COBRA payments under Company's health insurance
plans during the Payment Period. The amount of such
reimbursement will be grossed up so that Executive will
receive an amount equal to the COBRA payments, after taking
into account all applicable taxes; and
(e) Company will recommend to the Company's Option
Committee for such Option Committee to cause all unvested
options to purchase the stock of the Company previously
granted to Executive to vest as of the date of such CEO
Covered Termination.
<PAGE>
5. Withholding. Company shall deduct from all
payments paid to Executive under this Agreement any required
amounts for social security, federal and state income tax
withholding, federal or state unemployment insurance
contributions, and state disability insurance or any other
required taxes.
6. Mitigation. Executive shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise, unless the
Company in its sole discretion determines that Executive's
choice of new employer following the Termination Event is
detrimental to the Company. Executive shall not be entitled
to payment hereunder if Executive's employment ceases as a
result of Executive's death or permanent disability or
Executive resigns without Good Reason.
7. Executive's Obligations. In exchange for Company
providing the above described benefits to Executive,
Executive agrees to the following:
(a) Executive agrees to continue to observe and comply
with all company policies during Executive's employment by
Company;
(b) Executive agrees that during the Benefit Period,
Executive will not directly or indirectly (a) engage in; (b)
own or control any debt equity, or other interest in (except
as a passive investor of less that 5% of the capital stock
or publicly traded notes or debentures of a publicly held
company); or (c) (1) act as director, officer, manager,
employee, participant or consultant to or (2) be obligated
to or connected in any advisory business enterprise or
ownership capacity with, any of Tech Data Corp., Ingram
Micro, Inc., Computer 2000 AG (C2000), Intelligent
Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom,
Entex Information Services, Inc. or Vanstar Corp. or with
any subsidiary, division or successor of any of them or with
any entity that acquires, whether by acquisition, merger or
otherwise, any significant amount of the assets or
substantial part of any of the business of any of them;
(c) During the term of this Agreement, or if longer,
the Benefit Period, Executive will not, on behalf of any
business enterprise other than the Company and its
subsidiaries, solicit the employment of or hire any person
that is or was employed by the Company or any of its
subsidiaries at any time on or after January 1, 1995;
(d) Within two weeks of the effective date of any
Termination Event, and prior to receiving any severance
compensation from Company in respect of such Termination
Event, whether under this Agreement or otherwise, Executive
will execute and deliver to Company a Release and a
Confidentiality Agreement, each substantially in the form
provided to Executive with this Agreement, with such changes
as Company might request; and
(e) In the event of any breach by Executive of the
restrictions contained in this Agreement, Company shall have
no further obligation to compensate Executive hereunder and
<PAGE>
Executive acknowledges that the harm to Company cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, Executive agrees that, upon any
violation of such restrictions, Company shall be entitled to
preliminary and permanent injunctive relief in addition to
any other remedy, without the necessity of proving actual
damages.
8. Assumption Agreement. The Company will require any
successor (whether direct or indirect, by purchase, merger
consolidation or otherwise) to all or substantially all of
the business and assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to
perform it whether or not such succession had taken place.
9. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company and Executive;
provided that Executive shall not assign any of Executive's
rights or duties under this Agreement without the express
prior written consent of Company. This Agreement sets forth
the parties' entire agreement with regard to the subject
matter hereof. No other agreements, representations, or
warranties have been made by either party to the other with
respect to the subject matter of this Agreement. This
agreement may be amended only by a written agreement signed
by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. Any waiver by either party of any breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach. If any
legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
This Agreement shall continue in effect until the
Expiration Date provided, however, that if on the Expiration
Date monies are then owed by the Company hereunder, then
this Agreement shall continue in effect until the Benefit
Period shall have expired.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, as of the day and year first written above.
MERISEL, INC.
By:_______________________
Its:_______________________
"EXECUTIVE"
__________________________
__________________________
Print Name
RETENTION AGREEMENT
This Retention Agreement is dated as of _______, 1995
and is between Merisel, Inc. (the "Company"), a Delaware
corporation, and the undersigned executive officer of the
Company ("Executive").
Executive and the Company desire to set forth certain
of the terms and conditions governing Executive's employment
by the Company following a Change of Control (as defined
below). Accordingly, Executive and the Company hereby
agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Base Salary" shall mean Executive's annual base
salary, exclusive of any bonus or incentive compensation,
benefits (whether standard or special), automobile
allowances, relocation or tax equalization payments, pension
payments or reimbursements for professional services.
"Biweekly Base Salary" shall mean one-twenty-sixth (1/26) of
the Base Salary at the time in question.
(b) "Company" shall mean Merisel, Inc., a Delaware
corporation, and each of its successor enterprises that
result from any merger, consolidation, reorganization, sale
of assets or otherwise.
(c) A "Change of Control" shall have occurred if (i)
any person, corporation, partnership, trust, association,
enterprise or group shall become the beneficial owner,
directly or indirectly, of outstanding capital stock of the
Company possessing at least 50% of the voting power (for the
election of directors) of the outstanding capital stock of
the Company, or (ii) there shall be a sale of all or
substantially all of the Company's assets or the Company
shall merge or consolidate with another corporation and the
stockholders of the Company immediately prior to such
transaction do not own, immediately after such transaction,
stock of the purchasing or surviving corporation in the
transaction (or of the parent corporation of the purchasing
or surviving corporation) possessing more than 50% of the
voting power (for the election of directors) of the
outstanding capital stock of that corporation, which
ownership shall be measured without regard to any stock of
the purchasing, surviving or parent corporation owned by the
stock holders of the Company before the transaction.
(d) "Covered Termination" shall mean any cessation
of the Executive's employment by the Company that occurs
after a Change of Control other than as a result of (i)
Termination for Cause, (ii) Executive's death or permanent
disability, or (iii) Executive's resignation without Good
Reason (as hereinafter defined).
(e) A resignation by Executive shall be with "Good
Reason" if after a Change of Control (i) there has been a
material reduction in Executive's job responsibilities from
those that existed immediately prior to the Change of
Control, it being understood that a mere change in title
<PAGE>
alone shall not constitute a material reduction in
Executive's job responsibilities, (ii) without Executive's
prior written approval, the Company requires Executive to be
based anywhere other than the Executive's then current
location, it being understood that required travel on the
Company's business to an extent consistent with Executive's
business travel obligation prior to the Change of Control
does not constitute "Good Reason", (iii) there is a
reduction in Executive's Base Salary from that in effect on
the date hereof or as the same may be increased from time to
time, except that an across-the-board reduction in the
salary level of all of the Company's executive officers in
the same percentage amount as part of a general salary level
reduction shall not constitute "Good Reason," or (iv) a
successor to all or substantially all of the business and
assets of the Company fails to furnish Executive with the
assumption agreement required by Section 7 hereof;
provided, however, that if following a Change of Control the
Company elects to take one of the actions described in the
foregoing clauses (i), (ii), or (iii) in lieu of a
Termination of the Executive for Cause, then if the
Executive subsequently resigns as a result of such action
being taken such resignation shall not be for "Good Reason."
(f) "Termination for Cause" shall mean if the Company
terminates Executive's employment for any of the following
reasons: Executive misconduct (misconduct includes, but is
not limited to, physical assault, insubordination,
falsification or misrepresentation of facts on company
records, fraud, dishonesty, willful destruction of company
property or assets, or sexual harassment of another
Associate by Executive); poor job performance; excessive
absenteeism; abuse of sick time; creating or contributing to
unsafe working conditions; violation of company policy; or
Executive conviction for or a plea of nolo contendere by
Executive to a felony or any crime involving moral
turpitude.
(g) "Benefit Period" shall mean a period of 180 days
commencing with the day next following the effectiveness of
a Covered Termination.
(h) "Expiration Date" shall mean August 15, 1998.
2. Executive's Commitment Upon a Change of Control.
If a Change of Control shall occur on or before the
Expiration Date, Executive agrees to remain in the employ of
the Company for a period of 180 days from the effectiveness
of the Change of Control. Subject to the express provisions
of this Agreement, the Company shall have no obligation to
retain or continue Executive as an employee and Executive's
employment status as an "at-will" employee of Company is not
affected by this Agreement.
3. Change of Control Covered Termination. If a Change
of Control shall occur on or before the Expiration Date and
if a Covered Termination shall occur within one year after
the Change of Control:
(a) During the Benefit Period, the Company shall pay
to Executive, every two weeks in accordance with Company'
standard payroll practices, Executive's Biweekly Base Salary
immediately prior to the effective date of such Covered
Termination. In the event that Executive dies during such
Benefit Period, Company agrees that it shall pay any
<PAGE>
payments remaining unpaid under this Section 3(b) as a death
benefit to Executive's estate on the same terms;
(b) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Change of
Control Covered Termination equal to one-half (1/2) times
the average of the annual performance bonus received by the
Executive over the three year period preceding the effective
date of the Covered Termination;
(c) Company will recommend to the Company's Option
Committee for such Option Committee to cause all unvested
options to purchase the stock of the Company previously
granted to Executive to vest as of the date of such Covered
Termination.
4. Withholding. Company shall deduct from all
payments paid to Executive under this Agreement any required
amounts for social security, federal and state income tax
withholding, federal or state unemployment insurance
contributions, and state disability insurance or any other
required taxes; provided, however, that Company shall
reimburse and pay to Executive an amount equal to any excise
taxes required to be paid by Executive on any amounts paid
to Executive hereunder.
5. Mitigation. Executive shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise, unless the
company in its sole discretion determines that Executive's
choice of new employer following the Covered Termination is
detrimental to the Company. Executive shall not be entitled
to payment hereunder if Executive's employment ceases as a
result of Executive's death or permanent disability or
Executive resigns without Good Reason.
6. Executive's Obligations. In exchange for Company
providing the above described benefits to Executive,
Executive agrees to the following:
(a) Executive agrees that during the Benefit Period,
Executive will not directly or indirectly (a) engage in; (b)
own or control any debt equity, or other interest in (except
as a passive investor of less that 5% of the capital stock
or publicly traded notes or debentures of a publicly held
company); or (c) (1) act as director, officer, manager,
employee, participant or consultant to or (2) be obligated
to or connected in any advisory business enterprise or
ownership capacity with, any of Tech Data Corp., Ingram
Micro, Inc., Computer 2000 AG (C2000), Intelligent
Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom,
Entex Information Services, Inc. or Vanstar Corp. or with
any subsidiary, division or successor of any of them or with
any entity that acquires, whether by acquisition, merger or
otherwise, any significant amount of the assets or
substantial part of any of the business of any of them;
(b) During the term of this Agreement, or if longer,
the Benefit Period, Executive will not, on behalf of any
business enterprise other than the Company and its
subsidiaries, solicit the employment of or hire any person
that is or was employed by the Company or any of its
subsidiaries at any time on or after January 1, 1995;
<PAGE>
(c) Within two weeks of the effective date of a
Covered Termination, and prior to receiving any severance
compensation from Company in respect of such Covered
Termination, whether under this Agreement or otherwise,
Executive will execute and deliver to Company a Release and
a Confidentiality Agreement, each substantially in the form
provided to Executive with this Agreement, with such changes
as Company might request; and
(d) In the event of any breach by Executive of the
restrictions contained in this Agreement, Company shall have
no further obligation to compensate Executive hereunder and
Executive acknowledges that the harm to Company cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, Executive agrees that, upon any
violation of such restrictions, Company shall be entitled to
preliminary and permanent injunctive relief in addition to
any other remedy, without the necessity of proving actual
damages.
7. Assumption Agreement. The Company will require any
successor (whether direct or indirect, by purchase, merger
consolidation or otherwise) to all or substantially all of
the business and assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to
perform it whether or not such succession had taken place.
8. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company and Executive;
provided that Executive shall not assign any of Executive's
rights or duties under this Agreement without the express
prior written consent of Company. This Agreement sets forth
the parties' entire agreement with regard to the subject
matter hereof. No other agreements, representations, or
warranties have been made by either party to the other with
respect to the subject matter of this Agreement. This
agreement may be amended only by a written agreement signed
by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. Any waiver by either party of any breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach. If any
legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
This Agreement shall continue in effect until the
Expiration Date provided, however, that if on the Expiration
Date monies are then owed by the Company hereunder, then
this Agreement shall continue in effect until the Benefit
Period shall have expired.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, as of the day and year first written above.
MERISEL, INC.
By:_______________________
Its:_______________________
"EXECUTIVE"
__________________________
__________________________
Print Name
