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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-17156
MERISEL, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-4172359
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
200 Continental Boulevard 90245-0948
El Segundo, California -------------------------------------
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(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (310) 615-3080
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
As of March 29, 1996 the aggregate market value of voting stock held by non-
affiliates of the Registrant based on the last sales price as reported by the
Nasdaq National Market was $70,466,665 (28,909,401 shares at a closing price
of $2 7/16).
As of March 29, 1996 the Registrant had 29,863,495 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INDEX TO FORM 10-K
MERISEL, INC.
PAGE REFERENCE
PART I
<TABLE>
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Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 11
Item 3. Legal Proceedings................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters........................................................... 12
Item 6. Selected Financial Data........................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 14
Item 8. Financial Statements and Supplementary Data....................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 43
PART III
Item 10. Directors and Executive Officers of the Registrant................ 44
Item 11. Executive Compensation............................................ 44
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 44
Item 13. Certain Relationships and Related Transactions.................... 44
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 45
</TABLE>
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PART I
ITEM 1. BUSINESS.
OVERVIEW
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 acquired the
ComputerLand franchise and Datago aggregation businesses (the "Franchise and
Aggregation Business") from Vanstar Corporation (the "ComputerLand
Acquisition"). Through this acquisition, Merisel became an aggregator, or
master reseller, of computer systems and related products from major
microcomputer manufacturers, including Apple, Compaq, Hewlett-Packard and IBM.
Such business consists of both an aggregation business conducted through its
Datago affiliates and a franchise business under the name ComputerLand.
Merisel's Datago aggregation business distributes products to affiliated
value-added resellers ("VARs") and dealers in the United States. The
ComputerLand franchise business provides networking, systems maintenance and
systems integration services through a nationwide network of independently
owned ComputerLand franchisees. Merisel is considered a master distributor
since it offers both full-line distribution and aggregation capabilities.
At December 31, 1995, Merisel stocked over 25,000 products from more than
500 of the microcomputer hardware and software industry's leading
manufacturers including American Power Conversion, Apple, AST, Compaq,
Creative Labs, Digital Equipment Corporation, Epson, Hayes, Hewlett-Packard,
IBM/Lotus, Intel, Kingston Technology, Microsoft, NEC, Novell, Okidata, Sony,
Sun Microsystems, Symantec, Texas Instruments, 3Com, Toshiba and U.S.
Robotics. Merisel sells products to over 55,000 computer resellers worldwide,
including VARs, large retail chains, franchisees, computer superstores, mass
merchants, Macintosh and Sun Microsystems resellers, system integrators and
original equipment manufacturers. In order to effectively service its large
customer base, the Company currently maintains 19 distribution centers that
serve North America, Europe, Latin America and other international markets.
The breadth of the Company's product line, together with its international
distribution network, enable the Company to provide its customers with a
single source of supply and prompt delivery of products. For the fiscal year
ended December 31, 1995, the Company's net sales by geographic region were
generated as follows: United States, 67%; Canada, 10%; Europe, 18%; and other
international markets, 5%.
THE INDUSTRY
The microcomputer products distribution industry is large and growing,
reflecting both increasing demand worldwide for computer products and the use
of wholesale distribution channels by manufacturers for the distribution of
their products. The industry moves product from manufacturer to end-user
through a complex combination of distribution agreements between
manufacturers, wholesale distributors, aggregators and resellers.
Historically, there have been two types of companies within the industry:
those that sell directly to the end-user ("resellers") and those that sell to
resellers ("wholesale distributors" and "aggregators," which are also called
"master resellers").
Resellers sell directly to end-users, including large corporate accounts,
small and medium-sized businesses and home users. The major reseller channels
are dealers and corporate resellers, VARs, mail-order firms and retailers
(computer superstores, office supply chains and mass merchants). VARs, which
account for one of the largest segments of the overall reseller channel,
typically add value by combining proprietary software and/or services with
off-the-shelf hardware and software.
Wholesale distributors generally purchase a wide range of products in bulk
directly from manufacturers and then ship products in smaller quantities to
many different types of resellers, which typically include dealers,
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VARs, system integrators, mail order resellers, computer products superstores
and mass merchants. Aggregators, or master resellers such as the Datago
aggregation business, are functionally similar to wholesale distributors, but
they focus on selling relatively few product lines, typically high-volume,
brand name computer systems, to a captive network of franchised dealers and
affiliates. The larger computer manufacturers, such as Apple, Compaq, Hewlett-
Packard and IBM, have historically required resellers to purchase their
products from an affiliated aggregator, such as the Company's Franchise and
Aggregation Business. Certain of these leading manufacturers, however, have
authorized a wholesale distributor-owned aggregator-type business to provide
their products to the dealer market on a limited basis. Within the last two
years, however, manufacturers are increasingly offering products through full-
line distributors' aggregation divisions, resulting in the distinction between
wholesale distributors and master resellers becoming less apparent.
BUSINESS STRATEGY
Merisel has achieved its position in the industry by pursuing a strategy of
offering the industry's leading products and services to its customers at
competitive prices, providing cost-effective customer service and targeting
its various customer groups using dedicated sales forces and marketing
programs.
Providing Leading Products and Services. The Company's objective is to offer
a broad range of leading product brands in each of the product categories it
carries. By stocking the leading brands, the Company generates sales of both
those product brands as well as other products, as reseller customers often
prefer to deal with a single source for many of their product needs. The
Company continuously evaluates new products, the demand for its current
products and its overall product mix and seeks to develop distribution
relationships with suppliers of products that enhance the Company's product
offerings. The Company believes that the size of its reseller customer base,
combined with the breadth and quality of its marketing support programs, give
it a competitive advantage over smaller, regional distributors in developing
supplier relationships.
As a result of acquiring the Franchise and Aggregation Business, the
Company, through this business, is offering its ComputerLand franchisees and
Datago affiliates a broad range of microcomputer systems and other products
from Apple, Compaq, Hewlett-Packard and IBM. Although the Company distributes
certain products of these leading manufacturers through its wholesale
distribution arrangements, the Company and its wholesale distribution
competitors are limited to distributing these products to the VAR reseller
market. Certain of these leading manufacturers have authorized wholesale
distributors to act as second-source providers of product to the dealer
industry segment, if a particular dealer's primary source does not have the
product in stock.
Customer Service and Satisfaction. The Company believes that a high level of
customer satisfaction is important to achieve and maintain success in the
highly competitive microcomputer products distribution industry. The Company
measures customer satisfaction by such standards as "ease of doing business,"
accuracy and efficiency in delivering products and expediting the delivery of
services and information. Merisel constantly strives to improve its
operational processes.
Targeting Customer Groups. Merisel serves a variety of reseller channels,
which have diverse product, financing and support needs. Merisel was the first
full-line distributor in the industry to offer its various customer groups a
channel-dedicated sales force as well as customized product offerings,
financing programs and marketing and technical support programs, all of which
are tailored to address the differing needs of these customer groups. The
Company intends to continue focusing on the profitability of the markets it
serves to identify customer opportunities and develop sales and marketing
programs that serve these groups more effectively.
1996 Business Plan. As described more fully below, Merisel incurred
substantial losses for the fourth quarter and fiscal year ended December 31,
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." As a result, Merisel was required to negotiate with
the lenders under various of its financing agreements to amend such agreements
and to waive certain defaults, which amendments and waivers were obtained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 8 to the Consolidated
Financial Statements.
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In connection with such negotiations, Merisel developed a business plan for
the remainder of fiscal 1996 that calls for curtailing of non-essential
capital expenditures during 1996 in order to maximize cash flow. In addition,
the Company intends to focus on its more profitable areas of operations and
product lines while slowing growth in its other less profitable areas of
operations. Merisel believes that, if successfully implemented, the 1996
business plan will allow the Company to operate without the need for
additional sources of financing or any asset sales in 1996. However, in order
to meet its obligations in 1997 the Company will need to engage in some
combination of asset sales, refinancing of its borrowings or obtaining new
sources of financing. While the Company believes it will be able to
successfully implement its 1996 business plan and implement one or more of the
foregoing strategies which will enable it to meet its obligations in 1997,
there can be no assurance that it will be able to do so. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Concurrently with the implementation of its business plan for 1996, Merisel
is also actively exploring all of its strategic options with the assistance of
Merrill Lynch & Co. These options include a business combination with, or sale
to, a strategic partner who could provide the capital necessary to enable
continued growth of the Company, or a sale of significant assets in geographic
regions around the world, which would also enable Merisel to fund its
remaining operations out of existing cash flow or restructured borrowings.
The Company's 1996 business plan assumes that the Company will not
experience any significant changes in payment terms to, or product
availability from, its key vendors. While management does not expect, and
there has not been, any material deterioration in such credit terms or product
availability, there can be no assurance that significant changes will not
occur. Any such deterioration in the absence of the development of alternate
financing sources or asset sales could adversely impact the Company's cash
flow and its future results of operations.
In light of the Company's current business plan to maximize cash flow,
management does not expect, nor does the 1996 business plan assume, that the
Company will return to profitability until the fourth quarter of 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The expected losses for the
first and second quarters of 1996 are in part attributable to i) costs
incurred in connection with amending the Company's financing agreements, ii)
costs incurred in connection with preparation of the 1996 business plan, and
iii) costs incurred to identify and begin improving certain business processes
which were not functioning satisfactorily in 1995.
The preceding preliminary financial information constitutes forward looking
information and actual results could differ materially from current
expectations. Among the factors that could impact actual results are the
following: additional adjustments in the Company's trade accounts payable and
any further unanticipated charges associated with the Company's computer
systems, asset dispositions or any potential restructuring.
PRODUCTS AND MANUFACTURER SERVICES
Merisel provides its manufacturers with access to one of the largest bases
of computer resellers worldwide while offering these manufacturers the means
to reduce the inventory, credit, marketing and overhead costs associated with
establishing a direct relationship with these resellers. Merisel's economies
of scale have allowed the Company to establish and develop long-term business
relationships with many of the leading manufacturers in the microcomputer
industry. Merisel distributes over 25,000 hardware and software products,
including products for the MS-DOS, OS/2, Macintosh, Apple and Sun
Microsystems/UNIX(R) operating environments. For the fiscal year ended
December 31, 1995, net worldwide sales of hardware and accessories accounted
for approximately 75% of the Company's sales, and sales of software products
accounted for the remaining 25% of net sales.
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Merisel's suppliers include many of the leading microcomputer software and
hardware manufacturers, such as American Power Conversion, Apple, AST, Compaq,
Creative Labs, Digital Equipment Corporation, Epson, Hayes, Hewlett-Packard,
IBM/Lotus, Intel, Kingston Technology, Microsoft, NEC, Novell, Okidata, Sony,
Sun Microsystems, Symantec, Texas Instruments, 3Com, Toshiba and U.S.
Robotics. Merisel is one of only two distributors in the United States of Sun
Microsystem's products. Software products include business applications such
as spreadsheets, word processing programs and desktop publishing and graphics
packages, as well as a broad offering of operating systems, including local
area network operating systems, advanced language and utility products.
Hardware products offered by the Company include computer systems such as
servers, printers, monitors, disk drives and other storage devices, modems and
other connectivity products, networking products, plug-in boards and
accessories.
In addition to providing manufacturers access to one of the largest bases of
computer resellers worldwide, the Company, through its marketing department,
also provides manufacturers the opportunity to efficiently offer a number of
special promotions, training programs and marketing services targeted to the
needs of specific reseller groups. Merisel runs a variety of special
promotions for manufacturers' products, ranging from price discounts and
bundled purchase discounts to specialized computer reseller marketing
programs, including the Vantage program for its distribution business and the
Datago program for its aggregation business. These promotional programs are
designed to encourage computer resellers to increase their volume of
purchases, motivate resellers to purchase within a limited time period and
highlight specific manufacturers' products or promotion opportunities.
Additionally, Merisel provides marketing consultation services for
manufacturers' strategic marketing campaigns, as well as the opportunity to be
included in Merisel-sponsored trade advertisements. Merisel's marketing
program specialists work with designated manufacturers to develop and carry
out marketing programs such as dealer commission programs, sales contests and
other promotions. Merisel can also provide dedicated marketing support and
targeted customer information from its database to enhance manufacturers'
product promotions.
The Company also offers two exclusive training programs: Softeach, a two-day
worldwide seminar series whereby manufacturers train resellers on the use of
their products, and Selteach, a training seminar series that gives
manufacturers an opportunity to provide product information to Merisel's
United States sales force. In 1995, Merisel offered Softeach seminars in 21
cities and 9 countries. The Company believes that over 21,000 computer
resellers attended Softeach seminars in 1995. Merisel, in conjunction with
third-party consultants, also conducts training classes regarding certain
Novell, 3Com, The Santa Cruz Operation, Digital Equipment Corporation, Sun
Microsystems, Microsoft and Lotus products for its reseller customers.
Merisel generally enters into written distribution agreements with the
manufacturers of the products it distributes. As is customary in the industry,
these agreements usually provide non-exclusive distribution rights and often
contain territorial restrictions that limit the countries in which Merisel is
permitted to distribute the products. The agreements generally provide Merisel
with stock balancing and price protection provisions which reduce in part
Merisel's risk of loss due to slow-moving inventory, supplier price
reductions, product updates or obsolescence. The Company's agreements
generally have a term of at least one year, but often contain provisions
permitting earlier termination by either party upon written notice. Some of
these agreements contain minimum purchase amounts. Failure to purchase at such
minimum levels could result in the termination of the agreement.
Although Merisel regularly stocks products and accessories supplied by more
than 500 manufacturers, 63% of the Company's net sales in 1995 (as compared to
56% in 1994 and 45% in 1993) were derived from products supplied by Merisel's
ten largest manufacturers, with the sale of products manufactured by Hewlett-
Packard, Microsoft and Compaq accounting for approximately 16%, 14% and 11%,
respectively, of net sales in 1995 (as compared to 12% each for Microsoft and
Hewlett-Packard and 11% for Compaq in 1994, and 16%, 3% and 6%, respectively,
in 1993). Because reseller customers often prefer to deal with a single source
for many of their product needs, the loss of the ability to distribute a
particularly popular product could result in losses of sales unrelated to that
product. The loss of a direct relationship between the Company and any of its
key suppliers could have an adverse impact on the Company's business and
financial results.
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In the course of its business, Merisel reconciles its accounts payable
balances to statements provided by its vendors. During the fourth quarter of
1995, the Company incurred charges resulting from adjustments to trade
accounts payable balances. The charge taken in the fourth quarter is related
to adjustments for price protection, returns to vendors by Merisel and
inventory receipt related issues, such as short-shipments identified through
the reconciliation process. In order to minimize further supplier account
reconciliation losses, in February 1996 Merisel began implementing processes
and procedures to address current system deficiencies and has engaged the
assistance of outside consultants to assist in this process. Management has
committed additional resources to assist in collecting a part of the charge
that may be determined to be recoverable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Fourth Quarter
Adjustments."
CUSTOMERS AND CUSTOMER SERVICES
In 1995, Merisel sold products and services to more than 55,000 computer
resellers worldwide. Merisel's customers include VARs, large hardware and
software retail chains and franchisees, computer superstores, mass merchants,
Macintosh, Sun Microsystems and other corporate resellers, systems
integrators, and original equipment manufacturers as well as independently
owned retail outlets and consultants. Merisel's smaller customers often do not
have the resources to establish a large number of direct purchasing
relationships or stock significant product inventories. Consequently, they
tend to purchase a high percentage of their products from distributors. Larger
resellers often establish direct relationships with manufacturers for their
more popular products, but utilize distributors for slower-moving products and
for fill-in orders of fast-moving products which may not be available on a
timely basis from manufacturers. No single customer accounted for more than 4%
of Merisel's net sales in 1993, 1994 or 1995.
Single Source Provider. Merisel offers computer resellers a single source
for over 25,000 competitively priced hardware and software products. By
purchasing from Merisel, the reseller only needs to comply with a single set
of ordering, billing and product return procedures and may also benefit from
attractive volume pricing and third-party financing programs. In addition,
resellers are allowed, within specified time limits, and for certain resellers
specified volume limits, to return slow-moving products from one manufacturer
in exchange for more popular products from other manufacturers. Merisel's
policy is not to grant cash refunds.
Prompt Delivery. In the United States and Canada, orders received by 5:00
p.m. local time are typically shipped the same day, provided the required
inventory is in stock. Merisel maintains sufficient inventory levels in the
United States to fill consistently in excess of 95% of all units ordered on
the day of receipt. As part of the Company's effort to improve accuracy, the
Company has installed computerized warehouse management systems in its North
American warehouses, which include infrared bar coding equipment and advanced
computer hardware and software systems. Of Merisel's nine North American
warehouses, eight were computerized between 1994 and 1995. The Company
anticipates computerizing its remaining North American warehouse in 1996.
Merisel typically delivers products from its regional warehouses via United
Parcel Service and other common carriers, with customers in most areas in the
United States receiving orders within one to two working days of shipment.
Merisel also will provide overnight air handling if requested and paid for by
the customer. These services allow computer resellers to minimize inventory
investment and provide responsive service to their customers. For larger
customers in the United States, Merisel also provides a fulfillment service so
that orders are shipped directly to the computer resellers' customer, thereby
reducing the need for computer resellers to maintain inventories of certain
products. The Company's foreign subsidiaries may have lower fill rates and
longer delivery times due to differing market requirements and operations.
Financing Programs. Merisel's credit policy for qualified resellers
eliminates the need to establish multiple credit relationships with a large
number of manufacturers. In addition, the Company arranges floor plan and
lease financing through a number of credit institutions and offers a program
that permits credit card purchases by qualified customers. To allow certain
resellers to purchase larger orders in the United States, the Company offers
to arrange alternative financing such as escrow programs and special bid
financing from financial institutions.
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Customer Support. Merisel offers a number of customer loyalty programs,
including the Vantage program for its distribution business and the Datago
program for its aggregation business, which provide incentives to resellers to
aggregate their purchases through Merisel. The Vantage programs offer
Merisel's top-volume customers within the VAR and dealer channels increased
levels of service and pricing advantages. The Datago program offers incentives
for Datago customers to aggregate their purchases through Merisel and the
Franchise and Aggregation Business.
Merisel furnishes its computer resellers with a series of publications
containing detailed information on products, pricing, promotions and
developments in the industry. Merisel publishes a Confidential Reseller Price
Book, which lists Merisel's current product offerings. Merisel also publishes
the Hot List(R), which ranks Merisel's current best-selling hardware and
software products in four different reseller channels. In addition, Merisel's
On-Line Literature Library offers over 40,000 data sheets of product
information literature on a fax-back system and on CD-ROM.
Merisel provides training and product information to its reseller customers
through its well-respected Softeach program, a worldwide series of training
forums whereby manufacturers conduct seminars on how to sell their products.
See "--Products and Manufacturer Services." Merisel also provides computer
resellers with a technical support "hotline," as well as specialized technical
support for virtually all product lines sold by Merisel. In addition,
Merisel's Technical Support department provides regular product training
seminars to Merisel's sales representatives to help them increase their
product knowledge.
SALES AND MARKETING
During 1995, the Company's Sales department for its core distribution
business in the United States was organized into nine dedicated sales
divisions, which serve the dealer, VAR consumer, and Sun workstation channel
segments. The dealer channel is comprised of the following divisions: retail,
reseller fulfillment, major accounts and Macintosh. The VAR channel offers
specialized services and technical products to VARs through the VAR, system
integrator and OEM divisions. The consumer products channel is served by the
consumer products division, which targets mass merchants. The fourth channel
is primarily dedicated to selling and supporting Sun Microsystems and Sun-
complimentary products through its own sales, marketing, operations and
technical support departments. Merisel's Open Computing Alliance ("MOCA")
division serves this channel.
For each of the Company's international subsidiaries, the number and type of
specialized sales divisions vary based on market requirements, the size of the
subsidiary's sales force and the products carried by the subsidiary.
The Company's sales force is composed of field sales representatives who
manage relations with the larger accounts and inside telemarketing sales
representatives who receive product orders and answer customer inquiries. In
the United States and Canada, when a customer calls Merisel, screen
synchronization technology causes a sales profile to appear on the sales
representative's computer screen before greetings are exchanged. Customer
orders generally are placed via a toll-free telephone call to Merisel's inside
sales representatives and, in the United States, are entered on Merisel's
SalesNet for Windows order entry system, a proprietary local area network
created by Merisel to speed the process of taking and processing orders. Using
the SalesNet for Windows database, sales representatives can immediately enter
customer orders, obtain descriptive information regarding products, check
inventory status, determine customer credit availability and obtain special
pricing and promotion information. In the United States and Canada, Merisel
also offers SELline, a system that allows a customer, through the use of their
own personal computer and a modem, to access Merisel's database to examine
pricing, credit information, product description and availability, and
promotional information all in "real-time," and to place orders directly into
Merisel's order processing system. For certain of its larger customers, the
Company has installed electronic data interchange (EDI) systems which allow
participating customers to directly access the Company's mainframe computer
system for order processing and account information.
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OPERATIONS, DISTRIBUTION AND INVESTMENT IN SYSTEMS
Locations. At December 31, 1995, the Company operated 19 distribution
centers around the world, including eight in the United States, one of which
serves Latin America and other export fulfillment, two in Canada, four in
Europe, and four in Mexico. All of these distribution centers are leased. In
1995, Merisel closed its Rancho Dominguez, California, and Munich, Germany,
warehouses and opened its new automated European Distribution Center (the
"EDC") located in Helmond, The Netherlands.
Systems. Merisel has made significant investments in new, advanced computer
and warehouse management systems for its North American operations to support
sales growth and improve service levels. Eight of Merisel's nine North
American warehouses operate utilizing advanced computerized warehouse
management systems, which use infrared bar coding and advanced computer
hardware and software to improve shipping, receiving and picking error rates.
One remaining North American warehouse is scheduled to be operating under this
new system in 1996.
Merisel is in the process of converting its North American operations to a
new computer operating system. The Company began designing the new system in
early 1993 and converted its Canadian operations from a mainframe to a
client/server operating system in August 1995. The new system is designed to
accommodate sales volumes significantly greater than current volumes as well
as provide greater transaction accuracy, more flexibility and custom pricing
applications. In the early implementation stages, the Canadian conversion
produced results below the Company's expectations. These results added to
Merisel's fourth quarter 1995 net operating loss. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Fourth Quarter
Adjustments." In addition, in the fourth quarter of 1995, the Company recorded
a non-cash asset valuation adjustment of $19.5 million related to charges for
impairment to Merisel's on-going computer operating system conversion. In late
February 1996, Merisel Canada's computer operating system began to produce
results closer to the Company's original expectations.
The Company plans to convert its United States operations in the future,
depending on the continued performance improvement in its Canadian systems.
The design and implementation of these new systems are complex projects and
involve risks and have produced cost overruns, which delayed implementing the
new system in Canada and caused the system to perform below anticipated
service levels. As a result, the United States system implementation will be
delayed beyond 1996. Until such implementation, the Company will need to
continue to make modifications to its existing United States systems and may
continue to experience difficulty in processing transactions in periods of
heavy volumes, which could adversely impact operating income and cash flows.
Merisel's EDC was built to address Merisel Europe's strategy of centralizing
and integrating its European operations. The warehouse opened in August 1995
and soon began shipping to Merisel's German and Austrian customers. Due to
system software problems, the EDC experienced substantial shipping and
receiving errors that adversely affected Merisel Germany's operations. The
additional start-up costs incurred also caused cost variances that negatively
affected Merisel Europe's 1995 financial performance.
In late February 1996, Merisel implemented numerous changes in the EDC's
software, which have produced some improved results. As of March 1996, the EDC
was able to handle Merisel Germany's and Merisel Austria's transaction volume,
but at reduced accuracy rates. However, until the warehouse management system,
mechanical system and operating system in the EDC all work together without
interruption, Merisel will continue to experience negative effects in its
European financial results. The overall operating loss for 1995 at Merisel
Europe was primarily the result of the business interruptions in Germany and
Austria associated with the EDC. Consistent with the Company's 1996 business
plan, the Company has decided to conserve cash by not extending EDC service to
any additional countries until systems deficiencies at the EDC can be
corrected. For further information concerning EDC issues see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Fourth Quarter Adjustments".
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INTERNATIONAL OPERATIONS
The Company distributes microcomputer products throughout the world. Merisel
formed its first international subsidiary in 1982 and now operates in Canada,
the United Kingdom, France, Germany, Switzerland, Austria and Mexico. Merisel
also has a subsidiary based in Miami, Florida, which primarily sells products
to customers in Latin America and in other parts of the world where Merisel
does not have a physical presence. For information concerning the recent
disposition of Merisel's Australia operations, see "Management's Discussion
and Analysis--Fourth Quarter Adjustments."
The products and services offered by Merisel's international subsidiaries
are generally similar to those offered in the United States, although the
breadth of the subsidiaries' product lines and the range of manufacturers' and
customers' services offered by the subsidiaries are usually smaller due to the
smaller size of the subsidiaries and differing market requirements. Certain
subsidiaries provide products or services not offered in the United States due
to differing manufacturer relationships and market requirements.
Operationally, the management and distribution systems at the Company's
international subsidiaries vary depending on the size of the subsidiary, its
length of operation and local market requirements.
Because the Company conducts business in a number of countries, that portion
of operating results and cash flows that is non-United States dollar
denominated is subject to certain currency fluctuations. The Company generally
employs forward exchange contracts to limit the impact of fluctuations in the
relative values of some of the currencies in which it does business. In 1995,
the Company incurred foreign currency losses due to declines in values of the
Mexican Peso and other foreign currencies against the United States dollar.
The Company expects the devaluation of the Mexican Peso to continue in 1996
and, accordingly, is re-assessing its foreign currency strategies in Mexico to
minimize its foreign exchange transaction exposure resulting from further
devaluations.
In addition, international operations may also be subject to risks such as
the imposition of governmental controls, export license requirements,
restrictions on the export of certain technology, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and managing
international operations and collecting accounts receivable and the impact of
local economic conditions and practices. While management believes that such
risks have been reduced to an acceptable level, there can be no assurance that
these or other factors will not have an adverse effect on the Company's
international operations.
For segment information regarding Merisel's United States and international
operations, see footnote 12 of Notes to Consolidated Financial Statements.
THE FRANCHISE BUSINESS AND AGGREGATION BUSINESS
As a result of the ComputerLand Acquisition, Merisel, through the
ComputerLand franchise business and Datago aggregation business, now operates
as a master reseller of computer systems and related products from the major
microcomputer manufacturers to a network of approximately 734 independently
owned resellers composed of two customer groups: the 156 ComputerLand
franchisees and the 578 Datago affiliates. Merisel FAB, Inc., a wholly owned
subsidiary of Merisel, Inc., acts as the franchisor to the ComputerLand
franchisees, who receive product and various support services, including sales
and marketing materials, management and sales support services and a
proprietary dealer management software system. At December 31, 1995, the
ComputerLand franchise business had agreements with 156 franchise owners
operating 183 locations, which are primarily located in secondary metropolitan
markets in the United States. Franchise owners and operating locations have
decreased since the ComputerLand Acquisition as a result of conversion of
certain franchises to Datago customers, which are independent dealers and VARs
that do not license the ComputerLand name, consolidation of locations by
franchise owners and franchisees that are no longer in business.
The Datago aggregation business' customers are independent dealers and VARs.
They generally enter into non-exclusive one-year renewable contracts
cancelable at the option of either party on short notice. At
8
<PAGE>
December 31, 1995, the Datago aggregation business had 578 active Datago
affiliates. During the year ended December 31, 1995, no individual franchisee
or Datago affiliate accounted for more than 5% of the Franchise and
Aggregation Business revenues. Sales of product from Apple, IBM, Compaq and
Hewlett-Packard represent approximately 80% of the Franchise and Aggregation
Business revenue. Changes in the relationship with these manufacturers could
have a material adverse effect on the Franchise and Aggregation Business
See"Business Strategy-- 1996 Business Plan". In addition, over 75% of the
sales of the ComputerLand franchise business and Datago aggregation business
to their customers are financed by floor plan financing companies, and any
changes in the terms of such financing arrangements could have a material
adverse effect. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Franchise and Aggregation Business."
Merisel and Vanstar Corporation entered into a Distribution and Services
Agreement (the "Services Agreement") at the time of the ComputerLand
Acquisition, pursuant to which Vanstar Corporation purchases and warehouses
manufacturers' products and fulfills reseller orders for the products offered
by the ComputerLand franchise business and Datago aggregation business. The
ComputerLand franchise business and Datago aggregation business purchase such
products from Vanstar, rather than directly from the supplier, and pay Vanstar
a service fee for performing these distribution functions. Resellers place
product orders with the ComputerLand franchise business and Datago aggregation
business through the order placement system operated by Vanstar. Vanstar
typically ships products to a customer within two days of receipt of an order.
The Services Agreement was amended to extend the term through April 30, 1997
and revise the schedule of certain payments to be made to Vanstar by the
ComputerLand franchise business and Datago aggregation business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
Until April 30, 1997, the ComputerLand franchise business and Datago
aggregation business will be dependent upon Vanstar to purchase and maintain
inventories of products sufficient to meet resellers' requirements and to
receive and fulfill orders at acceptable service levels. Although Vanstar
maintains the direct contractual relationship with the suppliers, the
ComputerLand franchise business and Datago aggregation business and Vanstar
jointly maintain supplier relationships. While the Company has no reason to
believe that Vanstar will not be able to continue to perform its obligations
under the Services Agreement, in the event that Vanstar becomes unable to
continue to perform such obligations, there may be an adverse effect on the
operations and financial results of the Company. The Services Agreement
contains provisions for monetary penalties in the event that Vanstar fails to
achieve agreed-upon service levels, as well as provisions permitting the
ComputerLand franchise business and Datago aggregation business to take over a
portion of Vanstar's operations to fulfill such obligations under certain
circumstances. Under the terms of the Services Agreement with Vanstar, Merisel
is required to integrate these functions now being performed by Vanstar into
its facilities and systems in 1997. There can be no assurance, however, that
the Company will be able to obtain the funds necessary to integrate such
functions into its facilities and systems, and the cost of such integration
could be significant. In addition, pursuant to the terms of the amended
Services Agreement, the ComputerLand franchise business and Datago aggregation
business have been granted extended credit terms on their product purchases
from Vanstar, which are required to be repaid on or prior to July 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
The ComputerLand franchise business and Datago aggregation business generate
lower gross margins than the Company's core distribution business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview." Presently, the Company is exploring a number of
strategic alternatives with respect to either or both of the ComputerLand
franchise and Datago aggregation businesses. See "--Business Strategy--1996
Business Plan."
In the fourth quarter of 1995, the Company recorded non-cash asset valuation
adjustments of $30.0 million related to charges for impairment to goodwill
associated with Merisel's ComputerLand franchise business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Fourth Quarter Adjustments".
9
<PAGE>
COMPETITION
Competition in the microcomputer products distribution industry is intense
and is based primarily on price, brand selection, breadth and availability of
product offering, financing options, speed of delivery, level of training and
technical support, marketing services and programs, and ability to influence a
buyer's decision.
Certain of Merisel's competitors have substantially greater financial
resources than Merisel. Merisel's principal competitors include large United
States-based international distributors such as Ingram, MicroAge and Tech Data
Corporation; non-United States based international distributors such as
Computer 2000; national distributors such as Gates/Arrow and regional
distributors and franchisors. The Company competes internationally with a
variety of national and regional distributors on a country-by-country basis.
Merisel also competes with manufacturers that sell directly to computer
resellers, sometimes at prices below those charged by Merisel for similar
products. The Company believes its broad product offering, product
availability, prompt delivery and support services may offset a manufacturer's
price advantage. In addition, many manufacturers focus their direct sales to
large computer resellers because of the high costs associated with dealing
with a large number of small-volume computer reseller customers.
The Franchise and Aggregation Business is subject to competition from other
franchisors and aggregators in obtaining and retaining franchisees and third-
party resellers, as well as competition from wholesale distributors with
respect to sales of products to customers in the Franchise and Aggregation
Business network. See "--The Industry." With respect to brand selection, the
Company believes that an important factor in the Franchise and Aggregation
Business' ability to attract customers is the fact that it is able to offer
computer systems and other hardware products from Apple, Compaq, Hewlett-
Packard and IBM. These manufacturers historically have sold their products
directly to resellers and through a limited number of master resellers such as
the Franchise and Aggregation Business. The loss of any of these
manufacturers, or any change in the way any such manufacturer markets, prices
or distributes its products, could have a material adverse effect on the
Franchise and Aggregation Business' operations and financial results. The
Franchise and Aggregation Business' principal competitors are Intelligent
Electronics, MicroAge and Inacom, all of which maintain networks of
franchisees and third-party dealers and which carry products of one or more of
the Company's major manufacturers. Certain of the Franchise and Aggregation
Business' competitors have greater financial resources than the Company.
EMPLOYEES
As of December 31, 1995 Merisel had 3,263 employees. Merisel considers its
relations with its employees to be good.
10
<PAGE>
ITEM 2. PROPERTIES.
At December 31, 1995, the Company maintained distribution centers in the
following locations:
<TABLE>
<CAPTION>
DISTRIBUTION
COUNTRY/AREA SERVED CENTERS
------------------- ------------
<S> <C>
United States................... 7
Canada.......................... 2
France.......................... 1
Latin America/Caribbean......... 1*
Mexico.......................... 4
The Netherlands................. 1
Russia.......................... 1
Switzerland..................... 1
United Kingdom.................. 1
---
Total........................... 19
===
</TABLE>
--------
* Located in Miami, Florida.
All of the Company's distribution centers are leased. The Company owns one
facility in Mexico, which used to serve as a distribution center. This
facility is now being leased to a third party. In its place, the Company has
leased a larger distribution facility in the same city. The Company's
Franchise and Aggregation Business is located in a 14,200 square-foot facility
in Pleasanton, California. The facility has been subleased from Vanstar until
July 31, 1997, with an option to further extend the term through December 31,
1997. Customers of the Franchise and Aggregation Business receive product
shipments directly from Vanstar's two warehouses located in Livermore,
California and Indianapolis, Indiana.
The Company's world headquarters are located in El Segundo, California,
where the Company owns a 112,500 square foot facility, and leases a 50,700
square foot facility. The Company also maintains sales offices in various
domestic and international locations. In addition, the Company owns 360 acres
of undeveloped land in Cary, North Carolina. The Company believes that its
facilities currently provide sufficient space for its present needs, and that
suitable additional space will be available on reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS.
In June 1994, the Company and certain of its officers and/or directors were
named in putative securities class actions filed in the United States District
Court for the Central District of California, consolidated as In re Merisel,
Inc. Securities Litigation. Plaintiffs, who are seeking damages in an
unspecified amount, purport to represent a class of all persons who purchased
Merisel common stock between November 8, 1993 and June 7, 1994 (the "Class
Period"). The complaint, as amended and consolidated, alleges that the
defendants inflated the market price of Merisel's common stock with material
misrepresentations and omissions during the Class Period. Plaintiffs contend
that such alleged misrepresentations are actionable under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. 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. The
parties' appellate briefing to the Ninth Circuit was completed on November 6,
1995. The Ninth Circuit has not yet set a date for oral argument regarding the
appeal.
The Company is involved in certain other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
impact on the financial condition or business of Merisel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol MSEL. The following
table sets forth the quarterly high and low sale prices for the Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1994
First quarter........................................... $22 1/2 $16 5/8
Second quarter.......................................... 19 7/8 8
Third quarter........................................... 11 1/4 7
Fourth quarter.......................................... 10 3/4 6 1/4
FISCAL YEAR 1995
First quarter........................................... 8 1/2 3 7/8
Second quarter.......................................... 7 3/4 4 1/2
Third quarter........................................... 8 3/8 5 1/2
Fourth quarter.......................................... 6 5/8 4 1/8
FISCAL YEAR 1996
First quarter........................................... 5 7/8 2 1/4
</TABLE>
On March 29, 1996, the closing sale price for the Company's Common Stock was
$2 7/16 per share. As of March 29, 1996, there were 1,237 record holders of
the Company's Common Stock.
Merisel has never declared or paid any dividends to stockholders. Certain of
the Company's debt agreements currently prohibit the payment of dividends by
the Company.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(1)
Net sales............... $1,585,446 $2,238,715 $3,085,851 $5,018,687 $5,956,967
Cost of sales........... 1,427,491 2,036,292 2,827,315 4,676,164 5,633,278
---------- ---------- ---------- ---------- ----------
Gross profit............ 157,955 202,423 258,536 342,523 323,689
Selling, general & ad-
ministrative expenses.. 119,682 150,905 187,152 281,796 317,195
Impairment losses....... 51,383
Restructuring charge.... 9,333
---------- ---------- ---------- ---------- ----------
Operating income (loss). 38,273 51,518 71,384 60,727 (54,222)
Interest expense........ 15,972 15,742 17,810 29,024 37,583
Other expense........... 823 1,299 2,722 11,752 13,885
---------- ---------- ---------- ---------- ----------
Income (loss) before in-
come taxes............. 21,478 34,477 50,852 19,951 (105,690)
Provision (benefit) for
income taxes........... 10,652 14,812 20,413 8,341 (21,779)
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 10,826 $ 19,665 $ 30,439 $ 11,610 $ (83,911)
========== ========== ========== ========== ==========
PER SHARE DATA:
Net income (loss) per
share.................. $ 0.43 $ 0.67 $ 1.00 $ 0.38 $ (2.82)
Weighted average number
of shares.............. 24,897 29,274 30,454 30,389 29,806
BALANCE SHEET DATA:
Working capital......... $ 92,510 $ 294,626 $ 359,765 $ 399,848 $ 280,864
Total assets............ 508,586 667,313 936,283 1,191,870 1,230,334
Long-term and subordi-
nated debt............. 25,316 153,433 208,500 357,685 356,271
Total debt.............. 164,632 179,124 259,429 395,556 382,395
Stockholders' equity.... 125,537 198,882 223,857 236,164 154,466
</TABLE>
- --------
(1) Merisel's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to December 31. For clarity of presentation throughout this Annual
Report on Form 10-K, Merisel has described year ends presented as if the
year ended on December 31. Except for 1992, all fiscal years presented
were 52 weeks in duration. On January 31, 1994, the Company acquired the
Franchise and Aggregation Business in a transaction accounted for as a
purchase. The selected financial data set forth above includes that of
Merisel prior to the acquisition of the Franchise and Aggregation Business
and that of the combined entities subsequent to the acquisition of the
Franchise and Aggregation Business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company was founded in 1980 and has grown both through internal growth
and acquisitions of other computer products distributors and an aggregator. By
1989, the Company had achieved annual revenues of $629.4 million, principally
through internal expansion. In April 1990, the Company acquired Microamerica,
Inc. ("Microamerica"), another worldwide distributor of microcomputer
products, with net sales of approximately $526 million for the year ended
December 31, 1989. In the years following the Microamerica acquisition, the
Company's revenues increased from $3.1 billion in 1993 to $5.0 billion in
1994, partly reflecting substantial growth in both domestic and international
sales as the worldwide market for computer products expanded and manufacturers
increasingly turned to wholesale distributors for distribution of their
products. In addition, on January 31, 1994, the Company completed the
acquisition of certain assets of the Franchise and Aggregation Business from
Vanstar Corporation, which resulted in an additional $1.1 billion in revenue
in both 1994 and 1995. See "Business--The Franchise Business and Aggregation
Business" and "--The Franchise and Aggregation Business." In 1995, the
Company's revenues increased to $6.0 billion, due to sales growth in existing
distribution operations resulting from continued growth in the overall market
for hardware and software products and an increase in the number of products
certain vendors are selling through distribution. The Company's net income as
a percentage of sales, or net margin, declined from 1.0% and 0.2% for 1993 and
1994, respectively, to a loss of 1.4% for 1995, primarily due to certain
adjustments recorded in the fourth quarter of 1995. See "--Fourth Quarter
Adjustments". Prior to these adjustments, the Company's net loss as a
percentage of sales for 1995 was 0.2%. This was primarily a result of
declining gross profit margins resulting from continued competitive price
pressures, an increase in selling, general and administrative expenses
associated with the Company's increase in net sales, an increase in interest
expense and asset securitization fees resulting from higher borrowing levels
to finance the Company's higher sales levels and investments in warehouse
facilities and computer systems.
The Company anticipates that it will continue to face intense price
competition. In addition, the Company's Franchise and Aggregation Business
generates lower gross margins than the Company's core distribution business.
In 1994 and 1995, the gross margin as a percentage of sales for the Franchise
and Aggregation Business was 4.7% and 3.8%, respectively, compared to 7.4% and
5.8% of net sales, respectively, for the core distribution business. However,
the Franchise and Aggregation Business has lower selling, general and
administrative expenses as a percentage of sales than the Company's existing
wholesale distribution business. In 1994 and 1995, the Franchise and
Aggregation Business' selling, general and administration expenses were 3.7%
and 3.4% of net sales, compared to 6.2% and 5.8% of net sales, respectively,
for the Company's core distribution business. See "--The Franchise and
Aggregation Business." Management has undertaken various steps to reduce
selling, general and administrative expenses as a percentage of sales,
through, among other things, the establishment of business process
reengineering teams in the United States which are developing improvements to
existing practices. No assurance can be given as to whether such reductions
will, in fact, occur or as to the actual amount of any such reductions. In
addition, the Company has determined to delay implementation of certain
computer systems pursuant to its 1996 business plan in order to maximize cash
flow.
In 1995, in an attempt to address competitive pressures, the Company
assessed its cost structure and adopted a restructuring plan. In the first and
second quarters of 1995, the Company recorded an aggregate restructuring
charge of $9.3 million. This restructuring charge primarily included
reductions in the number of employees and the consolidation of warehouse
facilities. To the extent gross margins continue to decline and the Company is
not successful in sufficiently reducing selling, general and administrative
expenses as a percentage of sales, the Company will continue to experience a
negative impact on its operating income.
14
<PAGE>
FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1995, the Company recorded several large
adjustments which reduced operating income by $89.4 million. Approximately
$25.8 million of the charge resulted from adjustments to trade accounts
payable balances. An additional $8.2 million charge was taken due to changes
made in estimates to certain asset and liability values. In the course of its
business, Merisel reconciles its accounts payable balances to statements
provided by its vendors. The accounts payable charge taken in the fourth
quarter is related to adjustments for price protection, returns to vendors by
Merisel and inventory receipt related issues, such as short-shipments,
identified through the reconciliation process. In order to minimize further
supplier account reconciliation losses, in February 1996 Merisel began
implementing processes and procedures to address current system deficiencies
and has engaged the assistance of outside consultants to assist in this
process. Management has committed additional resources to assist in collecting
a part of the charge that may be determined to be recoverable.
The Company's European Distribution Center experienced system software
start-up problems which created substantial shipping and receiving errors, and
resulted in an additional charge of $1.5 million in the fourth quarter.
Another $2.5 million charge was taken to expense start-up costs.
In addition, the Company determined that portions of the carrying values of
certain of its long-lived assets and identifiable intangibles will not be
recovered from their use in future operations. Accordingly, these assets were
written down to their fair values as of December 31, 1995, requiring the
recognition of impairment losses totaling $51.4 million. An adjustment was
recorded related to the impairment of intangible assets associated with the
Company's ComputerLand franchise business due to declining sales growth,
margins and earnings, and the resulting negative trend in projected cash
flows. ComputerLand's assets were acquired in January 1994 and included
intangibles with a net book value of $56.6 million at December 31, 1995 prior
to write down. Fair value of the ComputerLand long-lived assets was measured
by discounting expected future cash flows, which resulted in a required write
down of $30 million.
The Company is in the process of converting its North American operations to
new computer systems. The Company began designing the systems in early 1993
and converted its Canadian operations to the new system in August 1995. The
Company has delayed installation of these systems in the United States beyond
1996. Accumulated expenditures incurred to develop these systems have been
significantly in excess of amounts originally expected. Therefore, given the
cost overruns, the Company's experience in Canada, and the decision to delay
United States installation beyond 1996, it was determined that the value of
these assets had been impaired. Total capitalized costs of these systems
totaled $44.6 million at December 31, 1995. A write down of $19.5 million was
recorded to adjust capitalized development costs to $25.1 million. This amount
approximates the original budget for the project and represents the Company's
estimate of the fair value of these assets at December 31, 1995. See Note 3 to
Consolidated Financial Statements.
In March 1996, the Company sold its interest in its wholly owned Australian
subsidiary, Merisel Australia Pty Ltd. to Tech Pacific Holdings Ltd. Under the
terms of the agreement, the Company received consideration of $9.9 million in
the form of repayment of certain intercompany debt obligations. The Company
recognized a $1.9 million charge as an impairment loss for the writedown of
the Australian net assets to their net realizable value. These net assets,
after write down, totaled $9.9 million and were classified in the December 31,
1995 consolidated balance sheet as other current assets. The sale was made in
order to better position the Company to achieve its strategic growth
objectives, by abandoning its planned expansion into Asia and at the same time
disposing of an unprofitable business. Prior to the $1.9 million charge, the
Australian subsidiary reported a loss of $6.1 million for 1995.
Adjustments totaling $7.8 million were booked in the fourth quarter of 1994,
primarily due to changes made in estimates to certain asset and liability
values.
15
<PAGE>
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth selected items
from the Company's Consolidated Statements of Operations, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES
-------------------
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of sales............................................. 91.6 93.2 94.6
----- ----- -----
Gross profit.............................................. 8.4 6.8 5.4
Selling, general and administrative expenses.............. 6.1 5.6 5.3
Impairment losses......................................... 0.9
Restructuring charge...................................... 0.1
----- ----- -----
Operating income (loss)................................... 2.3 1.2 (0.9)
Interest expense.......................................... 0.6 0.6 0.6
Other expense............................................. 0.1 0.2 0.3
----- ----- -----
Income (loss) before income taxes......................... 1.6 0.4 (1.8)
Provision (benefit) for income taxes...................... 0.6 0.2 (0.4)
----- ----- -----
Net income (loss)......................................... 1.0% 0.2% (1.4)%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's net sales increased 19% to $6.0 billion in 1995 from $5.0
billion in 1994. The increase in net sales was primarily due to 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.
Geographically, the Company's 1995 net sales were as follows: United States,
$4.0 billion, or 67%; Canada, $573 million, or 10%; Europe, $1.1 billion, or
18%; and other international markets, $337 million, or 5%. From 1994 to 1995,
these geographic regions experienced sales growth rates of 17%, 11%, 34% and
10%, respectively. For additional information on the Company's operating
results by geographic region, see Note 12 to Consolidated Financial
Statements.
The Company's sales of hardware and accessories, including the Franchise and
Aggregation Business, accounted for 75% of net sales, and software accounted
for 25% of net sales in 1994 and 1995.
Gross profit decreased 5.5% from $342.5 million in 1994 to $323.7 million in
1995. Gross profit as a percentage of sales, or gross margin, decreased from
6.8% in 1994 to 5.4% in 1995. In 1994, the gross margins as a percentage of
sales for the Franchise and Aggregation Business and the Company's core
distribution business were 4.7% and 7.4%, respectively, compared to 3.8% and
5.8%, respectively in 1995. The Company's core distribution business continued
to experience competitive pressures on pricing worldwide. In addition, the
decrease in the 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 address this competition. The
Company anticipates that it will continue to experience intense price
competition. In addition, a portion of the fourth quarter adjustments were
charged to cost of sales, further contributing to the decrease in gross
profit.
Selling, general and administrative expenses ("SG&A") increased 13% from
$281.8 million in 1994 to $317.2 million in 1995. SG&A decreased as a
percentage of net sales from 5.6% in 1994 to 5.3% in 1995. In 1994, the SG&A
as a percentage of sales for the Franchise and Aggregation Business and the
Company's core distribution business were 3.7% and 6.2%, respectively,
compared to 3.4% and 5.8%, respectively, in 1995. The
16
<PAGE>
increase in SG&A is primarily due to costs associated with the Company's 19%
increase in net sales and higher SG&A costs in Europe primarily due to the
start-up costs associated with the opening of the EDC. In addition, a portion
of the fourth quarter adjustments were charged to SG&A, further contributing
to the increase. The decrease in SG&A as a percentage of sales for the
Franchise and Aggregation Business resulted from decreases in net marketing
and promotion expense and in the distribution fee incurred under the existing
Distribution and Services Agreement with Vanstar. The Company's number of
full-time equivalent employees increased from 3,072 at December 31, 1994 to
3,263 at December 31, 1995.
Operating income decreased from $60.7 million in 1994 to a loss of $54.2
million in 1995. Operating income (loss) as a percentage of net sales was 1.2%
in 1994 and (0.9)% in 1995. This was primarily due to adjustments recorded by
the Company that reduced operating income by $89.4 million. See "--Fourth
Quarter Adjustments." Prior to these adjustments, the Company's operating
income in 1995 was $35.2 million, or 0.6% of net sales. Operating income as a
percentage of net sales for the Company's United States distribution business
declined as a result of lower gross margins and an increase in operating
expenses. The Company's European operations experienced net operating losses
in 1995 as a result of continued competitive pressure on margins, increased
operating expenses and the start-up costs associated with the opening of the
EDC.
Interest expense increased 29.5% to $37.6 million in 1995 from $29.0 million
in 1994, but remained level as a percentage of sales at 0.6%. The dollar
increase in interest expense is primarily attributable to the Company's higher
average borrowings in 1995, reflecting the need to finance the Company's
higher sales levels and, to a lesser extent, an increase in interest rates.
Other expense increased to $13.9 million in 1995 from $11.8 million in 1994.
The increase in other expense in 1995 primarily relates to an increase of $3.0
million in fees incurred in connection with accounts receivable
securitizations.
Provision for income taxes decreased to a benefit of $(21.8) million in 1995
from a provision of $8.3 million in 1994, reflecting the Company's loss
position in 1995. The Company's effective tax rate was a benefit of (20.6)% in
1995 compared to provision of 41.8% in 1994. The decrease in the effective
rate was principally the result of an increase in the valuation allowance
related to United States deferred tax assets.
Net income decreased from $11.6 million in 1994 to a net loss of $83.9
million in 1995. Net income per share decreased from $0.38 in 1994 to a loss
of $2.82 in 1995. In the fourth quarter of 1995, the Company recorded a loss
of $77.3 million compared to a loss of $2.5 million in the fourth quarter of
1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company's net sales increased 63% (28% excluding the Franchise and
Aggregation Business), to $5.0 billion in 1994 from $3.1 billion in 1993. The
increase in net sales was due to the impact of the ComputerLand Acquisition,
the growth of the overall market for hardware and software products, as well
as an increase in the number of vendors and products the Company is authorized
to sell in various geographic markets. The Company also increased its market
share of certain vendor products in various geographic markets. Net sales for
the Franchise and Aggregation Business for the 11 months ended December 31,
1994 were $1.1 billion or 21% of consolidated net sales for the year ended
December 31, 1994.
Geographically, the Company's 1994 net sales were as follows: United States,
$3.4 billion, or 68%; Canada, $517 million, or 10%; Europe, $784 million, or
16%; and other international markets, $305 million, or 6%. From 1993 to 1994,
these geographic regions experienced sales growth rates of 75%, (21% without
the Franchise and Aggregation Business), 31%, 47% and 47%, respectively. For
additional information on the Company's operating results by geographic
region, see Note 12 to Consolidated Financial Statements.
17
<PAGE>
The Company's sales of hardware and accessories, including the Franchise and
Aggregation Business, accounted for 75% of net sales, and software accounted
for 25% of net sales in 1994, as compared to 60% and 40%, respectively, in
1993. The Company's hardware and accessories, excluding the Franchise and
Aggregation Business, accounted for 69% of net sales and software accounted
for 31% of net sales in 1994. The increase in hardware sales was due to the
Company obtaining additional rights to distribute hardware products throughout
the world from various vendors and that the Franchise and Aggregation
Business' revenues are predominantly hardware-related. The decrease in
software sales as a percentage of net sales was also partially the result of
lower prices on software products sold in the United States.
Gross profit increased 32.5% to $342.5 million in 1994 from $258.5 million
in 1993. Gross profit as a percentage of sales, or gross margin, decreased to
6.8%, from 8.4% in 1993. In 1994, the Franchise and Aggregation Business'
gross margin was 4.7% of net sales, compared to 7.4% of net sales for the
Company's core distribution business. The decrease in gross margin was
principally attributable to competitive pressures on pricing worldwide and the
effect of the ComputerLand Acquisition. The Franchise and Aggregation Business
operating expenses as a percentage of sales, however, were lower than those of
the Company's wholesale distribution business, which helped offset its lower
gross margins. See "--The Franchise and Aggregation Business."
Selling, general and administrative expenses increased 50.6% to $281.8
million in 1994 from $187.2 million in 1993. SG&A decreased as a percentage of
net sales from 6.1% in 1993 to 5.6% in 1994. In 1994, the Franchise and
Aggregation Business' SG&A was 3.7% of net sales, compared to 6.2% of net
sales for the core distribution business. The absolute dollar increase in SG&A
is primarily due to costs associated with the Company's 63% increase in net
sales and higher SG&A costs in Europe due to the costs associated with the
Company's implementation of its long-term strategy to centralize its European
operations. The decrease in SG&A as a percentage of net sales was due to the
Franchise and Aggregation Business' lower operating expenses as a percentage
of sales compared to those of Merisel's core distribution business. The
Company's number of full-time equivalent employees increased from 2,502 at
December 31, 1993 to 3,072 at December 31, 1994.
Operating income decreased 14.9% from $71.4 million in 1993 to $60.7 million
in 1994. Operating income as a percentage of net sales was 2.3% in 1993 and
1.2% in 1994. Operating income as a percentage of net sales for the Company's
United States distribution business declined as a result of lower gross
margins and an increase in operating expenses. The Company's European
operations experienced net operating losses in 1994 as a result of continued
competitive pressure on margins, increased operating expenses and the costs
associated with the implementation of the Company's long-term strategy to
centralize European operations. In the fourth quarter of 1994, the Company
recorded certain items which reduced operating income by approximately $7.8
million. These items related primarily to changes made in estimates to certain
asset and liability values. In addition, the Franchise and Aggregation
Business generates lower operating income as a percentage of net sales than
the Company's wholesale distribution business, which has the effect of
lowering overall consolidated operating income as a percentage of net sales.
Interest expense increased 63.0% to $29.0 million in 1994 from $17.8 million
in 1993, but remained level as a percentage of sales at 0.6%. The dollar
increase in interest expense is primarily attributable to the Company's higher
average borrowings in 1994, reflecting the need to finance the acquisition of
the Franchise and Aggregation Business and the Company's higher sales levels
and, to a lesser extent, an increase in interest rates.
Other expense increased to $11.8 million in 1994 from $2.7 million in 1993.
The increase in other expense in 1994 primarily relates to an increase of $6.5
million in fees incurred in connection with accounts receivable
securitizations and an increase in the amortization of financing fees of $1.2
million primarily related to the acquisition of the Franchise and Aggregation
Business. See "--Liquidity and Capital Resources." In addition, other expenses
includes foreign currency losses of $1.4 million, primarily due to the
devaluation of the Mexican Peso.
18
<PAGE>
Provision for income taxes decreased to $8.3 million in 1994 from $20.4 in
1993, reflecting the Company's 60.8% decrease in income before income taxes.
The Company's effective tax rate was 41.8% in 1994 compared to 40.1% in 1993.
This increase was principally the result of certain of the Company's
subsidiaries that derived no tax benefit from such losses under local tax
laws.
Net income decreased 61.9% to $11.6 million in 1994 from $30.4 million in
1993, while net income per share decreased to $0.38 from $1.00. In the fourth
quarter of 1994, the Company recorded a loss of $2.5 million compared to net
income of $11.9 million in the fourth quarter of 1993. In response to the 1994
operating results and fourth quarter loss, the Company assessed its current
cost structure and anticipated incurring a restructuring charge of
approximately $10 million in the first quarter of 1995. This plan resulted in
a restructuring charge of $9.3 million. This restructuring charge primarily
included reductions in the number of employees and the consolidation of
warehouse facilities.
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.
Additionally, the Company's net sales in the fourth quarter have been higher
than in its other three quarters. Management believes that the pattern of
higher fourth quarter sales is partially explained by customer buying patterns
relating to calendar year-end business purchases and holiday period purchases.
As a result of this pattern the Company's cash requirements in the fourth
quarter have typically been greater. See "--Liquidity and Capital Resources."
For a tabular presentation of certain quarterly financial data with respect to
1994 and 1995, see Note 13 to Consolidated Financial Statements.
THE FRANCHISE AND AGGREGATION BUSINESS
As a result of the ComputerLand Acquisition, Merisel, through the
ComputerLand franchise business and Datago aggregation business, now operates
as a master reseller of computer systems and related products from the major
microcomputer manufacturers to a network of approximately 734 independently-
owned computer products resellers, including ComputerLand franchisees and
affiliated resellers purchasing through the Datago program. See "Business--The
Franchise Business and Aggregation Business."
The Company acquired the Franchise and Aggregation Business on January 31,
1994. For the eleven months ended December 31, 1994 and the year ended
December 31, 1995, the Franchise and Aggregation Business generated net sales
for both periods of $1.1 billion, gross profit of $49.1 million and $43.4
million, and income (loss) from operations of $10.3 million and $(28.1)
million respectively. The 1995 operating loss includes a $30 million write
down of intangible assets related to the ComputerLand franchise operations.
See "Business--The Franchise Business and Aggregation Business." Before this
write down, income from operations was $4.9 million in 1995. This write down
was reported as an impairment loss in the 1995 income statement. Gross margin
and SG&A as a percentage of net sales were 4.7% and 3.7% in 1994, and 3.8% and
3.4% in 1995, respectively, reflecting the lower margins and lower SG&A
incurred in the master reseller, or aggregator, business as compared to the
Company's core distribution business. The Franchise and Aggregation Business'
operating margin as a percentage of net revenues for 1995 was (2.2)%. The
Company anticipates downward pressure on gross margins as a result of intense
price competition and the effect of revised pricing structure offered to new
and existing franchisees. See "Business--The Franchise Business and
Aggregation Business."
19
<PAGE>
For the eleven months ended December 31, 1994 and the year ended December
31, 1995, approximately 80% of the Franchise and Aggregation Business'
revenues were generated from the sale of products from four manufacturers:
Apple, Compaq, Hewlett-Packard and IBM. The loss of any one of these four
manufacturers, or a change in the way any of these manufacturers markets,
prices or distributes its products, could have a material adverse effect on
the Franchise and Aggregation Business' operating and financial results. In
1995, a change by one of these manufacturers has allowed certain of the
Company's larger customers to purchase product directly from this
manufacturer. Specifically, to the extent that one of the leading four
manufacturers changes its current system of limiting authorization to sell its
products to master resellers, the Franchise and Aggregation Business' sales
levels would be adversely affected. The Company believes, however, that its
distribution business may benefit from such changes.
All of the Franchise and Aggregation Business franchisees are electronically
linked for the purpose of order placement and other communications, reducing
the need for sales representatives and support personnel in comparison to the
Company's existing business. In addition, over 75% of the Franchise and
Aggregation Business customers currently finance their orders through "floor
plan" financing companies or pay on a C.O.D. basis, reducing the need for
credit and collection personnel and reducing financing costs because of
improved cash flow.
As a result of the foregoing as well as other factors, master resellers such
as the Franchise and Aggregation Business tend to generate both lower gross
margins and lower operating expenses as a percentage of sales than those
generated by the Company in its existing distribution business.
Competition among master resellers is intense (see "Business--Competition"),
and the Franchise and Aggregation Business may experience downward pressure on
its gross margins due to competitive pricing decisions. Under a Services
Agreement with Vanstar, Vanstar extended credit to the Company, and performs a
significant portion of the Franchise and Aggregation Business distribution
functions for a contractually agreed-upon fee through April 30, 1997. As a
result of this outsourcing arrangement, the Franchise and Aggregation Business
does not directly control the costs of those distribution functions, and
therefore will be limited in its ability to lower its costs in response to a
lower gross margin environment during the term of the Services Agreement. Due
to this limitation, the Services Agreement provides that the service fee, as a
percentage of sales volume, decreases if the Franchise and Aggregation
Business sales volume increases over a specified amount. Notwithstanding this
contractual provision, a material decline in the Franchise and Aggregation
Business gross margin could have a material adverse effect on the Company's
results of operations.
Over 75% of the Franchise and Aggregation Business sales currently are
financed on behalf of its customers by floor plan financing companies. The
Franchise and Aggregation Business typically receives payment from these
financing companies within three business days from the date of sale,
resulting in reduced cash requirements for the Franchise and Aggregation
Business as compared to the Company's existing wholesale distribution
business. This floor plan financing is typically subsidized for the Franchise
and Aggregation Business customers by its manufacturers. Any material change
in the availability or the terms of financing offered by such financing
companies or in the subsidies provided by manufacturers could require the
Franchise and Aggregation Business to provide such financing to its customers,
thereby substantially increasing the working capital necessary to operate its
business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs primarily through
borrowing, securitizations of its trade receivables and the public and private
sales of its securities.
Net cash used for operating activities in 1995 was $62.4 million, as
compared to net cash used for operating activities of $82.4 million in 1994.
Sources of cash from operating activities consisted of $98.8 million increase
in accounts payable and $23.9 million increase in accrued liabilities. The
primary uses of cash in 1995 were a net loss of $83.9 million and increases in
inventories and accounts receivable of $43.5 million and $103.6
20
<PAGE>
million, respectively. The increases in inventories and accounts receivable
were primarily related to the Company's higher sales volumes, especially in
December 1995. The increase in accounts payable was due to increased
purchasing associated with the higher sales volumes.
Net cash used for investing activities in 1995 was $49.1 million, consisting
of 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 presently
anticipates that its capital expenditures for 1996 will be approximately $13
million, consisting of costs of upgrading and modifying the new computer
system and the new warehouse management systems in North America, development
of new computer systems for the Company's European operations, and purchase of
warehouse and other equipment in North America, Europe and Latin America. In
addition, the Company has deferred non-essential capital expenditures to
maximize its cash flow in 1996. See "Business--Operations and Distribution"
and "Business--International Operations." The Company intends to finance its
anticipated capital expenditures with funds from existing operations.
Net cash provided by financing activities in 1995 was $108.3 million,
comprised principally of proceeds from the sale of an interest in the
Company's trade accounts receivable of $125.3 million, partially offset by net
repayments under domestic revolving lines of credit of $7.7 million, and net
repayments under local subsidiaries' lines of credit of $10.0 million.
The Company's wholly owned subsidiary Merisel Americas, Inc. ("Merisel
Americas") on an ongoing basis, sells trade receivable to its wholly owned
subsidiary, Merisel Capital Funding, Inc. ("Merisel Capital Funding"). For the
first three quarters of 1995, pursuant to a trade receivables purchase and
sales agreement with a securitization company, Merisel Capital Funding sold
these receivables to a syndicate of purchasers who purchased on an ongoing
basis up to $150 million of an undivided interest in such receivables.
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 eligible receivables to an investor on an ongoing basis,
which yields proceeds of up to $300 million (the "U.S. Asset Securitization
Facility"). 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 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 eligible
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 the effective
date following three to six months prior written notice from the
securitization company. Effective December 15, 1995, Merisel Canada Inc.
entered into a receivables purchase agreement with a securitization company to
provide funding for Merisel's Canadian subsidiary. In accordance with this
agreement, Merisel Canada sells eligible receivables to the securitization
company, which yields proceeds of up to $150 million Canadian dollars. The
facility expires December 12, 2000, but is extendable by notice from the
securitization company, subject to the Company's approval. Under these
securitization facilities, the receivables are sold at face value, with
payment of a portion of the purchase price being deferred. Fees paid in
connection with such sales are recorded as other expense. As of March 29,
1996, the total amounts outstanding for the United States, United Kingdom, and
Canadian securitization facilities were $176 million, $28 million and $73
million, respectively, which were near the maximum amounts that could be
borrowed under such facilities at that time, based on the Company's eligible
receivables, as defined in the various agreements. However, at March 29, 1996
the Company had cash or cash equivalents on hand in excess of approximately
$70,000,000.
21
<PAGE>
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. At March 29, 1996, $150 million was outstanding under this facility. See
Note 8 to Consolidated Financial Statements. 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 December 31, 1995 was $21.6 million.
At December 31, 1995 the Company and its subsidiaries also had outstanding
$125 million of 12 1/2% Senior Notes due December 31, 2004, $100 million of
8.58% senior notes due May 31, 1997 (the "Senior Notes") and $22 million of
11.28% senior subordinated notes (the "Subordinated Notes") repayable in five
equal annual installments beginning in March 1996. See Note 8 to Consolidated
Financial Statements. On March 10, 1996, the Company repaid the first such
installment.
As a result of the substantial losses incurred by the Company for the fourth
quarter and fiscal year ended December 31, 1995, Merisel was required to
obtain, and did obtain, amendments with respect to certain covenants under the
Revolving Credit Agreement, the purchase agreement related to the Senior
Notes, the purchase agreement related to the Subordinated Notes, and the U.S.
Asset Securitization Facility. See Note 8 to Consolidated Financial
Statements.
The amendments will enable the Company to operate its business for the
remainder of 1996 in compliance with the agreements if the Company achieves
its 1996 business plan. See "Business--Business Strategy--1996 Business Plan."
If the 1996 business plan is not successfully implemented, the Company may
need to obtain additional waivers from its lenders, or other sources of
capital through asset sales. While the Company believes it will be able to
successfully implement its 1996 business plan, if it can not do so, there can
be no assurance that such waivers or alternate sources of capital can be
obtained.
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar
entered into the Services Agreement pursuant to which Vanstar provides
significant distribution and other support services to the Franchise and
Aggregation Business for a contractually agreed upon fee. Effective July 12,
1995, this agreement was extended until April 30, 1997. Under the terms of the
Services Agreement extension, Merisel and Vanstar agreed that (i) the extended
credit terms under the Services Agreement would be increased to $31.4 million;
and (ii) the terms of the distribution fee would be adjusted. The amount of
the extended credit will be reduced by a scheduled amount of $844,000 monthly
through October 31, 1996. A final balance of $23.5 million will be payable in
four scheduled payments between May 15, 1997 and July 31, 1997. If an
inventory reduction plan is agreed upon between the two parties, then the
$23.5 million may decrease on an accelerated basis. In addition, on February
2, 1996 the Company paid Vanstar $13.4 million, which consisted of a
negotiated settlement of the Company's earn out obligation under the original
purchase agreement related to the ComputerLand acquisition of $14.6 million,
net of rebates of $1.2 million. See Note 4 to Consolidated Financial
Statements.
In light of the Company's current business plan to maximize its cash flow
during fiscal 1996, management does not expect, nor does the business plan
assume, that the Company will return to profitability until the fourth quarter
of 1996. The Company's amended debt agreements with the lenders under the
Revolving Credit Agreement, Senior Notes and Subordinated Notes require
principal payments of approximately $35 million in the remainder of 1996 and
$220 million in 1997, based on the amounts outstanding at March 29, 1996.
Assuming successful implementation of the existing business plan, and that the
Company does not experience any significant changes to payment terms or
product availability from its key vendors, the Company believes it can satisfy
its amortization requirements in 1996 without additional financing or asset
sales or debt restructuring. However, in light of the significant principal
payments required in 1997, as well as other obligations described herein, the
Company will not be able to finance its operations or amortize its debt in
1997 without engaging in significant asset sales, refinancing its borrowings,
obtaining new sources of financing, or some combination thereof. While the
Company believes it will be able to successfully implement its 1996 business
plan and implement one or more of the foregoing strategies which will enable
it to meet its obligations in 1997, there can be no assurance that it will be
able to do so.
22
<PAGE>
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-volume purchases
when it deems the terms of such purchases to be attractive and the addition of
new manufacturers and products. The Company has negotiated agreements with
many of its manufacturers which contain stock balancing and price protection
provisions intended to reduce, in part, Merisel's risk of loss due to slow
moving or obsolete inventory or manufacturer price reductions. The Company is
not assured that these agreements will succeed in reducing this risk. In the
event of a manufacturer price reduction, the Company generally receives a
credit for products in inventory. In addition, the Company has the right to
return a certain percentage of purchases, subject to certain limitations.
Historically, price protection and stock return privileges as well as the
Company's inventory management procedures have helped to reduce the risk of
loss of carrying inventory.
The Company offers credit terms to qualifying customers and also sells on a
prepay, credit card and cash-on-delivery basis. 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 markets, the Company may elect to purchase credit insurance for
certain accounts.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Merisel, Inc.:
We have audited the accompanying consolidated balance sheets of Merisel,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
Our audits also included the financial statement schedules listed at Item 14.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Merisel, Inc. and
subsidiaries at December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 15, 1996
24
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,533 $ 1,378
Accounts receivable (net of allowances of $25,559 and
$24,786 at December 31, 1994 and 1995,
respectively)....................................... 451,246 413,057
Inventories.......................................... 517,706 561,230
Prepaid expenses and other current assets............ 13,256 17,919
Income taxes receivable.............................. 35,116
Deferred income tax benefit.......................... 12,128 6,657
---------- ----------
Total current assets............................... 997,869 1,035,357
PROPERTY AND EQUIPMENT, NET............................ 69,511 90,381
COST IN EXCESS OF NET ASSETS ACQUIRED, NET............. 113,115 93,287
OTHER ASSETS........................................... 11,375 11,309
---------- ----------
TOTAL ASSETS......................................... $1,191,870 $1,230,334
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 509,226 $ 621,990
Accrued liabilities.................................. 46,502 71,483
Short-term debt...................................... 37,871 21,620
Long-term debt--current.............................. 35,000
Subordinated debt--current........................... 4,400
Income taxes payable................................. 4,422
---------- ----------
Total current liabilities.......................... 598,021 754,493
LONG-TERM DEBT......................................... 335,685 299,271
SUBORDINATED DEBT...................................... 22,000 17,600
CAPITALIZED LEASE OBLIGATIONS.......................... 4,504
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 1,000,000
shares; none issued or outstanding
Common stock, $.01 par value; authorized 50,000,000
shares; outstanding 29,716,600 and 29,863,500 at
December 31, 1994 and 1995, respectively............ 297 299
Additional paid-in capital........................... 141,249 141,938
Retained earnings.................................... 103,122 19,211
Cumulative translation adjustment.................... (8,504) (6,982)
---------- ----------
Total stockholders' equity......................... 236,164 154,466
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $1,191,870 $1,230,334
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................... $3,085,851 $5,018,687 $5,956,967
COST OF SALES................................ 2,827,315 4,676,164 5,633,278
---------- ---------- ----------
GROSS PROFIT................................. 258,536 342,523 323,689
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. 187,152 281,796 317,195
IMPAIRMENT LOSSES............................ 51,383
RESTRUCTURING CHARGE......................... 9,333
---------- ---------- ----------
OPERATING INCOME (LOSS)...................... 71,384 60,727 (54,222)
INTEREST EXPENSE............................. 17,810 29,024 37,583
OTHER EXPENSE................................ 2,722 11,752 13,885
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES............ 50,852 19,951 (105,690)
PROVISION (BENEFIT) FOR INCOME TAXES......... 20,413 8,341 (21,779)
---------- ---------- ----------
NET INCOME (LOSS)............................ $ 30,439 $ 11,610 $ (83,911)
========== ========== ==========
NET INCOME (LOSS) PER SHARE.................. $ 1.00 $ 0.38 $ (2.82)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES............ 30,454 30,389 29,806
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
----------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
---------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 29,297,200 $293 $139,319 $61,073 $(1,803) $198,882
Exercise of stock
options and other..... 307,100 3 1,456 1,459
Cumulative translation
adjustment............ (6,923) (6,923)
Net income............. 30,439 30,439
---------- ---- -------- ------- ------- --------
BALANCE AT DECEMBER 31,
1993................... 29,604,300 296 140,775 91,512 (8,726) 223,857
Exercise of stock
options and other..... 112,300 1 474 475
Cumulative translation
adjustment............ 222 222
Net income............. 11,610 11,610
---------- ---- -------- ------- ------- --------
BALANCE AT DECEMBER 31,
1994................... 29,716,600 297 141,249 103,122 (8,504) 236,164
Exercise of stock
options and other..... 146,900 2 689 691
Cumulative translation
adjustment............ 1,522 1,522
Net loss............... (83,911) (83,911)
---------- ---- -------- ------- ------- --------
BALANCE AT DECEMBER 31,
1995................... 29,863,500 $299 $141,938 $19,211 $(6,982) $154,466
========== ==== ======== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 30,439 $ 11,610 $ (83,911)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization......... 10,476 16,101 20,509
Provision for doubtful accounts....... 17,441 18,851 16,335
Impairment losses..................... 51,383
Deferred income taxes................. (2,451) (4,973) 5,471
Changes in assets and liabilities, net
of the effects from acquisitions:
Accounts receivable................. (194,214) (152,912) (103,553)
Inventories......................... (142,866) (75,314) (43,524)
Prepaid expenses and other assets... (6,613) (6,604) (8,186)
Income taxes receivable............. (35,116)
Accounts payable.................... 166,296 94,385 98,756
Accrued liabilities................. (4,124) 19,690 23,872
Income taxes payable................ 208 (3,275) (4,422)
----------- ----------- ---------
Net cash used for operating
activities........................ (125,408) (82,441) (62,386)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...... (24,576) (40,163) (49,082)
Proceeds from sale of property and
equipment.............................. 1,004
Investments in unconsolidated
affiliates............................. (844)
Acquisitions, net of cash acquired...... (685) (86,343)
----------- ----------- ---------
Net cash used for investing
activities........................ (25,101) (126,506) (49,082)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of
credit................................. 1,113,967 1,766,300 937,275
Repayments under revolving line of
credit................................. (1,043,900) (1,742,114) (944,960)
Net borrowings (repayments) under
foreign bank facilities................ 10,237 (13,058) (9,980)
Borrowings under senior notes........... 125,000
Proceeds from sale of accounts
receivable............................. 75,000 75,000 125,320
Proceeds from issuance of common stock.. 1,459 475 691
----------- ----------- ---------
Net cash provided by financing
activities........................ 156,763 211,603 108,346
----------- ----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.. (6,373) 863 967
----------- ----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................. (119) 3,519 (2,155)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. 133 14 3,533
=========== =========== =========
CASH AND CASH EQUIVALENTS, END OF PERIOD. $ 14 $ 3,533 $ 1,378
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during the year for:
Interest (net of interest capitalized
of $1,053 and $3,281 for 1994 and
1995 respectively)................... $ 20,741 $ 21,237 $ 27,118
Income taxes.......................... 20,924 11,185 10,747
Noncash activities:
Capital lease obligations entered into.. 5,708
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Merisel, Inc. ("Merisel" or the "Company") is a worldwide
distributor of microcomputer hardware and software products. In addition, as a
result of the ComputerLand Acquisition (see Note 4), the Company, through its
wholly-owned subsidiary Merisel FAB, Inc., is 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.
Liquidity--In 1995, the Company incurred a net loss of $83.9 million and
negative cash flows from operating activities of $62.4 million. As a result of
the loss in 1995, the Company was required to obtain, and did obtain,
amendments or waivers with respect to certain covenants under its senior
lending and other agreements. In connection with its negotiations with its
lenders, the Company has developed a business plan for the remainder of fiscal
1996 which, if successfully implemented, will allow it to operate without the
need for additional sources of financing or any asset sales in 1996, assuming
no significant changes in payment terms to or product availability from its
vendors. The Company is also continuing to actively explore all of its
strategic options with the assistance of a financial advisor. These options
include a business combination with, or sale to, a strategic partner who could
provide the capital necessary to enable continued growth of the Company, or a
sale of significant assets in geographic regions around the world, which would
also enable Merisel to fund its remaining operations out of existing cash flow
or restructured borrowings. In addition, management has undertaken various
steps to enhance profitability, through, among other things, the establishment
of business process reengineering teams that are developing improvements to
existing practices throughout the Company, particularly in the area of accounts
payable management, where the Company has engaged the assistance of outside
consultants. The Company also intends to curtail non-essential capital
expenditures during 1996 to maximize its cash flow. See Note 8 for information
about the Company's long-term obligations and activities to restructure the
debt.
Risks and Uncertainties--The Company is a leader in the distribution of
microcomputer hardware and software products, offering both full-line
distribution and aggregation capabilities. At December 31, 1995, approximately
40 percent of the company's identifiable assets were located outside the United
States, primarily in the major economically developed countries of Europe.
Additional geographic information on the company's assets can be found in Note
12. The diversity and breadth of the company's product and services offerings,
customers, and geographic operations mitigate significantly the risk that a
severe impact will occur in the near term as a result of changes in its
customer base, competition, or composition of its markets. Although Merisel
regularly stocks products and accessories supplied by more than 500
manufacturers, 63% of the Company's net sales in 1995 (as compared to 56% in
1994 and 45% in 1993) were derived from products supplied by Merisel's ten
largest manufacturers.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include collectibility of accounts receivable, inventory, accounts
payable, sales returns and recoverability of long-term assets.
New Accounting Pronouncements--The Company has not adopted the recently
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation," ("SFAS 123") which
29
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
is required to be adopted in the first quarter of 1996. The Company currently
records compensation based on the provisions of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees," as allowed by SFAS 123.
The Company expects to implement in 1996 the disclosure only provisions, as
permitted by SFAS 123. In 1995, the Company implemented Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This standard prescribes
the method for asset impairment evaluation for long-lived assets and certain
intangibles that are either held and used or to be disposed. The Company was
generally in conformance with this standard prior to adoption.
Revenue Recognition, Returns and Sales Incentives--The Company recognizes
revenue from hardware and software sales as products are shipped. The Company,
subject to certain limitations, permits its customers to exchange products or
receive credits against future purchases. The Company offers its customers
several sales incentive programs which, among others, include funds available
for cooperative promotion of product sales. Customers earn credit under such
programs based upon volume of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's
manufacturers. The allowances for sales returns and costs of customer incentive
programs are accrued concurrently with the recognition of revenue.
In connection with its ComputerLand franchising operations, the Company
collects initial franchise fees, "cost plus" markups and royalties. Initial
franchise fees, which were not material in 1994 or 1995, are recognized as
income when substantially all services and conditions relating to the sale of
the franchise have been performed or satisfied. "Cost plus" markups, which
range from 1.95% to 3.10%, are charged to franchisees for products purchased
from ComputerLand. These markups, as well as royalties, which range from 0.5%
to 5.0% of franchise sales are recognized as such sales occur. Royalty revenues
were $19.2 million and $10.5 million in 1994 and 1995 respectively. Franchise
agreements range from 1 to 10 years in length.
Cash Equivalents--The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
Inventories--Inventories are valued at the lower of cost or market; cost is
determined on the average cost method.
Property and Depreciation--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the assets, generally three to seven years.
Leasehold improvements are amortized over the shorter of the life of the lease
or the improvement.
The Company capitalizes all direct costs incurred in the construction of
facilities and the development and installation of new computer and warehouse
management systems. Such amounts include the costs of materials and other
direct construction costs, purchased computer hardware and software, outside
programming and consulting fees, direct employee salaries and interest (see
Note 3).
Cost in Excess of Net Assets Acquired--Cost in excess of net assets acquired
results principally from the acquisition in January 1994 of the Franchise and
Aggregation Business and the acquisition in 1990 of Microamerica, Inc. The cost
in excess of net assets acquired from Microamerica, Inc. is being amortized
over a period of forty years using the straight line method. The cost in excess
of net assets acquired from the Franchise and Aggregation Business is being
amortized over an aggregate period of 25 years (see Note 3). Accumulated
amortization was $7,405,000 and $12,186,000 at December 31, 1994 and 1995
respectively.
30
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company reviews the recoverability of intangible assets to determine if
there has been any permanent impairment. This assessment is performed based on
the estimated undiscounted future cash flows from operating activities compared
with the carrying value of intangible assets. If the undiscounted future cash
flows are less than the carrying value, an impairment loss is recognized,
measured by the difference between the carrying value and fair value of the
assets (see Note 3).
Income Taxes--Deferred income taxes represent the amounts which will be paid
or received in future periods based on the tax rates that are expected to be in
effect when the temporary differences are scheduled to reverse.
At December 31, 1994 and 1995, the cumulative amount of undistributed
earnings on which the Company has not recognized United States income taxes was
approximately $16 million and $7 million, respectively, representing primarily
earnings in the Company's Canadian subsidiary. The Company intends to invest
the undistributed earnings of its foreign subsidiaries indefinitely.
Concentration of Credit Risks--Financial instruments which subject the
Company to credit risk consist primarily of cash equivalents, trade accounts
receivable, and forward foreign currency exchange contracts. Concentration of
credit risk with respect to trade accounts receivable are generally diversified
due to the large number of entities comprising the Company's customer base and
their geographic dispersion. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for potential credit losses, and in
certain locations maintains credit insurance. The Company diversifies its
credit risk with respect to forward foreign exchange contracts due to the
number of institutions with which it enters into contracts. The Company
actively evaluates the creditworthiness of the financial institutions with
which it conducts business.
Fair Values of Financial Instruments--The fair values of financial
instruments, other than long-term debt, closely approximate their carrying
value. The estimated fair value of long-term debt including current maturities,
based on reference to quoted market prices, was less than the carrying value by
approximately $6,900,000 and $32,300,000 as of December 31, 1994 and 1995,
respectively.
Foreign Currency Translation--Assets and liabilities of foreign subsidiaries
are translated into United States dollars at the exchange rate in effect at the
close of the period. Revenues and expenses of these subsidiaries are translated
at the average exchange rate during the period. The aggregate effect of
translating the financial statements of foreign subsidiaries at the above rates
is included in a separate component of stockholders' equity entitled Cumulative
Translation Adjustment. In addition, the Company advances funds in the normal
course of business, to certain of its foreign subsidiaries, which are not
expected to be repaid in the foreseeable future. Translation adjustments
resulting from these advances are also included in Cumulative Translation
Adjustment.
Foreign Exchange Instruments--The Company's use of derivatives is limited to
the purchase of foreign exchange contracts, which are used to minimize foreign
exchange transaction gains and losses. The Company purchases forward dollar
contracts to hedge short-term advances to its foreign subsidiaries and to hedge
commitments to acquire inventory for sale and does not use the contracts for
trading purposes. The Company's foreign exchange rate contracts minimize the
Company's exposure to exchange rate movement risk, as any gains or losses on
these contracts are offset by gains and losses on the transactions being
hedged. The foreign exchange contracts have varying maturities through April
23, 1996. At December 31, 1994 and 1995, the Company had approximately $110
million and $131 million of foreign exchange contracts outstanding, the
carrying value of which does not differ significantly from their fair value. In
1993 there was a net foreign currency gain of $283,000, and net foreign
currency losses of $1,422,000 and $806,000 in 1994 and 1995 respectively. The
1994 loss was primarily due to the devaluation of the Mexican Peso. Further
declines in value of the Mexican Peso against the United States dollar
contributed $383,000 to the loss in 1995, with the balance made up of losses
from transactions in other foreign currencies. These amounts are recorded as
other expense.
31
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Income (Loss) per Share--Net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents (common stock options) outstanding during
the related period, unless such inclusion is antidilutive. The weighted average
number of shares includes shares issuable upon the assumed exercise of stock
options less the number of shares assumed purchased with the proceeds available
from such exercise.
Fiscal Periods--The Company's fiscal year is the 52- or 53-week period ending
on the Saturday nearest to December 31 and its fiscal quarters are the 13- or
14-week periods ending on the Saturday nearest to March 31, June 30, September
30 and December 31. For clarity of presentation, the Company has described
year-ends presented as if the years ended on December 31 and quarter-ends
presented as if the quarters ended on March 31, June 30, September 30 and
December 31. The 1993, 1994 and 1995 fiscal years were 52 weeks in duration.
All quarters presented for 1994 and 1995 were 13 weeks in duration.
2. RESTRUCTURING CHARGE
During the first and second quarters of 1995, the Company recorded aggregate
charges of $9,333,000 associated with resizing and restructuring several of the
Company's operations. 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 December 31, 1995, $4,543,000 of this
amount remained in accrued liabilities.
3. IMPAIRMENT LOSSES
In the fourth quarter of 1995, the Company determined that a portion of the
carrying values certain of its long-lived assets and identifiable intangibles
will not be recovered from their use in future operations. Accordingly, these
assets were written down to their fair values as of December 31, 1995. An
impairment was recognized in the long-lived assets of the ComputerLand
franchise operations, due to declining sales growth, margins, and earnings, and
the resulting negative trend in projected cash flows. The long-lived assets of
ComputerLand's franchise operations were acquired in January 1994 (see Note 4)
and included intangibles with a net book value of $56.6 million at December 31,
1995 prior to the write down. Fair value to the ComputerLand long-lived assets
was measured by discounting expected future cash flows, which resulted in a
required write down of $30 million.
The Company is in the process of converting its North American operations to
new computer operating systems. The Company began designing the systems in
early 1993 and converted its Canadian operations to the new system in August
1995. In the early implementation stages, the Canadian conversion produced
results below the Company's expectations. In late February 1996, Merisel
Canada's operating system had begun to show results closer to the Company's
original projection. However, this required substantial additional development
efforts and costs in the post-implementation period. Accumulated expenditures
incurred to develop these systems have been significantly in excess of the
amounts originally expected. In addition, the Company has delayed installation
of these systems in the United States beyond 1996. As a result of the cost
overruns, the Company's experience in Canada, and the decision to delay United
States installation beyond 1996, it was determined that the value of these
assets had been impaired. Total capitalized costs of these systems totaled
$44.6 million at December 31, 1995. It was determined that a write down of
$19.5 million was required to bring capitalized development costs to $25.1
million. This amount approximates the original budget for the project, and
represents the Company's estimate of the fair value of these assets at December
31, 1995. The write down was determined by identifying certain cost categories
that would be duplicated with future development efforts and which would not
provide value to the Company.
32
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1996, the Company sold its interest in its wholly owned Australian
subsidiary, Merisel Australia Pty Ltd. to Tech Pacific Holdings Ltd. Under the
terms of the agreement, the Company received consideration of $9.9 million in
the form of repayment of certain intercompany debt obligations. The Company
recognized a $1.9 million charge as an impairment loss for the writedown of
the Australian net assets to their net realizable value. These net assets,
after write down, totaled $9.9 million and were classified in the December 31,
1995 consolidated balance sheet as other current assets. The sale was made in
order to better position the Company to achieve its strategic growth
objectives, by abandoning its planned expansion into Asia and at the same time
disposing of an unprofitable business. Prior to the $1.9 million charge, the
Australian subsidiary reported a loss of $6.1 million for 1995.
4. ACQUISITIONS
On January 31, 1994, the Company, through its wholly-owned subsidiary,
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, on February 2, 1996 the Company paid
Vanstar $13.4 million, which consisted of a negotiated settlement of the
Company's earn out obligation under the original purchase agreement related to
the ComputerLand acquisition of $14.6 million, net of rebates of $1.2 million.
The acquisition has been accounted for as a purchase. Under the purchase
method of accounting, an allocation of the purchase price to the Merisel FAB
assets and liabilities is required to reflect fair values. Based on an
independent valuation prepared for the Company, $82.3 million of the purchase
price and $14.0 million of the additional payment were allocated to intangible
assets with an estimated aggregate life of 25 years. A total of $35.4 million
was allocated to Datago and $60.9 million to ComputerLand. The ComputerLand
portion of these intangible assets was subsequently written down by $30
million in the fourth quarter of 1995 (see Note 3).
In connection with the ComputerLand acquisition, Merisel FAB entered into a
Distribution and Services Agreement (the "Services Agreement") with Vanstar
whereby Vanstar provided products and distribution and other support services
to Merisel FAB until January 31, 1996. On July 12, 1995 Merisel entered into a
non-binding letter of intent with Vanstar to extend the Services Agreement
until April 30, 1997. Under the terms of the Services Agreement extension,
Merisel and Vanstar agreed that (i) the extended credit terms under the
Services Agreement would be increased to $31.4 million; and (ii) the terms of
the distribution fee would be adjusted. The amount of the extended credit will
be reduced by a scheduled amount of $844,000 monthly through October 31, 1996.
A final balance of $23.5 million will be payable in four scheduled payments
between May 15, 1997 and July 31, 1997. If an inventory reduction plan is
agreed upon between the two parties, then the $23.5 million may decrease on an
accelerated basis.
Following is summarized unaudited pro forma operating results assuming that
the Company had acquired the F&D Division on January 1, 1993.
<TABLE>
<CAPTION>
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................................. $4,160,158 $5,120,419
Income before taxes................................... 56,498 20,289
Net income............................................ 33,826 11,839
Net income per share.................................. 1.11 0.39
Weighted average shares outstanding................... 30,454 30,389
</TABLE>
33
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, effective August 1994, the Company acquired the remaining 40%
minority interest in the Company's Mexican subsidiary for approximately $5.0
million. Pro forma income statement information for this acquisition has not
been provided as the financial statement impact is not significant.
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"). For the
first three quarters of 1995, pursuant to a trade receivables purchase and
sale agreement with a securitization company, Merisel Capital Funding sold
these receivables to a syndicate of purchasers who purchased on an ongoing
basis up to $150 million of an undivided interest in such receivables.
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. Due to the losses incurred in the fourth quarter and year ended
December 31, 1995, certain covenants in the receivables purchase and servicing
agreement were amended to bring the Company into compliance with such
covenants.
Effective October 16, 1995, Merisel U.K. Ltd. entered into a 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. Effective December 15, 1995, Merisel Canada Inc.
entered into a receivables purchase agreement with a securitization company to
provide funding for Merisel's Canadian subsidiary. In accordance with this
agreement, Merisel Canada sells receivables to the securitization company,
which yields proceeds of up to $150 million Canadian dollars. The facility
expires December 12, 2000, but is extendable by notice from the securitization
company, subject to the Company's approval.
Under these securitization facilities, the receivables are sold at face
value with payment of a portion of the purchase price being deferred. As of
December 31, 1995 the total amount outstanding under these facilities was $275
million. Fees incurred in connection with the sale of accounts receivable for
the years ended December 31, 1994 and 1995 were $7,151,000 and $10,291,000,
respectively, and are recorded as other expense.
34
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ----------------
(IN YEARS) 1994 1995
----------- ------- -------
<S> <C> <C> <C>
Land and building............................. 20 $ 433 $13,558
Equipment..................................... 3 to 7 47,947 76,918
Furniture and fixtures........................ 3 to 5 9,701 13,777
Leasehold improvements........................ 3 to 20 12,546 15,963
Construction in progress...................... 37,511 21,365
------- -------
Total......................................... 108,138 141,581
Less accumulated depreciation and amortiza-
tion......................................... (38,627) (51,200)
------- -------
Property and equipment, net................... $69,511 $90,381
======= =======
</TABLE>
7. INCOME TAXES
The components of income (loss) before income taxes consisted of the
following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- ---------
<S> <C> <C> <C>
Domestic......................................... $46,080 $23,430 $ (71,884)
Foreign.......................................... 4,772 (3,479) (33,806)
------- ------- ---------
Total............................................ $50,852 $19,951 $(105,690)
======= ======= =========
</TABLE>
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $15,552 $10,675 $(24,627)
State......................................... 3,994 2,429 130
Foreign....................................... 3,318 210 (2,753)
------- ------- --------
Total Current................................. 22,864 13,314 (27,250)
------- ------- --------
Deferred:
Domestic...................................... (2,636) (4,325) 7,120
Foreign....................................... 185 (648) (1,649)
------- ------- --------
Total deferred................................ (2,451) (4,973) 5,471
------- ------- --------
Total provision (benefit)..................... $20,413 $ 8,341 $(21,779)
======= ======= ========
</TABLE>
35
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities and assets were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities
State taxes............................................. $ 1,143
Depreciation............................................ 564
-------
Total................................................. $ 1,707
=======
Deferred tax assets
Net operating loss of foreign subsidiaries.............. $ 4,400 $ 2,350
Expense accruals........................................ 11,128 9,886
State taxes............................................. 1,056
Property and goodwill................................... 3,648
Other, net.............................................. 2,707 1,999
------- -------
18,235 18,939
Valuation allowances.................................... (4,400) (12,282)
------- -------
Total................................................. $13,835 $ 6,657
======= =======
Net deferred tax asset.................................... $12,128 $ 6,657
======= =======
</TABLE>
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Statutory rate.................................... 35.0% 35.0% (35.0)%
Increase in U.S. valuation allowance.............. 9.3
State income taxes, less effect of federal deduc-
tion............................................. 4.1 4.0 0.1
Foreign income subject to tax at other than statu-
tory rate........................................ 1.0 2.5 3.2
Goodwill amortization............................. 0.5 1.3 0.4
Foreign losses with benefits at less than statu-
tory rate........................................ 2.6 6.7 0.1
Utilization of net operating losses of foreign
subsidiary....................................... (3.3) (5.3)
Other............................................. 0.2 (2.4) 1.3
------ ------ -------
Effective tax rate................................ 40.1% 41.8% (20.6)%
====== ====== =======
</TABLE>
8. DEBT
At December 31, 1995, the Company's subsidiaries, Merisel Americas and
Merisel Europe, Inc. ("Merisel Europe") had unsecured senior borrowing
commitments, which consisted of $100 million of 8.58% senior notes (the
"Senior Notes") by Merisel Americas, a $150 million revolving credit agreement
(the "Revolving Credit Agreement") by Merisel Americas and Merisel Europe, and
a $50 million Canadian dollar unsecured revolving bank credit facility (the
"Canadian Revolver") by Merisel Canada. The Senior Notes and the Revolving
Credit Agreement, as amended, are due on May 31, 1997, and the Canadian
Revolver expired January 4, 1996. At December 31, 1995, there was $100 million
outstanding under the Senior Notes, $103 million outstanding under the
Revolving Credit Agreement, and no amount outstanding under the Canadian
Revolver. Advances under the Revolving Credit Agreement and the Canadian
Revolver bear interest at specific rates based upon market reference rates and
the Company's performance relative to specific levels of debt to total
capitalization. The combined average interest rate for the Revolving Credit
Agreement and the Canadian Revolver at December 31,
36
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995 was approximately 8.50% and 7.25%, respectively. The Company is also
required to pay a commitment fee on the unused available funds on the
Revolving Credit Agreement. The Revolving Credit Agreement, which was amended
in February 1995, the Canadian Revolver agreement, and the Senior Notes
agreement each contain various covenants, including those which prohibit the
payment of cash dividends, require a minimum amount of tangible net worth, and
place limitations on the acquisition of assets. The agreements also require
the Company or certain of its subsidiaries to maintain certain specified
financial ratios, including interest coverage, minimum adjusted tangible net
worth, total debt equivalents to adjusted tangible net worth, inventory
turnover, minimum accounts payable and minimum accounts payable to inventory.
Subsequent to year end, the Revolving Credit Agreement and Senior Notes
agreement were amended as a result of the Company's noncompliance with certain
covenants.
Effective October 24, 1994, the Company issued $125 million principal amount
of senior notes (the "Notes") due December 31, 2004. The Company used the
proceeds from the Notes to repay in full the $65 million borrowed under an
unsecured credit agreement with a bank to finance the ComputerLand Acquisition
and to repay approximately $55.8 million of indebtedness under the Revolving
Credit Agreement. The Notes provide for an interest rate of 12.5% payable
semiannually commencing December 31, 1994. The Notes are effectively
subordinated to all liabilities of the Company's subsidiaries, including trade
payables. The Indenture relating to the Notes contains certain covenants that,
among other things, limit the type and amount of additional indebtedness that
may be incurred by the Company or any of its subsidiaries and impose
limitations on investment, loans, advances, sales or transfers of assets, the
making of dividends and other payments, the creation of liens, sale-leaseback
transactions with affiliates and certain mergers.
At December 31, 1995 Merisel Americas had outstanding an aggregate of
$22,000,000 of privately placed subordinated notes. The notes, as amended,
provide for interest at the rate of 11.28% per annum and are repayable in five
equal annual installments beginning March 1996 of which the first such
installment was paid. The subordinated debt agreement contains certain
restrictive covenants, including those that limit the Company's ability to
incur debt, acquire the stock of or merge with other corporations, or sell
certain assets and prohibits the payment of dividends. The subordinated debt
agreement also requires Merisel or its subsidiaries to maintain specified
financial ratios similar in nature to those required by the Senior Notes.
In addition, the Company and its subsidiaries have various unsecured lines
of credit denominated in their local currencies under which as of December 31,
1995 they were able to borrow an aggregate of approximately $34 million,
excluding the Canadian Revolver. The Company had borrowings outstanding under
such lines of credit of $37.9 million and $21.6 million at December 31, 1994
and 1995, respectively. The weighted average interest rate for such lines of
credit at December 31, 1995 was 10%. At December 31, 1995, approximately $130
million of outstanding debt was advanced to foreign subsidiaries.
Amendments to Financing Arrangements. As a result of the substantial losses
incurred by the Company for the fourth quarter and fiscal year ended December
31, 1995, Merisel was required to obtain, and did obtain, amendments or
waivers with respect to certain covenants under the Revolving Credit
Agreement, the purchase agreement related to the Senior Notes, the purchase
agreement related to the Subordinated Notes and the Notes.
As amended, the Revolving Credit Agreement and the Senior Note Agreement
provide that the Company pay a total of $10,000,000 on April 15, 1996, and pay
$5,000,000 on each of May 5, 1996, June 5, 1996, July 5, 1996, August 5, 1996,
and September 5, 1996, and a total of $65,000,000 on January 15, 1997. These
payments will be shared ratably by the banks under the Revolving Credit
Agreement and the holders of the Senior Notes, although to the extent that the
Company has not borrowed the full amount available under the Revolving Credit
Agreement, the banks' collective commitments under the Revolving Credit
Agreement will be reduced by the ratable amounts without any payment by the
Company. The applicable annual percentage interest rates under the
37
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revolving Credit Agreement and the Senior Notes have been increased by one
percent. Additionally, certain covenants of the Company under the Revolving
Credit Agreement and the Senior Note Agreement have been amended, and each of
the Revolving Credit Agreement and the Senior Note Agreement are scheduled to
mature on May 31, 1997.
The Company and the holders of the Subordinated Notes have also amended the
Subordinated Note Agreement. As amended, the Subordinated Note Agreement
incorporates the new financial covenants contained in the Senior Note Agreement
and the Revolving Credit Agreement. Additionally, the Company has agreed that
payments of accrued interest that had been scheduled to be made semi-annually
will instead be paid quarterly, commencing on September 10, 1996. The Company
has also agreed to increase the annual percentage interest rate payable on the
principal outstanding under the Subordinated Notes by 0.50%, commencing April
15, 1996.
In addition, the amendments required a waiver of certain provisions of the
Indenture pursuant to which the Notes were issued, which waiver was obtained.
9. CAPITALIZED LEASES
The Company leases certain warehouse and computer equipment under long-term
leases and has the option to purchase the equipment for a nominal cost at the
termination of the lease.
Property and equipment includes the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Machinery and equipment....................................... $5,708,000
Less accumulated depreciation................................. 313,000
----------
Total....................................................... $5,395,000
==========
</TABLE>
Future minimum payments for capitalized leases were as follows at December
31, 1995:
<TABLE>
<S> <C>
1996.......................................................... $1,490,000
1997.......................................................... 1,490,000
1998.......................................................... 1,490,000
1999.......................................................... 1,155,000
2000.......................................................... 1,060,000
----------
Total minimum lease payments.................................. 6,685,000
Less amount representing interest............................. 1,073,000
----------
Present value of net minimum lease payments................... 5,612,000
Less current maturities....................................... 1,108,000
----------
Long-term obligation........................................ $4,504,000
==========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating leases. Future minimum rental payments, under leases that have
initial or remaining noncancelable lease terms in excess of one year are
$14,038,000 in 1996, $12,200,000 in 1997, $11,094,000 in 1998, $9,947,000 in
1999, $7,800,000 in 2000 and $20,419,000 thereafter. Certain of the leases
contain inflation escalation clauses and requirements for the payment of
property taxes, insurance, and maintenance expenses. Rent expense for 1993,
1994 and 1995 was $12,617,000, $13,447,000 and $14,840,000, respectively.
38
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1994, the Company and certain of its officers and/or directors were
named in putative securities class actions filed in the United States District
Court for the Central District of California, consolidated as In re Merisel,
Inc. Securities Litigation. Plaintiffs, who are seeking damages in an
unspecified amount, purport to represent a class of all persons who purchased
Merisel common stock between November 8, 1993 and June 7, 1994 (the "Class
Period"). The complaint, as amended and consolidated, alleges that the
defendants inflated the market price of Merisel's common stock with material
misrepresentations and omissions during the Class Period. Plaintiffs contend
that such alleged misrepresentations are actionable under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. 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. The
parties' appellate briefing to the Ninth Circuit was completed on November 6,
1995. The Ninth Circuit has not yet set a date for oral argument regarding the
appeal.
The Company is involved in certain other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
impact on the Company's financial statements.
11. EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS
Under the Company's stock option plans, incentive stock options and
nonqualified stock options may be granted to employees, directors, and
consultants. The plans authorize the issuance of an aggregate of
4,616,200 shares upon exercise of options granted thereunder. The optionees,
option prices, vesting provisions, dates of grant and number of shares granted
under the plans are determined primarily by the Board of Directors or the
option committee under the stock option plans, though incentive stock options
must be granted at prices which are no less than the fair market value of the
Company's common stock at the date of grant. Options granted under the plans
expire ten years from the date of grant. The following summarizes activity in
the plans for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
OPTION EXERCISE PRICE
NUMBER OF -------------------------
OPTIONS PER SHARE TOTAL
--------- ------------- -----------
<S> <C> <C> <C>
Outstanding, December 31, 1992......... 1,863,540 $1.11--$11.38 $11,560,000
Granted................................ 327,000 11.75--11.88 3,883,000
Exercised.............................. (307,100) 1.11--11.38 (1,051,000)
Canceled............................... (27,300) 3.00--11.38 (266,000)
--------- -----------
Outstanding, December 31, 1993......... 1,856,140 2.00--11.88 14,126,000
Granted................................ 243,500 15.00--19.88 4,492,000
Exercised.............................. (112,300) 2.00--11.88 (475,000)
Canceled............................... (84,715) 2.00--19.88 (953,000)
--------- -----------
Outstanding, December 31, 1994......... 1,902,625 2.20--19.88 17,190,000
Granted................................ 1,680,241 4.58--6.31 9,929,000
Exercised.............................. (112,422) 2.20--6.25 (336,000)
Canceled............................... (279,155) 2.20--19.88 (3,471,000)
--------- -----------
Outstanding, December 31, 1995......... 3,191,289 $23,312,000
========= ===========
</TABLE>
A total of 1,293,100 and 1,462,000 options were excercisable under the stock
option plans at December 31, 1994 and 1995, respectively.
39
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1987, the Company's Board of Directors authorized the issuance of
350,000 nonqualified stock options to an officer of the Company for the
purchase of common stock at an exercise price of $.01 per share. The options
vested over five years from the date of grant and are execrable for a period
of up to ten years. The difference between the fair market value of the common
stock underlying the nonqualified stock options as of the date of grant and
the exercise price, an aggregate of $1,484,000, was amortized as compensation
expense over the five-year vesting period. No compensation expense related to
these stock options was recognized in 1993, 1994 or 1995. As of December 31,
1995, 150,000 options remained outstanding.
The Company offers a 401(k) savings plan under which all employees who are
21 years of age with at least one year of service are eligible to participate.
The plan permits eligible employees to make contributions up to certain
limitations, with the Company matching certain of those contributions. The
Company's contributions vest 25% per year. The Company contributed $443,000,
$579,000, and $125,000 to the plan during the years ended December 31, 1993,
1994 and 1995, respectively.
12. SEGMENT INFORMATION
The Company's operations primarily involve a single industry segment--the
wholesale distribution of microcomputer hardware and software products. The
geographic areas in which the Company operates are the United States, Canada,
Europe (United Kingdom, France, Germany, Switzerland and Austria), and Other
International (Latin America, Australia and Mexico). Net sales, operating
income (before interest, other nonoperating expenses and income taxes) and
identifiable assets by geographical area were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED CANADA OTHER
STATES EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1993:
Net sales:
Unaffiliated
customers............. $1,951,411 $ 395,375 $ 531,938 $207,127 $3,085,851
Transfers between
geographical areas.... 40,193 113 $(40,306)
---------- --------- ---------- -------- -------- ----------
Total................ $1,991,604 $ 395,375 $ 531,938 $207,240 $(40,306) $3,085,851
========== ========= ========== ======== ======== ==========
Operating income
(loss)................ $ 59,945 $ 7,421 $ 372 $ 3,646 $ 71,384
========== ========= ========== ======== ==========
Identifiable assets.... $ 588,711 $ 123,844 $ 192,097 $ 68,951 $(37,320) $ 936,283
========== ========= ========== ======== ======== ==========
1994:
Net sales:
Unaffiliated
customers............. $3,413,614 $ 516,616 $ 783,637 $304,820 $5,018,687
Transfers between
geographical areas.... 33,072 $(33,072)
---------- --------- ---------- -------- -------- ----------
Total................ $3,446,686 $ 516,616 $ 783,637 $304,820 $(33,072) $5,018,687
========== ========= ========== ======== ======== ==========
Operating income
(loss)................ $ 52,150 $ 9,871 $ (6,370) $ 5,076 $ 60,727
========== ========= ========== ======== ==========
Identifiable assets.... $ 715,082 $ 147,483 $ 231,470 $105,613 $ (7,778) $1,191,870
========== ========= ========== ======== ======== ==========
1995:
Net sales:
Unaffiliated
customers............. $3,996,346 $ 572,569 $1,051,493 $336,559 $5,956,967
Transfers between
geographical areas.... 43,704 $(43,704)
---------- --------- ---------- -------- -------- ----------
Total................ $4,040,050 $ 572,569 $1,051,493 $336,559 $(43,704) $5,956,967
========== ========= ========== ======== ======== ==========
Operating income
(loss)................ $ (37,825) $ (3,637) $ (11,960) $ (800) $ (54,222)
========== ========= ========== ======== ==========
Identifiable assets.... $ 738,220 $ 135,482 $ 300,230 $ 75,648 $(19,246) $1,230,334
========== ========= ========== ======== ======== ==========
</TABLE>
40
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods for the fiscal
years ended 1994 and 1995 is presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1994
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................. $1,154,622 $1,210,498 $1,230,562 $1,423,005
Gross profit............... 82,306 81,764 83,726 94,727
Net income (loss).......... 8,596 2,718 2,793 (2,497)
Net income (loss) per
share..................... 0.28 0.09 0.09 (0.08)
<CAPTION>
1995
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................. $1,454,894 $1,379,864 $1,544,018 $1,578,191
Gross profit............... 93,223 85,475 89,253 55,738
Net income (loss).......... (1,789) (4,613) (253) (77,256)
Net income (loss) per
share..................... (0.06) (0.16) (0.01) (2.59)
</TABLE>
In the fourth quarters of 1994 and 1995, the Company recorded certain items
which reduced operating income by approximately $7.8 million and $89.4
million, respectively. In 1994, these items related primarily to changes made
in estimates to certain asset and liability values. In 1995, these items
included impairment losses on long-lived assets totaling $51.4 million. The
remaining $38.0 million represents adjustments to account balances, primarily
in accounts payable. In the first and second quarters of 1995, the Company
recorded charges under its restructuring plan which reduced operating income
by approximately $5.0 million and $4.3 million, respectively.
41
<PAGE>
SCHEDULE II
MERISEL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER CHARGED TO DECEMBER
31, COSTS AND 31,
1992 EXPENSES DEDUCTIONS 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accounts receivable--Doubtful
accounts...................... $11,160,000 $17,441,000 $12,058,000 $16,543,000
Accounts receivable--Other (1). 3,196,000 22,565,000 21,498,000 4,263,000
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER CHARGED TO DECEMBER
31, COSTS AND 31,
1993 EXPENSES DEDUCTIONS 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accounts receivable--Doubtful
accounts...................... $16,543,000 $18,851,000 $18,883,000 $16,511,000
Accounts receivable--Other (1). 4,263,000 34,694,000 29,909,000 9,048,000
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER CHARGED TO DECEMBER
31, COSTS AND 31,
1994 EXPENSES DEDUCTIONS 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accounts receivable--Doubtful
accounts...................... $16,511,000 $16,335,000 $12,647,000 $20,199,000
Accounts receivable--Other (1). 9,048,000 23,100,000 27,561,000 4,587,000
</TABLE>
- --------
(1) Accounts receivable--Other includes allowances for net sales returns and
uncollectible cooperative advertising credits.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item will be filed by amendment to this
Form 10-K with the Securities and Exchange Commission on or about April 29,
1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item will be filed by amendment to this
Form 10-K with the Securities and Exchange Commission on or about April 29,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item will be filed by amendment to this
Form 10-K with the Securities and Exchange Commission on or about April 29,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item will be filed by amendment to this
Form 10-K with the Securities and Exchange Commission on or about April 29,
1996.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)List of documents filed as part of this Report:
(1)FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Independent Auditors' Report.
Consolidated Balance Sheets at December 31, 1994 and 1995.
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1995.
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 1995.
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1995.
Notes to Consolidated Financial Statements.
(2)FINANCIAL STATEMENT SCHEDULES INCLUDED IN ITEM 8:
Schedule II--Valuation and Qualifying Accounts.
Schedules other than that referred to above have been omitted
because they are not applicable or are not required under the
instructions contained in Regulation S-X or because the information
is included elsewhere in the Consolidated Financial Statements or
the Notes thereto.
(3)EXHIBITS
The exhibits listed on the accompanying Index of Exhibits are filed
as part of this Annual Report.
(b)No Reports on Form 8-K were filed during the quarter ended December 31,
1995.
45
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DATE: APRIL 12, 1996
Merisel, Inc.
/s/ James L. Brill
By___________________________________
James L. Brill
Senior Vice President, Finance,
Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dwight A. Steffensen Chairman of the Board of April 12, 1996
____________________________________ Directors, and Chief
Dwight A. Steffensen Executive Officer
(Principal Executive
Officer)
/s/ Ronald Rittenmeyer President and Director April 12, 1996
____________________________________
Ronald Rittenmeyer
/s/ James J. Brill Senior Vice President-- April 12, 1996
____________________________________ Finance, Chief Financial
James J. Brill Officer, Secretary and
Director (Principal
Financial Officer)
/s/ Bruce Zeedik Corporate Controller April 12, 1996
____________________________________ (Principal Accounting
Bruce Zeedik Officer)
/s/ Joseph Abrams Director April 12, 1996
____________________________________
Joseph Abrams
/s/ Lawrence J. Schoenberg Director April 12, 1996
____________________________________
Lawrence J. Schoenberg
/s/ David L. House Director April 12, 1996
____________________________________
David L. House
/s/ Dr. Arnold Miller Director April 12, 1996
____________________________________
Dr. Arnold Miller
</TABLE>
46
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation of Registrant.(1)
3.2 Amendment to Certificate of Incorporation of Registrant dated August
22, 1990.(6)
3.3 Bylaws, as amended, of Merisel, Inc.(8)
4 Indenture dated October 15, 1994 between the Company and NationsBank
of Texas, N.A. as Trustee, relating to the Company's 12 1/2% Senior
Notes Due 2004, including the form of such Senior Notes attached as
Exhibit A thereto.(14)
10.1 Microamerica Substitute Stock Option Plan of Registrant together
with related forms of Stock Option Agreements.(4)*
10.2 1983 Stock Option Plan of Softsel Computer Products, Inc., as
amended, together with Form of Incentive Stock Option Agreement and
Form of Nonqualified Stock Option Agreement under 1983 Employee
Stock Option Plan.(7)*
10.3 1983 Employee Stock Option Plan of Softsel Computer Products, Inc.,
as amended, together with Form of Incentive Stock Option Agreement
and Form of Nonqualified Stock Option Agreement under the 1983
Employee Stock Option Plan.(7)*
10.4 1991 Employee Stock Option Plan of Merisel, Inc. together with Form
of Incentive Stock Option Agreement and Form of Nonqualified Stock
Option Agreement under the 1991 Employee Stock Option Plan.(8)*
10.5 Merisel, Inc. 1992 Stock Option Plan for Nonemployee Directors.(10)*
10.6 Incentive Stock Option Agreements between Registrant and Michael D.
Pickett dated as of October 1, 1986 and March 4, 1987.(1)*
10.7 Nonqualified Stock Option Agreement between Registrant and Michael
D. Pickett dated as of December 11, 1987.(1)*
10.8 Amendment to Stock Option Agreements together with Joint Escrow
Instructions between Michael D. Pickett and Registrant dated as of
August 11, 1988.(1)*
10.9 Softsel Computer Products, Inc. Executive Deferred Compensation
Plan.(9)*
10.10 Employment Agreement between Registrant and Michael D. Pickett dated
as of August 14, 1992.(11)*
10.11 Merisel, Inc. Amended and Restated 401(k) Retirement Savings
Plan.(15)*
10.12 Asset Transfer, Assignment and Assumption Agreement dated as of
December 23, 1993 by and between Registrant and Merisel Americas,
Inc.(13)
10.13 Asset Transfer, Assignment and Assumption Agreement dated as of
December 23, 1993 by and between Registrant and Merisel Europe,
Inc.(13)
10.14 Lease between Registrant and Pacifica Holding Company dated April 6,
1989.(2)
10.15 Lease Agreement dated October 27, 1988 by and between Rosewood
Development Corporation and Microamerica, Inc. re: property located
in Marlborough, Massachusetts.(3)
10.16 Lease Agreement dated May 23, 1990 by and between Kilroy-Freehold El
Segundo Company and Softsel/Microamerica, Inc., re: property located
in El Segundo, California.(5)
10.17 Lease Agreement dated October 1991 by and between Koll Hayward
Associates II and Merisel, Inc.(9)
10.18 Asset Purchase Agreement dated January 31, 1994 between ComputerLand
Corporation, Merisel FAB, Inc. and for purposes of Section 2.2
thereof, the Registrant. Portions of this agreement have been
omitted pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.(12)
47
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------
10.19 Guaranty Agreement dated January 31, 1994 between ComputerLand
Corporation and the Registrant.(12)
10.20 Distribution and Services Agreement dated January 31, 1994 between
ComputerLand Corporation and Merisel FAB, Inc. ("Services
Agreement") Portions of this agreement has been omitted pursuant to
Rule 24b-2 of Securities Act of 1934, as amended.(12)
10.21 Amendment Number 13 to Services Agreement dated as of January 31,
1996.
10.22 Stock Purchase Agreement dated January 31, 1994 between the
Registrant and ComputerLand Corporation.(12)
10.23 Amended and Restated Senior Note Purchase Agreement by and among
each of the purchasers named therein and Merisel Americas, Inc.,
dated as of December 23, 1993 ("Senior Note Purchase
Agreement").(13)
10.24 First Amendment, dated as of September 30, 1994 to Senior Note
Purchase Agreement, by and among the Noteholders named therein and
Merisel Americas, Inc.(16)
10.25 Form of Second Amendment dated as of June 23, 1995 to Senior Note
Purchase Agreement.
10.26 Amended and Restated Subordinated Note Purchase Agreement by and
among each of the purchasers named therein and Merisel Americas,
Inc., dated as of December 23, 1993 ("Subordinated Note Purchase
Agreement").(13)
10.27 First Amendment, dated as of September 30, 1994, to Subordinated
Note Purchase Agreement, by and among the Noteholders named therein
and Merisel Americas, Inc.(16)
10.28 Revolving Credit Agreement dated as of December 23, 1993 among
Merisel Americas, Inc., Merisel Europe, Inc., the Registrant, the
lender parties thereto, Citicorp USA, Inc., as agent, and Citibank,
N.A., as designated issuer ("Revolving Credit Agreement").(13)
10.29 First Amendment, dated as of September 29, 1994, to Revolving Credit
Agreement, by and among Merisel Americas, Inc., Merisel Europe,
Inc., Merisel, Inc. and the financial institutions named
therein.(16)
10.30 Second Amendment, dated as of December 1, 1994, to Revolving Credit
Agreement, by and among Merisel, Americas, Inc., Merisel Europe,
Inc., Merisel, Inc., and the financial institutions named
therein.(15)
10.31 Third Amendment, dated as of February 27, 1995, to Revolving Credit
Agreement, by and among Merisel Americas, Inc., Merisel Europe,
Inc., Merisel, Inc., and the financial institutions named
therein.(15)
10.32 Receivable Transfer Agreement dated as of October 2, 1995 by and
between Merisel Americas, Inc. and Merisel Capital Funding, Inc.(17)
10.33 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.(17)
10.34 Annex X to Receivable Transfer Agreement and Receivables Purchase
and Servicing Agreement dated as of October 2, 1995.(17)
10.35 Form of Receivables Purchase Agreement between Merisel Canada, Inc.
and Canadian Master Trust dated as of December 15, 1995.
10.36 Form of Security Agreement between Merisel Properties, Inc. and
Heller Financial, Inc. dated December 29, 1995.
48
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------
10.37 Deed of Trust, Security Agreement, Assignment of Leases and Rents
and Fixture Filing between Merisel Properties, Inc. and Heller
Financial, Inc. dated December 29, 1995.
10.38 Agreement for the Sale and Purchase of Debts between Deutche
Financial Services (UK) Limited and Merisel (UK) Limited dated
October 12, 1995.
10.39 Form of Agreement between Merisel, Inc. and Michael D. Pickett dated
February 12, 1996.
10.40 Share Purchase Agreement between Merisel, Inc. and Merisel Asia,
Inc. and Tech Pacific Holdings Ltd. dated March 7, 1996.
10.41 Form of Employment Agreement between Merisel, Inc. and the
following:
James L. Brill
Paul Lemerise
John Thompson
Tom Reeves
Marty Wolf (17)
10.42 Form of Retention Agreement between Merisel, Inc. and the following:
James L. Brill
Paul Lemerise
John Thompson
Tom Reeves
Marty Wolf (17)
21 Subsidiaries of the Registrant.
27 Financial Data Schedule for the year Ended December 31, 1995.
- --------
* Management contract or executive compensation plan or arrangement.
(1) Filed as an exhibit to the Form S-1 Registration Statement of Softsel
Computer Products, Inc., No. 33-23700, and incorporated herein by this
reference.
(2) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989 of Softsel Computer Products, Inc., and
incorporated herein by this reference.
(3) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1990 of Softsel Computer Products, Inc., and incorporated
herein by this reference.
(4) Filed as an exhibit to the Form S-8 Registration Statement of Softsel
Computer Products, Inc., No. 33-34296, filed with the Securities and
Exchange Commission April 12, 1990, and incorporated herein by this
reference.
(5) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990 of Softsel Computer Products, Inc., and incorporated
herein by this reference.
(6) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, and incorporated herein by this reference.
(7) Filed as an exhibit to the Form S-8 Registration Statement of Softsel
Computer Products, Inc., No. 33-35648, filed with the Securities and
Exchange Commission June 29, 1990, and incorporated herein by this
reference.
49
<PAGE>
(8) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1991, and incorporated herein by this reference.
(9) Filed as an exhibit to the Form S-3 Registration Statement of Merisel,
Inc., No. 33-45696, filed with the Securities and Exchange Commission on
February 14, 1992 and incorporated herein by this reference.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992, and incorporated herein by this reference.
(11) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992 of Merisel, Inc., and incorporated herein by
this reference.
(12) Filed as an exhibit to the Current Report on Form 8-K dated February 14,
1994, as amended on March 24, 1994 and October 4, 1994 and incorporated
herein by this reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by this reference.
(14) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 and incorporated herein by this reference.
(15) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this reference.
(16) Filed as an exhibit to the Form S-3 Registration Statement of the
Registrant, No. 33-55195, filed with the Securities and Exchange
Commission, August 23, 1994, and incorporated herein by this reference.
(17) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein by this reference.
50
<PAGE>
EXHIBIT 10.21
AMENDMENT NO. 13 dated as of
January 31, 1996, to the DISTRIBUTION
AND SERVICES AGREEMENT dated as of
January 31, 1994, as amended through the
date hereof (the "Agreement"), between
VANSTAR CORPORATION, a Delaware
corporation formerly known as
ComputerLand Corporation (the "Seller"),
and MERISEL FAB, INC., a Delaware
corporation (the "Buyer").
The Seller, the Buyer and Merisel, Inc., a Delaware corporation
("Merisel"), have entered into a letter of intent dated July 12, 1995 (the
"Letter of Intent"), regarding their intent to amend the Agreement and to amend
the Asset Purchase Agreement dated as of January 31, 1994, among the Seller, the
Buyer and Merisel. This Amendment No. 13 constitutes the amendments to the
Agreement contemplated by the Letter of Intent.
NOW THEREFORE, for good and valuable consideration, the parties do hereby
agree as follows:
1. Capitalized Terms; Effectiveness of Amendments. Capitalized terms used
-----------------------------------------------
herein and not otherwise defined herein shall have the meanings set forth in the
Agreement. Except as otherwise provided in this Amendment No. 13, all
amendments and prior letters of agreement executed between the parties shall
continue in effect through the end of the Winding Down Period or the earlier
termination of the Agreement, except for the following amendments and letters of
agreement which shall terminate commencing upon the effective date of this
Amendment No. 13: Amendments Nos. 1, 2 and 7; letter of agreement dated March
31, 1995 entitled "Drop Ship Fee Reduction" and letter of agreement dated
September 15, 1995 relating to Apple Computer distribution fees and rebates.
2. Amendments to Section 1.1.
--------------------------
Effective as of April 1, 1995, the definition of "Base Percentage" set
forth in Section 1.1 of the Agreement is amended to read in its entirety as
follows:
"Base Percentage" means [*].
---------------
Effective as of April 1, 1995, the definition of "Baseline Revenue" set
forth in Section 1.1 of the Agreement is amended to read in its entirety as
follows:
"Baseline Revenue" means [*] for each calendar month. For the period
----------------
prior to February 1, 1996, Baseline Revenue is subject to adjustment
pursuant to
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
1
<PAGE>
Section 2.36 upon the occurrence of any Baseline Adjustment Event.
(c) The definition of "Distribution Period" set forth in Section 1.1
of the Agreement is amended by substituting the phrase "the Scheduled
Termination Date" for the date "January 31, 1996"; and Section 1.1 of the
Agreement is amended by adding thereto in appropriate alphabetical order the
following definition:
"Scheduled Termination Date" means April 30, 1997.
--------------------------
(d) Effective as of April 1, 1995, the definition of "Excess
Percentage" set forth in Section 1.1 of the Agreement is amended to read in its
entirety as follows:
"Excess Percentage" means [*].
-----------------
(e) The definition of "Extended Payment Termination Date" set forth in
Section 1.1 of the Agreement is amended to read in its entirety as follows:
"Extended Payment Termination Date" means the first to occur
---------------------------------
of (i) the termination of the Distribution Period and (ii) July
15, 1997.
(f) Effective as of April 1, 1995, each of the definitions of
"Adjusted Freight", "Adjusted Freight Percentage", "Adjusted Gross Margin",
"Baseline Period", "Customer Freight Accruals", and "Total MDF Percentage" set
forth in Section 1.1 of the Agreement is deleted in its entirety.
(g) Section 1.1 of the Agreement is amended by adding thereto in
appropriate alphabetical order the following definitions:
"Basic Extended Payment Amount" means, for any date on or after
-----------------------------
January 31, 1996 set forth on Schedule 1.1-2A, the amount set forth in
Column A opposite such date on such Schedule 1.1-2A; provided,
---------
however, that for any date on or after the date of termination of
--------
the Distribution Period, the Basic Extended Payment Amount shall
be [*].
"Additional Extended Payment Amount" means (i) for any date prior to
----------------------------------
the Extended Payment Termination Date, the amount set forth in Column
B opposite such date on Schedule 1.1-2A, and (ii) for any
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
2
<PAGE>
date on or after the Extended Payment Termination Date, [*].
(h) Effective as of April 1, 1995, clause (ii) of the definition of
"Material Default" set forth in Section 1.1 of the Agreement is amended to read
in its entirety as follows:
(ii) in the case of Buyer, the failure by Buyer to pay to Seller, when
due in accordance with Section 2.5(a) or any other applicable Section hereof
(including on any extended due date as provided in Section 2.34), the Buyer
Purchase Price for any products shipped by Seller hereunder, or any other
amount due to Seller under this Agreement not later than 2 p.m., California
time, on the date of receipt (or on the immediately following Business Day
if such date of receipt is not a Business Day) by Buyer of notice from
Seller stating the amount past due (a "Payment Failure"), which Payment
Failure continues uncured for a period of 20 consecutive days; provided,
--------
however, that if, subject to Section 2.5(d), Buyer in good faith disputes
-------
that it is obligated to pay all or any portion of any amount claimed by
Seller hereunder, and Buyer has paid each amount not disputed in good faith
to Seller not later than 2 p.m., California time, on the date of receipt (or
on the immediately following Business Day if such date of receipt is not a
Business Day) by Buyer of the notice referred to in this sentence applicable
to such amount, and (if the aggregate of all amounts in dispute exceed
$1,000,000) has paid all disputed amounts into escrow pursuant to Section
2.26 not later than such time, then, pending resolution of such dispute
pursuant to Article VIII hereof (whether pursuant to negotiation, mediation
or litigation), the failure of Buyer to pay to Seller any amounts so
disputed shall not constitute a Payment Failure for purposes of this
definition. Seller shall not be permitted to give any notice referred to in
this clause (ii) prior to the first Business Day following the date any such
payment was due and any such notice received after 12 noon, California time,
on any day shall be deemed to have been received on the immediately
following day.
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
3
<PAGE>
(i) The definition of "Monthly Distribution Fee" set forth in Section
1.1 of the Agreement is hereby amended by adding thereto the following proviso:
, provided that, for purposes of the foregoing, [*] shall
not include [*]
(j) The definition of "Winding Down Period" set forth in Section 1.1
of the Agreement is amended by replacing the reference to "Section 6.2(a)" with
a reference to "Section 7.1".
3. Amendment to Section 2.2. Clause (iii) of Section 2.2(e) of the
-------------------------
Agreement is hereby amended to read in its entirety as follows:
(iii) Buyer, in its sole discretion, overrides any such credit hold
through the override function of CAMBAR.
4. Amendment to Section 2.5. Section 2.5(c) of the Agreement is
------------------------
amended to read in its entirety as follows:
(c) Anything contained herein to the contrary notwithstanding, Seller
may suspend all sales to Buyer under this Agreement, and all shipments to
Customers on Buyer's behalf hereunder, if Buyer fails to pay to Seller,
when due (after taking into account any right of set off to which Buyer is
then entitled under Section 5.7) in accordance with Section 2.5(a) or any
other applicable Section hereof (including on any extended due date as
provided in Section 2.34), the Buyer Purchase Price for any products
shipped by Seller hereunder, or any other amount due to Seller under this
Agreement, not later than 2 p.m., California time, on the first Business
Day after the date of receipt (or on the immediately following Business Day
if such date of receipt is not a Business Day) by Buyer of notice from
Seller stating the amount past due; provided, however, that if, subject to
--------- --------
Section 2.5(d), Buyer in good faith disputes that it is obligated to pay
all or any portion of any amount claimed by Seller hereunder, and Buyer has
paid each amount not disputed in good faith to Seller not later than 2
p.m., California time, on the date of receipt (or on the immediately
following Business Day if such date of receipt is not a Business Day) by
Buyer of the notice referred to in this sentence applicable to such amount,
and (if the aggregate of all amounts in dispute exceed $1,000,000) has paid
all disputed amounts into escrow pursuant to Section 2.26 not later than
such time, then, pending resolution of such dispute pursuant to Article
VIII hereof (whether pursuant to negotiation, mediation or litigation),
Seller shall not suspend any sales and/or
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
4
<PAGE>
shipments pursuant to this Section 2.5(c) by reason of Buyer's failure to
pay such disputed amounts to Seller. Seller shall not be permitted to give
any notice referred to in the preceding sentence prior to the first
Business Day following the date any such payment was due, and any such
notice received after 12 noon, California time, on any day shall be deemed
to have been received on the immediately following day. During any period
of such suspension of sales and shipments, the Performance Standards shall
also be suspended. Without prejudice to the rights of Seller to suspend
sales to Buyer and shipments to Customers as provided in this Section
2.5(c), any dispute regarding the obligation of Buyer to make any payment
to Seller hereunder shall be submitted for resolution pursuant to Article
VIII hereof; provided, however, that if the aggregate of all amounts in
--------- --------
dispute is in excess of $1,000,000, the expedited procedures of Section 8.3
shall apply. Following any suspension of sales to Buyer and shipments to
Customers for nonpayment as provided in this Section 2.5(c), Seller may, as
a condition to resuming such sales and shipments, require that Buyer
provide adequate assurance that future amounts due to Seller hereunder will
be paid when due. Anything contained herein to the contrary
notwithstanding, Seller may suspend all sales to Buyer under this
Agreement, and all shipments to Customers on Buyer's behalf hereunder, if
Buyer fails to pay to Seller (or, in the case of a good faith dispute, into
escrow in accordance with the proviso to the first sentence of this Section
2.5(c)) by 2 p.m., California time, on the date due any amount in excess of
[*] payable pursuant to Section 2.8(b).
5. Amendment to Section 2.5(d). Section 2.5(d) of the Agreement is amended
---------------------------
by adding the following phrase immediately following the word "notwithstanding"
contained in the first sentence of such Section 2.5(d) and immediately following
the word "otherwise" contained in the second sentence of such Section 2.5(d):
, except as permitted by Section 5.7,
6. Amendment to Section 2.7(e). Section 2.7(e) of the Agreement is amended
---------------------------
by adding the following immediately following the first sentence of such
Section:
Notwithstanding the above, Seller shall within 30 days of each month's end
provide Buyer a monthly reconciliation of [*] and [*] showing any
underpayment or overpayment by Buyer to Seller of [*] and [*]in that month.
If Seller fails to provide that monthly reconciliation within 30 days of
the month's end, then
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
5
<PAGE>
Buyer shall not be obligated to pay Seller for any underpayment by Buyer
for [*] and [*] in that month.
7. Amendment to Section 2.8. Clauses (iv) and (v) of Section 2.8(b)
-------------------------
of the Agreement and the immediately following paragraph are amended to read in
their entirety as follows:
(iv) the Additional Receivable Amount outstanding at the beginning of
such Business Day and the Maximum Extended Payment Amount (as defined in
Section 2.34) for the immediately following Business Day; and
(v) the amount of any wire transfer made by Buyer to Seller on such
Business Day pursuant to Section 2.5(a) (to the extent that Buyer shall
have given notice of such wire transfer pursuant to such Section 2.5(a)).
Subject to the further provisions of this Section 2.8(a), (i) if the
Daily Net Payment Amount is positive, then Buyer shall pay that amount to
Seller by the following Business Day pursuant to Section 2.5(a), and (ii)
if the Daily Net Payment Amount is negative, then Seller shall pay that
amount to Buyer by the following Business Day by wire transfer of
immediately available funds, in accordance with Section 2.12(c).
Notwithstanding the immediately preceding sentence, (i) if the Additional
Receivable Amount to be outstanding as of the end of the next Business Day
is less than the Maximum Extended Payment Amount as of such next Business
Day, then no payment pursuant to the preceding sentence shall be made by
Buyer other than for the amount of the Daily Net Payment Amount that would
otherwise cause the Additional Receivable Amount to exceed the Maximum
Extended Payment Amount and (ii) if the Additional Receivable Amount to be
outstanding as of the end of the next Business Day would otherwise exceed
the Maximum Extended Payment Amount as of such next Business Day, then any
payment otherwise to be made by Buyer on such next Business Day shall be
increased, or any payment that would otherwise be made by Seller on such
next Business Day shall be decreased, or a combination of the two, so that
such excess does not occur. Seller shall provide Buyer, on a monthly basis,
with a printed summary of all transactions completed hereunder, in a form
reasonably acceptable to Buyer. Buyer shall reimburse Seller on a monthly
basis for the postage costs of mailing printed invoices.
8. Amendments to Section 2.10.
---------------------------
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
6
<PAGE>
(a) Section 2.10(b) of the Agreement is amended by deleting clauses
(ii)(4), (ii)(8), (ii)(10) and (ii)(11) thereof and by replacing each such
clauses with the following words immediately after the foregoing arabic numbers:
"[Intentionally Omitted.]"
(b) Section 2.10(c) of the Agreement is amended to read in its
entirety as follows:
(c) On the Determination Date in each month, Seller shall calculate
and certify to Buyer, substantially in the form of Schedule 2.10(d), the Monthly
Distribution Fee for the preceding month.
(d) Section 2.10(d) of the Agreement is deleted in its entirety and
replaced with the following: "(d) [Intentionally Omitted.]".
(e) Section 2.10(e)(i)(A) of the Agreement is amended to read in its
entirety as follows:
(A) the Monthly Distribution Fee
(f) Clauses (ii)(A) and (ii)(B) of Section 2.10(e) of the Agreement
are amended to read in their entirety as follows:
(A) the Monthly Distribution Fee
plus (B) [*] [previous provision intentionally omitted]
----
(g) The last sentence of Section 2.10(g) of the Agreement is deleted
in its entirety.
9. Amendment to Section 2.17. Section 2.17(g) of the Agreement is hereby
--------------------------
terminated in its entirety and replaced with the following: "(g) [Intentionally
Omitted]"
10. Amendment to Section 2.18. Section 2.18(f) of the Agreement is hereby
--------------------------
deleted in its entirety and replaced with the following: "(f) [Intentionally
Omitted]"
11. Amendment to Section 2.27. Section 2.27(c) is amended by deleting the
-------------------------
words "second anniversary of the Closing Date" and by replacing such words with
the words "Scheduled Termination Date."
12. Amendment to Section 2.34. Section 2.34 of the Agreement is amended to
--------------------------
read in its entirety as follows:
2.34 Additional Receivable Amount.
-----------------------------
(a) Anything contained herein to the
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
7
<PAGE>
contrary notwithstanding, on any date occurring on or after January 31,
1996, Buyer shall not be in default of its payment obligations to Seller
under Section 2.8(b) if and to the extent that the aggregate principal
amount of all Extended Payment Obligations (the "Additional Receivable
Amount") does not exceed the sum, determined as of such date, of (i) the
Basic Extended Payment Amount and (ii) the Additional Extended Payment
Amount. Such sum shall be referred to herein as the "Maximum Extended
Payment Amount". Anything contained herein to the contrary notwithstanding,
if on any date on or after January 31, 1996 the Additional Receivable
Amount would otherwise exceed the Maximum Extended Payment Amount, then
Buyer shall pay to Seller the amount of such excess in immediately
available funds on such date.
(b) Buyer shall pay a financing fee to Seller on the amount from time
to time by which (i) the Additional Receivable Amount exceeds (ii) the
Basic Extended Payment Amount. Subject to the last sentence of this Section
2.34(b), such financing fee shall be payable at a variable rate per annum
equal to the Prime Rate minus 2 percent per annum. Such financing fee shall
be due and payable monthly in arrears pursuant to Section 2.10. Anything
contained herein to the contrary notwithstanding, Buyer shall pay on demand
a financing fee to Seller at the rate set forth in Section 2.5(b) on that
portion of the Extended Payment Obligations that is not paid when due
(taking into account the provisions of this Section 2.34).
(c) All amounts paid by Buyer pursuant to Section 2.8(b) shall be
applied to reduce the Extended Payment Obligations in the order in which
they were incurred.
13. Amendment to Section 2.36. Effective as of February 1, 1996, Section
2.36 of the Agreement is amended by inserting the following phrase immediately
following the word "paid" in the introductory clause thereof: "for the period
ending prior to February 1, 1996"
14. Amendments to Section 3.2.
--------------------------
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
8
<PAGE>
(a) Section 3.2(a) and Section 3.2(c) of the Agreement are each
amended by deleting the words "two-year period" and by replacing such words with
the words "period ending on the Scheduled Termination Date".
(b) Section 3.2(b) of the Agreement is amended by deleting the words
"second anniversary of the Closing Date" and by replacing such words with the
words "Scheduled Termination Date".
15. Amendments to Section 5.2. The definitions of "Class C Event" and
--------------------------
"Special Transition Period" contained in Section 5.2 of the Agreement are each
amended by deleting the words "second anniversary of the Closing Date" and by
replacing such words with the words "Scheduled Termination Date".
16. Amendment to Section 5.6. Section 5.6(a)(iii) of the Agreement is
-------------------------
hereby amended to read in its entirety as follows:
(iii) the Assumed Distribution Fee
17. Amendment to Section 5.7. Section 5.7 of the Agreement is amended to
-------------------------
read in its entirety as follows:
If, on the last day of the Winding Down Period, Buyer shall have
outstanding any unpaid claim (an "Unpaid Claim") for monetary damages
pursuant to this Agreement, then, in addition to any other remedies under
this Agreement, Buyer shall be entitled to an offset up to the amount of
such Unpaid Claim, against the [*] that would otherwise be due on
the last day of the Winding Down Period. If Seller's liability for the
Unpaid Claim, or the amount of the Unpaid Claim, has not been resolved by
agreement between Buyer and Seller or by a final, nonappealable order of a
court with jurisdiction in the matter, the amount so offset shall be paid
by Buyer into escrow as contemplated by Section 2.26.
In the last sentence of Section 2.26, the reference to "the Closing Date" shall
be deemed to refer to "January 31, 1996."
18. Amendments to Section 7.1. Section 7.1(a) of the Agreement is amended
-------------------------
to read in its entirety as follows:
(a) The Seller and the Buyer shall continue to negotiate in good faith
to establish a timetable and procedures for the termination of the
Logistics Services provided pursuant to Article II. Such negotiations shall
include (i) discussions regarding the Seller's proposed maintenance of
inventories solely at the Indianapolis DC from which all shipments to
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
9
<PAGE>
Customers on Buyer's behalf hereunder would be made during the Winding Down
Period (as defined below); and (ii) discussions regarding Buyer's purchase
of inventory from Seller during the Winding Down Period.
If the Seller and the Buyer shall be unable to agree upon such a timetable
and procedures prior to June 30, 1996, the Distribution Period shall
automatically be extended until the date that is [*] following the
Scheduled Termination Date (such [*] period being referred to as the
"Winding Down Period"). Anything contained in Section 1.1 and Article II to
the contrary notwithstanding, the "Monthly Distribution Fee" payable for
any month during the Winding Down Period shall be calculated by multiplying
(i) the Applicable Revenue for such month by (ii) the percentage derived by
dividing (A) the aggregate Monthly Distribution Fee payable for the [*]
period ending on the Scheduled Termination Date by (B) the aggregate
Applicable Revenue for such [*] period. As shall be reasonably
requested by Buyer, Seller shall provide Buyer with information necessary
for Buyer and Seller to manage inventory prior to and during the Winding
Down Period including but not limited to information pertaining to SKU's,
on-hand inventory, orders, product availability and Buyer's daily run rate.
Unless otherwise agreed to by Seller and Buyer, the volume of products sold
by Seller to Buyer hereunder shall be reduced ratably in each month during
the Winding Down Period to reduce the volume of products sold by Seller to
Buyer hereunder to zero at the end of the Winding Down Period. Such
reduction will be effected by reducing the number of Customers eligible to
place orders for delivery pursuant to this Agreement in accordance with the
further provisions of this Section 7.1(a). On or prior to the date two
months prior to the Scheduled Termination Date (the "Reduction Designation
Date"), Buyer will provide Seller with a list (the "Reduction List") of all
Customers, designating for each Customer whether such Customer's
eligibility to place orders will cease on the first day of the [*] of
the Winding Down Period and the last day of the Winding Down Period (each a
"Reduction Date"). Such designations shall be made so that on each
Reduction Date Customers representing approximately [*] of the
aggregate sales volume under this Agreement (based on the average of the
monthly sales figures for the [*] period ending on the date
[*] prior to the Scheduled Termination Date) will cease to be eligible
to place orders hereunder. If Buyer fails to deliver the Reduction List by
the date seven days following the Reduction Designation Date ,
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
10
<PAGE>
then Seller may deliver a Reduction List to Buyer not later than the date
14 days following the Reduction Designation Date. Customers shall cease to
be eligible to place orders in accordance with the Reduction List.
Buyer further recognizes that Seller has an interest in reducing the
inventory at its distribution centers in proportion to the reduction of
Buyer's volume of products purchased during the Winding Down Period.
Accordingly, Buyer and Seller have agreed that Buyer and Seller shall
negotiate in good faith and reach agreement on a plan for the reduction of
Seller's inventory. Unless otherwise agreed in connection with the
agreement reached pursuant to the previous sentence, Buyer shall purchase
from Seller on each Reduction Date an amount of inventory of each SKU equal
to the product of (x) the Pro Rata Percentage times (y) the amount
-----
(determined as of the date that is two Business Days prior to the Reduction
Date) of Excess Inventory (as defined below) with respect to such SKU;
provided, however, that Buyer shall have no obligation to purchase
--------- --------
inventory on any Reduction Date pursuant to this sentence to the extent
that the aggregate purchase price for such inventory shall exceed [*] . If
Buyer's share of Excess Inventory exceeds [*] then Buyer and Seller shall
negotiate in good faith an allocation of those SKU's to be sold to Buyer
pursuant to the previous sentence. If no agreement is reached, each of
Buyer and Seller shall designate SKU's having an aggregate purchase price
of [*] as those SKU's to be so sold.
The purchase price for all inventories purchased by Buyer from Seller
pursuant to the provisions of this Section 7.1(a) shall be paid by Buyer to
Seller, on or prior to the date of shipment, in cash or on terms that are
substantially equivalent to cash (such as, for example, by credit against
an amount then due and payable in cash from Seller to Buyer). Such purchase
price shall equal the sum of (i) [*] for such inventories reduced by an
amount equal to such [*] multiplied by the Prime Rate (in effect on the
date that is two Business Days prior to the payment date) plus [*]
multiplied by a fraction the numerator of which shall equal 30 and the
denominator of which shall equal 365, (ii) [*] for such inventories and
(iii) [*] for such inventories. Seller shall arrange for the delivery of
all inventories purchased pursuant to this Section 7.1(a) at Seller's cost
to Buyer's warehouse in either the greater Chicago, Illinois area or the
Hayward, California area, such warehouse to be designated by Buyer. Title
and risk of loss with respect to all such inventories shall pass from
Seller to Buyer, F.O.B. Seller's Indianapolis DC or Livermore
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
11
<PAGE>
DC, as applicable. Seller shall transfer to Buyer the benefit of [*] with
the purchase of inventory by Buyer pursuant to this Section 7.1 and to
which Buyer would have otherwise be entitled if such purchase had been made
during the Distribution Period even if received after the Distribution
Period terminates.
In addition to the foregoing, Buyer and Seller shall negotiate in good
faith with vendors with whom outstanding orders for allocation to Buyer
exist on the Scheduled Termination Date to transfer Buyer's orders
associated with inventory on allocation to Buyer. In the event and to the
extent that a vendor does not cooperate with the foregoing transfer
request, Buyer shall have the option to purchase Buyer's proportionate
share of allocable inventory received by Seller from such vendor during the
Winding Down Period. For purposes of the preceding sentence, Buyer's
proportionate share shall be determined in accordance with the allocation
percentages for each vendor in effect on the Scheduled Termination Date as
contemplated by Section 2.22(b). If Buyer has not exercised its option to
purchase its proportionate share of any allocable inventory received by
Seller within five Business Days of delivery by Seller to Buyer of notice
of such receipt, then Seller shall be free to sell such allocable
inventory.
For the purposes of this Section 7.1(a), the following terms shall have the
meanings set forth below:
"Historical Run Rate" shall have the meaning set forth in
-------------------
Schedule 2.21.
"Monthly Run Rate" means, for any SKU as of any date, the product of
----------------
(x) twenty-one (i.e., the average number of working days in a month) times
---- -----
(y) the Historical Run Rate for such SKU as of such date.
"Buy-In Inventory" means: (i) any Status 1 and Status 2 SKUs (as
----------------
defined in Schedule 2.3(a)) to the extent that the total number of that SKU
received by Seller during a month in the Buy-In Period exceeds the Monthly
Run Rate for the SKU as determined at the beginning of that month; or (ii)
any SKU where a vendor promised Seller special terms and conditions if
Seller purchased that SKU in a certain quantity unless Buyer agreed in
writing to:
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
12
<PAGE>
(A) the purchase of that SKU in that quantity under those terms; and (B)
that the purchase is excepted from determination of the Buy-In Inventory
calculation for that SKU.
"Buy-In Period" means the period beginning two months before the
-------------
Scheduled Termination Date and ending on the last day of the Winding Down
Period.
"Buyer Run Rate" means, for any SKU, the product of (x) twenty-one
--------------
(i.e., the average number of working days in a month) times (y) the portion
---- -----
of the Historical Run Rate for such SKU as of the Scheduled Termination
Date attributable to the Subject Business.
"Excess Inventory" means, for any SKU as of any date, the lesser of
----------------
(x) the excess, if any, of (1) the total amount of Seller's available
inventory of such SKU (not including obsolete or discontinued product or
Buy-In Inventory) minus (2) the Monthly Run Rate for such SKU as of such
date or (y) an amount equal to three times the Monthly Run Rate for such
SKU as of such date.
"Inventory Need" means, for any SKU, an amount equal to [*]
--------------
of the Buyer Run Rate for such SKU.
"Pro Rata Percentage" means, for any SKU as of any date, the quotient
-------------------
obtained by dividing (x) the Inventory Need for such SKU by (y) the Monthly
Run Rate for such SKU as of such date.
Anything contained herein to the contrary notwithstanding, the provisions of
this Article VII shall not apply to any termination of the Distribution Period
pursuant to Section 5.5 or Article VI.
19. Amendments to Section 9.11.
--------------------------
(a) Section 9.11 of the Agreement is amended by replacing the words
"second anniversary of the date hereof" with the words "Scheduled
Termination Date".
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
13
<PAGE>
(b) Section 9.11(b) of the Agreement is amended by terminating clauses
(A)(ii) and (iii) contained therein in their entirety and by replacing such
clauses with the following: "(ii) [Intentionally Omitted]; (iii)
[Intentionally Omitted]; and"
(c) Section 9.11(b) of the Agreement is further amended by terminating
clause (B)(ii) contained therein in its entirety and by replacing such clause
with the following: "(ii) [Intentionally Omitted]; and"
(d) Section 9.11(b) of the Agreement is further amended by adding to
clause (B)(iii) contained therein the following: "; provided, however, that in
any event such purchaser shall execute and deliver to Seller prior to the sale
by Buyer a confidentiality agreement in form and substance satisfactory to
Seller pursuant to which such purchaser shall agree with Seller that it shall
not disclose any confidential information of Seller that has been accessible to
and used by Buyer or that becomes accessible to or is used by such purchaser.
20. Amendments to Article X. Article X of the Agreement is hereby
------------------------
terminated in its entirety and replaced with the following: "ARTICLE X
[Intentionally Omitted.]".
21. Amendment to Schedules. The Agreement is amended by adding thereto as
-----------------------
Schedule 1.1-2A the Schedule set forth on Annex A to this Amendment No. 13.
Schedule 2.21 to the Agreement is amended by replacing the words "second
anniversary of the Closing Date" with the words "Scheduled Termination Date"
wherever they appear in such Schedule 2.21. Each of Schedules 11.7(a)(ii) and
11.7(a)(iii) to the Agreement is hereby terminated in its entirety and replaced
with the following: "[Intentionally Omitted.]".
22. Payment of Excess Distribution Fee. On January 31, 1996, Seller shall
pay to Buyer by wire transfer the amount equal to the difference between the [*]
, as calculated in accordance with this Amendment No. 13 and the amount of the
[*] actually paid by the Buyer for the period from April 1, 1995 through
December 31, 1995, together with interest on the amount of such difference
calculated at an annual rate equal to the Prime Rate plus [*] from the date on
which the applicable Distribution Fee was paid.
23. Amendment to Sublease. Concurrently with the execution and
---------------------
delivery of this Amendment, Buyer and Seller are entering into an Extension of
Sublease substantially in the form attached hereto as Annex B.
24. Continued Effect of Agreement. Except as amended hereby, the Agreement
------------------------------
shall remain in full force and effect in accordance with its terms and
conditions. The extension to the Distribution and Services Period provided by
this Amendment No.
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
14
<PAGE>
13 shall not obligate any party to the Agreement to agree to any further
extension to such Period.
25. Miscellaneous. This Amendment No. 13 (a) shall be governed by the laws
--------------
of the State of California, (b) shall be binding upon and inure to the benefit
of the Seller and the Buyer and their respective successors and permitted
assigns, (c) shall not be amended or modified except by written instrument
signed by the Seller and the Buyer and (d) represents the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
written and oral agreements and understandings with respect thereto, including
those portions of the Letter of Intent contemplating the amendments provided
hereby.
26. Counterparts. This Amendment No. 13 may be executed in counterpart by
-------------
the parties hereto.
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended
15
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands as of the date first
written above.
VANSTAR CORPORATION
By: /s/ Jeffrey S. Rubin
----------------------------------
Name: Jeffrey S. Rubin
Title: Vice Chairman
MERISEL FAB, INC.
By: /s/ Verilyn Smith
----------------------------------
Name: Verilyn Smith
Title: President
- ----------------------
[*] Omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
<PAGE>
EXHIBIT 10.25
SECOND AMENDMENT TO AMENDED AND
RESTATED SENIOR NOTE PURCHASE AGREEMENT
Re: $100,000,000 of Amended and Restated 8.58% Senior Notes
Due June 30, 1997
Dated as of June 23, 1995
This Second Amendment (this "Amendment") to the Amended and Restated
Senior Note Purchase Agreement dated as of December 23, 1993, (as heretofore
amended, the "Existing Agreement"), is entered into as of June 23, 1995 by and
among the Noteholders identified on the signature pages hereof and Merisel
Americas, Inc., a Delaware corporation (the "Company"). Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Existing Agreement.
RECITAL
The parties hereto have agreed to amend the Existing Agreement as
hereinafter set forth.
IN CONSIDERATION of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE EXISTING AGREEMENT.
a. Section 2.1 of the Existing Agreement hereby is amended
by deleting the definition of "Approved Securitization Transaction" in its
entirety and substituting the following in lieu thereof:
"Approved Securitization Transaction" shall mean (a) any
transaction or series of transactions in which the Company or any of its
Subsidiaries sells interests in a pool of the Company's or such
Subsidiary's accounts receivable pursuant to documentation which (i)
provides that such sale is on a non-recourse basis as to the Company and
its Subsidiaries with respect to uncollectible receivables (subject,
however, to standard indemnification provisions), and (ii) shall have been
approved in writing as to form and substance by the Required Noteholders
(the conditions set forth in the foregoing items (i) and (ii) collectively
are referred to herein as the "Approved Securitization Qualifications"),
and (b) any financing that replaces the financing under any then existing
Approved Securitization Transaction and also satisfies the Approved
<PAGE>
Securitization Qualifications; provided, however, that, in respect of any
--------- --------
proposed new or replacement Approved Securitization Transaction, such
approval shall not be unreasonably withhold so long as (x) in the case of a
proposed new Approved Securitization Transaction, such proposed new
financing is substantially similar in substance to any then existing
Approved Securitization Transaction (including, without limitation, the
Clesco Securitization Agreement), and (y) in the case of a proposed
replacement of the financing under any then existing Approved
Securitization Transaction (including, without limitation, the Ciesco
Securitization Agreement), such proposed replacement financing (1) does not
increase materially and adversely the obligations of the Company thereunder
from the obligations of the Company under that existing Approved
Securitization Transaction proposed to be replaced and (2) otherwise is
substantially similar in form and substance to that existing Approved
Securitization Transaction proposed to be replaced; provided further that
-------- -------
such approval shall be deemed to have been given by the Required
Noteholders in the event that holders of at least ten percent (10%) of the
outstanding principal amount of outstanding Notes fail to object in writing
to such proposed new or replacement financing within fifteen (15) business
days following receipt by all of the Noteholders of the Company's written
request for approval of the proposed new or replacement financing, together
with such materials and information in respect of such proposed new or
replacement financing (including, without limitation, a summary of the
proposed terms and conditions of the proposed new or replacement financing
and, for purposes of comparison thereto, a summary of the terms and
conditions of each existing Approved Securitization Transaction) sufficient
to enable the Noteholders to make an informed decision with respect
thereto; provided further that the transactions evidenced by the Ciesco
-------- -------
Securitization Agreements as in effect on June 1, 1995 constitute an
"Approved Securitization Transaction".
b. Section 2.1 of the Existing Agreement hereby is amended
by deleting the definition of "Ciesco Securitization Agreements" in its entirety
and substituting the following in lieu thereof:
"Ciesco Securitization Agreements" shall mean (1) that
certain Trade Receivables Purchase and Sale Agreement, dated as of
September 24, 1993, among Merisel, Inc., Ciesco L.P., and Citicorp North
America, Inc, as "Agent", and (11) that certain Trade Receivables Purchase
and Sale Agreement, dated as of September 24, 1993, among Merisel, Inc.,
Citibank, N.A., the "Banks" identified therein, and Citicorp North America,
Inc., individually and as "Agent", which agreements have been assigned to,
and assumed by, the Company, as either of the same may be modified,
amended, restated, extended, or replaced (in whole or in part) from time to
time in a manner that does not violate the terms of Section 6.23 or the
definition of "Approved Securitization Transaction".
2.
<PAGE>
SECTION 2. CONDITIONS TO EFFECTIVENESS.
The satisfaction of each of the following shall constitute conditions
precedent to the effectiveness of this Amendment:
a. the execution and delivery of this Amendment by the
Company and the Required Noteholders in accordance with Section 8 of the
Existing Agreement;
b. the execution and delivery by Merisel, Inc. of the
Reaffirmation, and Consent attached hereto as Exhibit A;
c. the execution and delivery by Merisel Canada of the
Reaffirmation and Consent attached hereto as Exhibit B;
d. the execution and delivery by Merisel Europe of the
Reaffirmation and Consent attached hereto as Exhibit C;
e. the representations and warranties in this Amendment and the
Existing Agreement as amended by this Amendment (the "Amended Agreement") shall
be true, correct and complete in all respects on and as of the date hereof, as
though made on such date (except to the extent that such representations and
warranties relate solely to an earlier date, in which case they are true,
correct and complete in all material respects as of such earlier date);
f. no Default or Event of Default shall have occurred and be
continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein;
g. no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against the Company;
h. the Company shall have delivered a certificate from the
Secretary of the Company attesting to the resolutions of the Company's Board of
Directors authorizing its execution and delivery of this Amendment and
authorizing specific officers of the Company to execute same;
i. the Company shall have delivered copies of the Company's
By-laws and Certificate of Incorporation, as amended, modified, or supplemented
to the date hereof, certified by the Secretary of the Company;
j. the Company shall have delivered a certificate of
corporate status with respect to the Company, dated within ten (10) days of the
date hereof, by the Secretary of
3.
<PAGE>
State of Delaware, which certificate shall indicate that the Company is in good
standing in such state:
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Noteholders to enter into this Amendment and to
amend the Existing Agreement in the manner provided herein, the company
represents and warrants to each Noteholder that the following statements are
true, correct and complete.
a. Corporate Power and Authority. The Company has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform its obligations under
the Amended Agreement.
b. Authorization of Agreements. The execution and delivery
of this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action by the Company.
c. No Conflict. The execution and delivery by the Company of
this Amendment and the performance by the Company of the Amended Agreement do
not and will not (i) violate any provision of law; rule or regulation applicable
to the Company or any of its Subsidiaries, the Certificate of Incorporation or
bylaws of the Company or any of its Subsidiaries, (ii) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of the Company or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of its properties or assets, or (iv) require any approval of
stockholders or any approval or consent of any Person under any contractual
obligation of the Company or any of its Subsidiaries.
d. Governmental Consents. The execution and delivery by the
Company and the performance by the Company of the Amended Agreement do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Federal, state or other governmental authority
or regulatory body or other Person.
e. Binding Obligation. This Amendment and the Amended
Agreement are the legally valid and binding obligations of the Company,
enforceable against it in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
4.
<PAGE>
SECTION 4. MISCELLANEOUS.
a. Reference to and Effect on the Existing Agreement.
(1) On and after the effective date of this Amendment,
each reference in the Existing Agreement to "this Agreement","hereunder",
"hereof", "herein", or words of like import referring to the Existing
Agreement, shall mean and be a reference to the Existing Agreement as amended by
this Amendment.
(2) Except as specifically amended by this Amendment,
the Existing Agreement shall remain in full force and effect and hereby is
ratified and confirmed in all respects. The execution, delivery, and performance
of this Amendment shall not operate as a waiver of, or except as expressly set
forth herein, as an amendment, of any right, power, or remedy of the Noteholders
under the Existing Agreement, as in effect prior to the date hereof, or any
further or other matter.
(3) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of any
Noteholder under, the Existing Agreement.
b. Execution and Counterparts. This Amendment may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts taken together shall constitute
one and the same instrument.
c. Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose of be given any
substantive effective.
d. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED
TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
5.
<PAGE>
IN WITNESS WHEREOF, the Company and the Noteholders have caused this
Amendment to be duly executed by their respective duly authorized officers, all
as of the day and year first above written.
MERISEL AMERICAS, INC.,
a Delaware corporation
By:
--------------------------------------
Name:
Title:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa corporation
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE CO.,
a Massachusetts corporation
By:
--------------------------------------
Name:
Title:
FIRST AUSA LIFE INSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
6.
<PAGE>
PFL LIFE INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
By:
-------------------------------
Name:
Title:
BANKERS UNITED LIFE ASSURANCE COMPANY
By:
-------------------------------
Name:
Title:
INTERNATIONAL LIFE INVESTORS INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
CONNECTICUT MUTUAL LIFE INSURANCE CO.
a Connecticut corporation
By:
-------------------------------
Name:
Title:
7.
<PAGE>
C M LIFE INSURANCE COMPANY,
a Connecticut corporation
By:
------------------------------------
Name: THOMAS T.S. LI
Title: Senior Investment Officer
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California corporation
By:
------------------------------------
Name:
Title:
AMERITAS LIFE INSURANCE CORP.,
a Nebraska corporation
By:
------------------------------------
Name:
Title:
SHENENDOAH LIFE INSURANCE COMPANY,
a Virginia corporation
By:
-------------------------------------
Name:
Title:
THE CANADA LIFE ASSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
8.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA,
a Michigan corporation
By:
--------------------------------------
Name:
Title:
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
OF PHILADELPHIA, a Pennsylvania corporation
By:
--------------------------------------
Name:
Title:
PROVIDENT MUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA, a Pennsylvania corporation
By:
--------------------------------------
Name:
Title:
GUARANTEE MUTUAL LIFE COMPANY,
a Nebraska corporation
By:
--------------------------------------
Name:
Title:
9.
<PAGE>
Exhibit A
---------
Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Second Amendment
to Amended and Restated Senior Note Purchase Agreement, dated as of June 23,
1995 (the "Amendment"). The undersigned hereby (a) represents and warrants to
the Noteholders that the execution, delivery, and performance of this
Reaffirmation and Consent of Guarantor are within its corporate powers, have
been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decrees,
writ, injunction, or award of any arbitrator, court, or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected;
(b) consents to the amendment of the Existing Agreement by the Amendment; (c)
acknowledges and reaffirms its obligations owing under the Parent Guaranty; and
(d) agrees that the Parent Guaranty is and shall remain in full force and
effect.
MERISEL, INC.
By
---------------------------
Title:
------------------------------
10.
<PAGE>
Exhibit B
---------
Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Second Amendment
to Amended and Restated Senior Note Purchase Agreement, dated as of June 23,
1995 (the "Amendment"). The undersigned hereby (a) represents and warrants to
the Noteholders that the execution, delivery, and performance of this
Reaffirmation and Consent of Guarantor are within its corporate powers, have
been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected;
(b) consents to the amendment of the Existing Agreement by the Amendment; (c)
acknowledges and reaffirms its obligations owing under the Canada Guaranty; and
(d) agrees that the Canada Guaranty is and shall remain in full force and
effect.
MERISEL CANADA INC.
By
---------------------------
Title:
------------------------------
11.
<PAGE>
Exhibit C
---------
Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Second Amendment
to Amended and Restated Senior Note Purchase Agreement, dated as of June 23,
1995 (the "Amendment"). The undersigned hereby (a) represents and warrants to
the Noteholders that the execution, delivery, and performance of this
Reaffirmation and Consent of Guarantor are within its corporate powers, have
been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or governmental authority
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected;
(b) consents to the amendment of the Existing Agreement by the Amendment; (c)
acknowledges and reaffirms its obligations owing under the Europe Guaranty; and
(d) agrees that the Europe Guaranty is and shall remain in full force and
effect.
MERISEL EUROPE, INC.
By
-------------------------------
Title:
---------------------------
12
<PAGE>
EXHIBIT C
---------
LIMITED AMOUNT CONTINUING GUARANTEE
TO: THE GUARANTEED NOTEHOLDERS
IN CONSIDERATION of THE GUARANTEED NOTEHOLDERS' exchange of the
Senior Notes from MERISEL AMERICAS, INC. (hereinafter referred to as the
"Debtor"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Undersigned, the Undersigned
hereby, jointly and severally with the Debtor, unconditionally guarantees to the
Guaranteed Noteholders the indefeasible payment and performance in full of all
indebtedness, obligations, and liabilities of any kind, now or hereafter
existing, direct or indirect, absolute or contingent, joint or several, of the
Debtor to the Guaranteed Noteholders under the Senior Notes and the Note
Purchase Agreement, whether as principal or surety, in an amount not to exceed
the Maximum Noteholder Liability Amount in lawful money of the United States of
America, plus interest thereon from date of demand for payment of the same at a
rate per annum equivalent to the Overdue Rate, (all of which present and future
indebtedness, obligations, liabilities, and interest are herein collectively
referred to as the "Indebtedness").
DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"Agent" shall mean the Agent under the Revolving Credit
Agreement.
"Debt" shall mean, as of any date of determination, the items
described in clauses (i), (ii), and (v) of the definition of "Debt" in the Note
Purchase Agreement.
"Guaranteed Lenders" shall mean the "Lenders" under the
Revolving Credit Agreement.
"Guaranteed Lenders Indebtedness Amount" shall mean, as of any
date of determination, the outstanding principal amount of the indebtedness of
the Debtor to the Guaranteed Lenders under the Revolving Credit Agreement
(including the undrawn amount of all outstanding letters of credit issued under
the Revolving Credit Agreement).
"Guaranteed Noteholders" shall mean the holders, from time to
time, of the Senior Notes from time to time outstanding.
<PAGE>
EXHIBIT C
---------
"Guaranteed Noteholders Indebtedness Amount" shall mean, as of
any date of determination, the outstanding principal amount of the indebtedness
of the Debtor to the Guaranteed Noteholders under the Senior Notes.
"Intercompany Debt Amount" shall mean, as of any date of
determination, the outstanding principal amount of Debt owing from the
Undersigned to the Debtor.
"Lender Guarantee" shall mean that certain Merisel Canada
Guaranty, dated as of December 23, 1993, executed by the Undersigned in favor of
the Guaranteed Lenders and the Agent, as agent and representative for the
Guaranteed Lenders, in substantially the same form and substance as this
Guarantee.
"Majority Lenders" shall have the meaning ascribed thereto in
the Revolving Credit Agreement.
"Maximum Noteholder Liability Amount" shall mean, as of any
date of determination, an amount equal to (a)(i) the Guaranteed Noteholders
Indebtedness Amount divided by (ii) the sum of the Guaranteed Lenders
----------
Indebtedness Amount plus the Guaranteed Noteholder Indebtedness Amount,
----
multiplied by (b) the Intercompany Debt Amount.
- -------------
"Note Purchase Agreement" shall mean the certain Amended and
Restated Senior Note Purchase Agreement, dated as of December 23, 1993, between
the Debtor, on the one hand, and the purchasers of the Senior Notes identified
therein, on the other hand, as the same may from time to time be amended,
modified, supplemented, or restated.
"Overdue Rate" shall have the meaning ascribed thereto in the
Note Purchase Agreement.
"Required Noteholders" shall have the meaning ascribed thereto
in the Note Purchase Agreement.
"Revolving Credit Agreement" shall mean that certain Revolving
Credit Agreement, dated as of December 23, 1993, among the Debtor and Merisel
Europe, Inc., as the borrowers, the financial institutions named therein,
Citicorp USA, Inc, as Agent, Citibank, N.A., as Designated Issuer, and Merisel,
Inc., as guarantor, as the same may from time to time be amended, modified
supplemented, or restated.
"Senior Notes" shall mean the Amended and Restated 8.58% Senior
Notes due June 30, 1997, issued by the Debtor pursuant to the Note Purchase
Agreement.
2
<PAGE>
EXHIBIT C
---------
AND IT IS AGREED THAT:
1. The Undersigned agrees that each holder of a Senior Note
shall be a Guaranteed Noteholder hereunder and shall be entitled to the benefits
of this Guarantee, irrespective of whether such holder was one of the original
purchasers of the Senior Notes under the Note Purchase Agreement. Upon any
demand for payment hereunder (which demand shall be made in accordance with the
terms of the Note Purchase Agreement) and payment of any moneys by the
Undersigned in respect of the Indebtedness, such moneys shall be apportioned
among the Guaranteed Noteholders and paid to each Guaranteed Noteholder in
accordance with the ratio that the principal amount of Senior Notes held by each
such Guaranteed Noteholder bears to the Guaranteed Noteholders Indebtedness
Amount. The Undersigned understands that the Senior Notes are transferable and
agrees that upon transfer of a Senior Note, the transferor and the transferee
shall have no obligation to notify the Undersigned of the transfer or the
identity of the transferee. As a wholly-owned subsidiary of the Debtor, the
Undersigned has adequate means of obtaining from the Debtor, on a continuing
basis, any information pertaining to the Guaranteed Noteholders that it might
need, and the Undersigned waives and relinquishes any duly on the part of the
Guaranteed Noteholders to provide any such information to the Undersigned.
2. Concurrently with the execution and delivery of this
Guarantee, the Undersigned is executing and delivering the Lender Guarantee to
the Guaranteed Lenders. The Guaranteed Lenders and the Guaranteed Noteholders
have agreed to apportion the liability of the Undersigned under this Guarantee
and the Lender Guarantee in accordance with the formulas set forth in the
definitions of "Maximum Noteholder Liability Amount" herein and "Maximum Bank
Liability Amount" in the Lender Guarantee, which apportionment shall be
calculated at the time any recovery is received by the Guaranteed Noteholders
and the Guaranteed Lenders. In furtherance thereof and in recognition of the
close relationship between the Debtor and the Undersigned and the difficulty
that the Guaranteed Noteholders may encounter at any point in time in obtaining
information as to the Guaranteed Lenders Indebtedness Amount, the Undersigned
agrees, upon request of any Guaranteed Noteholder, to provide information to
any such Guaranteed Noteholder as to the Guaranteed Lenders Indebtedness Amount
in such detail as may be reasonably requested.
3. Because of the interdependent nature of this Guarantee
and the Lender Guarantee, this Guarantee may not be amended, modified,
supplemented, restated or replaced without the written consent of the Majority
Lenders and the Required Noteholders. The Undersigned agrees that it will not
amend, modify, supplement, restate or replace the Lender Guarantee without the
prior written consent of the Required Noteholders and the Majority Lenders.
3
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EXHIBIT C
---------
4. No change in the name, object, capital stock or
constitution of the Debtor shall in any way affect the liability of the
Undersigned, either with respect to transactions occurring before or after any
such change, and the Guaranteed Noteholders shall not be concerned to see or
inquire into the powers of the Debtor or any of its directors or other agents
acting or purporting to act on its behalf, and moneys, advances, renewals or
credits in fact borrowed or obtained from the Guaranteed Noteholders in
professed exercise of such powers shall be deemed to form part of the
Indebtedness notwithstanding that such borrowing or obtaining of moneys,
advances, renewals or credits shall be in excess of the powers of the Debtor or
of its directors or other agents aforesaid, or be in any way irregular,
defective or informal.
5. Subject to the formula for apportionment of monies
received hereunder set forth in paragraph 2, all moneys received by the
Guaranteed Noteholders in respect of the Indebtedness may be applied on such
part or parts of the Indebtedness as the Guaranteed Noteholders may see fit and
each Guaranteed Noteholder shall at all times and from time to time have the
right to change any appropriation of any moneys received by it and to reapply
the same on any part or parts of the Indebtedness as such Guaranteed Noteholder
may see fit, notwithstanding any previous application by whomsoever made.
6. All dividends, compositions and moneys received by the
Guaranteed Noteholders from the Debtor or from any other person or estate
capable of being applied by the Guaranteed Noteholders in reduction of the
Indebtedness shall be regarded for all purposes as payments in gross, and the
Guaranteed Noteholders shall be entitled to prove against the estate of the
Debtor upon any insolvency or winding-up in respect of the whole of the
Indebtedness, and the Undersigned shall have no right to be subrogated to the
Guaranteed Noteholders in respect of any such proof until the Guaranteed
Noteholders shall have received from such estate payment in full of its claim
with interest.
7. This Guarantee will not be diminished or affected on
account of any act or failure to act on the part of the Guaranteed Noteholders
which would prevent subrogation from operating in favour of the Undersigned.
8. The Guaranteed Noteholders, without exonerating in whole
or in part the Undersigned, may grant time, renewals, extensions, indulgences,
releases and discharges to, may take securities from and give the same and any
or all existing securities up to, may abstain from taking securities from or
from perfecting, registering, renewing or realizing upon securities of, may
accept compositions from, and may otherwise deal with the Debtor and all other
persons (including the Undersigned and any other guarantor) and securities as
the Guaranteed Noteholders may see fit.
4
<PAGE>
EXHIBIT C
---------
9. Without in any manner limiting the generality of the
foregoing, the Undersigned agrees that the Guaranteed Noteholders may, from time
to time, consent to any action or non-action of the Debtor which, in the absence
of such consent, violates or may violate any agreement or agreements between the
Debtor and the Guaranteed Noteholders relating to any of the Indebtedness, with
or without consideration on such terms and conditions as may be acceptable to
the Guaranteed Noteholders, without in any manner affecting or impairing the
liability of the Undersigned hereunder.
10. Notwithstanding the provisions of any statute relating to
the rate of interest payable by debtors, this Guarantee shall remain in full
force and effect whatever the rate of interest received or demanded by the
Guaranteed Noteholders. No invalidity, irregularity or unenforceability (by
reason of any bankruptcy or similar law, any law or order of any government or
agency thereof purporting to reduce, amend or otherwise affect the Indebtedness
of the Debtor, or otherwise) of the Indebtedness of the Debtor of any security
therefor shall affect, impair or be a defense to this Guarantee. If one or more
of the provisions contained herein shall be invalid, illegal or unenforceable in
any respect, the validity legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
11. The Undersigned shall at all times and from time to time
do, execute, acknowledge and deliver or cause to be done, executed, acknowledged
and delivered all and singular every such further act, deed, transfer,
assignment, assurance, document and instrument as the Guaranteed Noteholders may
reasonable require for the better accomplishing and effectuating of this
Guarantee and the provisions contained herein, and every officer of the
Guaranteed Noteholders and each of them are irrevocable appointed attorneys or
attorney to execute in the name and on behalf of the Undersigned any document
or instrument for the said purpose.
12. This shall be a continuing guarantee and shall cover and
secure any ultimate balance owing to the Guaranteed Noteholders notwithstanding
that any other security for the repayment of the Indebtedness of the Debtor to
the Guaranteed Noteholders may no longer be enforceable, but the Guaranteed
Noteholders shall not be obliged to exhaust their recourse against the Debtor or
other persons or the securities they may hold before being entitled to payment
from the Undersigned of all of the Indebtedness; provided always that the
Undersigned may determine its further liability under this continuing guarantee
by ninety (90) days' notice in writing to be given to the Guaranteed
Noteholders, and the liability hereunder of the Undersigned shall continue until
the expiration of ninety (90) days after the giving of such notice,
notwithstanding the legal incapacity of the Undersigned and after the expiry of
such notice the Undersigned shall remain liable under this Guarantee in respect
of the Indebtedness on the date such notice expired and also in respect of any
contingent or future liabilities incurred to or by the Guaranteed Noteholders on
behalf of or in respect of the Debtor
5
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EXHIBIT C
---------
on or before such date but maturing thereafter, but such determination in any
manner of further liability of the Undersigned shall not prevent the continuance
of the liability hereunder of the Undersigned.
13. This Guarantee shall continue to be effective or be
reinstated (as the case may be) if at any time payment by the Debtor of all or
any part of the Indebtedness of the Debtor to the Guaranteed Noteholders is
rescinded or must otherwise be returned by Guaranteed Noteholders upon the
insolvency, bankruptcy or reorganization of the Debtor or otherwise, all as
though such payment to the Guaranteed Noteholders had not been made.
14. The Guaranteed Noteholders may assign, transfer and
deliver to any transferee of the Indebtedness or any part thereof the liability
of the Undersigned under this Guarantee and any security, documents or
instruments held by the Guaranteed Noteholders in respect of the Guarantee
provided that no such assignment, transfer or delivery shall release the
Undersigned from said liability; and thereafter the transferor shall be fully
discharged from all responsibility with respect to this Guarantee and security,
documents and instruments so assigned, transferred and/or delivered. Such
transferee shall be vested with all powers and rights of a Guaranteed Noteholder
hereunder and under such security, documents or instruments but the transferor
shall retain all rights and powers with respect to any such security, documents
or instruments not so assigned, transferred or delivered.
15. The undersigned shall pay the reasonable expenses
(including reasonable legal fees on a solicitor and client basis) incurred by
the Guaranteed Noteholders in endeavoring to collect the Indebtedness, or any
part thereof, an in enforcing this Guarantee.
16. The records of the Guaranteed Noteholders as to the
balance of the Indebtedness at any time and from time to time shall be final and
conclusive without further or other proof, absent manifest error.
17. This Guarantee shall be binding upon the Undersigned and
its respective heirs, legatees, trustee, executors, administrators, successors
and assigns including any successor by reason of amalgamation of or any other
change in the Undersigned and shall inure to the benefit of the Guaranteed
Noteholders and their successors and assigns.
18. For purposes of disclosure pursuant to the Interest Act
(Canada), the yearly rate of interest to which the Overdue Rate is equivalent
may be determined by multiplying the Overdue Rate by a fraction, the numerator
of which is the number of
6
<PAGE>
EXHIBIT C
---------
days in the calendar year in which the period for which interest at such rate is
payable and the denominator of which is 360.
19. The Undersigned shall borrow from and owe to the Debtor,
at all times from and after the date hereof until the indefeasible payment and
performance in full of the Indebtedness, Debt in an amount not less than U.S.
$20,000,000.
WITH RESPECT to any portion of the Indebtedness which is
payable in a currency other than Canadian currency (the "Foreign Currency
Obligation"), the following provisions shall apply:
(a) Payment hereunder with respect to the Foreign Currency
Obligation shall be made in immediately available funds in lawful money of the
jurisdiction in the currency of which the Foreign Currency Obligation is payable
(the "Foreign Currency") in such form as shall be customary at the time of
payment for settlement of international payments in Toronto, Ontario without
set-off or counterclaim and free and clear of and without deduction for any and
all present and future taxes, levies, imposts, deductions, charges and
withholdings with respect thereto.
(b) The Undersigned shall hold the Guaranteed Noteholders
harmless from any loss incurred by the Guaranteed Noteholders arising from any
change in the value of Canadian currency in relation to the Foreign Currency
between the date the Foreign Currency Obligation becomes due and the date of
payment thereof.
(c) If for the purpose of obtaining judgment in any court it
is necessary to convert a sum due hereunder in the Foreign Currency into
Canadian funds ("Canadian dollars"), the rate of exchange used shall be that at
which in accordance with normal banking procedures the Guaranteed Noteholders
could purchase the Foreign Currency with Canadian dollars on the business day
preceding that on which final judgment is given.
The obligation of the Undersigned in respect of any Foreign Currency Obligation
due by it to the Guaranteed Noteholders hereunder shall, notwithstanding any
judgment in Canadian dollars, be discharged only to the extent that on the
business day following receipt by the Guaranteed Noteholders of any sum adjudged
to be so due in Canadian dollars the Guaranteed Noteholders may in accordance
with normal banking procedures purchase the Foreign Currency with the Canadian
dollars; if the amount of the Foreign Currency so purchased is less than the sum
originally due to the Guaranteed Noteholders in the Foreign Currency the
Undersigned agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the Guaranteed Noteholders against such loss and if the
Foreign Currency purchased exceeds the sum originally due to the Guaranteed
Noteholders in the Foreign Currency, the Guaranteed Noteholders
7
<PAGE>
EXHIBIT C
---------
agrees to remit such excess to the Undersigned as the Undersigned may be
entitled thereto.
THE UNDERSIGNED hereby postpones all debts and liabilities of
the Debtor to the Undersigned, both present and future, to the Indebtedness, and
all monies received by the Undersigned thereon shall be received in trust for
the Guaranteed Noteholders and shall be paid over to the Guaranteed
Noteholders.
THE UNDERSIGNED acknowledges that this Guarantee has been
delivered free of any conditions and that no representations have been made to
the Undersigned affecting the liability of the Undersigned under this Guarantee
save as may be specifically embodied herein and agrees that this Guarantee is in
addition to and not in substitution for any other guarantee held or which may
hereafter be held by the
8
<PAGE>
EXHIBIT C
---------
Guaranteed Noteholders. The rights, remedies and benefits herein are cumulative
and not in substitution for or exclusive of any rights, remedies or benefits
which the Guaranteed Noteholders may otherwise have.
THIS GUARANTEE shall be construed in accordance with and be
governed by the laws of the Province of Ontario and for the purpose of legal
proceedings this Guarantee shall be deemed to have been made in the said
Province and to be performed there, and the Courts of that Province shall have
jurisdiction over all disputes which may arise under this Guarantee and the
Undersigned hereby irrevocably and unconditionally submits to the non-exclusive
jurisdiction of such Courts, provided always that nothing herein contained shall
prevent the Guaranteed Noteholders from proceeding at its election against the
Undersigned in the Courts of any other Province, country or jurisdiction.
IN THIS GUARANTEE, words importing the singular include the
plural and vice versa, and words importing gender shall include all genders. In
the event that this Guarantee is executed by more than one party, the liability
of the Undersigned shall be joint and several.
AS WITNESS the hand and seal of the Undersigned at
Toronto this day of December 23, 1993.
WITNESS: MERISEL CANADA INC.
By
- ----------------- -------------------
Its
This Guarantee should be executed under seal.
9
<PAGE>
EXHIBIT E
---------
GENERAL CONTINUING GUARANTEE
----------------------------
THIS GENERAL CONTINUING GUARANTEE (this "Guarantee"), dated as
of December 23, 1993, is executed and delivered by Merisel Europe, Inc., a
Delaware corporation ("Guarantor"), in favor of the Guaranteed Noteholders, in
the light of the following:
WHEREAS, contemporaneously herewith, Debtor and the Guaranteed
Noteholders are entering into the Guaranteed Agreement and Debtor is issuing and
selling the Senior Notes to the Guaranteed Noteholders; and
WHEREAS, in order it induce the Guaranteed Noteholders to (a)
purchase the Senior Notes from Debtor pursuant to the Guaranteed Agreement and
(b) consent to the "Reorganization" (as defined in the Guaranteed Agreement) of
Guarantor, and in consideration thereof, and in consideration of any loans or
other financial accommodations heretofore or hereafter extended by the
Guaranteed Noteholders to Debtor, whether pursuant to the Guaranteed Agreement
or otherwise, Guarantor has agreed to guarantee the Guaranteed Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of the Guaranteed Noteholders, as follows:
1. Definitions and Construction
-----------------------------
(a) Definitions. The following terms, as used in this
-----------
Guarantee, shall have the following meanings:
"Bankruptcy Code" shall mean the United States
---------------
Bankruptcy Code )11 U.S.C. Section 101 et. seq.), as in effect from time to time
-- ---
and including any successor statute.
"Debtor" shall mean Merisel Americas, Inc., a
------
Delaware corporation.
"Guarantee" shall have the meaning set forth in the
---------
preamble to this document.
"Guaranteed Agreement" shall mean that certain
--------------------
Amended and Restated Senior Note Purchase Agreement, dated as of December 23,
1993, between Debtor, on the one hand, and the purchasers of the Senior Notes
identified therein, on the other hand.
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<PAGE>
EXHIBIT E
---------
"Guaranteed Noteholders" shall mean the holders, from
------------------------
time to time, of the Senior Notes from time to time outstanding.
"Guaranteed Noteholders Indebtedness Amount" shall mean,
--------------------------------------------
as of any date of determination, the outstanding principal amount of the
Indebtedness of the Debtor to the Guaranteed Noteholders under the Senior Notes.
"Guaranteed Obligations" shall mean: (a) the due and
------------------------
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to the Guaranteed Noteholders pursuant to the terms
of the Senior Notes and the Guaranteed Agreement; and (b) the due and punctual
payment of all other present or future Indebtedness owing by Debtor to
Guaranteed Noteholders.
"Guarantor" shall have the meaning set forth in the
-----------
preamble to this Guarantee.
"Indebtedness" shall mean any and all obligations,
--------------
indebtedness, or liabilities of any kind or character owed by Debtor to the
Guaranteed Noteholders and arising directly or indirectly out of or in
connection with the Guaranteed Agreement or the other Transaction Documents,
including all such obligations, indebtedness, or liabilities, whether for
principal, interest (including any and all interest which, but for the
application of the provisions of the Bankruptcy Code, would have accrued on such
amounts), premium, reimbursement obligations, fees, costs, expenses (including
attorneys fees), or indemnity obligations, whether heretofore, now or hereafter
made, incurred, or created, whether voluntarily or involuntarily made, incurred,
or created, whether secured or unsecured (and if secured, regardless of the
nature or extent of the security), whether absolute or contingent, liquidated or
unliquidated, or determined or indeterminate, whether Debtor is liable
individually or jointly with others, and whether recovery is or hereafter
becomes barred by any statute of limitations or otherwise becomes unenforceable
for any reason whatsoever, including any act or failure to act by the Guaranteed
Noteholders.
"New Revolving Credit Agreement" shall mean that certain
--------------------------------
Revolving Credit Agreement, dated as of December 23, 1993, among Debtor and
Guarantor as borrowers, Merisel, Inc., a Delaware corporation, as guarantor,
Citicorp USA, Inc., as agent, and the financial institutions which may now or
hereafter be parties thereto, as the same may be amended, supplemented, or
otherwise modified from time to time.
"Person" shall mean any natural person, corporation,
--------
limited partnership, general partnership, joint stock company, joint venture,
association, company,
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<PAGE>
EXHIBIT E
---------
trust, bank trust company, land trust, business trust, or other organization,
irrespective of whether a legal entity, any governmental authority, or any
non-governmental entity.
"Security" shall have the same meaning as in Section 2(1)
--------
of the Securities Act of 1933, as amended.
"Senior Notes" shall mean the Amended and Restated 8.58%
------------
Senior Notes due June 30, 1997, issued by the Debtor pursuant to the Guaranteed
Agreement.
"Subsidiary" shall mean any corporation, association,
----------
partnership, or other business entity of which 50% or more of the total voting
power of shares of Voting Stock is at the time owned or controlled by any Person
or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Transaction Documents" shall mean, collectively, the
---------------------
Senior Notes, the Guaranteed Agreement and any other documents, agreements and
instruments executed and delivered pursuant thereto or in connection with the
transaction contemplated thereby.
"Voting Stock" shall mean Securities of any class or
------------
classes, the holders of which are ordinary, in the absence of contingencies,
entitled to elect a majority of the corporate directors (or Persons performing
similar functions).
(b) Construction. Unless the context of this Guarantee
------------
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the part includes the whole, the
terms "include" and "including" are not limiting, and the term "or" has the
inclusive meaning represented by the phrase "and/or" The words "hereof,"
"herein," "hereunder," and other similar terms refer to this Guarantee as a
whole and not to any particular provision of this Guarantee. Any reference in
this Guarantee to any of the following documents includes any and all
alterations, amendments, extensions, modifications, renewal, or supplements
thereto or thereof, as applicable: the Senior Notes; the Guaranteed Agreement;
the Transaction Documents; and this Guarantee. Neither this Guarantee nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Guaranteed Noteholders or Guarantor, whether under any rule of construction or
otherwise. On the contrary, this Guarantee has been reviewed by Guarantor, the
Guaranteed Noteholders, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the Guaranteed Noteholders and
Guarantor.
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<PAGE>
EXHIBIT E
---------
2. Guaranteed Obligations. Guarantor hereby irrevocably and
----------------------
unconditionally guarantees to the Guaranteed Noteholders, as and for its own
debt, until final and indefeasible payment thereof has been made, (a) the
payment of the Guaranteed Obligations, in each case when and as the same shall
become due and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of Guarantor
that the guaranty set forth herein shall be a guaranty of payment and not a
guaranty of collection; and (b) the punctual and faithful performance, keeping,
observance, and fulfillment by Debtor of all of the agreements, conditions,
covenants, and obligations of Debtor contained in the Senior Notes, the
Guaranteed Agreement, and under each of the other Transaction Documents. The
Guaranteed Obligations shall rank pari passu with Guarantor's obligations to
repay advances and other obligations under the New Revolving Credit Agreement
and Guarantor's obligations, if any, to guaranty Debtor's obligations under the
New Revolving Credit Agreement.
3. Continuing Guarantee. This Guarantee includes Guaranteed
--------------------
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guaranteed
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guaranteed Obligations after
prior Guaranteed Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, Guarantor hereby waives any right to revoke
this Guarantee as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notices thereof has been
received by the Guaranteed Noteholders, (b) no such revocation shall apply to
any Guaranteed Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof, (c) no such revocation
shall apply to any Guaranteed Obligations made or created after such date to the
extent made or created pursuant to legally binding commitment of the Guaranteed
Noteholders in existence on the date of such revocation, (d) no payment by
Guarantor, Debtor, or from any other source, prior to the date of such
revocation shall reduce the maximum obligation of Guarantor hereunder, and (e)
any payment by Debtor or from any source other than Guarantor subsequent to the
date of such revocation shall first be applied to that portion of the Guaranteed
Obligations as to which the revocation is effective and which are not,
therefore, guarantied hereunder, and to the extent so applied shall not reduce
the maximum obligation of Guarantor hereunder.
4. Performance Under this Guarantee. In the event that
--------------------------------
Debtor fails to make any payment of any Guaranteed Obligations, on or before the
due date thereof, or if Debtor shall fail to perform, keep, observe, or fulfill
any other obligation referred to in clause (b) of Section 2 hereof in the manner
-----------------------
provided in the Senior Notes, the Guaranteed Agreement or other Transaction
Documents, as applicable, Guarantor immediately shall cause such payment to be
made or each of such obligations to be performed, kept,
-4-
<PAGE>
EXHIBIT E
---------
observed, or fulfilled. Guarantor agrees that each holder of a Senior Note shall
be a Guaranteed Noteholder hereunder and shall be entitled to the benefits of
this Guarantee, irrespective of whether such holder was one of the original
purchasers of the Senior Notes under the Note Purchase Agreement. Upon any
demand for payment hereunder (which demand shall be made in accordance with the
terms of the Guaranteed Agreement) and payment of any moneys by Guarantor in
respect of the Indebtedness, such moneys shall be apportioned among the
Guaranteed Noteholders, and paid to each Guaranteed Noteholder in accordance
with the ratio that the principal amount of Senior Notes held by each such
Guaranteed Noteholder bears to the Guaranteed Noteholders Indebtedness Amount.
Guarantor understands that the Senior Notes are transferable and agrees that
upon transfer of a Senior Note, the transferor and the transferee shall have no
obligation to notify Guarantor of the transfer or the identity of the
transferee. Guarantor has adequate means of obtaining from Debtor, on a
continuing basis, any information pertaining to the Guaranteed Noteholders that
it might need, and Guarantor waives and relinquishes any duty on the part of the
Guaranteed Noteholders to provide any such information to Guarantor.
5. Nature of Business. Neither Guarantor nor any Subsidiary
------------------
of Guarantor shall engage in any business other than (i) the businesses in which
they are engaged as of the date hereof, and (ii) businesses directly related to
the distribution or marketing of computer products.
6. Primary Obligations. This Guarantee is a primary and
-------------------
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions. Guarantor agrees that it is directly,
jointly and severally with any other guarantor of the Guaranteed Obligations,
liable to the Guaranteed Noteholders, that the obligations of Guarantor
hereunder are independent of the obligations of Debtor or any other guarantor,
and that a separate action may be brought against Guarantor, whether such action
is brought against Debtor or any other guarantor or whether Debtor or any other
guarantor is joined in such action. Guarantor agrees that its liability
hereunder shall be immediate and shall not be contingent upon the exercise or
enforcement by the Guaranteed Noteholders of whatever remedies it may have
against Debtor or any other guarantor, or the enforcement of any lien or
realization upon any security the Guaranteed Noteholders may at any time
possess. Guarantor agrees that any release which may be given by the Guaranteed
Noteholders to Debtor or any other guarantor shall not release Guarantor.
Guarantor consents and agrees that the Guaranteed Noteholders shall be under no
obligation to marshal any property or assets of Debtor or any other guarantor in
favor of Guarantor, or against or in payment of any or all of the Guaranteed
Obligations.
-5-
<PAGE>
EXHIBIT E
---------
7. Waivers.
-------
(a) Guarantor hereby waives: (i) notice of acceptance
hereof; (ii) notice of any loans or other financial accommodations made or
extended under the Guaranteed Agreement, or the creation or existence of any
Guaranteed Obligations; (iii) notice of the amount of the Guaranteed
Obligations, subject, however, to Guarantor's right to make inquiry of the
Guaranteed Noteholders to ascertain the amount of the Guaranteed Obligations at
any reasonable time; (iv) notice of any adverse change in the financial
condition of Debtor or of any other fact that might increase Guarantor's risk
hereunder; (v) notice of presentment for payment, demand, protest, and notice
thereof as to any instrument among the Transaction Documents; (vi) notice of any
unmatured event of default or event of default under the Guaranteed Agreement;
and (vii) all other notices (except if such notice is specifically required to
be given to Guarantor under this Guarantee or any other Transaction Documents to
which Guarantor is a party) and demands to which Guarantor might otherwise be
entitled.
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require the Guaranteed
Noteholders to institute suit against Debtor or to exhaust any rights and
remedies which the Guaranteed Noteholders has or may have against Debtor. In
this regard, Guarantor agrees that it is bound to the payment of each and all
Guaranteed Obligations, whether now existing or hereafter arising, as fully as
if such Guaranteed Obligations were directly owing to the Guaranteed Noteholders
by Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guaranteed
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
(c) To the maximum extent permitted by law, Guarantor
hereby waives: (i) any rights to assert against the Guaranteed Noteholders any
defense (legal or equitable), set-off, counterclaim, or claim which Guarantor
may now or at any time hereafter have against Debtor or any other party liable
to the Guaranteed Noteholders; (ii) any defense, set-off, counterclaim, or
claim, of any kind or nature, arising directly or indirectly from the present or
future lack of perfection, sufficiency, validity, or enforceability of the
Guaranteed Obligations or any security therefor; (iii) any defense arising by
reason of any claim or defense based upon an election of remedies by the
Guaranteed Noteholders including any defense based upon an election of remedies
by the Guaranteed Noteholders under the provisions of (S)(S) 580d and 726 of the
California Code of Civil Procedure, or any similar law of California or any
other jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of
-6-
<PAGE>
EXHIBIT E
---------
limitations applicable to the Guaranteed Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to
Guarantor's liability hereunder.
(d) To the maximum extent permitted by law, Guarantor
hereby waives any right of subrogation Guarantor has or may have as against
Debtor with respect to the Guaranteed Obligations. In addition, Guarantor
hereby waives any right to proceed against Debtor, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Guaranteed Obligations. Guarantor also hereby waives any
right to proceed or to seek recourse against or with respect to any property or
asset of Debtor. Guarantor hereby agrees that, in light of the waivers
contained in this section, Guarantor shall not be deemed to be "creditor" (as
that term is defined in the Bankruptcy Code or otherwise) of Debtor, whether for
purposes of the application of Sections 547 or 550 of the Bankruptcy Code or
otherwise.
(e) If any of the Guaranteed Obligations at any time are
secured by a mortgage or deed of trust upon real property, the Guaranteed
Noteholders may elect, in their sole discretion, upon a default with respect to
the Guaranteed Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudically in any manner permitted by law, before or after
enforcing this Guarantee, without diminishing or affecting the liability of
Guarantor hereunder. Guarantor understands that (a) by virtue of the operation
of California's antideficiency law applicable to nonjudicial foreclosures, an
election by the Guaranteed Noteholders nonjudicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Debtor or other guarantors or sureties, and (b) absent the
waiver given by Guarantor herein, such an election would estop the Guaranteed
Noteholders from enforcing this Guarantee against Guarantor. Understanding the
foregoing, and understanding that Guarantor is hereby relinquishing a defense to
the enforceability of this Guarantee, Guarantor hereby waives any right to
assert against the Guaranteed Noteholders any defense to the enforcement of this
Guarantee, whether denominated "estoppel" or otherwise, based on or arising from
an election by the Guaranteed Noteholders nonjudically to foreclose any such
mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to he determination of Guarantor's liability under
this Guarantee.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS GUARANTEE, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER
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<PAGE>
EXHIBIT E
---------
IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S) 2799, 2808,
2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849,
AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580b, 580c, 580d, and
726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
8. Releases. Guarantor consents and agrees that,
--------
without notice to or by Guarantor and without affecting or impairing the
obligations of Guarantor hereunder, the Guaranteed Noteholders may, by action or
inaction, compromise or settle, extend the period of duration or the time for
the payment, or discharge the performance of, or may refuse to, or otherwise not
enforce, or may, by action or inaction, release all or any one or more parties
to, any one or more of the terms and provisions of the Senior Notes, the
Guaranteed Agreement or any of the other Transaction Documents or may grant
other indulgences to Debtor in respect thereof, or may amend or modify in any
manner and at any time (or from time to time) any one or more of the Guaranteed
Agreement or any of the other Transaction Documents, or may, by action or
inaction, release or substitute any other guarantor, if any, of the Guaranteed
Obligations, or may enforce, exchange, release, or waive, by action or inaction,
any security for the Guaranteed Obligations or any other guaranty of the
Guaranteed Obligations, or any portion thereof.
9. No Election. The Guaranteed Noteholders shall have
-----------
the right to seek recourse against Guarantor to the fullest extent provided for
herein and no election by the Guaranteed Noteholders to proceed in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of the Guaranteed Noteholders' right to proceed in any other
form of action or proceeding or against other parties unless the Guaranteed
Noteholders have expressly waived such right in writing. Specifically, but
without limiting the generality of the foregoing, no action or proceeding by the
Guaranteed Noteholders under any document or instrument evidencing the
Guaranteed Obligations shall serve to diminish the liability of Guarantor under
this Guarantee except to the extent that the Guaranteed Noteholders finally and
unconditionally shall have realized indefeasible payment by such action or
proceeding.
10. Indefeasible Payment. The Guaranteed Obligations
--------------------
shall not be considered indefeasibly paid for purposes of this Guarantee unless
and until all payments to the Guaranteed Noteholders are no longer subject to
any right on the part of any person whomsoever, including Debtor, Debtor as a
debtor in possession, or any trustee (whether appointed under the Bankruptcy
Code or otherwise) of Debtor's assets to invalidate or set aside such payments
or to seek to recoup the amount of such payments or any portion thereof, or to
declare same to be fraudulent or preferential. In the event that, for any
reason, all or any portion of such payments to the Guaranteed Noteholders is
set aside or restored, whether voluntarily or involuntarily, after the making
thereof, the obligation or
-8-
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EXHIBIT E
---------
part thereof intended to be satisfied thereby shall be revived and continued in
full force and effect as if said payment or payments had not been made and
Guarantor shall be liable for the full amount the Guaranteed Noteholders are
required to repay plus any and all costs and expenses (including attorneys
fees) paid by the Guaranteed Noteholders in connection therewith.
11. Financial Condition of Debtor. Guarantor represents and
-----------------------------
warrants to the Guaranteed Noteholders that it is currently informed of the
financial condition of Debtor and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the
Guaranteed Obligations. Guarantor further represents and warrants to the
Guaranteed Noteholders that it has read and understands the terms and conditions
of the Senior Notes, the Guaranteed Agreement and the other Transaction
Documents. Guarantor hereby covenants that it will continue to keep itself
informed of Debtor's financial condition, the financial condition of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Guaranteed Obligations.
12. Subordination. Guarantor hereby agrees that any and all
-------------
present and future indebtedness of Debtor owing to Guarantor is postponed in
favor of and subordinated to payment, in full, in cash, of the Guaranteed
Obligations. In this regard, no payment of any kind whatsoever shall be made
with respect to such indebtedness until the Guaranteed Obligations have been
indefeasibly paid in full.
13. Payments: Application. All payments to be made hereunder
---------------------
by Guarantor shall be made in lawful money of the United States of America at
the time of payment, shall be made in immediately available funds, and shall be
made without deduction (whether for taxes or otherwise) or offset. All payments
made by Guarantor hereunder shall be applied as follows: first, to all
reasonable costs and expenses (including attorneys fees) incurred by the
Guaranteed Noteholders in enforcing this Guarantee or in collecting the
Guaranteed Obligations; second, to all accrued and unpaid interest, premium, if
any, and fees owing to the Guaranteed Noteholders constituting Guaranteed
Obligations; and third, to the balance of the Guaranteed Obligations.
14. Attorneys Fees and Costs. Guarantor agrees to pay, on
------------------------
demand, all reasonable attorneys fees and all other reasonable costs and
expenses which may be incurred by the Guaranteed Noteholders in the enforcement
of this Guarantee or in any way arising out of, or consequential to the
protection, assertion, or enforcement of the Guaranteed Obligations (or any
security therefor), irrespective of whether suit is brought.
15. Notices. Unless otherwise specifically provided in this
-------
Guarantee, any notice or other communication relating to this Guarantee or any
other agreement entered into in connection therewith shall be in writing and, if
to a Guaranteed Noteholder,
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<PAGE>
EXHIBIT E
---------
personally delivered, mailed postage prepaid by registered or certified mail,
delivered by overnight air courier, or sent by telefacsimile, addressed to such
Guaranteed Noteholder at its address appearing on Schedule 1 to the Guaranteed
----------
Agreement or such other address as a Noteholder may designate to Guarantor in
writing, and if to Guarantor, personally delivered, mailed postage prepaid by
registered or certified mail, delivered by overnight air courier, or sent by
telefacsimile to Guarantor at 200 Continental Boulevard, El Segundo, California
90245, Attention: Treasurer, or to such other address as Guarantor may in
writing designate to each Noteholder; provided, however, that a notice to a
-------- -------
Noteholder by overnight air courier shall only be effective if delivered to such
Noteholder at the street address designated for such purpose in Schedule 1 to
----------
the Guaranteed Agreement or such other street address as such Noteholder may
designate to Guarantor in writing.
16. Cumulative Remedies. No remedy under this Guarantee,
-------------------
under the Guaranteed Agreement, or any other Transaction Document is intended to
be exclusive of any other remedy, but each and every remedy shall be cumulative
and in addition to any and every other remedy given under this Guarantee, under
the Senior Notes, the Guaranteed Agreement, or any other Transaction Document,
and those provided by law. No delay or omission by the Guaranteed Noteholders to
exercise any right under this Guarantee shall impair any such right nor be
construed to be a waiver thereof. No failure on the part of the Guaranteed
Noteholders to exercise, and no delay in exercising, any right under this
Guarantee shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Guarantee preclude any other or further
exercise thereof or the exercise of any other right.
17. Severability of Provisions. Any provision of this
--------------------------
Guarantee which is prohibited or unenforceable under applicable law shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions thereof.
18. Entire Agreement: Amendments. This Guarantee constitutes
----------------------------
the entire agreement between Guarantor and the Guaranteed Noteholders pertaining
to the subject matter contained herein. This Guarantee may not be altered,
amended, or modified, nor may any provision hereof by waived or noncompliance
therewith consented to, except by means of a writing executed by both Guarantor
and the Guaranteed Noteholders. Any such alteration, amendment, modification,
waiver, or consent shall be effective only to the extent specified therein and
for the specific purpose for which given. No course of dealing and no delay or
waiver of any right or default under this Guarantee shall be deemed a waiver of
any other, similar or dissimilar, right or default or otherwise prejudice the
rights and remedies hereunder.
19. Successors and Assigns. This Guarantee shall be binding
----------------------
upon Guarantor and it successors and assigns and shall inure to the benefit of
the successors and
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EXHIBIT E
---------
assigns of the Guaranteed Noteholders; provided, however, Guarantor shall not
-------- -------
assign this Guarantee or delegate any of its duties hereunder without the
Guaranteed Noteholder's prior written consent and any unconsented to assignment
shall be absolutely void. In the event of any assignment or other transfer of
rights by the Guaranteed Noteholders, the rights and benefits herein conferred
upon the Guaranteed Noteholders shall automatically extend to and be vested in
such assignee or other transferee.
20. No Third Party Beneficiary. This Guarantee is solely for
--------------------------
the benefit of the Guaranteed Noteholders and their respective successors and
assigns and may not be relied on by any other Person.
21. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER
------------------------------------------
THE VALIDITY OF THIS GUARANTEE, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS GUARANTEE SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR
AT THE SOLE OPTION OF THE GUARANTEED NOTEHOLDERS, IN ANY OTHER COURT IN WHICH
THE GUARANTEED NOTEHOLDERS SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
GUARANTOR AND THE GUARANTEED NOTEHOLDERS WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 21.
----------
GUARANTOR AND THE GUARANTEED NOTEHOLDERS HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS GUARANTEE OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND THE GUARANTEED NOTEHOLDERS
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
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EXHIBIT E
---------
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Guarantee as of the date first written above.
MERISEL EUROPE, INC., a Delaware
corporation
By______________________________
Title:____________________
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<PAGE>
EXHIBIT - P
-----------
GENERAL CONTINUING GUARANTEE
----------------------------
THIS GENERAL CONTINUING GUARANTEE (this "Guarantee"), dated as
of December 23, 1993, is executed and delivered by Merisel, Inc., a Delaware
corporation ("Guarantor"), in favor of the Guaranteed Noteholders, in light of
the following:
WHEREAS, contemporaneously herewith, Debtor and the Guaranteed
Noteholders are entering into the Guaranteed Agreement and Debtor is issuing and
selling the Senior Notes to the Guaranteed Noteholders; and
WHEREAS, in order to induce the Guaranteed Noteholders to (a)
purchase the Senior Notes from Debtor pursuant to the Guaranteed Agreement and
(b) consent to the "Reorganization" (as defined in the Guaranteed Agreement) of
Guarantor, and in consideration thereof, and in consideration of any loans or
other financial accommodations heretofore or hereafter extended by the
Guaranteed Noteholders to Debtor, whether pursuant to the Guaranteed Agreement
or otherwise, Guarantor has agreed to guarantee the Guaranteed Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of the Guaranteed Noteholders, as follows:
1. Definitions and Construction.
----------------------------
(a) Definitions. The following terms, as used in this
-----------
Guarantee, shall have the following meanings:
"Bankruptcy Code" shall mean the United States
---------------
Bankruptcy Code (11 U.S.C. Section 1091 et. seq.), as in effect from time to
--- ---
time and including any successor statute.
"Debtor" shall mean Merisel Americas, Inc., a
------
Delaware corporation.
"Guarantee" shall have the meaning set forth in the
---------
preamble to this document.
"Guaranteed Agreement" shall mean that certain
--------------------
Amended and Restated Senior Note Purchase Agreement, dated as of December 23,
1993, between Debtor, on the one hand, and the purchasers of the Senior Notes
identified therein, on the
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<PAGE>
other hand, as the same may be amended, supplemented, or otherwise modified from
time to time.
"Guaranteed Noteholders" shall mean the holders, from
----------------------
time to time, of the Senior Notes from time to time outstanding.
"Guaranteed Noteholders Indebtedness Amount" shall mean,
------------------------------------------
as of any date of determination, the outstanding principal amount of the
Indebtedness of the Debtor to the Guaranteed Noteholders under the Senior Notes.
"Guaranteed Obligations" shall mean: (a) the due and
----------------------
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to the Guaranteed Noteholders pursuant to the terms
of the Senior Notes and the Guaranteed Agreement; and (b) the due and punctual
payment of all other present or future Indebtedness owing by Debtor to the
Guaranteed Noteholders.
"Guarantor" shall have the meaning set forth in the
---------
preamble to this Guarantee.
"Indebtedness" shall mean any and all obligations,
------------
indebtedness, or liabilities of any kind or character owed by Debtor to the
Guaranteed Noteholders and arising directly or indirectly out of or in
connection with the Guaranteed Agreement or the other Transaction Documents,
including all such obligations, indebtedness, or liabilities, whether for
principal, interest (including any and all interest which, but for the
application of the provisions of the Bankruptcy Code, would have accrued on such
amounts), premium, reimbursement obligations, fees, costs, expenses (including
attorneys fees), or indemnity obligations, whether heretofore, now, or hereafter
made, incurred, or created, whether voluntarily or involuntarily made, incurred,
or created, whether secured or unsecured (and if secured, regardless of the
nature or extent of the security), whether absolute or contingent, liquidated or
unliquidated, or determined or indeterminate, whether Debtor is liable
individually or jointly with others, and whether recovery is or hereafter
becomes barred by any statute of limitations or otherwise becomes unenforceable
for any reason whatsoever, including any act or failure to act by the Guaranteed
Noteholders.
"New Revolving Credit Agreement" shall mean that certain
------------------------------
Revolving Credit Agreement dated as of December 23, 1993, among Debtor and
Merisel Europe, Inc., a Delaware corporation, as borrowers, Guarantor as
guarantor, Citicorp USA, Inc., as agent, and the financial institutions which
may now or hereafter be parties thereto, as the same may be amended,
supplemented, or otherwise modified from time to time.
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<PAGE>
EXHIBIT - P
-----------
"Person" shall mean any natural person, corporation,
------
limited partnership, general partnership, joint stock company , joint venture,
association, company, trust, bank trust company, land trust, business trust, or
other organization, irrespective of whether a legal entity, any governmental
authority, or any non-governmental entity.
"Security" shall have the same meaning as in
--------
Section 2(1) of the Securities Act of 1933, as amended.
"Senior Notes" shall mean the Amended and Restated
------------
8.58% Senior Notes due June 30, 1997, issued by the Debtor pursuant to the
Guaranteed Agreement.
"Subsidiary" shall mean any corporation, association,
----------
partnership, or other business entity of which 50% or more of the total
voting power of shares of Voting Stock is at the time owned or controlled
by any Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Transaction Documents" shall mean, collectively,
--------------------
the Senior Notes, the Guaranteed Agreement and any other documents, agreements
and instruments executed and delivered pursuant thereto or in connection with
the transactions contemplated thereby.
"Voting Stock" shall mean Securities of any class
------------
or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
(b) Construction. Unless the context of this Guarantee
------------
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the part includes the whole, the
terms "include" and "including" are not limiting, and the term "or" has the
inclusive meaning represented by the phrase "and/or." The words "hereof,
"herein," "hereby," "hereunder," and other similar terms refer to this Guarantee
as a whole and not to any particular provision of this Guarantee. Any reference
in this Guarantee to any of the following documents includes any and all
alterations, amendments, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Senior Notes; the Guaranteed Agreement;
the Transaction Documents; and this Guarantee. Neither this Guarantee nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Guaranteed Noteholders or Guarantor, whether under any rule of construction or
otherwise. On the contrary, this Guarantee has been reviewed by Guarantor, the
Guaranteed Noteholders, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the Guaranteed Noteholders and
Guarantor.
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<PAGE>
EXHIBIT-P
---------
2. Guaranteed Obligations. Guarantor hereby irrevocably and
----------------------
unconditionally guarantees to the Guaranteed Noteholders, as and for its own
debt, until final and indefeasible payment thereof has been made, (a) the
payment of the Guaranteed Obligations, in each case when and as the same shall
become due and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of Guarantor
that the guaranty set forth herein shall be a guaranty of payment and not a
guaranty of collection; and (b) the punctual and faithful performance, keeping,
observance, and fulfillment by Debtor of all of the agreements, conditions,
covenants, and obligations of Debtor contained in the Senior Notes, the
Guaranteed Agreement, and under each of the other Transaction Documents. The
Guaranteed Obligations shall rank pari passu with Guarantor's obligations to
guaranty the obligations of the borrowers under the New Revolving Credit
Agreement.
3. Continuing Guarantee. This Guarantee includes Guaranteed
--------------------
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guaranteed
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guaranteed Obligations after
prior Guaranteed Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, Guarantor hereby waives any right to revoke
this Guarantee as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notice thereof has been
received by the Guaranteed Noteholders, (b) no such revocation shall apply to
any Guaranteed Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Guaranteed Obligations made or created after such date to the
extent made or created pursuant to a legally binding commitment of the
Guaranteed Noteholders in existence on the date of such revocation, (d) no
payment by Guarantor, Debtor, or from any other source, prior to the date of
such revocation shall reduce the maximum obligation of Guarantor hereunder, and
(e) any payment by Debtor or from any source other than Guarantor subsequent to
the date of such revocation shall first be applied to that portion of the
Guaranteed Obligations as to which the revocation is effective and which are
not, therefore, guarantied hereunder, and to the extent so applied shall not
reduce the maximum obligation of Guarantor hereunder.
4. Performance Under this Guarantee. In the event that
--------------------------------
Debtor fails to make any payment of any Guaranteed Obligations, on or before the
due date thereof, or if Debtor shall fail to perform, keep, observe, or fulfill
any other obligation referred to in clause (b) of Section 2 hereof in the manner
-----------------------
provided in the Senior Notes, the Guaranteed Agreement or the other Transaction
Documents, as applicable, Guarantor immediately shall cause such payment to be
made or each of such obligations to be performed, kept, observed, or fulfilled.
Guarantor agrees that each holder of a Senior Note shall be a
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<PAGE>
EXHIBIT-P
---------
Guaranteed Noteholder hereunder and shall be entitled to the benefits of this
Guarantee, irrespective of whether such holder was one of the original
purchasers of the Senior Notes under the Note Purchase Agreement. Upon any
demand for payment hereunder (which demand shall be made in accordance with the
terms of the Guaranteed Agreement) and payment of any moneys by Guarantor in
respect of the Indebtedness, such moneys shall be apportioned among the
Guaranteed Noteholders and paid to each Guaranteed Noteholder in accordance with
the ratio that the principal amount of Senior Notes held by each such Guaranteed
Noteholder bears to the Guaranteed Noteholders Indebtedness Amount. Guarantor
understands that the Senior Notes are transferable and agrees that upon
transfer of a Senior Note, the transferor and the transferee shall have no
obligation to notify Guarantor of the transfer or the identity of the
transferee. As the sole shareholder of Debtor, Guarantor has adequate means of
obtaining from Debtor, on a continuing basis, any information pertaining to the
Guaranteed Noteholders that it might need, and Guarantor waives and relinquishes
any duty on the part of the Guaranteed Noteholders to provide any such
information to Guarantor.
5. Nature of Business. Neither Guarantor nor any Subsidiary
------------------
of Guarantor shall engage in any business other than (i) the businesses in which
they are engaged as of the date hereof, and (ii) businesses directly related to
the distribution or marketing of computer products.
6. Primary Obligations. This Guarantee is a primary and
-------------------
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions. Guarantor agrees that it is directly,
jointly and severally with any other guarantor of the Guaranteed Obligations,
liable to the Guaranteed Noteholders, that the obligations of Guarantor
hereunder are independent of the obligations of Debtor or any other guarantor,
and that a separate action may be brought against Guarantor, whether such action
is brought against Debtor or any other guarantor or whether Debtor or any other
guarantor is joined in such action., Guarantor agrees that its liability
hereunder shall be immediate and shall not be contingent upon the exercise or
enforcement by the Guaranteed Noteholders of whatever remedies it may have
against Debtor or any other guarantor, or the enforcement of any lien or
realization upon any security the Guaranteed Noteholders may at any time posses.
Guarantor agrees that any release which may be given by the Guaranteed
Noteholders to Debtor or any other guarantor shall not release Guarantor.
Guarantor consents and agrees that the Guaranteed Noteholders shall be under no
obligation to marshal any property or assets of Debtor or any other guarantor in
favor of Guarantor, or against or in payment of any or all of the Guaranteed
Obligations.
-5-
<PAGE>
EXHIBIT - P
-----------
7. Waivers.
-------
(a) Guarantor hereby waives: (i) notice of acceptance
hereof; (ii) notice of any loans or other financial accommodations made or
extended under the Guaranteed Agreement, or the creation or existence of any
Guaranteed Obligations; (iii) notice of the amount of the Guaranteed
Obligations, subject, however, to Guarantor's right to make inquiry of the
Guaranteed Noteholders to ascertain the amount of the Guaranteed Obligations at
any reasonable time; (iv) notice of any adverse change in the financial
condition of Debtor or of any other fact that might increase Guarantor's risk
hereunder; (v) notice of presentment for payment, demand, protest, and notice
thereof as to any instrument among the Transaction Documents; (iv) notice of any
unmatured event of default or event of default under the Guaranteed Agreement;
and (vii) all other notices (except if such notice is specifically required to
be given to Guarantor under this Guarantee or any other Transaction Documents to
which Guarantor is a party) and demands to which Guarantor might otherwise be
entitled.
(b) To the fullest extent permitted be applicable law,
Guarantor waives the right by statute or otherwise to require the Guaranteed
Noteholders to institute suit against Debtor or to exhaust any rights and
remedies which the Guaranteed Noteholders has or may have against Debtor. In
this regard, Guarantor agrees that it is bound to the payment of each and all
Guaranteed Obligations, whether now existing or hereafter arising, as fully as
if such Guaranteed Obligations were directly owing to the Guaranteed Noteholders
by Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guaranteed
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
(c) To the maximum extent permitted by law, Guarantor hereby
waives: (i) any rights to assert against the Guaranteed Noteholders any defense
(legal or equitable), set-off, counterclaim, or claim which Guarantor may now or
at any time hereafter have against Debtor or any other party liable to the
Guaranteed Noteholders; (ii) any defense, set-off, counterclaim, or claim, of
any kind or nature, arising directly or indirectly from the present or future
lack of perfection, sufficiency, validity, or enforceability or the Guaranteed
Obligations or any security therefor; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by the Guaranteed
Noteholders including any defense based upon an election of remedies by the
Guaranteed Noteholders under the provisions of (S)(S) 580d and 726 of the
California Code of Civil Procedure, or any similar law of California or any
other jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statue of
-6-
<PAGE>
EXHIBIT - P
-----------
limitations applicable to the Guaranteed Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to
Guarantor's liability hereunder.
(d) To the maximum extent permitted by law, Guarantor hereby
waives any right of subrogation Guarantor has or may have as against Debtor with
respect to the Guaranteed Obligations. In addition, Guarantor hereby waives any
right to proceed against Debtor, now or hereafter, for contribution,indemnity,
reimbursement, or any other suretyship rights and claims (irrespective of
whether direct or indirect, liquidated or contingent), with respect to the
Guaranteed Obligations. Guarantor also hereby waives any right to proceed or to
seek recourse against or with respect to any property or asset of Debtor.
Guarantor hereby agrees that, in light of the waivers contained in this section,
Guarantor shall not be deemed to be a "creditor" (as that term is defined in the
Bankruptcy Code or otherwise) of Debtor, whether for purposes of the application
of Sections 547 or 550 of the Bankruptcy Code or otherwise.
(e) If any of the Guaranteed Obligations at any time are
secured by a mortgage or deed of trust upon real property, the Guaranteed
Noteholders may elect, in their sole discretion, upon a default with respect to
the Guaranteed Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing this Guarantee, without diminishing or affecting the liability of
Guarantor hereunder. Guarantor understands that (a) by virtue of the operation
of California's antideficiency law applicable to nonjudicial foreclosures, an
election by the Guaranteed Noteholders nonjudicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Debtor or other guarantors or sureties, and (b) absent the
waiver given by Guarantor herein, such an election would estop the Guaranteed
Noteholders from enforcing this Guarantee against Guarantor. Understanding the
foregoing, and understanding that Guarantor is hereby relinquishing a defense to
the enforceability of this Guarantee, Guarantor hereby waives any right to
assert against the Guaranteed Noteholders any defense to the enforcement of this
Guarantee, whether denominated "estoppel" or otherwise, based on or arising from
an election by the Guaranteed Noteholders nonjudicially to foreclose any such
mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Guarantee.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTEE, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER
-7-
<PAGE>
EXHIBIT - P
-----------
IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S) 2799, 2808,
2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849,
AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580c, 580d, AND 726,
AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
8. Releases. Guarantor consents and agrees that, without
--------
notice to or by Guarantor and without affecting or impairing the obligations of
Guarantor hereunder, the Guaranteed Noteholders may, by action or inaction,
compromise or settle, extend the period of duration or the time for the payment,
or discharge the performance of, or may refuse to, or otherwise not enforce, or
may, by action or inaction, release all or any one or more parties to, any one
or more of the terms and provisions of the Senior Notes, the Guaranteed
Agreement or any of the other Transaction Documents or may grant other
indulgences to Debtor in respect thereof, or may amend or modify in any manner
and at any time (or from time to time) any one or more of the Guaranteed
Agreement or any of the other Transaction Documents, or may, by action or
inaction, release or substitute any other guarantor, if any, of the Guaranteed
Obligations, or may enforce, exchange, release, or waive, by action or inaction,
any security for the Guaranteed Obligations or any other guaranty of the
Guaranteed Obligations, or any portion thereof.
9. No Election. The Guaranteed Noteholders shall have the
-----------
right to seek recourse against Guarantor to the fullest extent provided for
herein and no election by the Guaranteed Noteholders to proceed in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of the Guaranteed Noteholders' right to proceed in any other
form of action or proceeding or against other parties unless the Guaranteed
Noteholders have expressly waived such right in writing. Specifically, but
without limiting the generality of the foregoing, no action or proceeding by the
Guaranteed Noteholders under any document or instrument evidencing the
Guaranteed Obligations shall serve to diminish the liability of Guarantor under
this Guarantee except to the extent that the Guaranteed Noteholders finally and
unconditionally shall have realized indefeasible payment by such action or
proceeding.
10. Indefeasible Payment. The Guaranteed Obligations shall
--------------------
not be considered indefeasibly paid for purposes of this Guarantee unless and
until all payments to the Guaranteed Noteholders are no longer subject to any
right on the part of any person whomsoever, including Debtor. Debtor as a
debtor in possession, or any trustee (whether appointed under the Bankruptcy
Code or otherwise) of Debtor's assets to invalidate or set aside such payments
or to seek to recoup the amount of such payments or any portion thereof, or to
declare same to be fraudulent or preferential. In the event that, for any
reason, all or any portion of such payments to the Guaranteed Noteholders is set
aside or restored, whether voluntarily or involuntarily, after the making
thereof, the obligation or
-8-
<PAGE>
EXHIBIT - P
-----------
part thereof intended to be satisfied thereby shall be revived and continued in
full force and effect as if said payment or payments had not been made and
Guarantor shall be liable for the full amount the Guaranteed Noteholders are
required to repay plus any and all costs and expenses (including attorneys fees)
paid by the Guaranteed Noteholders in connection therewith.
11. Financial Condition of Debtor. Guarantor represents and
-----------------------------
warrants to the Guaranteed Noteholders that it is currently informed of the
financial condition of Debtor and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the
Guaranteed Obligations. Guarantor further represents and warrants to the
Guaranteed Noteholders that it has read and understands the terms and conditions
of the Senior Notes, the Guaranteed Agreement and the other Transaction
Documents. Guarantor hereby covenants that it will continue to keep itself
informed of Debtor's financial condition, the financial condition of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Guaranteed Obligations.
12. Subordination. Guarantor hereby agrees that any and all
-------------
present and future indebtedness of Debtor owing to Guarantor is postponed in
favor of and subordinated to payment, in full, in cash, of the Guaranteed
Obligations. In this regard, no payment of any kind whatsoever shall be made
with respect to such indebtedness until the Guaranteed Obligations have been
indefeasibly paid in full.
13. Payments: Application. All payments to be made hereunder
---------------------
by Guarantor shall be made in lawful money of the United States of America at
the time of payment, shall be made in immediately available funds, and shall be
made without deduction (whether for taxes or otherwise) or offset. All payments
made by Guarantor hereunder shall be applied as follows: first, to all
reasonable costs and expenses (including attorneys fees) incurred by the
Guaranteed Noteholders in enforcing this Guarantee or in collecting the
Guaranteed Obligations; second, to all accrued and unpaid interest; premium, if
any, and fees owing to the Guaranteed Noteholders constituting Guaranteed
Obligations; and third, to the balance of the Guaranteed Obligations.
14. Attorneys Fees and Costs. Guarantor agrees to pay, on
------------------------
demand, all reasonable attorneys fees and all other reasonable costs and
expenses which may be incurred by the Guaranteed Noteholders in the enforcement
of this Guarantee or in any way arising out of, or consequential to the
protection, assertion, or enforcement of the Guaranteed Obligations (or any
security therefor), irrespective of whether suit is brought.
15. Notices. Unless otherwise specifically provided in this
-------
Guarantee, any notice or other communication relating to this Guarantee or any
other agreement entered into in connection therewith shall be in writing and, if
to a Guaranteed Noteholder,
-9-
<PAGE>
EXHIBIT - P
-----------
personally delivered, mailed postage prepaid by registered or certified mail,
delivered by overnight air courier, or sent by telefacsimile, addressed to such
Guaranteed Noteholder at its address appearing on Schedule 1 to the Guaranteed
----------
Agreement or such other address as a Noteholder may designate to Guarantor
in writing, and if to Guarantor in writing, and if to Guarantor, personally
delivered, mailed postage prepaid by registered or certified mail, delivered
by overnight air courier, or sent by telefacsimile to Guarantor at 200
Continental Boulevard, El Segundo, California 90245, Attention: Treasurer, or to
such other address as Guarantor may in writing designate to each Noteholder;
provided, however, that a notice to a Noteholder by overnight air courier
- -----------------
shall only be effective if delivered to such Noteholder at the street address
designated for such purpose in Schedule 1 to the Guaranteed Agreement or such
----------
other street address as such Noteholder may designate to Guarantor in writing.
16. Cumulative Remedies. No remedy under this Guarantee,
-------------------
under the Guaranteed Agreement, or any other Transaction Document is intended to
be exclusive of any other remedy, but each and every remedy shall be cumulative
and in addition to any and every other remedy given under this Guarantee, under
the Senior Notes, the Guarantee Agreement, or any other Transaction Document,
and those provided by law. No delay or omission by the Guaranteed Noteholders to
exercise any right under this Guarantee shall impair any such right nor be
construed to be a waiver thereof. No failure on the part of the Guaranteed
Noteholders to exercise, and no delay in exercising, any right under this
Guarantee shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Guarantee preclude any other or further
exercise thereof or the exercise of any other right.
17. Severability of Provisions. Any provision of this
--------------------------
Guarantee which is prohibited or unenforceable under applicable law shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
18. Entire Agreement; Amendments. This Guarantee constitutes
----------------------------
the entire agreement between Guarantor and the Guaranteed Noteholders pertaining
to the subject matter contained herein. This Guarantee may not be altered,
amended, or modified, nor may any provision hereof be waived or noncompliance
therewith consented to, except by means of a writing executed by both Guarantor
and the Guaranteed Noteholders (and in the case of section 22 hereof, by
NationBank of Texas, N.A. as well). Any such alteration, amendment,
modification, waiver, or consent shall be effective only to the extent specified
therein and for the specific purpose for which given. No course of dealing and
no delay or waiver of any right or default under this Guarantee shall be deemed
a waiver of any other, similar or dissimilar, right or default or otherwise
prejudice the rights and remedies hereunder.
-10-
<PAGE>
EXHIBIT - P
-----------
19. Successors and Assigns. This Guarantee shall be binding
----------------------
upon Guarantor and its successors and assigns and shall inure to the benefit of
the successors and assigns of the Guaranteed Noteholders; provided, however,
-------- -------
Guarantor shall not assign this Guarantee or delegate any of its duties
hereunder without the Guaranteed Noteholders's prior written consent and any
unconsented to assignment shall be absolutely void. In the event of any
assignment or other transfer of rights by the Guaranteed Noteholders, the
rights and benefits herein conferred upon the Guaranteed Noteholders shall
automatically extend to and be vested in such assignee or other transferee.
20. No Third Party Beneficiary. This Guarantee is solely for
--------------------------
the benefit of the Guaranteed Noteholders and their respective successors and
assigns and may not be relied on by any other Person (other than the
"Acquisition Banks" as defined in, and with respect to, Section 22 hereof).
----------
21. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER
------------------------------------------
THE VALIDITY OF THIS GUARANTEE, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTEE SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR
AT THE SOLE OPTION OF THE GUARANTEED NOTEHOLDERS, IN ANY OTHER COURT IN WHICH
THE GUARANTEED NOTEHOLDERS SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, EACH OF
GUARANTOR AND THE GUARANTEED NOTEHOLDERS WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 21.
----------
GUARANTOR AND THE GUARANTEED NOTEHOLDERS HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTEE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
-11-
<PAGE>
EXHIBIT - P
-----------
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND THE
GUARANTEED NOTEHOLDERS REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
22. ComputerLand Assets. Notwithstanding any other provision
-------------------
of this Guaranty, the Guaranteed Noteholders may not (whether in any bankruptcy
or other proceeding) make any demand or claim upon, accept, sue against or take
any other action or exercise any right, remedy, power or privilege with
respect to, or execute, foreclose or seek to execute or foreclose upon, (i) any
assets of Guarantor acquired or otherwise obtained from ComputerLand
Corporation, a Delaware corporation ("ComputerLand") or (whether before or after
the acquisition of ComputerLand by Merisel FAB, Inc., a Delaware corporation
("Merisel FAB")) or assets of Merisel FAB, or (ii) the assets of Guarantor
consisting of the stock, Debt (as defined in the Guaranteed Agreement) or other
securities of Merisel FAB (the assets described in clauses (i) and (ii) being
the "ComputerLand Assets") in respect of the Guaranteed Obligations or any other
liability (including all fees, costs, indemnities, claims (whether in contract
or tort) for breach of representation or warranties or any other like amounts)
of Guarantor under or in connection with this Guaranty unless and until the
Acquisition Debt (as defined below) shall have indefeasibly been paid in full in
cash or cash equivalents or the Acquisition Banks shall have consented in
writing to such action (and Guarantor hereby covenants and agrees to provide the
Guaranteed Noteholders with copies of any such written consent promptly upon
receipt thereof), and Guarantor shall be entitled to defend against, and any
Acquisition Bank shall be entitled to prevent any such action or attempt to take
any such action. Except as specifically provided in this Section 22, nothing is
----------
intended to impair the rights, remedies, powers or privileges of the Guaranteed
Noteholders under or in connection with this Guaranty against Guarantor and the
Guaranteed Noteholders shall be fully entitled otherwise to demand payment, sue
---------
and take any other action against Guarantor under or in connection with this
Guaranty so long as the Guaranteed Noteholders do not take or seek to take any
action specifically referred to above relating to the ComputerLand Assets.
For the purpose of this Section 22:
----------
"Acquisition Debt" shall mean any and all obligations of Guarantor, whether for
principal, interest (including interest, whether or not allowed, accruing after
the commencement of any bankruptcy proceeding), fees, costs, indemnities or
other like amounts, under or in connection with that certain Credit Agreement,
dated as of December 23, 1993, between Guarantor and NationsBank of Texas, N.A.,
as the same may be amended, supplemented, extended, refinanced (so long as such
refinancing is through Debt, other than Debt in connection with a "distribution"
as such term is used in the Securities Act of 1933) or
-12-
<PAGE>
EXHIBIT - P
-----------
otherwise modified from time to time; provided, however, that the portion of
-------- -------
such Acquisition Debt consisting of lent principal shall not in the aggregate
exceed $65,000,000.
"Acquisition Banks" shall mean NationsBank of Texas, N.A. and each other
financial institution or institutions from time to time holding all or any
portion of the Acquisition Debt.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Guarantee as of the date first written above.
MERISEL, INC. a Delaware corporation
By__________________________________
Title: ___________________________
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<PAGE>
C O N F I D E N T I A L
EXHIBIT 10.35
RECEIVABLES PURCHASE AGREEMENT
between
MERISEL CANADA INC.
as Seller
- and -
CANADIAN MASTER TRUST
as Purchaser
December 15, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1
INTERPRETATION
--------------
<TABLE>
<S> <C> <C>
1.1 Certain Defined Terms.................................. 2
1.2 Extended Meanings...................................... 19
1.3 Headings, Sections, etc................................ 19
1.4 Accounting Principles.................................. 19
1.5 Rating Agency Ratings.................................. 20
1.6 Currency............................................... 20
1.7 Payments............................................... 20
1.8 Non-Business Days...................................... 20
1.9 Months, Settlement Periods and Tranche Periods......... 20
1.10 Exhibits............................................... 20
ARTICLE 2
PURCHASES
---------
2.1 Purchases Pursuant to Purchase Request................. 21
2.2 Purchases from Collections............................. 21
2.3 Identification of Purchased Receivables................ 22
2.4 Purchase Price of Purchased Assets..................... 24
2.5 Selection of Tranche Amounts and Tranche Periods....... 26
2.6 Purchase Limit; Termination or Reduction of Purchase
Limit; Designation of Termination Date................. 27
2.7 Reduction of Purchased Amount.......................... 28
2.8 Non-Liquidation Settlement Procedures.................. 28
2.9 Liquidation Settlement Procedures...................... 28
2.10 Deemed Collections..................................... 29
2.11 Other Matters.......................................... 30
ARTICLE 3
MANAGEMENT, APPLICATION OF COLLECTIONS AND FEES
-----------------------------------------------
3.1 Appointment of Servicer................................ 31
3.2 Application of Collections............................. 31
3.3 Withdrawals from Collection Account After
Purchase Termination Date.............................. 31
3.4 Reporting.............................................. 31
3.5 Payments and Computations.............................. 32
3.6 Fees................................................... 33
3.7 Maintenance of Records and Accounts.................... 33
</TABLE>
<PAGE>
- ii -
ARTICLE 4
CONDITIONS PRECEDENT
--------------------
<TABLE>
<S> <C> <C>
4.1 Conditions Precedent to Initial Purchase................ 34
4.2 Conditions Precedent to All Purchases................... 35
4.3 Undertaking of Purchaser................................ 36
ARTICLE 5
EVENTS OF TERMINATION
---------------------
5.1 Meaning of Event of Termination......................... 36
5.2 Action Upon an Event of Termination..................... 39
5.3 Notice re: Liquidity Support............................ 39
6.1 Liability of Purchaser, the Credit Enhancer and the
Securitization Agent.................................... 39
6.2 Delegation in Favour of Securitization Agent............ 40
6.3 Rights of the Purchaser................................. 40
6.4 Responsibilities of the Seller.......................... 41
6.5 Other Dealings.......................................... 41
6.6 Power of Attorney....................................... 41
6.7 Execution of Additional Powers.......................... 42
6.8 Restrictions on Use..................................... 42
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Costs, Expenses and Taxes............................... 42
7.2 Change in Circumstances................................. 43
7.3 Further Assurances...................................... 44
7.4 Failure to Perform...................................... 44
7.5 Entire Agreement........................................ 44
7.6 Amendments, Waivers, Etc................................ 44
7.7 No Waiver; Remedies..................................... 45
7.8 Non-Merger.............................................. 45
7.9 Time of the Essence..................................... 45
7.10 Agreement of Purchase and Sale.......................... 45
7.11 Notices................................................. 45
7.12 Notice to Rating Agency................................. 46
7.13 Binding Effect; Assignability, Etc...................... 47
7.14 Judgment................................................ 47
7.15 Governing Law........................................... 47
7.16 Consent to Jurisdiction; Waiver of Immunities........... 48
</TABLE>
<PAGE>
- iii -
<TABLE>
<S> <C> <C>
7.17 Severability............................................ 48
7.18 Confidentiality......................................... 48
7.19 Limitation of Liability................................. 49
7.20 Financial Reporting..................................... 49
7.21 Standard Terms and Conditions........................... 50
7.22 Termination............................................. 50
7.23 Counterparts............................................ 50
</TABLE>
Exhibit A - Form of Purchase Request
Exhibit B - Form of Portfolio Report
Exhibit C - Form of Weekly Report
Exhibit D - Form of Officer's Certificate
Exhibit E - Form of Summary General Trial Balance
Exhibit F - Form of Opinion of Seller's Counsel
Exhibit G - Standard Terms and Conditions
Exhibit H - List of Offices Where Records are Kept
Exhibit I - Fees
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
THIS RECEIVABLES PURCHASE AGREEMENT made as of the 15th day of
December, 1995.
B E T W E E N:
MERISEL CANADA INC.,
a corporation incorporated under the laws
of the Province of Ontario, as seller,
(hereinafter referred to as the "Seller"),
OF THE FIRST PART,
- and -
THE TRUST COMPANY OF
BANK OF MONTREAL,
a trust company incorporated under the
laws of Canada and licensed to carrying on
business as a trustee in each of the
provinces of Canada, in its capacity as
trustee of CANADIAN MASTER TRUST, a
trust established pursuant to the laws of the
Province of Ontario, without personal
liability, as purchaser,
(in such capacity, hereinafter referred to as
the "Purchaser"),
OF THE SECOND PART.
WHEREAS the Seller generates Invoiced Receivables in the on-going
operation of the Seller's general distribution business and is desirous of
selling to the Purchaser from time to time and of collecting and otherwise
servicing the property so sold by the Seller to the Purchaser as hereinafter set
forth;
AND WHEREAS the Purchaser is willing to purchase Eligible Receivables
and certain other property relating thereto from the Seller from time to time on
a fully-serviced basis on the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and the covenants and agreements of the parties herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by each party, the parties hereby covenant and agree as
follows:
1
INTERPRETATION
--------------
<PAGE>
- 2 -
.1 Certain Defined Terms. In this Agreement, the following terms have
---------------------
the following meanings:
"Administration Agreement" means the agreement dated as of December 15, 1995
between the Purchaser and Nesbitt Burns Inc. pursuant to which, among other
things, Nesbitt Burns Inc. has agreed to perform, as agent on behalf of the
Purchaser, certain of the duties and responsibilities of BMO Trust Company, and
to exercise certain rights and privileges of the Purchaser, as the same may be
amended, supplemented, restated or replaced from time to time.
"Adverse Claim" means a lien, security interest, charge, encumbrance, mortgage,
lease, title retention agreement, hypothecation, claim, pledge, assignment
(whether or not by way of security), ownership interest, right of set-off or
other right or claim of any Person other than the Purchaser.
"Affiliate", in respect of any specified Person, means any other Person:
(a) that is either directly or indirectly controlled by the specified
Person or by a Person that also controls the specified Person; or
(b) that either directly or indirectly controls the specified Person,
and, for the purposes of this definition, "control" shall mean de facto control,
being the power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
"Affiliated Obligor" means any Obligor which is an Affiliate of another Obligor.
"Agreement" means, collectively, this agreement and the Exhibits hereto, as the
same may be amended, supplemented and restated from time to time.
"Average Maturity" means, on any day, that period (expressed in days) which is
equal to the weighted average number of days (based on aging categories) that
Receivables are outstanding until paid in full as calculated by the Servicer or
the Replacement Servicer, as the case may be, and as set forth in the most
recent Portfolio Report in accordance with the provisions thereof; provided,
however, that in the event of manifest error, the Purchaser may recalculate the
Average Maturity for such day.
"BMO Trust Company" means The Trust Company of Bank of Montreal;
"Business Day" means any day, other than a Saturday or Sunday or statutory or
civic holiday, on which Bank of Montreal is open for business in Toronto,
Ontario.
"Canadian Dollars" or "$" means the lawful currency of Canada.
"Canadian Master Trust" means Canadian Master Trust, a trust established
pursuant to the laws of the Province of Ontario by a deed of settlement dated as
of December 15, 1995.
"Cash Discount" means any early payment discounts or similar adjustments granted
by the Seller to an Obligor in respect of an Invoiced Receivable.
"Collection Account" means an Eligible Deposit Account established in the name
of the Servicer as trustee for and on behalf of the Purchaser, which account
shall be separate and segregated from
<PAGE>
- 3 -
the Servicer's own assets, shall bear interest, shall permit the denomination of
balances in Canadian dollars and U.S. dollars, and which shall initially be
account number 1263272, transit number 2, maintained at the main Toronto branch
of Bank of Montreal.
"Collection Costs" means all reasonable out-of-pocket costs and expenses of the
Servicer, if other than the Seller, and the Purchaser (which, for greater
certainty, shall for the purposes of this definition include any Credit Enhancer
to whom any Purchased Assets have been transferred) in administering and
collecting the Purchased Receivables and enforcing the Related Security related
thereto, including, without limitation, reasonable legal expenses of the
Servicer or the Purchaser, as the case may be.
"Collection Delay Period" means ten days or such greater number of days (not to
exceed the number of days equal to (i) the maximum permissible Tranche Period
under Section 2.5(a)(i) less (ii) 30 days) as the Purchaser may select upon
three Business Days' notice to the Seller.
"Collections" means, without duplication, all payments made by or on behalf of
Obligors, and all other cash collections and other cash proceeds received by the
Servicer in each case in respect of the Purchased Assets, including all cash
proceeds of any contract of insurance (including the Designated Policy) paid in
respect of any of the Purchased Receivables, all other cash proceeds of any
Related Security, including cash proceeds realized through the enforcement of a
Contract or other Related Security against an Obligor, and any Collections
deemed to have been received by the Servicer pursuant hereto; provided, however,
that, until the occurrence of a Servicer Termination Event, "Collections" shall
not include any payments or proceeds in respect of Taxes.
"Concentration Limit", means, in respect of Receivables not subject to Floor
Plan Arrangements and at the time of Purchase of such Receivable:
for any Obligor that is not a Governmental Authority:
(c) an amount equal to such percentage of the Required Amount as
is designated by the Purchaser in a notice to the Seller; or
(d) if there is a Designated Policy at such time, either the
discretionary limit established by such policy or, if the
Obligor is subject to approved limits in the Designated
Policy, the approved limits at such time; and
(B) if the Obligor is a Governmental Authority:
(e) if the Obligor is the Government of Canada, 30% of the
Purchased Amount;
(f) if the Obligor has a long-term unsecured debt rating of AA or
higher by the Rating Agency or an equivalent rating from a
nationally recognized United States rating agency, 15% of the
Purchased Amount;
(g) if the Obligor has a long-term unsecured debt rating of A or
higher by the Rating Agency or an equivalent rating from a
nationally recognized United States rating agency, 7.5% of
the Purchased Amount; and
<PAGE>
- 4 -
(h) if the Obligor has a long-term unsecured debt rating of less
than A by the Rating Agency or an equivalent rating from a
nationally recognized United States rating agency, one-third
of the Credit Loss Reserve,
provided, however, that any such Concentration Limit may from time to time be
changed by the Purchaser in its reasonable discretion (provided that in the case
of a decrease in the Concentration Limit under (A)(a) above the Purchaser shall
give the Seller 30 days' notice), and provided further that in the case of an
Obligor and any Affiliated Obligors, the Concentration Limit shall be calculated
as if such Obligor and such one or more Affiliated Obligors were one Obligor.
"Concentration Ratio" means, for any Obligor at any time, the ratio (expressed
as a percentage) calculated by dividing (a) the then aggregate Outstanding
Principal Balance of all Purchased Receivables owing by such Obligor and by any
Affiliated Obligor by (b) the then Required Amount.
"Contract" means: (i) a written agreement and any related written invoices; (ii)
a written invoice without a related written agreement; and (iii) an invoice or
agreement transmitted by electronic means, in each case between the Seller and
an Obligor pursuant to which the Obligor is obligated to pay one or more
Invoiced Receivables to the Seller and in each case assignable in favour of the
Purchaser without restriction of any kind.
"Credit and Collection Policy" means the Seller's credit, collection and
administration policies and procedures relating to the Invoiced Receivables,
Contracts and Related Security owned or administered by the Servicer from time
to time, as such policies and procedures may be amended, supplemented or
replaced from time to time as permitted by Article 4.11(a) of the Standard Terms
and Conditions.
"Credit Enhancer" means the Designated Insurer and any Person who by any means
whatsoever, including, any letter of credit, surety bond, cash collateral
account, spread account, guaranteed rate agreement, refinancing facility, tax
protection agreement, interest rate swap agreement, secondary receivables
purchase agreement, or other similar arrangement, provides credit enhancement in
respect of the Purchased Assets and/or the Notes relating to such Purchased
Assets; provided, however, that the Designated Insurer shall have a long-term
debt rating of at least AA low or a short-term debt rating of at least R-1
(middle) unless otherwise approved by the Rating Agency;
"Credit Loss Reserve" means, at any time, an amount equal to the Purchased
Amount multiplied by the percentage equal to (i) 7% if the Purchased Amount is
less than or equal to $100 million; (ii) 8% if the Purchased Amount is greater
than $100 million and less than or equal to $125 million; or (iii) 9% if the
Purchased Amount is greater than $125 million.
"Days Sales Ratio" means, in any particular Settlement Period, the amount
(expressed in days) that is equal to:
(R1 + R2)
---------
2
--------------
(Sales x 12)
-------------
YD
where:
<PAGE>
- 5 -
R1 = The total balance of Invoiced Receivables
outstanding on the last day of the preceding
Settlement Period.
R2 = The total balance of Invoiced Receivables
outstanding on the last day of such Settlement
Period.
Sales = Seller's sales during such Settlement Period.
YD = 365, unless such Settlement Period commences in
in a calendar year that has 366 days, in which
case "YD" shall be 366.
"Default Ratio" means, in respect of any Settlement Period, the ratio (expressed
as a percentage) calculated by dividing (a) the aggregate principal balance at
the end of such Settlement Period of all Defaulted Receivables by (b) the
aggregate principal balance of all Invoiced Receivables at such time.
"Defaulted Receivable" means an Invoiced Receivable (a) that, in whole or in
part, has remained unpaid for more than 45 days plus three Business Days (or
such greater number of days as may be approved by the Rating Agency from time to
time) from its original payment due date, (b) has been reduced or cancelled, in
each case in the current Settlement Period, as a result of a set-off in respect
of any claim by the Obligor thereof against the Seller or any Affiliate of the
Seller (whether such claim arises out of the same or a related transaction or an
unrelated transaction); provided that to the extent an Invoiced Receivable has
been reduced, only the reduced amount shall represent a Defaulted Receivable, or
(c) that has been, or in accordance with the Credit and Collection Policy should
be, written off as uncollectible in the current Settlement Period.
"Deferred Payment" has the meaning ascribed thereto in Section 2.4(a).
"Delinquency Ratio" means, in respect of any Settlement Period, the ratio
(expressed as a percentage) calculated by dividing (a) the aggregate principal
balance at the end of such Settlement Period of all Delinquent Receivables by
(b) the aggregate principal balance of all Invoiced Receivables at such time.
"Delinquent Receivable" means an Invoiced Receivable that (a) in whole or in
part, has remained unpaid for more than 30 days (or such greater number of days
as may be approved by the Rating Agency from time to time) from the original
payment due date or (b) has been, or for which, in accordance with the Credit
and Collection Policy, should be, classified as delinquent.
"Designated Insurer" means the insurer under the Designated Policy from time to
time, which shall initially be American Home Assurance Company.
"Designated Obligor" means (i) any Obligor in respect of which the Invoiced
Receivables of such Obligor are insured under the Designated Policy to an amount
equal to at least 80% of the principal balance of such Invoiced Receivables;
(ii) any Obligor in respect of which the Invoiced Receivables of such Obligor
are subject to one of the Floor Plan Arrangements; and (iii) any other Obligor
approved by the Purchaser, acting reasonably, and the Rating Agency by notice to
the Seller.
"Designated Policy", at any time, means any insurance policy or policies
maintained by the Seller in respect of the Receivables, as such policy or
policies may be amended from time to time
<PAGE>
- 6 -
(provided that all material amendments which affect the insurability of the
Receivables are approved by the Purchaser, acting reasonably), and any
replacement insurance policy approved by the Purchaser, acting reasonably, and
shall initially mean the Insolvency Risk Insurance Shipments Form insurance
policy maintained by the Seller with American Home Assurance Company.
"Dilution Rate" means, in respect of any Settlement Period, the ratio (expressed
as a percentage) calculated by dividing:
(a) the amount by which the aggregate principal balance of all Invoiced
Receivables at the end of such Settlement Period has been reduced or
cancelled (when compared to the aggregate principal balance of all
Invoiced Receivables at the beginning of such Settlement Period) as a
result of either:
(i) any defective, undelivered, rejected, returned, repossessed
or foreclosed goods or services and any Cash Discount; or
(ii) a set-off against obligations owed to the Seller in respect
of any claim by any Obligor against the Seller or any
Affiliate of the Seller (whether such claim arises out of
the same or a related transaction or an unrelated
transaction),
by:
(b) the aggregate principal balance of the Invoiced Receivables at the
end of such Settlement Period.
"Dilution Ratio" means, in respect of any Settlement Period, the ratio
(expressed as a percentage) equal to the greater of (i) 10% and (ii) the highest
Dilution Rate in the 24-month period preceding such Settlement Period multiplied
by 1.25.
"Eligible Deposit Account" means either (a) an account with an Eligible
Institution or (b) a segregated trust account with the corporate trust
department of a depositary institution organized under the laws of Canada or a
province thereof and authorized to act as a trustee for funds deposited in such
account, so long as any of the securities of such depositary institution shall
have a credit rating from the Rating Agency in one or more of its generic credit
rating categories which signifies investment grade.
"Eligible Institution" means a depositary institution which at all times (a) has
either (i) a long-term unsecured debt rating of AA (low) by the Rating Agency or
(ii) a short-term rating of R-1 (middle) by the Rating Agency, or (b) has its
obligations with respect to the relevant matter guaranteed by an institution
with either of the ratings referred to in (a)(i) or (ii).
"Eligible Receivable" means, at any time unless otherwise specified below in
this definition, a Receivable which meets all of the following criteria at such
time:
(i) the Obligor of the Receivable is a Person resident in
Canada, is not an Affiliate of the Seller, and is either (i)
a Designated Obligor (and, if the Obligor is a Designated
Obligor under (i) of the definition of "Designated Obligor",
the applicable insured limit, if any, under the Designated
Policy in respect of such Obligor has not been exceeded) or
(ii) is a Governmental Authority in Canada, provided that
the provisions of the Financial Administration Act (Canada)
or
<PAGE>
- 7 -
other statute of like effect respecting the assignment of
debts of Governmental Authorities shall have been complied
with in each and every respect with respect to the sale of
such Receivable;
(j) unless otherwise approved by the Purchaser, from the date
hereof to the time of initial Purchase of the Receivable,
the Obligor of the Receivable is not the Obligor with
respect to Defaulted Receivables and Delinquent Receivables
having together an aggregate Outstanding Principal Balance
as a percentage of the aggregate Outstanding Principal
Balance of all Receivables owed by such Obligor of more than
(i) 40% for the current month or (ii) an average of 20% for
the most recent three months;
(k) at the time of Purchase of the Receivable, if the Receivable
is subject to a Floor Plan Arrangement, the Outstanding
Principal Balance of Purchased Receivables subject to Floor
Plan Arrangements, when added to the Outstanding Principal
Balance of such Receivable, would not exceed 10% of the
aggregate Outstanding Principal Balance of all Purchased
Receivables;
(l) at the time of Purchase of the Receivable, if the Receivable
is subject to a Floor Plan Arrangement, the Outstanding
Principal Balance of Purchased Receivables subject to Floor
Plan Arrangements with financial institutions having long-
term unsecured debt ratings of less than AA low, when added
to the Outstanding Principal Balance of such Receivable,
would not exceed 5% of the aggregate Outstanding Principal
Balance of all Purchased Receivables;
(m) at the time of initial Purchase of the Receivable, the
Receivable is not a Delinquent Receivable;
(n) the Receivable is not a Defaulted Receivable;
(o) the Receivable is required by the related Contract to be
paid in full within 45 days of the original billing date
therefor unless otherwise approved individually by the
Purchaser, acting reasonably;
(p) the Receivable is payable in Canada only and is denominated
either and payable either in Canadian or United States
dollars; provided that if denominated and payable in United
States dollars, the Seller has fully hedged the currency
exchange risk associated with such Receivable to the
satisfaction of the Purchaser, acting reasonably;
(q) the Receivable arises under a Contract which has been duly
authorized, executed and delivered by the parties thereto,
which Contract, together with such Receivable, is in full
force and effect and constitutes the legal, valid and
binding obligation of the Obligor thereof enforceable
against such Obligor in accordance with its terms subject to
bankruptcy, insolvency, reorganization, winding-up,
moratorium and other laws affecting the rights of creditors
generally;
(r) the Receivable is an "account" within the meaning of the
PPSA;
<PAGE>
- 8 -
(s) the Receivable is not subject to any dispute, offset,
counterclaim or defence whatsoever and is free and clear of
any Adverse Claim;
(t) neither the Receivable nor the Contract under which such
Receivable is payable is subject to any restriction on the
sale or assignment thereof;
(u) the Receivable and the related Contract do not contravene
any laws, rules or regulations applicable thereto, and no
party to such Contract is, with respect to such Receivable,
in violation of any such law, rule or regulation except, in
any such case, where such contravention would not materially
adversely affect the collectability or enforceability of any
such Receivable or Contract;
(v) at the time of initial Purchase of the Receivable, the
Receivable (i) satisfies all applicable material
requirements of the Credit and Collection Policy, (ii)
complies with all other criteria and requirements specified
by the Purchaser to the Seller before the Obligor thereof
became a Designated Obligor and (iii) complies, on and after
the 30th day following notice by the Purchaser to the Seller
of any additional criteria or requirements, with such
additional criteria or requirements;
(w) the Obligor of the Receivable would not fall within Section
5.1(i) if the same were amended so that the word "Seller"
read "Obligor";
(x) at the time of initial Purchase of the Receivable, the
Outstanding Principal Balance of the Receivable, when added
to the aggregate Outstanding Principal Balance of all
Purchased Receivables owed by the Obligor and by all
Affiliated Obligors, does not exceed the Concentration Limit
for such Obligor;
(y) the Receivable represents all or part of the sale price of
merchandise and/or services sold or provided by the Seller
in the ordinary course of the Seller's general distribution
business of distributing computer hardware, software,
peripherals and all replacements, parts, accessories,
attachments and other goods used in conjunction therewith,
unless otherwise approved by the Purchaser, acting
reasonably;
(z) at the time of initial Purchase of the Receivable, the
Purchaser has not given the Seller 30 days' prior notice
that the Purchaser has determined, in its reasonable
discretion, that the Receivable (or the class of Receivables
of which the Receivable forms a part) is not acceptable for
purchase hereunder;
(aa) the Receivable is not payable from any jurisdiction in
Canada in which all registrations and other action required
by Section 3.1(j) of the Standard Terms and Conditions have
not been completed or taken; and
(bb) all information with respect to the Receivable required to
be set out on the Summary General Trial Balance is set out
thereon;
provided, however, that the Purchaser may, from time to time, by notice to the
Seller, waive (or amend or revoke any such waiver on 30 days' notice) all or any
of such criteria (in whole or in part) and the definition herein of "Eligible
Receivable" shall, on and after the effective date of each
<PAGE>
- 9 -
such notice (as determined in accordance with Section 7.11) and with respect
only to future Purchases, be amended to accord with each such waiver (or
amendment or revocation of such waiver); subject to the approval of the Rating
Agency.
"Event of Termination" has the meaning ascribed thereto in Section 5.1.
"Final Collection Date" means the first day following the Termination Date
on or by which every Purchased Receivable has been collected in full (whether
through the receipt of Collections or the enforcement of the Related Security),
fully written off as uncollectible in accordance with the Credit and Collection
Policy then in effect, or assigned by the Purchaser for value (paid in cash)
either to the Seller pursuant hereto, to the Credit Enhancer or to a third
party.
"Floor Plan Agents" means, collectively, Deutsche Financial Services Canada
Corporation, The Bank of Nova Scotia, Trans-America Commercial Finance
Corporation Canada or any other financial institution with a long-term unsecured
debt rating of at least A (low) by the Rating Agency or who is approved by the
Purchaser (such approval not to be unreasonably withheld) and the Rating Agency
or an equivalent rating from a nationally recognized United States rating
agency;
"Floor Plan Arrangements" means, collectively, the floor plan financing
arrangements established by the Seller with the Floor Plan Agents pursuant to
which such Floor Plan Agents pay the principal balance of Invoiced Receivables
of certain Obligors to the Seller (less certain discount fees charged by such
Floor Plan Agents).
"Governmental Authority" means the government of any sovereign state or any
political subdivision thereof, or of any political subdivision of a political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory, administrative or other functions of or pertaining to government.
"Indebtedness" means:
(cc) indebtedness for borrowed money or for the deferred purchase
price of property or services;
(dd) the redemption price of any redeemable preference shares;
(ee) obligations evidenced by bonds, debentures, notes or other
similar instruments;
(ff) obligations as lessee under leases, which in accordance with
generally accepted accounting principles, would be treated as
capital leases;
(gg) obligations in respect of letters of credit or similar
instruments issued or accepted by any bank or other
institution; and
(hh) obligations under direct or indirect guarantees in respect of,
and 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), (b), (c), (d) and (e)
above;
provided, however, that (i) "Indebtedness" shall not include obligations both
(A) classified as accounts payable or accrued liabilities under generally
accepted accounting principles and (B)
<PAGE>
- 10 -
incurred in the ordinary course of business and (ii) no obligation included in
Indebtedness shall be included under more than one of clauses (a) through (f)
above.
"Indemnified Amounts" has the meaning ascribed thereto in Article 5.1 of the
Standard Terms and Conditions.
"Indenture Trustee" means Montreal Trust Company of Canada, as trustee for and
on behalf of holders from time to time of Notes issued by the Purchaser, or, at
any time after Montreal Trust Company of Canada shall cease to be the trustee in
such capacity, any successor or replacement trustee in such capacity.
"Initial Cash Payment" means an amount specified pursuant to Section 2.1(a) and
subsequently deposited to the Seller's Account pursuant to Section 2.1(d) in
connection with a Purchase made pursuant to Section 2.1.
"Initial Purchase" means the first Purchase made pursuant to Section 2.1.
"Invoiced Receivable" means indebtedness of an Obligor under a Contract arising
from the sale of goods and/or services by the Seller to the Obligor in the
ordinary course of the Seller's general distribution business of distributing
computer hardware, software, peripherals and all replacements, parts,
accessories, attachments and other goods used in conjunction therewith (unless
otherwise approved by the Purchaser, acting reasonably), and includes the
Obligor's obligation to pay Taxes, interest, finance, late payment and similar
charges and other amounts with respect thereto.
"Law" means any law, code, treaty, rule or regulation or determination of an
arbitrator or Governmental Authority and, when used with respect to any Person,
shall include the certificate of incorporation and by-laws or other charter,
constating or governing documents of such Person.
"Liquidation Collection Costs Reserve" means, at any time, an amount equal to
the Purchased Amount multiplied by 1%.
"Liquidation Yield Reserve" means, at any time, an amount equal to:
PA x [(RVF x PDR) x (AM + CDP)]
--------
YD
where:
PA = the Purchased Amount;
RVF = the Rate Variance Factor;
<PAGE>
- 11 -
PDR = the Purchase Discount Rate at
such time calculated
on the assumption
that the Seller has
selected a single
Tranche for all of the
Purchased Amount for
a Tranche Period of
30 days, plus 0.5%
per annum;
AM = the Average Maturity;
CDP = the Collection Delay Period; and
YD = 365, unless such Tranche Period
commences in a calendar year that
has 366 days, in which case "YD"
shall be 366.
"Liquidity Agent" has the meaning ascribed thereto in the Liquidity Agreement.
"Liquidity Agreement" means the agreement dated as of December 15, 1995 between
BMO Trust Company, the banks and other financial institutions whose names appear
on Schedule 1 to such agreement, and Bank of Montreal.
"Lock-Box Account" means a "lock-box account" or similar account established at
Bank of Montreal in the name of the Seller to be used to receive Collections.
"Lock-Box Agreement" means an agreement between the Seller and Bank of Montreal
for the establishment and maintenance of the lock-box account.
"Loss to Liquidation Ratio" means, in any particular Settlement Period, the
ratio (expressed as a percentage) of (a) the amount of Receivables which were
written off in such month, net of any recoveries in respect of prior Defaulted
Receivables to (b) the total amount of Receivables collected during such month.
"Net Daily Collections" has the meaning ascribed thereto in Section 2.2.
"Note Issuance Trust Indenture" means the trust indenture made as of December
15, 1995 between the Purchaser and the Indenture Trustee pursuant to which,
among other things, the Purchaser is entitled to issue Notes from time to time.
"Notes" means short-term debt obligations issued by the Purchaser pursuant to
the Note Issuance Trust Indenture.
"Obligor" means, in respect of a Receivable, the Person who, under or pursuant
to a Contract, owes or owed payment to the Seller prior to the purchase of such
Receivable by the Purchaser or such Receivable being offered for sale by the
Seller to the Purchaser, and includes a financial institution under a Floor Plan
Arrangement, guarantor, surety or similar person with respect to such
<PAGE>
- 12 -
Receivable, but excludes the Designated Insurer in its capacity as an insurer of
such Receivable or any portion thereof.
"Outstanding Principal Balance", in respect of a Receivable at any time, means
the amount of the payment obligation represented thereby that is outstanding and
owing to the obligee thereof, after deducting therefrom (i) the Seller's
reasonable estimate of the amount of all available Cash Discounts and (ii) an
estimate of the aggregate discount fee to be charged by a Floor Plan Agent that
reduces the amount of such payment obligation.
"Person" means an individual, partnership, corporation, trust, joint venture,
unincorporated association, board or body established by statute, government (or
any agency or political subdivision thereof) or other entity.
"Policy Limit of Liability" has the meaning ascribed thereto in the Designated
Policy and shall have the comparable meaning in any replacement insurance
policy.
"Portfolio Report" means a report substantially in the form of Exhibit B.
"PPSA" means the personal property security legislation or assignment of book
debts legislation or any similar legislation (including the Uniform Commercial
Code in the United States) in any jurisdiction in which the filing or
registration of an assignment, financing statement or other document is required
to preserve, protect and perfect the Purchaser's right, title and interest in,
to or under any of the Purchased Assets.
"Prime Rate" means the fluctuating annual interest rate which, on any day, shall
be equal to the rate of interest most recently established by the Bank of
Montreal at its head office in Toronto, Ontario as its reference rate of
interest for the purpose of determining interest rates it will charge on that
day for demand loans made in Canada in Canadian Dollars to its Canadian
commercial customers and which it refers to as its "prime rate".
"proceeds" includes "proceeds" as defined in the PPSA.
"Purchase" means a purchase of Purchased Assets made pursuant to Section 2.1 or
Section 2.2.
"Purchase Date" has the meaning ascribed thereto in Section 2.1(b).
"Purchase Discount" means the aggregate of the amounts determined below for all
Tranche Periods whether occurring prior to or after the Termination Date, with
the amount determined for each Tranche Period being equal to the product of:
TA x PDR x TP
--------
YD
where:
TA = the amount of the Tranche Amount at the time
at which such calculation is being made;
<PAGE>
- 13 -
PDR = the Purchase Discount Rate for such
Tranche Period;
TP = the number of days in such Tranche Period;
and
YD = 365, unless such Tranche Period commences in
a calendar year that has 366 days, in which
case "YD" shall be 366.
"Purchase Discount Rate" means, at any time, the Tranche Rate.
"Purchase Limit" has the meaning ascribed thereto in Section 2.6(a).
"Purchase Request" means a notice, substantially in the form of Exhibit A,
delivered by the Seller to the Purchaser pursuant to Section 2.1.
"Purchase Termination Date" means the day that, in accordance with Section 5.2,
is declared as, or automatically becomes, the Purchase Termination Date.
"Purchased Amount" means, at any time, the aggregate of the Initial Cash
Payments made prior to such time, less the aggregate amount of Collections
theretofore paid to and received by the Purchaser pursuant to Section 2.7 or
Section 2.9 on account of such Initial Cash Payments and less cash payments paid
under Section 2.3(d); provided, however, that such Initial Cash Payments shall
not be reduced by the amount of any Collections used to make a Purchase pursuant
to Section 2.2 or which at any time must be returned to the Seller for any
reason whatsoever pursuant to the provisions hereof.
"Purchased Assets" means, collectively, all Purchased Receivables and the
Related Security and Collections with respect thereto, and all proceeds of, from
or with respect to any or all of the foregoing.
"Purchased Receivable", at any time, means any Receivable owned by the Purchaser
at such time which the Purchaser has purchased from the Seller pursuant hereto,
and any Receivable transferred by the Seller to the Purchaser and which
constitutes a Purchased Receivable in accordance with the provisions hereof.
"Purchaser" means Canadian Master Trust, its successors and assigns.
"Purchaser's Account" means the Purchaser's account maintained at the main
Toronto branch of Bank of Montreal (account number 1263192, transit number 2) or
such other account as has been most recently designated by the Purchaser, by
notice given to the Seller, as the Purchaser's Account for the purposes hereof.
"Qualifying Loss", in respect of any Invoiced Receivable, means any loss
relating to such Invoiced Receivable the payment of some portion of which is
insured by the Designated Insurer under the Designated Policy.
<PAGE>
- 14 -
"Rate Variance Factor" means that decimal fraction (which shall not be less than
1 and shall not exceed 2) which reflects the potential increase in funding costs
over a period of time approximately equal to the Average Maturity of the
Receivables, as determined by the Purchaser in its reasonable discretion.
"Rating Agency" means Dominion Bond Rating Service Limited and its successors
and, at any particular time hereafter, may include any other nationally
recognized credit rating agency or agencies then authorized by the
Securitization Agent and approved by the Seller (such approval not to be
unreasonably withheld) to rate securities issued by the Purchaser.
"Receivable" means that portion of an Invoiced Receivable that does not
represent the obligation of the Obligor to pay Taxes.
"Records" means all contracts, books, records and other documents and
information (including computer programmes, tapes, diskettes, punch cards, data
processing software and related property and rights) maintained by or on behalf
of the Seller evidencing or otherwise relating to any Receivables sold or
intended to be sold by the Seller to the Purchaser, or relating to the related
Obligors, the Related Security, Collections or the Collection Account and, after
the purchase of any such Receivables by the Purchaser, shall include all such
records, information and material maintained or required to be maintained by the
Servicer in respect thereof.
"Related Document" means any agreement, assignment, instrument, document,
exhibit, notice or other communication that has at any time been delivered by
the Seller to the Purchaser in connection herewith.
"Related Security", with respect to any Receivable, means:
(ii) all of the Seller's right, title and interest in and to the
goods or services (including returned goods, if any), the sale
of which gave rise to such Receivable, but, for greater
certainty, shall not include any right, title or interest in the
Seller's inventory;
(jj) all security interests or liens, and all property subject
thereto, from time to time securing or purporting to secure
payment of such Receivable, whether pursuant to the related
Contract or otherwise, to the extent they secure or purport to
secure such payment;
(kk) all of the Seller's right, title and interest in, to and under
all guarantees, indemnities, insurance policies (including any
Designated Policy or other contract of insurance issued by the
Designated Insurer or any other Person), Floor Plan
Arrangements, all payments and proceeds made under any such
guarantee, indemnity, insurance policy or Floor Plan
Arrangement, all premium refunds in respect of all insurance
policies, and all other agreements or arrangements of whatsoever
character from time to time supporting or securing payment of
such Receivable, whether pursuant to the related Contract or
otherwise;
(ll) all Records relating to the Receivable or to any of the
foregoing; and
(mm) all proceeds of or relating to the foregoing, including to the
Receivable.
<PAGE>
-15-
"Replacement Servicer", at any time following a Service Transfer, means the
Person whom the Purchaser designates from time to time by notice given to the
Seller as the Replacement Servicer.
"Replacement Servicer Fee" has the meaning ascribed thereto in Section 3.6(d).
"Reporting Date", in respect of a Settlement Period, means the 15th Business Day
following such Settlement Period.
"Required Amount" means, at any time, an amount equal to the product obtained by
multiplying (A) the sum of 1 plus the Dilution Ratio at such time by (B) the sum
at such time of the Purchased Amount, the Reserve and the Purchase Discount (to
the extent the amount of the Purchase Discount has not been paid to the
Purchaser).
"Reserve" means, at any time, an amount equal to the aggregate of the Credit
Loss Reserve, the Liquidation Collection Costs Reserve and the Liquidation Yield
Reserve.
"Rollover Day" means any Wednesday, or with the Purchaser's approval, any
Business Day.
"Securitization Agent" means Nesbitt Burns Inc. in its capacity as
securitization agent under the Administration Agreement.
"Seller" means Merisel Canada Inc., its successors and permitted assigns, and in
Article 5 of the Standard Terms and Conditions shall include Merisel Canada Inc.
(and such successors and permitted assigns) in its capacity as Servicer.
"Seller's Account" means the Seller's account maintained at the main Toronto
branch of Citibank Canada (account number 2-010-286-002; transit number 0082-
260) or such other account which is designated by notice to the Purchaser as the
Seller's Account for the purposes hereof.
"Service Transfer" has the meaning specified in Article 4.14 of the Standard
Terms and Conditions;
"Servicer" means the Seller in its capacity as Servicer until the first Service
Transfer, and, at any time thereafter shall mean the Replacement Servicer
appointed pursuant to the terms of the Standard Terms and Conditions from time
to time.
"Servicer Termination Event" has the meaning ascribed thereto in Article 4.12 of
the Standard Terms and Conditions.
"Settlement Date", in respect of a Tranche Period, means the final day of such
Tranche Period.
"Settlement Period" means a fiscal month; provided, however, that the first
Settlement Period shall be the period from the date hereof to the last day of
the Seller's 1995 fiscal year.
"Standard Terms and Conditions" means the standard terms and conditions annexed
hereto as Exhibit G and deemed to be a part hereof and incorporated herein by
reference, as the same may be amended from time to time with the written
agreement of the Purchaser and the Seller.
"Subsidiary" has the meaning given to that term in the Business Corporations Act
(Ontario) from time to time;
<PAGE>
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"Summary General Trial Balance" means the summary of the Seller's accounts
receivable trial balance (whether in the form of a computer print-out, magnetic
tape or disk or like device, and if stored on magnetic tape, disk or like
device, shall include all software, programming manuals and such other material
as may be available to the Seller to access and interpret the information stored
thereon) in the form approved by the Purchaser as described in Exhibit E, as
such Exhibit E may be amended, supplemented or replaced from time to time,
listing Obligors, the Invoiced Receivables owed by them, the aged Outstanding
Principal Balances of such Invoiced Receivables, and such other information as
the Purchaser may reasonably require.
"Tax" means any withholding, stamp, income, business, general corporation, large
corporations, property, capital, excise, customs, goods and services, sales,
consumption, value added or other tax, duty, impost, fee, levy, assessment or
other governmental charge, and any related penalties or interest.
"Termination Date" means the earliest of:
(nn) the Purchase Termination Date;
(oo) December 13, 2000, which date may be extended by notice from
the Purchaser to the Seller upon agreement to such extension by
the Seller; and
(pp) the Business Day which the Seller designates as the Termination
Date pursuant to Section 2.6.
"Tranche" means all or a portion of the Purchased Amount allocated to a Tranche
Period pursuant to Section 2.5.
"Tranche Amount" means the amount of the Tranche.
"Tranche Period" means, with respect to each Tranche Amount, a period of days
selected pursuant to Section 2.5.
"Tranche Rate" means either: (i) the rate of interest per annum which is
the equivalent of the discount rate at which Notes issued in respect of a
Tranche are sold by any dealer or other agent selected by the Purchaser; or (ii)
if the Notes are interest bearing, the rate of interest per annum payable in
respect of Notes issued in respect of a Tranche.
"Uniform Commercial Code" means the Uniform Commercial Code text as issued and
amended from time to time by The American Law Institute and the National
Conference of Commissioners on Uniform State Laws, and with respect to any
Receivable representing the obligation of an Obligor located in any state of the
United States of America, shall mean the Uniform Commercial Code as in effect
pursuant to the Law of such state.
"U.S. Base Rate" means the fluctuating annual interest rate which, on any day,
shall be equal to the rate of interest most recently established by Bank of
Montreal at its head office in Toronto, Ontario as its reference rate of
interest for the purpose of determining interest rates for demand loans made in
Canada in U.S. dollars and which it refers to as its "U.S. base rate".
"Weekly Report" means a report substantially in the form of Exhibit C.
<PAGE>
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1.2 Extended Meanings. Words importing the singular shall include the
-----------------
plural and vice versa, words importing gender shall include all genders, and
words importing natural persons shall include all Persons. Any defined term
used in the singular preceded by "any" or "each" shall be taken to indicate any
number of the members of the relevant class. Unless otherwise specified, any
reference in this Agreement to any statute will include all regulations made
thereunder or in connection therewith from time to time, and will include such
statute as the same may be amended, supplemented or replaced from time to time.
Every use of the word "including" herein shall be construed as meaning
"including, without limitation".
1.3 Headings, Sections, etc. The division of this Agreement into
------------------------
Articles and Sections, the insertion of headings and the provision of a table of
contents are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The terms "this Agreement",
"hereof", "herein", "hereunder" and similar expressions refer to this Agreement
(including the Exhibits hereto) and not to any particular Article, Section,
Exhibit or other portion of this Agreement and include any agreement
supplemental hereto. The use of the word "Section" followed by a number refers
to the particular Section of this Agreement (exclusive of Exhibit G), while the
use of the word "Article" followed by a number refers to a particular Article of
Exhibit G. Subject to the preceding sentence, unless something in the subject
matter or context is inconsistent therewith, references herein to Articles,
Sections or Exhibits are references to Articles, Sections and Exhibits of or to
this Agreement.
1.4 Accounting Principles. Where the character or amount of any asset
---------------------
or liability or item of revenue or expense is required to be determined, or any
consolidation or other accounting computation is required to be made for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified herein or as otherwise
agreed in writing by the parties, be made in accordance with generally accepted
accounting principles. Whenever in this Agreement reference is made to generally
accepted accounting principles, such reference shall be deemed to be to
generally accepted accounting principles from time to time approved by the
Canadian Institute of Chartered Accountants, or any successor institute,
applicable as at the date on which such calculation is made or required to be
made in accordance with generally accepted accounting principles; provided,
however, that to the extent any financial statements of Merisel, Inc. are
delivered to the Purchaser, such statements will be prepared in accordance with
United States generally accepted accounting principles. As used in this
Agreement and in any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms not defined in this Agreement or in any such
certificate or other document, and accounting terms partly defined in this
Agreement or in any such certificate or other document to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles, provided that to the extent that the definitions
of accounting terms in this Agreement or in any such certificate or other
document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall prevail.
1.5 Rating Agency Ratings. Except as otherwise specifically provided
---------------------
for herein, all specific ratings referred to herein are ratings of the initial
Rating Agency, being Dominion Bond Rating Service Limited. If any Rating Agency
is substituted for another Rating Agency, the specific ratings herein shall be
the ratings of such substituted Rating Agency equivalent to the ratings of
Dominion Bond Rating Service Limited or such Rating Agency, as the case may be,
mutatis mutandis.
<PAGE>
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1.6 Currency. Unless otherwise indicated, all amounts stated herein are
--------
in Canadian dollars. The equivalent in Canadian dollars or U.S. dollars of an
amount in U.S. dollars or Canadian dollars, respectively, shall be determined at
the buying rate of exchange quoted by Bank of Montreal at noon (Toronto time) in
Toronto for conversion of U.S. dollars to Canadian dollars, or Canadian dollars
to U.S. dollars, as the case may be, on the date of determination.
1.7 Payments. Unless otherwise indicated, all amounts required hereby
--------
to be paid to any party or deposited to any account are to be paid or deposited,
as the case may be, in immediately available funds at the place specified for
such payment or deposit.
1.8 Non-Business Days. Unless provided to the contrary herein, if any
-----------------
payment to be made hereunder shall be due, any period of time would begin or
end, any calculation is to be made or any other action is to be taken on, or as
of, or from a period ending on, a day other than a Business Day, such payment
shall be made, such period of time shall begin or end, such calculation shall be
made and such other actions shall be taken, as the case may be, on or as of the
next succeeding Business Day.
1.9 Months, Settlement Periods and Tranche Periods. When reference is
----------------------------------------------
made herein to a month, unless otherwise stated it shall be construed to mean a
calendar month. When reference is made herein to a Settlement Period or Tranche
Period next preceding a date or time, it shall be construed to mean the
Settlement Period or Tranche Period, as the case may be, ending immediately
prior to the commencement of the Settlement Period or Tranche Period during
which such date or time occurs.
1.10 Exhibits. The following are the Exhibits attached to this
--------
Agreement, which are incorporated herein by reference and are deemed to be part
of this Agreement:
Exhibit A - Form of Purchase Request
Exhibit B - Form of Portfolio Report
Exhibit C - Form of Weekly Report
Exhibit D - Form of Officer's Certificate
Exhibit E - Form of Summary General Trial Balance
Exhibit F - Form of Opinion of Seller's Counsel
Exhibit G - Standard Terms and Conditions
Exhibit H - List of Offices Where Records are Kept
Exhibit I - Fees
2
PURCHASES
---------
2.1 Purchases Pursuant to Purchase Request
--------------------------------------
(a) Subject to the terms and conditions hereof, from time to time
prior to the Termination Date but not more often than 10 times during any 12
month period, the Seller may, by delivering a Purchase Request to the Purchaser
at least two Business Days prior to the date of a requested Purchase, request
the Purchaser to purchase from the Seller Eligible Receivables and the Related
Security and Collections relating thereto. Such Purchase Request shall state
the amount of the cash payment (the "Initial Cash Payment") (which in each case
shall be for a minimum amount
<PAGE>
of $5 million and shall be in incremental multiples of $1 million thereafter) to
be paid on the date of Purchase.
(b) Each Purchase Request shall specify the date of the Purchase
requested thereby, which shall be the first day of a Tranche Period (the
"Purchase Date").
(c) The purchase price of the Eligible Receivables (including the
Related Security and Collections related thereto) purchased in connection with a
Purchase made pursuant to this Section 2.1 shall be determined in accordance
with Section 2.4. The identity of such Eligible Receivables shall be determined
in accordance with the procedure described in Section 2.3(a) so that,
immediately following such Purchase, the Outstanding Principal Balance of the
Purchased Receivables will equal the Required Amount determined as at such time.
Upon such Purchase, the Eligible Receivables identified as aforesaid shall
constitute Purchased Receivables.
(d) The Purchaser shall, on the Purchase Date, subject to the terms
hereof, deposit to the Seller's Account the Initial Cash Payment specified in
such Purchase Request. Upon such deposit, all of the Seller's right, title and
interest in and to the Purchased Receivables purchased by the Purchaser in
connection with such Purchase, as determined in accordance with the procedure
described in Section 2.3(a), and all the Related Security and Collections with
respect thereto, and all proceeds of, from or with respect to any or all of the
foregoing, shall, without any further action on the part of the Seller or the
Purchaser, be sold, transferred and assigned to, and vested in, the Purchaser as
provided in Section 2.3(b).
2.2 Purchases from Collections. The Purchaser hereby directs the Seller
--------------------------
in its capacity as the Servicer, on each day which is prior to the Termination
Date (except as otherwise permitted by Article 4.6 of the Standard Terms and
Conditions):
(a) to pay to the Seller, for the Purchaser's benefit, out of
Collections of Purchased Receivables received on such day, an amount equal to
the Purchase Discount accrued to such day, to the extent that any part thereof
has not been previously paid to the Seller in accordance with the foregoing, and
the Seller agrees to hold such amount in trust for the Purchaser; and
(b) subject to Section 4.2, to pay to the Seller, on the Purchaser's
behalf, the balance of the Collections of Purchased Receivables received on such
day ("Net Daily Collections") for the purpose of:
(i) effecting, at the price determined in accordance with Section
2.4, a Purchase by the Purchaser from the Seller of Eligible
Receivables, the Related Security and the Collections related
thereto in such amount so that the Outstanding Principal Balance
of the Purchased Receivables purchased pursuant to Sections 2.1
and 2.2 will, immediately following such Purchase, be equal to
the Required Amount at such time, the identity of such Eligible
Receivables to be determined in accordance with the procedure
described in Section 2.3, which Eligible Receivables, upon such
Purchase, shall constitute Purchased Receivables; and
(ii) making the payment stipulated in Section 2.4(c).
Upon such payment, all the Seller's right, title and interest in and to the
Purchased Receivables purchased by the Purchaser in connection with such
Purchase, as determined in accordance with the procedure described in Section
2.3(a), and all the Related Security and Collections with respect
<PAGE>
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thereto, and all proceeds of, from or with respect to any or all of the
foregoing, shall, without any further action on the part of the Seller or the
Purchaser, be sold, transferred and assigned to, and vested in, the Purchaser as
provided in Section 2.3(b). The acceptance by the Seller of the Net Daily
Collections that shall constitute or be deemed to constitute the consideration
for a Purchase pursuant to this Section 2.2 shall constitute a representation
and warranty by the Seller to the Purchaser that each of the Receivables to be
sold by the Seller to the Purchaser pursuant to such Purchase is an Eligible
Receivable on the Purchase Date and that all conditions precedent to the
purchase by the Purchaser of such Eligible Receivables set forth in Section 4.1
and 4.2 hereof, as applicable, have been performed and satisfied as at such
Purchase Date.
2.3 Identification of Purchased Receivables
---------------------------------------
(a) The Receivables which, at any time, shall constitute Purchased
Receivables acquired by the Purchaser pursuant to a Purchase made under Section
2.1 or Section 2.2 shall be those Eligible Receivables determined at the time of
such Purchase by reference to the Invoiced Receivables listed on the Summary
General Trial Balance at such time in accordance with the procedure described in
this Section 2.3(a). Starting with the Obligor that owes in the aggregate the
greatest amount of Invoiced Receivables listed on the Summary General Trial
Balance, each Eligible Receivable owed by such Obligor that is not, at that
time, already a Purchased Receivable shall constitute a Purchased Receivable,
and additional Purchased Receivables shall be identified in a similar manner by
proceeding through the Obligors in descending order of the aggregate amount of
Receivables owed by such Obligors, until the Outstanding Principal Balance of
the Purchased Receivables acquired in connection with such Purchase, when added
to the Outstanding Principal Balance of the Purchased Receivables that are,
immediately prior to the time of such Purchase, Purchased Receivables, equals
the Required Amount. Only that portion of the last Eligible Receivable
identified as a Purchased Receivable, pursuant to the foregoing procedure, which
portion is necessary to ensure that the Outstanding Principal Balance of all the
Purchased Receivables is equal to the Required Amount as aforesaid, shall
constitute a Purchased Receivable, and each of the Seller and the Purchaser
shall have an undivided ownership interest in such Receivable to the extent of
their respective interests.
(b) The Seller hereby sells, assigns and transfers to the Purchaser
all of the Seller's right, title and interest in and to (i) all Receivables
which, from time to time, shall constitute Purchased Receivables, (ii) all
Related Security with respect thereto, (iii) all Collections with respect to
such Receivables and (iv) all proceeds of, from or with respect to any or all of
the foregoing, all without the need for any formal or other instrument of
assignment. Each such sale, assignment and transfer of Purchased Assets shall
be effective immediately upon payment by the Purchaser to the Seller of the
portion of the purchase price therefor that is paid pursuant to and in the
manner contemplated by Section 2.1(d) or Section 2.2(b)(i) or, with respect to a
Receivable replacing a Receivable which ceases to be a Purchased Receivable and
is sold to the Seller pursuant to Section 2.3(d), immediately upon such sale, or
in the case of a transfer of Eligible Receivables to the Purchaser pursuant to
Section 2.10 (which shall thereupon constitute Purchased Receivables), at the
time of the deemed receipt of Collections referred to in Section 2.10. For the
purpose of the preceding sentence, Net Daily Collections shall, while the Seller
is the Servicer, be deemed to be paid to the Seller immediately upon receipt
thereof by the Servicer.
(c) In addition to providing the reports referred to in Article
4.10(o) and (p) of the Standard Terms and Conditions, from time to time at the
request of the Purchaser, acting reasonably, on each Reporting Date and
following the Termination Date, the Seller shall deliver to the Purchaser (i)
from time to time at the request of the Purchaser, acting reasonably, and in any
event following the Termination Date, a list of the Invoiced Receivables
relating to the Purchased
<PAGE>
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Receivables as at the Seller's close of business on the Purchase Date, the day
specified in such request of the Purchaser, the relevant Reporting Date or the
day immediately preceding the Termination Date, as the case may be, (ii) on each
Reporting Date and following the Termination Date, a copy of the Summary General
Trial Balance as at such time and (iii) such Records (including historical
Records) as the Purchaser may reasonably require to verify such list of Invoiced
Receivables and the Summary General Trial Balance. The Seller shall also deliver
to the Purchaser, as soon as possible and in any event within 15 Business Days
of the Termination Date, a list of Purchased Receivables as at the Termination
Date.
(d) If a Receivable at any time ceases to be a Purchased Receivable in
accordance with Section 2.3(a) (including, without limitation, the ceasing of
such Receivable to be an Eligible Receivable), such Receivable shall be sold,
assigned and transferred to the Seller, together with all Related Security,
without recourse or warranty (express, implied, statutory or otherwise) and
without the need for any formal or other instrument of assignment. The
consideration for such sale, assignment and transfer shall be the
contemporaneous sale, assignment and transfer, for a purchase price determined
in accordance with Section 2.4, of Eligible Receivables identified in accordance
with Section 2.3(a) and of the Related Security. If there are not at such time
sufficient Eligible Receivables of the Seller, the Seller shall immediately
remit to the Purchaser a cash payment in an amount equal to that which when
added to the Outstanding Principal Balance of the Purchased Receivables will
equal the Required Amount. Such cash payment shall reduce the Purchased Amount
as at the date of the payment.
(e) On the Termination Date, and at all times thereafter, the
Receivables which are Purchased Receivables (identified as provided for pursuant
to the foregoing provisions of this Section 2.3) as of the Seller's close of
business on the day immediately preceding the Termination Date, together with
the Related Security and Collections with respect thereto, and all proceeds of,
from or with respect to any or all of such Purchased Receivables, Related
Security and Collections, shall constitute all the Purchased Assets for all
purposes of this Agreement. For greater certainty, on and after the Termination
Date, subject to the provisions of Section 2.3(d), this Section 2.3(e) and
Section 2.10, the provisions of Section 2.3(a) shall not apply to alter the
identification of the Purchased Receivables and, notwithstanding anything else
herein contained, the Seller (whether in its personal capacity or in its
capacity as Servicer) shall have no authority to make any alterations, changes,
modifications or extensions to the Purchased Receivables. If, at any time after
the Termination Date, the Purchaser or the Seller determines that, as of the
Termination Date, the Outstanding Principal Balance of the Purchased Receivables
was less than the then Required Amount, the Seller shall pay to the Purchaser
such amount, to be applied as a reduction of the Purchased Amount, or, with the
written consent of the Purchaser, transfer to the Purchaser such amount of
additional Eligible Receivables, identified according to the procedure described
in Section 2.3(a) according to the Summary General Trial Balance as at the
Termination Date, as is necessary to make the Outstanding Principal Balance of
the Purchased Receivables equal to the Required Amount as of the Termination
Date.
(f) If at any time the Seller fails or otherwise ceases to identify
the Purchased Receivables when required to do so pursuant to this Section 2.3 or
fails to generate the Summary General Trial Balance, the Purchaser shall have
the right, as the case may be, to identify the Purchased Receivables in
accordance with the procedure described in Section 2.3(a), which identification
by the Purchaser shall be conclusive and binding (absent manifest error), or to
reconstruct the Summary General Trial Balance as at the relevant dates so that a
determination of the Purchased Receivables can be made in accordance with the
foregoing provisions of this Section 2.3. The Seller agrees to cooperate in all
respects in connection with such reconstruction, including, without limitation,
by delivery to the Purchaser, upon its request, of all Records or copies
<PAGE>
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thereof. The Seller shall reimburse the Purchaser for and in respect of all
costs and expenses incurred by the Purchaser or paid by the Purchaser to other
Persons in connection with any such reconstruction.
2.4 Purchase Price of Purchased Assets
----------------------------------
(a) The purchase price for the Purchased Assets shall be equal to the
Outstanding Principal Balance of the Purchased Receivables included in such
Purchased Assets, less a discount equal to the Purchase Discount for the
relevant Tranche Period. The Purchaser may allocate on a reasonable basis, but
in its reasonable discretion, the Purchase Discount in respect of a particular
Tranche Period among all the Purchased Receivables outstanding during such
Tranche Period having regard to the length of time a Purchased Receivable is
outstanding and the relevant Purchase Discount Rate. Subject to Section 2.4(b),
such purchase price shall be composed of (i) an immediate cash payment to the
Seller which, in the case of a purchase made pursuant to Section 2.1(d), shall
be the Initial Cash Payment and, in the case of a purchase from Collections
pursuant to Section 2.2(b)(i), shall be equal to the balance of the Net Daily
Collections received on the relevant day after payment of a portion thereof on
account of a portion of the Deferred Payment in accordance with Section 2.4(c)
and (ii) a deferred amount (the "Deferred Payment") equal to such purchase price
less the Purchased Amount determined pro rata among all of the Purchased
Receivables then outstanding.
(b) Notwithstanding Section 2.4(a), for the purposes of Section 2.2,
the balance of the Net Daily Collections received on the relevant day remaining
after payment of a portion thereof on account of a portion of the Deferred
Payment in accordance with Section 2.4(c) shall be deemed to be the total
initial cash payment to be made to the Seller in respect of all the Eligible
Receivables, the Related Security and the Collections with respect thereto which
are to be purchased by the Purchaser from the Seller pursuant to a Purchase to
be made on such day in accordance with Section 2.2(b)(i).
(c) Until the Termination Date, a portion of the Net Daily
Collections, determined by multiplying the amount of such Net Daily Collections
by a fraction, the numerator of which is the Reserve at such time and the
denominator of which is the sum of the Purchased Amount and the Reserve at such
time, shall be paid to the Seller in payment of a portion of the Deferred
Payment for the Purchased Receivables giving rise to such Net Daily Collections,
and the balance of such Net Daily Collections, if any, shall, subject to the
provisions of Section 2.2, be paid to the Seller as a portion of the purchase
price for additional Eligible Receivables, Related Security and Collections with
respect thereto as contemplated by Section 2.2(b)(i) and Section 2.4(b). The
Deferred Payment, as determined at the close of business of the Seller on the
day immediately preceding the Termination Date, shall be payable only out of
Collections of Purchased Assets remaining following receipt by the Purchaser of
the collection in full of every Purchased Receivable (whether through the
receipt of Collections or the enforcement of the Related Security) (except for
Purchased Receivables fully written off as uncollectible in accordance with the
Credit and Collection Policy then in effect or assigned by the Purchaser for
value (paid in cash) either to any Credit Enhancer or to a third party).
(d) Following the Final Collection Date, the Purchaser shall, in full
satisfaction of its obligation to pay the Deferred Payment then outstanding, if
any, either (at the Purchaser's option) pay to the Seller, from Collections
received by the Purchaser and remaining following the satisfaction of the
amounts specified in clauses (a) through (e), inclusive, of Section 2.9, the
amount of the Deferred Payment, or sell, transfer and assign absolutely to the
Seller, without the need for any formal or other instrument or assignment, all
of the Purchaser's remaining right, title
<PAGE>
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and interest in and to all the Purchased Assets free and clear of all Adverse
Claims created by the Purchaser or any Replacement Servicer, but without any
other representation or warranty (whether express, implied, statutory, or
otherwise) by or on behalf of the Purchaser.
2.5 Selection of Tranche Amounts and Tranche Periods
------------------------------------------------
(a) The Seller shall in each Purchase Request and thereafter by 1:00
p.m. (Toronto time) on the second Business Day preceding each Settlement Date
prior to the Termination Date notify the Purchaser of the amount of each Tranche
(which shall be in a minimum amount of $5 million and incremental multiples of
$1 million and which, except in connection with a purchase made by the Purchaser
as requested in an additional Purchase Request, may not in the aggregate exceed
the aggregate amount of the Tranches then maturing) and the duration of each
Tranche Period; provided, however, that:
(i) the Seller may not select a Tranche Period exceeding the
lesser of (A) 90 days and (B) the remaining term, as may be
amended, of the Designated Policy, unless otherwise approved by
the Purchaser, acting reasonably, and the Rating Agency;
(ii) the first day of each Tranche Period shall be a Business
Day;
(iii)the last day of each Tranche Period shall be the first day
of the next Tranche Period;
(iv) the last day of each Tranche Period shall be a Rollover Day and
if such last day of the Tranche Period selected by the Seller
is not a Business Day, the Seller shall be deemed to have
selected a Tranche Period the last day of which is the Rollover
Day next following the last day of the Tranche Period otherwise
selected which is a Business Day;
(v) no more than five Tranches may be outstanding at any one time
unless the Purchaser, acting reasonably, otherwise consents;
and
(vi) no more than three Settlement Dates shall occur in any one
Settlement Period unless the Purchaser, acting reasonably,
otherwise consents,
and provided further that if:
(vii)the Seller fails to give notice of the requested Tranche
Amount or Tranche Period; or
(viii)the Purchaser, in its reasonable discretion, determines that
the amount of the Tranche Amount or the term of the Tranche
Period or both are inappropriate, and so notifies the Seller
by 3:00 p.m. (Toronto time) on such day,
then the Purchaser shall select any one or more Tranche Amounts and Tranche
Periods (which shall not exceed 90 days), as the Purchaser, in its reasonable
discretion, deems appropriate and shall notify the Seller thereof.
<PAGE>
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(b) After the Termination Date, the Purchaser shall select the Tranche
Amounts and the Tranche Periods (which shall not exceed 90 days) in its sole
discretion; provided, however, that the Purchaser will use its reasonable best
efforts to select Tranche Amounts and Tranche Periods that coincide with
estimated Collections.
2.6 Purchase Limit; Termination or Reduction of Purchase Limit;
-----------------------------------------------------------
Designation of Termination Date
-------------------------------
(a) No Purchase may be made hereunder if, after giving effect thereto,
the Purchased Amount would exceed $150,000,000 or such lesser amount if reduced
in accordance with Section 2.6(b) or such greater amount if approved by the
Purchaser and the Rating Agency in their sole discretion (the "Purchase Limit").
(b) The Seller may, upon at least 10 Business Days' notice to the
Purchaser, reduce the Purchase Limit to an amount not less than the Required
Amount at such time; provided, however, that any partial reduction of the
Purchase Limit shall be in a minimum amount of $5 million and incremental
multiples of $1 million. Once the Purchase Limit has been reduced, it may not
thereafter be increased.
(c) Subject to Section 2.6(d), the Seller may designate any Business
Day as the Termination Date.
(d) If the Seller designates the Termination Date pursuant to Section
2.6(c), the Seller shall pay to the Purchaser for the account of the Purchaser:
(i) such amount or amounts as shall compensate the Purchaser for
any loss (excluding loss of profit) incurred by the Purchaser
(as reasonably determined by the Purchaser) as a result of the
Termination Date occurring while Notes issued by the Purchaser
relating to the Receivables purchased hereunder are
outstanding, such compensation to include, without limitation,
an amount equal to any loss suffered by the Purchaser during
the period from the date of receipt of such repayment to (but
excluding) the maturity date of such Notes, 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 Notes. 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
(ii) if the Termination Date designated by the Seller occurs on
or before the second anniversary of the date hereof, the amount
set out in Exhibit I payable on the Termination Date.
<PAGE>
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2.7 Reduction of Purchased Amount. The Seller may, on not less than
-----------------------------
five Business Days' notice to the Purchaser, reduce the Purchased Amount by a
minimum amount of $1 million and integral multiples of $1 million; provided,
however, that (i) the Purchased Amount may not at any time be less than the
lesser of (A) $50 million and (B) the permissible Purchased Amount, (ii) there
may not be more than 10 such reductions in any 12 month period and (iii) on the
date such notice is given and on the date such notice is purported to be
effective, the Outstanding Principal Balance of Purchased Receivables is not
less than the Required Amount. Commencing on the day on which the notice in
this Section 2.7 is effective, no further purchases of Receivables shall take
place pursuant to either Section 2.1 or Section 2.2, and, subject to Article 4.6
of the Standard Terms and Conditions, all Collections shall be set aside and
held in trust by the Servicer for the benefit of the Purchaser and shall be
deposited in the Purchaser's Account, until such time as the aggregate amount of
Collections so set aside and held in trust by the Servicer or deposited in the
Purchaser's Account, equals the amount of the reduction in the Purchased Amount
requested by the Seller, whereupon Purchases under Section 2.1 or Section 2.2
may resume. Forthwith from time to time upon the request of the Purchaser, the
Servicer shall pay to the Purchaser, from such amounts set aside and held in
trust, the amount required to repay securities issued by the Purchaser. Once
the Purchased Amount has been reduced, the Seller may request that it be
increased by Purchases made pursuant to Section 2.1, subject to the terms of
this Agreement, up to the Purchase Limit.
2.8 Non-Liquidation Settlement Procedures. Prior to the Termination
-------------------------------------
Date, the Seller will, on each Settlement Date, deposit to the Purchaser's
Account the amounts referred to in Section 2.2(a) and not theretofore so
deposited.
2.9 Liquidation Settlement Procedures. On the Termination Date, and on
---------------------------------
each day thereafter, the Servicer shall hold in the Collection Account, for the
benefit of the Purchaser, the Collections relating to Purchased Receivables
received on each such day. During the period commencing on the Termination Date
and ending on the later of (i) each Settlement Date which occurs on or after the
Termination Date and (ii) the Final Collection Date, inclusive, the Servicer
shall, on each Business Day of such period, deposit to the Purchaser's Account
the amounts so held in trust (or required to be so held) together with any
amounts paid (or required to be paid) pursuant to Section 2.2(a) and not
theretofore deposited to the Purchaser's Account in accordance with Section 2.8,
provided that the total amount payable to the Purchaser as aforesaid shall not
exceed the sum of:
(a) the accrued and unpaid Purchase Discount in respect of all Tranche
Periods;
(b) the amount of any interest accrued on any amount advanced by the
Credit Enhancer to the Purchaser in connection with the transfer of
Purchased Assets by the Purchaser to the Credit Enhancer at the rate
agreed upon by the Purchaser and the Credit Enhancer, which rate
shall be a commercially reasonable rate;
(c) the Purchased Amount;
(d) all amounts (including interest) owed hereunder to the Purchaser;
and
(e) Collection Costs.
2.10 Deemed Collections
------------------
(a) If on any day prior to the Termination Date the Outstanding
Principal Balance of any Purchased Receivable is reduced or cancelled as a
result of any defective, undelivered, rejected,
<PAGE>
-26-
returned, repossessed or foreclosed goods or services and any Cash Discount or
other adjustment granted by the Seller prior to the purchase by the Purchaser of
such Purchased Receivable or granted by the Seller, as Servicer, thereafter
(other than such Cash Discounts or other adjustments already deducted prior to
calculating such Outstanding Principal Balance), the Seller will, for all
purposes hereof, be irrebuttably deemed to have received on such day a
Collection of such Purchased Receivable in the amount of such reduction or
cancellation. Thereupon, the Seller shall, at the Seller's election, deposit to
the Purchaser's Account an amount equal to the reduction or cancellation or, in
satisfaction of its obligation to deposit such amount, transfer to the Purchaser
such additional Eligible Receivables (including the Related Security and
Collections with respect thereto), identified in accordance with the procedure
described in Section 2.3(a) as though such additional Eligible Receivables were
being purchased by the Purchaser from the Seller at such time pursuant to a
Purchase in accordance with Section 2.2, as is necessary to ensure that the
Outstanding Principal Balance of the Purchased Receivables upon such transfer is
equal to what such Outstanding Principal Balance would have been but for such
reduction or cancellation, whereupon such additional Eligible Receivables shall
constitute Purchased Receivables. The Purchaser shall, upon such deposit or
transfer, and without the need for any formal instrument or assignment, sell,
assign and transfer, and be deemed to have sold, assigned and transferred, to
the Seller, the Purchased Receivable or a portion thereof hereby deemed to have
been collected, free and clear of all Adverse Claims created by the Purchaser or
any Replacement Servicer, but without any other representation or warranty
(whether express, implied, statutory or otherwise) by or on behalf of the
Purchaser. If a portion of a Purchased Receivable is sold, assigned and
transferred to the Seller as aforesaid, each of the Seller and the Purchaser
shall have an undivided ownership interest therein to the extent of their
respective interests.
(b) If the Outstanding Principal Balance of the Purchased Receivables
is, on any day, up to and including the Termination Date, less than the Required
Amount as a result of fraud of the Seller, error or similar reason, the Seller
will, for all purposes hereof (including without limitation Section 2.2) be
irrebuttably deemed to have received on such day Collections of Purchased
Receivables in an amount necessary for the Outstanding Principal Balance of the
Purchased Receivables to equal the Required Amount and thereupon shall transfer
additional Eligible Receivables, including the Related Security, to the
Purchaser in such an amount.
(c) If on any day prior to the Final Collection Date any representation
or warranty in Section 2.1(j) or (k) of the Standard Terms and Conditions is not
true, or is determined not to be true as of any Purchase Date, with respect to a
Purchased Receivable, or the Contract, Related Security or Collections related
thereto, the Seller will, for all purposes hereof (including without limitation
Section 2.2) be irrebuttably deemed to have received on such day a Collection of
such Purchased Receivable in full and thereupon shall transfer such amount of
additional Eligible Receivables identified in accordance with Section 2.3(a),
including the Related Security, to the Purchaser as is necessary to make the
Outstanding Principal Balance of the Purchased Receivables equal the Required
Amount.
(d) Where the Seller is obliged pursuant to Section 2.10(a), (b) or
(c) to transfer to the Purchaser additional Eligible Receivables and there are
not at such time sufficient Eligible Receivables of the Seller, the Seller shall
immediately remit to the Purchaser a cash payment which when added to the
Outstanding Principal Balance of the Purchased Receivables will equal the
Required Amount.
(e) The parties acknowledge that, notwithstanding any other provision
hereof, the Seller shall have no authority to reduce, amend, extend the maturity
of or otherwise modify or waive any term of any Purchased Receivable (other than
in accordance with the terms of the
<PAGE>
-27-
Contract or Credit and Collection Policy or in its capacity as Servicer as
permitted by the Standard Terms and Conditions) in any manner that materially
adversely affects the collectability of such Purchased Receivable or the Related
Security or Collections with respect thereto.
(f) The parties acknowledge that the deemed receipt of a Collection of
all or part of a Purchased Receivable pursuant to this Section 2.10 shall not in
any way impair or otherwise affect any contractual or other right of the Seller
or the Purchaser as against the Obligor of such Purchased Receivable or any
other Person (other than the Seller or the Purchaser), and no such Obligor or
other Person shall derive any benefit by virtue of such deemed receipt.
(g) If, in order to comply with its obligations under Section 2.10(a)
or (b), the Seller transfers to the Purchaser a portion only of an Eligible
Receivable, each of the Seller and the Purchaser shall have an undivided
ownership interest in such Eligible Receivable to the extent of their respective
interests. The transfer by the Seller to the Purchaser of any Receivable or
portion thereof pursuant to this Section 2.10 shall constitute a representation
and warranty by the Seller to the Purchaser that such Receivable is an Eligible
Receivable on the date of transfer.
2.11 Other Matters. The Seller will not be permitted to extend, amend
-------------
or otherwise modify a Purchased Receivable or related Contract so as to affect
the amount due under such Purchased Receivable, or the due date thereof, except
with the written consent of the Purchaser, such consent not to be unreasonably
withheld. Insofar as the Seller so extends, amends or otherwise modifies a
Purchased Receivable or related Contract without the Purchaser's prior written
consent, the Seller will be obliged to repurchase the Purchased Receivable at a
purchase price equivalent to the Outstanding Principal Balance thereof.
3
MANAGEMENT, APPLICATION OF COLLECTIONS AND FEES
-----------------------------------------------
3.1 Appointment of Servicer
-----------------------
(a) Until the occurrence of a Service Transfer, the Receivables shall
be administered, serviced and collected by the Seller, as Servicer, as more
fully provided in the Standard Terms and Conditions. The obligations of the
Seller, whether in its personal capacity or acting as Servicer, as set forth in
Sections 3.1 through 3.7 and elsewhere herein, shall be in addition to, and
shall not derogate from, the obligations of the Seller or the Servicer under the
Standard Terms and Conditions.
(b) The Servicer shall pay the Collections to the Seller and the
Purchaser in accordance with Sections 2.2, 2.4(c) and 2.9.
(c) The Servicer shall, as soon as practicable following receipt
thereof, turn over to the Seller the Collections relating to any Receivable
which is not a Purchased Receivable.
(d) The Servicer shall from time to time, within three Business Days
following any request by the Purchaser, furnish the Purchaser with a reasonably
detailed calculation of the amounts paid to or held in trust by the Seller
pursuant to Sections 2.2, 2.4(c) and 2.9.
3.2 Application of Collections. Except as otherwise required by
--------------------------
Law or a Contract or as otherwise specified by the Obligor, for purposes of this
Agreement only any payment made by an Obligor to the Seller or the Servicer in
respect of any indebtedness owed by the Obligor to the
<PAGE>
-28-
Seller shall be deemed to be a Collection of the oldest outstanding Purchased
Receivable owed by such Obligor until the same has been collected in full,
subject always to the provisions of the Credit and Collection Policy. The Seller
shall apply all Collections to the applicable Receivables pursuant to the terms
of this Section 3.2 and shall modify the Summary General Trial Balance to
reflect such Collections, in each case as promptly as practicable following
receipt thereof by the Seller or the Servicer, and shall post all new
Receivables on the Summary General Trial Balance as promptly as practicable
after such Receivables are generated.
3.3 Withdrawals from Collection Account After Purchase Termination
--------------------------------------------------------------
Date. At any time on or after the Purchase Termination Date, the Purchaser may
- ----
withdraw any or all amounts as may have been deposited and held in the
Collection Account.
3.4 Reporting. At all times prior to a Service Transfer, the
---------
Seller shall promptly prepare and deliver to the Purchaser the reports and
notices required by Article 4.10 of the Standard Terms and Conditions. At all
times following a Service Transfer, the Seller shall co-operate fully with the
Replacement Servicer in the prompt preparation and delivery to the Purchaser of
such reports and notices. The Seller shall at all times provide the Purchaser
with such other reports, information, documents, books and records as the
Purchaser may reasonably request promptly following each such request.
3.5 Payments and Computations
-------------------------
(a) If the Seller receives any Collections in respect of Purchased
Receivables, it shall remit the same to the Servicer on the day on which such
Collections are received by the Seller, and the Servicer shall apply such
Collections as provided in Sections 2.2, 2.4(c) and 2.9. All amounts to be paid
or deposited by the Seller or the Servicer to the Purchaser or to the
Purchaser's Account hereunder shall be paid or deposited by deposit to the
Purchaser's Account in same day funds on the day when due.
(b) The Seller shall pay on demand to the Purchaser interest (before
and after default and judgment, with interest on overdue interest at the same
rate) on all amounts not paid or deposited when due hereunder (whether owing by
the Seller in its personal capacity or as Servicer), calculated, compounded and
payable monthly in arrears at a rate per annum equal to the U.S. Base Rate with
respect to amounts to be paid or deposited in relation to Receivables
denominated in U.S. dollars, and to the Prime Rate with respect to all other
amounts; provided, however, that interest shall not accrue with respect to out-
of-pocket costs, legal fees and other like items being charged to the Seller
hereunder until 30 days after Seller has received a reasonably detailed billing
with respect thereto. Such interest shall be paid to the Purchaser by deposit
to the Purchaser's Account, and shall be retained by the Purchaser.
(c) Notwithstanding any other provision contained in this Agreement,
after the Purchase Termination Date, (i) the Purchase Discount in respect of
Purchased Receivables denominated in U.S. dollars shall be calculated and
payable in U.S. dollars; and (ii) the Collections in respect of Purchased
Receivables denominated in U.S. dollars shall be remitted in accordance with
Section 3.5(a) in U.S. dollars.
(d) The Seller (whether acting in its personal capacity or as
Servicer) shall make all payments required to be made by it hereunder without
deduction, regardless of any defence or counterclaim (whether based on any Law
or policy now or hereafter issued or enacted by any Governmental Authority).
<PAGE>
-29-
(e) The Seller (whether acting in its personal capacity or as
Servicer) covenants and agrees to make all payments required to be made to
Governmental Authorities and other Persons where a statutory lien or deemed
trust might arise having priority over the Purchaser's interest and, where a
portion of the Invoiced Receivables relating to the Purchased Receivables
represents an amount owing in respect of federal or provincial Taxes, to remit
the amount of Taxes owing in respect of such Receivables.
(f) If Collections made on a Purchased Receivable exceed the original
Outstanding Principal Balance thereof as a result of Cash Discounts available to
but not taken by the Obligor, the Servicer shall pay to the Seller out of
Collections the amount equal to such excess. Conversely, if Collections made on
a Purchased Receivable are less than the original Outstanding Principal Balance
thereof as a result of Cash Discounts available to and taken by the Obligor, the
Seller shall pay to the Purchaser the amount equal to such deficiency, and such
amount shall be deemed to constitute "Collections" hereunder.
3.6 Fees
----
(a) The Seller shall also pay to the Purchaser from and after the
date hereof until the Final Collection Date in the case of clauses (i) and (iii)
below and until the Termination Date in the case of clause (ii) below:
(i) on the last day of a Tranche Period, a participation fee
at a rate per annum set out in Exhibit I, calculated on the
basis of the actual number of days in such Tranche Period
and applied to the Required Amount outstanding on each day
during such Tranche Period;
(ii) on each Reporting Date, a standby fee, payable monthly
and calculated on a daily basis at a rate per annum set out
in Exhibit I and applied to the amount (not to be negative)
equal to (A) the lesser of $100,000,000 and the Purchase
Limit, minus (B) the Required Amount, on each day during
such month; and
(iii) all Collection Costs of the Replacement Servicer, if
any, incurred in connection with making Collections and the
Purchaser incurred during the Settlement Period in
administering and collecting the Purchased Receivables and
enforcing the Related Security, all as specified in
reasonable detail in writing by the Replacement Servicer
and/or the Purchaser prior to the end of such Settlement
Period.
(b) The Seller shall also pay to the Purchaser such fees and expenses
as the Purchaser and the Seller agree the Purchaser may charge or incur in
respect of each amendment to this Agreement and each waiver of any provision of
this Agreement requested by the Seller or required or initiated as a result of
the Seller's actions that requires the Securitization Agent, in its sole
discretion, in order to approve such amendment or waiver, to perform a credit
review of the transaction or event associated with or giving rise to such
amendment or waiver.
(c) From and after the date of a Service Transfer until the Final
Collection Date, the Seller shall also pay to the Purchaser a fee (the
"Replacement Servicer Fee") calculated and paid on each Settlement Date in
arrears equal to the actual fee of a Replacement Servicer, but in any event no
higher than 2% of the average Outstanding Principal Balance of the Purchased
Receivables at the date of the Service Transfer.
<PAGE>
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3.7 Maintenance of Records and Accounts. The Purchaser is
-----------------------------------
irrevocably authorized by the Seller to account for and keep records of all
Purchases of Receivables from the Seller, all transfers of Receivables by the
Seller to the Purchaser and any reconveyances of Receivables by the Purchaser to
the Seller, which records shall evidence the dates and amounts of such
Purchases, transfers, reconveyances and the applicable Purchase Discounts in
effect from time to time. Such records shall be presumptive evidence of the
facts to which they relate but the failure to record any Purchase, transfer or
reconveyance shall not limit or otherwise affect any obligations of the Seller
hereunder or the Obligors' obligations to make payments on the Receivables when
due.
4
CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Purchase. Prior to the Initial
----------------------------------------
Purchase, the Seller shall deliver to the Purchaser, unless waived by the
Purchaser in writing, the following documents, in form and substance reasonably
satisfactory to the Purchaser:
(a) executed copies of this Agreement and the Related Documents
required to be delivered in connection with such purchase, including, without
limitation, any written copy or description of the Credit and Collection Policy;
(b) certified copies of all necessary corporate authorizations of the
Seller to authorize the execution, delivery and performance hereof, of the
material Related Documents required to be delivered in connection with such
purchase and of the transactions contemplated hereby and thereby;
(c) a certificate of an officer of the Seller as to the names and true
signatures of the officers authorized to sign this Agreement and the Related
Documents required to be delivered in connection with such purchase on its
behalf, on which certificate the Purchaser shall be entitled to conclusively
rely until such time as the Purchaser receives from the Seller a replacement
certificate meeting the requirements of this Section 4.1(c);
(d) certified copies of the Seller's constating documents and by-laws;
(e) a certificate of status, of good standing or of compliance, as
appropriate, with respect to the Seller, issued by its jurisdiction of
incorporation and by each jurisdiction where registrations have been, or are to
be, effected in respect of the Purchaser's ownership interest in the Purchased
Assets if registration in such jurisdiction is required as a condition precedent
to the effectiveness or enforceability of such interest;
(f) as requested by the Purchaser, copies of properly completed and
duly registered assignments and/or financing statements, with the registration
particulars stamped thereon, dated prior to (where permitted by applicable Law)
the date of the Initial Purchase, naming the Seller as seller, assignor or
debtor and the Purchaser as purchaser, assignee or secured party, and/or such
other similar instruments or documents as may be necessary and/or, in the
Purchaser's reasonable opinion, advisable under any applicable PPSA to perfect,
record or protect the Purchaser's ownership interest in the Purchased Assets:
<PAGE>
-31-
(g) executed copies of all discharges and releases, if any, necessary
to discharge or release all security interests and other rights or interests of
any Person in the Purchased Receivables and the Contracts and Related Security
related thereto previously granted by the Seller, including, without limitation,
in respect of any Floor Plan Arrangement, together with copies of the relevant
financing change statements or other discharge statements with the registration
particulars stamped thereon;
(h) a favourable opinion of counsel for the Seller, reasonably
acceptable to the Purchaser in substantially the form of Exhibit F and as to
such other matters as the Purchaser may reasonably request; and
(i) a favourable opinion of counsel for the Purchaser as to such
matters as the Seller may reasonably request.
The Seller shall make all of the foregoing deliveries, other than the legal
opinion of counsel for the Purchaser and certain registrations described in
Section 4.1(f) that, under the PPSA, are to be made by or on behalf of the
Purchaser.
4.2 Conditions Precedent to All Purchases. Prior to each Purchase
-------------------------------------
hereunder (including the Initial Purchase), the following conditions precedent
shall be satisfied by the Seller, unless waived by the Purchaser in writing:
(a) if the Purchase is made pursuant to Section 2.1, the Purchaser
shall have received the Purchase Request required by such Section, the most
recent Weekly Report and the most recent Portfolio Report, in form and substance
satisfactory to the Purchaser, dated within 30 Business Days prior to the date
of the Purchase and containing such additional information as may be reasonably
requested by the Purchaser;
(b) on the date of such Purchase (immediately prior to, at the time of
and after giving effect to such Purchase), the following statements will be
true, and the Seller, by accepting the Initial Cash Payment for a Purchase
pursuant to Section 2.1 or the Net Daily Collections for a Purchase pursuant to
Section 2.2, will be deemed to have certified that:
(i) the representations and warranties contained in Article
2.1 of the Standard Terms and Conditions are correct on and
as of the date of such Purchase as though made on and as of
such date, except that the representations and warranties
contained in Articles 2.1(k) and (l) of the Standard Terms
and Conditions need not be correct after the date of the
Initial Purchase; and
(ii) no event has occurred and is continuing, or would result
from such Purchase, that constitutes an Event of Termination
or would constitute an Event of Termination but for the
requirement that notice be given or time elapse or both; and
(c) all documents, instruments and agreements required by the terms
hereof to be delivered to the Purchaser shall be so delivered and shall be
satisfactory in form and substance to the Purchaser, acting reasonably, and the
Purchaser shall have received such other approvals, opinions or documents as it
may reasonably request.
<PAGE>
-32-
4.3 Undertaking of Purchaser. If requested by the Seller, the
------------------------
Purchaser shall, prior to each Purchase (including the Initial Purchase),
execute and deliver any agreement which in the opinion of the Seller and the
Purchaser is reasonably required to evidence the respective interests of the
Purchaser and any creditor of or purchaser from the Seller in and to any
Receivables, provided such agreement shall be in form satisfactory to the
Purchaser and the Seller, each acting reasonably.
5
EVENTS OF TERMINATION
---------------------
5.1 Meaning of Event of Termination. The term "Event of Termination"
-------------------------------
means any of the following events or circumstances:
(a) the Servicer (if the Seller or its designee is the Servicer) fails
to make any payment or deposit to be made by it hereunder within one
Business Day of being due;
(b) the Servicer (if the Seller or its designee is the Servicer) fails to
perform or observe any term, condition, covenant or agreement to be
performed or observed by it hereunder (other than specified in
Section 5.1(a)), and any such failure remains unremedied for 10 days
after notice thereof to the Servicer;
(c) the Seller fails to make any payment or deposit to be made by it
hereunder within one Business Day of being due or to remit to the
Servicer within one Business Day of being due any amounts referred to
in Article 2;
(d) the Seller fails to perform or observe any other term, condition
or covenant to be performed or observed by it hereunder, and such
failure remains unremedied for 10 days after notice thereof has been
given to the Seller;
(e) any representation or warranty made by the Seller (or any of its
officers) in or pursuant to this Agreement, any Weekly Report, any
Portfolio Report or any other Related Document proves to have been
false or incorrect in any material respect when made;
(f) at any date, (i) the amount which would appear in accordance with
generally accepted accounting principals of the Seller opposite the
heading "shareholders' equity" (or any similar item) on the Seller's
balance sheet (calculated without giving effect to any foreign
currency translation adjustments) minus (ii) equity investments in,
and loans and advances to, any Affiliate of the Seller minus (iii)
the aggregate amount of franchises, licences, permits, patents,
patent applications, copyrights, trademarks, trade names, brand
names, service marks, goodwill, experimental or organizational
expense and other like intangibles, is less than $20 million.
(g) the Seller fails to pay any Indebtedness or the redemption price of
any redeemable preferred shares included in its Indebtedness when due
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure continues after the applicable
grace period, if any, specified in any agreement or instrument
relating to such Indebtedness; or any other default under
<PAGE>
-33-
any agreement or instrument relating to any Indebtedness, or any
other event, shall occur if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of any
Indebtedness; provided, however, that an Event of Termination shall
not occur by virtue of this clause (g) unless the aggregate amount of
such Indebtedness is equal to or exceeds $1 million or its equivalent
in any other currency or currencies, and any such failure remains
unremedied for three Business Days after notice thereof to the
Seller;
(h) except as permitted hereby, any Purchase ceases to create or result
in legal and equitable title to and ownership of all right, title and
interest in and to the related Purchased Assets in favour of the
Purchaser free and clear of any Adverse Claim, and any such failure
remains unremedied for three Business Days after notice thereof to
the Seller;
(i) the Seller shall generally not pay its debts as they 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
proceedings shall be instituted by or against the Seller or any of
its Subsidiaries seeking to adjudicate it or any such Subsidiary
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking the entry
of an order for relief by the appointment of a receiver, trustee or
other similar official for it or for any substantial part of its
property and, if such proceeding has been instituted against the
Seller or any of its Subsidiaries, either such proceeding has not
been stayed or dismissed within 45 days or any of the actions sought
in such proceeding (including the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar
official) are granted in whole or in part, or the Seller or any of
its Subsidiaries takes any corporate action to authorize any of the
actions described in this Section 5.1(i);
(j) in the sole opinion of the Securitization Agent after consultation
with the Rating Agency, there shall have been any material adverse
change in the financial condition or operations of the Seller since
the date of the Seller's most recent quarterly or year end financial
statements or there shall have occurred any event which materially
adversely affects the collectability of the Receivables, the Seller's
ability to perform its obligations hereunder;
(k) the liquidity support provided pursuant to the Liquidity Agreement
has terminated or is otherwise unavailable and no alternative or
replacement liquidity support is available to the Purchaser;
(l) the Designated Policy is not renewed or is otherwise cancelled or
terminated and no replacement Credit Enhancer provides credit
enhancement acceptable to the Purchaser and the Securitization Agent;
(m) there shall come into existence any prohibition at law against the
Seller selling, or the Purchaser purchasing, Receivables, the Related
Security and Collections relating thereto pursuant to this Agreement;
<PAGE>
-34-
(n) the aggregate Outstanding Principal Balance of the Purchased
Receivables shall at any time be less than the Required Amount, and
any such deficiency remains unremedied for three Business Days after
notice thereof to the Seller;
(o) for the most recent three months, the average Dilution Rate
exceeds 12.5%;
(p) for the most recent three months, the average Delinquency Ratio
exceeds 7.5%;
(q) for the most recent three months, the average Default Ratio
exceeds 6.5%;
(r) for the most recent three months, the average Loss to Liquidation
Ratio exceeds 1.75%;
(s) for the most recent three months, the average Days Sales Ratio
exceeds 60 days;
(t) Qualifying Losses for the year ending on the renewal date of the
Designated Policy exceed the Policy Limit of Liability;
(u) circumstances of a drop in Merisel, Inc.'s credit rating which, in
the reasonable opinion of the Securitization Agent, materially
adversely affects the Seller's ability to perform its obligations
hereunder; and
(v) circumstances of a change in control of the Seller (such that
Merisel, Inc. or a corporation controlled by Merisel, Inc. no longer
retains effective control over the Seller) which in the reasonable
opinion of the Securitization Agent, materially adversely affects the
Seller's ability to perform its obligations hereunder, the
Purchaser's ability to perform its obligations hereunder or the
issuance and sale of Notes.
5.2 Action Upon an Event of Termination. Upon the occurrence of any
-----------------------------------
Event of Termination described in Sections 5.1(b), (d), (e), (f), (j), (k), (l)
and (m) (other than one that occurs as the result of the occurrence or existence
of a Servicer Termination Event referred to in Article 4.12(k) or (l) of the
Standard Terms and Conditions), the Purchaser or its authorized agent may, by
notice to the Seller, declare the Purchase Termination Date to have occurred on
the date specified in such notice, which date shall be not less than one
Business Day subsequent to the date such notice is given to the Seller. If a
Portfolio Report discloses that any Event of Termination described in Sections
5.1(o) through (t) inclusive has occurred or if the Seller gives notice to the
Purchaser that any such Event of Termination has occurred, or if the Purchaser
gives notice to the Seller that the Purchaser has determined that any such Event
of Termination has occurred, the Purchase Termination Date shall occur
automatically upon the delivery of such Portfolio Report or the giving of such
notice by the Seller to the Purchaser or by the Purchaser to the Seller, as the
case may be, without the necessity of any further notice. Upon the occurrence
of any other Event of Termination described in Section 5.1, the Purchase
Termination Date will occur automatically, without the necessity of any notice.
Upon any such declaration or automatic occurrence, the Purchaser will have, in
addition to its rights and remedies hereunder and under the Related Documents,
all other rights and remedies under applicable laws and otherwise, which rights
and remedies will be cumulative.
5.3 Notice re: Liquidity Support. The Purchaser agrees to give the
----------------------------
Seller advance notice of any proposed non-renewal of the Liquidity Agreement and
shall notify the Seller
<PAGE>
-35-
of the termination of the liquidity support under the Liquidity Agreement, in
each case forthwith upon the Purchaser becoming aware thereof.
6
MATTERS RELATING TO THE PURCHASER,
THE CREDIT ENHANCER AND THE SECURITIZATION AGENT
------------------------------------------------
6.1 Liability of Purchaser, the Credit Enhancer and the
---------------------------------------------------
Securitization Agent. Neither the Purchaser, the Credit Enhancer, the
- --------------------
Securitization Agent nor any of their respective directors, officers, agents or
employees will be liable pursuant to this Agreement for any action taken or
omitted to be taken by it or them hereunder or in connection herewith (including
any action taken or omitted to be taken in the capacity as Servicer pursuant to
Section 3.1), except for its or their own gross negligence or wilful misconduct,
and for the purposes of this Section 6.1 only, the Purchaser shall be deemed to
have entered into this Agreement as agent for the Credit Enhancer and its
directors, officers, agents and employees all of whom, for the purposes of this
Section 6.1 only, shall be deemed to be parties hereto. Without limiting the
generality of the foregoing, and notwithstanding any term or provision hereof to
the contrary, the Seller hereby acknowledges and agrees that the Securitization
Agent acts as agent for the Purchaser and has no duties or obligations to, will
incur no liability to, and does not act as an agent in any capacity for, the
Seller.
6.2 Delegation in Favour of Securitization Agent. The Purchaser may
--------------------------------------------
delegate to the Securitization Agent all or any of its powers, rights and
discretion hereunder, and the Securitization Agent may from time to time take
such actions and exercise such powers for and on behalf of the Purchaser as are
delegated to it or contemplated hereby and all such actions and powers as are
reasonably incidental thereto.
6.3 Rights of the Purchaser
-----------------------
(a) The Purchaser may, from time to time when any Event of Termination
has occurred and is continuing or any Termination Date (other than a Termination
Date designated pursuant to Section 2.6(c)) has occurred, notify any or all of
the Obligors, with respect to any Purchased Receivable, of the purchase of such
Purchased Receivable and of any related Purchased Assets by the Purchaser.
(b) From time to time following the designation of a Servicer, other
than the Seller, pursuant to Section 3.1:
(i) the Purchaser may direct any or all of the Obligors to
pay the amounts payable under any Purchased Receivable
directly to the Purchaser or its designee;
(ii) the Seller shall, at the Purchaser's request and at the
Seller's expense, notify all or any Obligors of the
Purchaser's interest in any or all of the Purchased Assets
and direct that payments in respect thereof be made
directly to the Purchaser or its designee;
(iii) the Seller shall, at the Purchaser's request and at the
Seller's expense, assemble all or any of the Records, and
the Contracts and Related
<PAGE>
-36-
Security related thereto or copies thereof, and make the
same available to the Purchaser at a place elected by it
or its designee, and aggregate, in a manner reasonably
acceptable to the Purchaser, all cash, cheques and other
instruments constituting Collections of Purchased
Receivables received by the Seller from time to time, and,
promptly upon receipt, remit same to the Purchaser or its
designee duly endorsed or with duly executed instruments
of transfer; and
(iv) the Purchaser may take any and all steps, in the Seller's
name and on its behalf, necessary or desirable in the
Purchaser's reasonable opinion, to collect the Purchased
Receivables, including, without limitation, endorsing the
Seller's name on cheques and instruments representing
Collections of Purchased Receivables and enforcing
obligations of Obligors in respect of Purchased
Receivables and the Contracts and Related Security related
thereto.
6.4 Responsibilities of the Seller. The parties acknowledge that the
------------------------------
Seller is not selling, transferring or assigning to the Purchaser its rights or
obligations under any Contract except to the extent necessary for collection and
enforcement of the Purchased Receivables arising out of the Contract. In this
regard, and notwithstanding anything contained herein to the contrary:
(a) the Seller shall remain responsible and liable under the Purchased
Receivables, the Related Security and any Contract to perform all of
its duties and obligations thereunder notwithstanding the sale to the
Purchaser of the Receivable payable thereunder;
(b) the exercise by the Purchaser (directly or through the
Securitization Agent) of any of its rights hereunder shall not release
the Seller from any of its duties or obligations with respect to the
Purchased Receivables, the Related Security or any Contract;
(c) neither the Purchaser nor the Securitization Agent will have any
duty or obligation with respect to any Receivables or Contracts, nor
will the Purchaser or the Securitization Agent be obligated to perform
any of the duties or obligations of the Seller thereunder; and
(d) the Seller will promptly notify the Purchaser of any claim or
threatened claim which may, in the Seller's reasonable opinion, result
in any liability referred to in Article 5 of the Standard Terms and
Conditions.
6.5 Other Dealings. The Purchaser and its agents, including the
--------------
Securitization Agent, any Replacement Servicer and their respective Affiliates,
if any, may generally engage in any kind of business with the Seller, the
Purchaser, any Obligor, any of their respective Affiliates and any Person who
may do business with or own securities of any thereof, all as if they did not
have rights or obligations hereunder or under any related deed or agreement, and
without any duty to account therefor to the Seller or any other Person.
6.6 Power of Attorney. The Seller hereby grants to the Purchaser an
-----------------
irrevocable power of attorney and hereby irrevocably appoints the Purchaser as
the Seller's attorney-in-fact, with full power of substitution and expressly
coupled with an interest in favour of the Purchaser, to take in the place and
stead of and in the name of the Seller or in the Purchaser's own name from time
to time at the Purchaser's discretion such actions as the Seller may be
obligated to take hereunder or
<PAGE>
-37-
as the Purchaser may deem necessary or advisable to collect, endorse, negotiate
or otherwise realize on any Purchased Receivable, the Related Security or any
part thereof, any negotiable instrument, or other right of any kind, held or
owned by the Seller or sold, transferred, assigned or delivered to or received
by the Purchaser as payment on account or otherwise in respect of any of the
Purchased Assets, including:
(a) to evidence or protect the Purchaser's ownership interest in the
Purchased Assets and to execute and file, in the Seller's name and on
the Seller's behalf, such recording, registration, financing or
similar statements (including any amendments, renewals and
continuation statements) under applicable Laws, including, in any
personal property registry office, in such jurisdictions where it may
be necessary to validate, perfect or protect the Purchaser's position
as owner of the Purchased Assets;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for monies due and to become due in
connection with the Purchased Receivables or otherwise owed to the
Purchaser;
(c) to receive, endorse and collect any cheques, drafts or other
instruments, documents and chattel paper in connection with monies due
and to become due in connection with the Purchased Receivables or
otherwise owed to the Purchaser;
(d) to file any claims or take any action or institute any proceedings
that the Purchaser may deem to be necessary or desirable for the
collection of any Purchased Receivable; and
(e) to execute and deliver, in the Seller's name and on the Seller's
behalf, such instruments and documents (including assignments)
necessary or desirable in furtherance of the foregoing.
6.7 Execution of Additional Powers. The Seller, following a request
------------------------------
by the Purchaser to do so, shall promptly execute and deliver to the Purchaser
such other powers of attorney in such form and having such content as may be
necessary or reasonably appropriate to enable the Purchaser to exercise the
powers described in Section 6.5.
6.8 Restrictions on Use. The Purchaser covenants and agrees with the
-------------------
Seller not to use the powers granted by Section 6.5 or pursuant to Section 6.6
until after an Event of Termination shall have occurred.
<PAGE>
-38-
7
MISCELLANEOUS
-------------
7.1 Costs, Expenses and Taxes
-------------------------
(a) In addition to the rights of indemnification provided for in
Article 5 of the Standard Terms and Conditions and the fees payable by the
Seller pursuant to Section 3.6, the Seller hereby agrees to pay on demand all
reasonable costs and expenses of the Purchaser and the Securitization Agent in
connection with (i) the preparation, execution and delivery of this Agreement
and the Related Documents up to a maximum of the amount set out in Exhibit I
including all legal fees and other expenses agreed to by the Seller and the
Purchaser and (ii) the enforcement of this Agreement and the Related Documents,
including the reasonable fees and out-of-pocket expenses, on a solicitor and
client basis, of counsel for the Purchaser and the Securitization Agent with
respect thereto and with respect to advising the Purchaser and the
Securitization Agent as to their rights and remedies hereunder and under the
Related Documents, and all reasonable costs and expenses (including reasonable
legal fees and expenses on a solicitor and client basis) in connection with the
enforcement of this Agreement and the Related Documents, but excluding all fees
which are intended to be paid as part of the purchase price of a Receivable
pursuant hereto. For greater certainty, all costs and expenses of the Purchaser,
the Securitization Agent and any Replacement Servicer incurred after the
occurrence of an Event of Termination in connection with administering and
collecting Receivables shall be deemed to be costs and expenses incurred in
connection with enforcement of this Agreement and the Related Documents.
(b) The Seller shall:
(i) pay on demand any and all stamp, filing, recording and
other Taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing, recording
or enforcement of this Agreement or any Related Document;
and
(ii) reimburse on demand the Purchaser for any overpayment made
to the Seller or any loss in respect of any Purchased
Discount resulting from a miscalculation by the Purchaser
or the Securitization Agent in determining the purchase
price (including any Purchased Discount) of a Receivable or
any component thereof or any other amount; provided,
however, that the Purchaser will request such reimbursement
in writing and will explain, in reasonable detail, such
miscalculation, and further provided that the amount of
such reimbursement shall not exceed the amount which should
initially have been paid to the Purchaser but for such
miscalculation, plus interest at the Discount Rate.
7.2 Change in Circumstances. If either:
-----------------------
(a) the introduction of or any change (including any change by way of
imposition or increase of any reserve requirements) in or in the
interpretation of any Law by any court or Governmental Authority, in
each case made after the date hereof; or
<PAGE>
-39-
(b) the compliance by the Purchaser with any changed or introduced
guideline or request made after the date hereof from any Governmental
Authority (whether or not having the force of law),
has the effect of:
(c) increasing the cost to the Purchaser of making, funding or
maintaining any Purchase hereunder or agreeing to make Purchases
hereunder, or reducing the rate of return to the Purchaser in
connection therewith or as a result of reserves (including reserves
against capital) to be made therefor;
(d) reducing the amount receivable with regard to any Purchased
Receivable; or
(e) requiring the Purchaser to make a payment calculated by reference
in whole or in part to the Purchased Assets owned by it,
the Seller shall, from time to time, upon demand by the Purchaser, pay the
Purchaser that portion of such increased costs incurred, amounts not received or
receivable, compensation for such reduction in rate of return or required
payment made, which is directly attributable to making, funding or maintaining
any Purchase hereunder. The Purchaser shall deliver to the Seller a certificate
setting forth its computation of such increased costs, amounts not received or
receivable, reduction in rate of return or required payment made or to be made,
which computation may utilize such averaging and attribution methods the
Purchaser believes to be reasonable.
7.3 Further Assurances. Each of the parties hereto upon the request
------------------
of the other party, whether before or after the closing of any transaction
contemplated hereby, shall do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged or delivered all such further acts, deeds,
documents, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably necessary or desirable to effect complete
consummation of the objects of and the transactions contemplated by this
Agreement.
7.4 Failure to Perform. If the Seller or the Servicer fails to
------------------
perform any of its agreements or obligations hereunder, the Purchaser may (but
will not be required to) itself perform, or cause to be performed, such
agreement or obligation, and the reasonable expenses of the Purchaser incurred
in connection therewith will be payable by the Seller as provided in Section
7.1.
7.5 Entire Agreement. This Agreement, together with all Related
----------------
Documents required to be delivered by the Seller hereunder, contains the
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire and only agreement
between the parties hereto with respect to the subject matter hereof,
superseding any and all prior negotiations, understandings and agreements,
written or oral. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements, express, implied or statutory, between
the parties, except as expressly set forth herein.
7.6 Amendments, Waivers, Etc. No amendment or waiver of any
-------------------------
provision of this Agreement nor consent to any departure by the Seller therefrom
shall be effective in whole or in part unless the amendment or waiver is in
writing and signed by (a) the Seller and the Purchaser (with respect to an
amendment), (b) the Purchaser or any agent on its behalf (with respect to a
waiver or consent by it), or (c) the Seller (with respect to a waiver or consent
by it), and (d) the Securitization Agent to the extent it affects the rights,
duties or obligations of the Securitization
<PAGE>
-40-
Agent, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. All material
amendments, waivers or consents must be approved in writing by the Rating
Agency.
7.7 No Waiver; Remedies. No failure on the part of the Purchaser to
-------------------
exercise, and no delay in exercising, any right hereunder 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
remedies provided by Law. Without limiting the generality of the foregoing, the
Purchaser is hereby authorized by the Seller at any time and from time to time,
to the fullest extent permitted by Law, to set off and apply any and all amounts
at any time held and other indebtedness at any time owing by the Purchaser to or
for the credit or the account of the Seller in respect of the transactions
contemplated by this Agreement against any and all of the obligations of the
Seller, now or hereafter existing under this Agreement.
7.8 Non-Merger. Each party hereby agrees that all provisions of this
----------
Agreement shall forever survive the execution, delivery and performance of this
Agreement, the closing of any transactions contemplated hereby and the
execution, delivery and performance of any and all documents delivered in
connection herewith.
7.9 Time of the Essence. Time shall be of the essence of this
-------------------
Agreement and of every provision hereof.
7.10 Agreement of Purchase and Sale. Each of the Seller and the
------------------------------
Purchaser hereby expressly acknowledges that this Agreement, except as is
specifically provided with respect to the duties and obligations of the
Servicer, is intended to create a relationship of purchaser and vendor. Each of
the Seller and the Purchaser hereby expressly disclaims any intention to
establish a trust relationship or, except as is specifically provided with
respect to the duties and obligations of the Servicer, or by Section 6.6 or 6.7,
to constitute either the Seller or the Purchaser as the agent of the other.
Each of the Seller and the Purchaser covenants with each other that it will not,
at any time, allege or claim that a relationship of trust or agency is created
hereby, except as otherwise expressly provided for herein.
7.11 Notices. All notices or other communications authorized or
-------
required to be given pursuant to this Agreement, or pursuant to which any rights
or obligations may arise hereunder, shall be in writing (including telecopied
communication and such other method of recorded or recordable electronic
communications as to which the parties may hereafter agree) and shall be either
personally delivered or sent by telecopier as follows:
(a) in the case of communication to the Seller:
Merisel Canada Inc.
200 Ronson Drive
Etobicoke, Ontario
M9W 5Z9
Attention: Peter Allen, Vice-President, Finance
------------------------------------------------
Telecopier No.: (416) 240-2777
<PAGE>
-41-
With a copy to:
Merisel, Inc.
200 Continental Boulevard
Suite 301
El Segundo, California, U.S.A.
90245-0984
Attention: Timothy N. Jensen, Vice-President and Treasurer
-----------------------------------------------------------
Telecopier No.: (310) 615-6882
(b) in the case of communication to the Purchaser:
Canadian Master Trust
c/o Nesbitt Burns Inc.
3rd Floor Podium
1 First Canadian Place
Toronto, Ontario
M5X 1H3
Attention: Managing Director, Securitization and Structured
------------------------------------------------------------
Finance
-------
Telecopier No.: (416) 359-1910
Any notice or other communication given by personal delivery will be
conclusively deemed to have been given and received on the day of actual
delivery thereof and, if given by telecopier, on the day of transmittal thereof
if given during the normal business hours of the recipient and on the next
Business Day if not given during such business hours on any day. A party may
change its address for receipt of notices or other communications hereunder by
giving notice thereof to the other party in the manner aforesaid.
7.12 Notice to Rating Agency. If, at any time or from time to time,
-----------------------
the Purchaser shall, by notice given to the Seller, require the Seller to
deliver to the Rating Agency any report, notice or other document, or any class
of the foregoing, at the same time that the Seller delivers the same to any
other Person, the Seller shall comply forthwith with such requirement.
7.13 Binding Effect; Assignability, Etc. This Agreement shall be
-----------------------------------
binding upon and inure to the benefit of the Seller, the Purchaser and their
respective successors and assigns. Neither party may assign its rights
hereunder or any interest herein without the prior written consent of the other
party. Notwithstanding any other provision of this Agreement, upon the
occurrence of an Event of Termination, the Purchaser may, subject to the
provisions of Section 7.18, sell, assign and transfer any Purchased Assets (in
whole or in part) to any Person (including, without limitation, the Credit
Enhancer), or encumber or grant any security interest in or over any Purchased
Assets (in whole or in part) in favour of any Person, without consent of or
notice to the Seller and may also sell, assign, or transfer to such Person any
of its rights hereunder or interest herein on the same basis for the purpose of
giving effect to any such sale, assignment or transfer of Purchased Assets or
encumbrance or grant of a security interest. Upon any sale, assignment or
transfer referred to in the preceding sentence, such Person shall be fully
subrogated to all rights, benefits and privileges of the Purchaser hereunder and
shall be bound by Section 7.18.
<PAGE>
-42-
7.14 Judgment
--------
(a) If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due under this Agreement in one currency (the
"Required Currency") into a different currency (the "Other Currency"), the
parties hereto agree, to the extent permitted by law, that the rate of exchange
used shall be that at which, in accordance with normal banking procedures, Bank
of Montreal could purchase the Required Currency with the Other Currency at noon
(Toronto time) in Toronto on the Business Day preceding that on which final
judgment is given.
(b) The obligation of the Seller or the Servicer in respect of any sum
due from it to the Purchaser under this Agreement shall, notwithstanding any
judgment in the Other Currency, be discharged only to the extent that, on the
Business Day following receipt by the Purchaser of any sum adjudged to be so due
in the Other Currency, Bank of Montreal could, in accordance with normal banking
procedures, purchase the Required Currency with the Other Currency at noon
(Toronto time) in Toronto. If the amount of Required Currency so purchased is
less than the sum originally due to the Purchaser in the Required Currency, the
Seller and the Servicer agree, as a separate obligation and notwithstanding any
such judgment, to indemnify the Purchaser against such loss; and if the amount
of Required Currency so purchased exceeds the sum originally due to the
Purchaser in the Required Currency, Purchaser will remit to the Seller and
Servicer such excess.
7.15 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the Province of Ontario and the laws
of Canada applicable therein, except to the extent that the validity or
perfection of the Purchaser's interests in any Purchased Assets or its remedies
hereunder in respect thereof are governed by the laws of a different
jurisdiction.
7.16 Consent to Jurisdiction; Waiver of Immunities
---------------------------------------------
(a) The Seller hereby irrevocably submits to the jurisdiction of any
court sitting in Toronto in any action or proceeding arising out of or relating
to this Agreement, and the Seller hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such Toronto
court. The Seller hereby irrevocably waives, to the extent permitted by Law,
the defence of an inconvenient forum to the maintenance of such action or
proceeding. The Seller agrees that a final judgment in any action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law.
(b) Nothing in this Section 7.16 shall affect: (i) the right of the
Purchaser to serve legal process in any other manner permitted by Law or
(ii) its right to bring any action or proceeding against the Seller or its
property in the courts of other jurisdictions.
(c) To the extent that the Seller has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Seller hereby irrevocably waives, to the extent permitted by Law, such immunity
in respect of its obligations hereunder.
7.17 Severability. Any provision hereof that is prohibited or
------------
unenforceable in whole or in part in any jurisdiction shall, as to such
provision and such jurisdiction, be ineffective to the
<PAGE>
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
7.18 Confidentiality. The Purchaser and the Seller acknowledge that
---------------
all data and information delivered hereunder by one party to another, shall be
considered as non-public information of the party making delivery, and each
party shall make all reasonable efforts to hold all non-public information
obtained pursuant to this Agreement and the transactions contemplated hereby or
effected in connection herewith in accordance with customary procedures for
handling confidential information of this nature; provided that, notwithstanding
the foregoing, the Purchaser or the Seller may make disclosure of such non-
public information (i) as requested or required by any Governmental Authority or
representative thereof or pursuant to legal process or when required under
applicable Law, (ii) to the Rating Agency, (iii) the Liquidity Agent, (iv) to
implement the terms of this Agreement or to enforce any rights which the Seller
or the Purchaser, as the case may be, may have to collect any Purchased
Receivable or to enforce their respective rights with respect to any Related
Security, or (v) to a Replacement Servicer (provided, however, that the
Purchaser shall use all reasonable efforts to ensure that the Replacement
Servicer shall agree to be bound by the provisions of this Section 7.18 to the
same extent as the Purchaser). Unless specifically prohibited by applicable Law,
each party hereto shall notify the other parties hereto of any request by any
Governmental Authority or representative thereof or other Person for disclosure
of any such non-public information prior to disclosure of such information to
permit the party affected to contest such disclosure, if possible. In no event
shall the Purchaser be obligated or required to return any materials furnished
by the Seller. Notwithstanding the foregoing, the general terms of the
transactions contemplated by this Agreement may be disclosed to any existing
lender to or potential investor in Merisel Inc. or its subsidiaries and this
Agreement may be disclosed as required by the United States Securities and
Exchange Commission.
7.19 Limitation of Liability. The obligations hereunder are not
-----------------------
binding upon BMO Trust Company except in its capacity as trustee of the
Purchaser, nor will resort be had to the property of BMO Trust Company except in
its capacity as trustee of the Purchaser, but the assets only of the Purchaser
will be bound hereby.
7.20 Financial Reporting. The Seller and the Purchaser hereby
-------------------
covenant and agree that they will not at any time prepare any financial
statements that account for the transactions contemplated hereby in a manner
that is inconsistent with the sale to
<PAGE>
-44-
the Purchaser of the Purchased Assets except to the extent required by changes
in generally accepted accounting principles.
7.21 Standard Terms and Conditions. Each of the Purchaser and the
-----------------------------
Seller agrees to comply with and be bound by the provisions of the Standard
Terms and Conditions annexed hereto as Exhibit G, which Standard Terms and
Conditions are incorporated herein by reference and are deemed to be a part
hereof.
7.22 Termination. This Agreement shall remain in full force and
-----------
effect until the Final Collection Date; provided, however, that the Purchaser's
rights and remedies with respect to any incorrect representation or warranty
made or deemed to be made by the Seller herein and the indemnification and
payment provisions of Article 5 of the Standard Terms and Conditions and
Sections 9.1 and 9.2 hereof shall be continuing and will survive any termination
hereof.
7.23 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. For all purposes of this
Agreement and all other documents and agreements contemplated hereby, the
signature of any party hereto or thereto, evidenced by a telecopy showing such
signature or other electronically transmitted version of such signature, shall
constitute conclusive proof for all purposes of the signature of such person to
such documents and agreements, to the same extent in all respects as a copy of
such documents and agreements showing the original signature of such party.
IN WITNESS WHEREOF, the parties have executed this Agreement.
MERISEL CANADA INC.
by____________________________
_____________________________C.S.
THE TRUST COMPANY OF
BANK OF MONTREAL in its capacity
as trustee of CANADIAN MASTER TRUST by its
Securitization Agent,
NESBITT BURNS INC.
by ___________________________
___________________________C.S.
<PAGE>
-45-
<PAGE>
EXHIBIT 10.36
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (hereinafter referred to as "Agreement" or "Security
Agreement"), is made this 29th day of December, 1995, by and between MERISEL
PROPERTIES, INC., a Delaware corporation ("Debtor"), whose business address is
200 Continental Boulevard, El Segundo, California 90245-0984, and HELLER
FINANCIAL, INC., a Delaware corporation ("Secured Party"), whose address is
Commercial Equipment Finance Division, 500 West Monroe Street, Chicago, Illinois
60661.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of
--------------
up to Eleven Million Five Hundred Thousand and 00/100 Dollars ($11,500,000.00)
as evidenced by a Promissory Note of even date in the amount of Five Million and
00/100 Dollars ($5,000,000.00) made by Debtor in favor of Secured Party (the
"Equipment Note") and a Promissory Note of even date in the amount of Six
Million Five Hundred Thousand and 00/100 Dollars ($6,500,000.00) made by Debtor
in favor of Secured Party (the "Real Estate Note;" and together with the
Equipment Note, sometimes referred to herein collectively as the "Notes"), and
also to secure any other indebtedness or liability of Debtor to Secured Party,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising under or in any way connected with the Notes, this Security
Agreement or any of the Loan Documents (as defined below) (all the foregoing
hereinafter called the "Indebtedness"), Debtor hereby grants and conveys to
Secured Party a first superior continuing lien and security interest in the
property described below and/or on the Schedule(s) attached hereto (the
"Schedules"), all proceeds (including insurance proceeds) thereof, if any, and
all substitutions, replacements, attachments, additions, and accessions thereto,
all or any of the foregoing hereinafter called the "Collateral".
Notwithstanding anything to the contrary in the preceding sentence, the lien and
security interest in the Collateral granted by Debtor to Secured Party hereunder
shall be released promptly following the full and final payment of all of that
part of the Indebtedness related to the Equipment Note.
(DESCRIPTION OF COLLATERAL ON ATTACHED SCHEDULES.)
2. Warranties, Representations and Covenants. Debtor warrants, represents,
-----------------------------------------
covenants and agrees as follows:
1
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(a) Perform Obligations. Debtor shall pay as and when due all of the
-------------------
Indebtedness secured by this Agreement in accordance with the terms applicable
to the Indebtedness and perform all of the obligations contained in this
Agreement according to its terms. Debtor shall use the loan proceeds primarily
for business uses and not for personal, family, household, or agricultural uses.
(b) Defend the Collateral. Debtor shall defend the title to the Collateral
---------------------
against all persons and against all claims and demands whatsoever, which
Collateral, except for the security interest granted hereby, is lawfully owned
by Debtor and is now free and clear of any and all liens, security interests,
claims, charges, encumbrances, taxes, and assessments of any kind, except for
any Permitted Liens (as defined below). At the request of Secured Party, Debtor
shall furnish further assurance of title, execute any written agreement or do
any other acts necessary to effectuate the purposes and provisions of this
Agreement, execute any instrument or statement required by law or otherwise in
order to perfect, continue, or terminate the security interest of Secured Party
in the Collateral and pay all costs of filing in connection therewith.
(c) Keep Possession of the Collateral. Debtor shall retain possession of
---------------------------------
the Collateral until the Indebtedness is fully paid and performed (subject to
Secured Party's rights and remedies upon the occurrence of an Event of Default
(defined below)) and shall not sell, exchange, assign, loan, deliver, lease,
mortgage, or otherwise dispose of the Collateral or any part thereof without the
prior written consent of Secured Party; provided, however, that Debtor may allow
-------- -------
its affiliates to use the Collateral at the location specified on the Schedules.
Debtor shall keep the Collateral at the location[s] specified on the Schedules
and shall not remove same (except in the usual course of business for temporary
periods) without the prior written consent of Secured Party; provided, further,
-------- -------
however, that Debtor shall not be prohibited by this Subsection from effecting a
- -------
transfer of the Collateral or any part thereof to Guarantor (as defined below)
if, but only if, the foregoing restriction on such transfer is determined to be
prohibited by or in direct conflict with the 12.5% Senior Notes Due 2004 of
Merisel, Inc.
(d) Collateral Free and Clear. Debtor shall keep the Collateral free and
-------------------------
clear of all liens, charges, encumbrances, assessments, and other security
interests of any kind (other than the security interest granted hereby and the
Permitted Liens (as defined below)) and shall pay, when due, all taxes,
assessments, and license fees relating to the Collateral. As used herein, the
term "Permitted Liens" means liens arising after the date of this Agreement that
are (i) a mechanic's, materialmen's, carrier's, repairer's or other non-
consensual statutory liens, arising in the ordinary course of business and
securing obligations either not delinquent or (A) being contested in good faith
by appropriate proceedings promptly and diligently instituted and conducted, (B)
with prompt written notice to Secured Party of the commencement of and any
material developments in such proceedings, and (C) as to which (1) the sum
necessary to discharge the lien plus all costs and other
2
<PAGE>
charges that could accrue as a result of a foreclosure or sale under the lien is
less than One Hundred Thousand and 00/100 Dollars ($100,000.00), or (2) a
corporate surety bond has been posted in an amount sufficient to discharge the
lien plus all costs and other charges that could accrue as a result of a
foreclosure or sale under the lien, or (ii) a lien arising out of a judgment
against Debtor for the payment of money not exceeding Two Hundred Fifty Thousand
and 00/100 Dollars ($250,000.00), so long as (A) prompt written notice is
furnished to Secured Party of the entry of the judgment and any further material
developments in the proceedings, and (1) such lien has been outstanding not more
than ten (10) business days, or (2) execution thereof has been effectively
stayed and bonded against (by a corporate surety) pending and through appeal of
the judgment, or (iii) a lien on any items of Collateral that are fixtures to
secure payment of ad valorem property taxes, fees or assessments which are not
delinquent.
(e) Collateral in Good Operating Order. All of the Collateral is in good
----------------------------------
operating order, condition and repair, except for immaterial individual items,
and is used or useful in the business of Debtor. Debtor shall keep the
Collateral, at Debtor's sole cost and expense, in good repair and condition and
not misuse, abuse, waste, or allow it to deteriorate except for normal wear and
tear. Upon reasonable notice from Secured Party, Debtor shall make the
Collateral available for inspection by Secured Party during Debtor's regular
business hours at the location specified on the Schedules and at all other
reasonable times, and Debtor will use and maintain the Collateral in a lawful
manner in all material respects in accordance with all applicable laws,
regulations, ordinances, and codes.
(f) Insurance. Debtor shall insure the Collateral against loss by fire
---------
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible that is consistent with the
standards generally maintained in Debtor's industry (but which shall not exceed,
in any event, $1,000,000.00 per occurrence) and without co-insurance. The
insurance policy shall name Secured Party as loss payee and shall contain such
other terms as Secured Party may require. In addition, Debtor shall obtain
liability insurance covering liability for bodily injury, including death and
property damage, in an amount of at least $5,000,000 per occurrence or such
greater amount as may comply with general industry standards. To the extent in
each case that the same relates to the Collateral or any other collateral
securing any part of the Indebtedness, the policies of insurance required
hereunder shall be with the companies that have issued Debtor's existing
policies as of the date hereof, or such replacement companies as Secured Party
may approve in writing, which such approval will not be unreasonably withheld;
shall provide for at least thirty (30) days prior written notice to Secured
Party prior to any modification or cancellation thereof; shall be payable to
Debtor and Secured Party as their interests may appear; shall waive any claim
for premium against Secured Party; and shall provide that no breach of warranty
or representation or act or omission of Debtor shall terminate, limit or affect
the insurers' liability to Secured Party. Certificates of insurance or policies
evidencing the insurance required hereby along with satisfactory proof of the
payment of the premiums therefor shall be delivered to Secured Party who is
authorized, but under no duty, to obtain such insurance upon failure of Debtor
to do so. To the extent in each case that the same relates to the Collateral or
any other collateral securing any part of the Indebtedness, Debtor shall give
immediate written notice to Secured Party and to insurers of loss or damage to
the Collateral and shall
3
<PAGE>
promptly file proofs of loss with insurers. To the extent in each case that the
same relates to the Collateral or any other collateral securing any part of the
Indebtedness, Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, coupled with an interest, for the purpose of obtaining,
adjusting and canceling any such insurance and endorsing settlement drafts in
connection any claims in the amount of $500,000 (in the aggregate), or more,
made prior to the occurrence of an Event of Default or any claims made after the
occurrence of an Event of Default. Debtor hereby assigns to Secured Party, as
additional security for the Indebtedness, all sums which may become payable
under such insurance, including return premiums and dividends.
(g) Complete Information. No representation or warranty made by Debtor in
--------------------
this Agreement and no other document or statement furnished to Secured Party by
or on behalf of Debtor relating to Debtor, Guarantor, or any affiliate thereof,
or the Collateral or any other collateral securing any part of the Indebtedness
contains any material misstatement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading; provided, however, that any projections or proforma or
-------- -------
preliminary financial information furnished to Secured Party were based on good
faith estimates and assumptions believed by Debtor to be reasonable and Secured
Party acknowledges that such projections as to future events are not to be
viewed as facts and that actual results may differ from the projected results.
Except as expressly set forth in the Schedules, and except for facts related to
general economic or industries conditions, there is no fact known to Debtor that
will or could have a materially adverse affect on the business, operation,
condition (financial or otherwise), performance, properties or prospects of
Debtor or Debtor's ability to timely pay all of the Indebtedness and perform all
of its other obligations contained in or secured by this Agreement.
(h) If Collateral Attaches to Real Estate. If the Collateral or any part
-------------------------------------
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. If said Collateral is attached to real estate prior
to the perfection of the security interest granted hereby, Debtor will, on
demand of Secured Party, furnish Secured Party with a disclaimer or waiver of
any interest in the Collateral satisfactory to Secured Party and signed by all
persons having an interest in the real estate. Notwithstanding the foregoing,
the Collateral shall remain personal property and shall not be affixed to realty
without the prior written consent of Secured Party.
(i) Financial Statements. If Merisel, Inc., a Delaware corporation
--------------------
("Guarantor"), is required to make such reports to the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, then Debtor shall, within sixty (60) days after the end of each fiscal
quarter of Guarantor (except the last fiscal quarter of each fiscal year),
furnish to Secured Party a complete and accurate copy of Guarantor's Form 10-Q
filed with the Securities and Exchange Commission for the quarterly period then
ended. If Guarantor is not required to file a Form 10-Q with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Securities
4
<PAGE>
Exchange Act of 1934, then Debtor shall, within sixty (60) days after the end of
each fiscal quarter of Guarantor (except the last fiscal quarter of each fiscal
year), furnish to Secured Party unaudited financial statements of Guarantor,
including, in each instance, balance sheets and income statements, on a
consolidated basis, for the quarterly period then ended and for Guarantor's
fiscal year to date, prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), and certified as to truth and
accuracy by an appropriate officer of Guarantor. If Guarantor is required to
make such reports to the Securities and Exchange Commission pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, then Debtor shall, within
one hundred (100) days after the end of each fiscal year of Guarantor, furnish
to Secured Party a complete and accurate copy of Guarantor's Form 10-K filed
with the Securities and Exchange Commission for the fiscal year then ended,
together with Guarantor's consolidating financial statements, including, in each
instance, balance sheets and income statements for the fiscal year then ended,
prepared in accordance with GAAP and certified as to truth and accuracy by an
appropriate officer of Guarantor. If Guarantor is not required to file a
Form 10-K with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, then Debtor shall, within one
hundred (100) days after the end of each fiscal year of Guarantor, furnish to
Secured Party annual audited financial statements of Guarantor, including
balance sheets, income statements and cash flow statements for the fiscal year
then ended, on a consolidated and consolidating basis, as appropriate, which
have been prepared by its independent accountants in accordance with GAAP. Such
audited financial statements shall be accompanied by the independent
accountant's opinion, which opinion shall be in form generally recognized as
"unqualified".
(j) Perfection. This Agreement creates a valid and first priority security
----------
interest in the Collateral, securing the payment and performance of the
Indebtedness and, upon the filing of duly executed financing statements with the
California Secretary of State and, to the extent the Collateral is comprised of
fixtures, the Los Angeles County Recorder, all actions necessary to perfect and
protect such security interest will have been duly taken.
(k) Authorization. Debtor is now, and will at all times remain, duly
-------------
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. Debtor has the
power to authorize, execute and deliver this Security Agreement, the Notes and
the other documents relating thereto (the Security Agreement, Notes and other
documents, all as amended from time to time, are hereafter collectively referred
to as the "Loan Documents"), to incur and perform obligations hereunder and
thereunder, and to grant the security interests created hereby. The Loan
Documents have been duly authorized, executed, and delivered by or on behalf of
Debtor, and constitute the legal, valid, and binding obligations of Debtor and
are enforceable against Debtor in accordance with their respective terms.
Debtor will preserve and maintain its existence and will not wind up its affairs
or otherwise dissolve. Debtor will not, without thirty (30) days prior written
notice to Secured Party, (1) change its name or so change its structure such
that any financing statement or other record notice becomes misleading or (2)
change
5
<PAGE>
its principal place of business or chief executive or accounting offices from
the address stated herein.
(l) Litigation. There are no actions, suits, proceedings, or
----------
investigations ("Litigation") pending or, to the knowledge of Debtor, threatened
against Debtor. Debtor is not in violation of any material term or provision of
its by-laws, or of any material agreement or instrument, or of any judgment,
decree, order, or any statute, rule, or governmental regulation applicable to
it. The execution, delivery, and performance of the Loan Documents do not and
will not violate, constitute a default under, or otherwise conflict with any
such term or provision or result in the creation of any security interest, lien,
charge, or encumbrance upon any of the properties or assets of Debtor, except
for the security interest herein created. Debtor will promptly notify Secured
Party in writing of Litigation against it if: (1) the outcome of such Litigation
may materially or adversely affect the finances or operations of Debtor (for
purposes of this provision, One Hundred Thousand and 00/100 Dollars ($100,000)
shall be deemed material) or (2) such Litigation questions the validity of any
Loan Document or any action taken or to be taken pursuant thereto. Debtor shall
furnish to Secured Party such information regarding any such Litigation as
Secured Party shall reasonably request.
(m) Compliance with Laws. Debtor shall comply in all material respects
--------------------
with all applicable laws, rules, and regulations and duly observe all valid
requirements of all governmental authorities, and all statutes, rules and
regulations relating to its business, including, without limitation, those
concerning public and employee health, safety, and social security and
withholding taxes and those concerning employee benefit plans and as such may be
required by the Internal Revenue Code, as amended from time to time ("the Code")
and the Employees Retirement Income Security Act of 1974 as amended from time to
time ("ERISA"). With respect to any "multiple employer plan" or "single employer
plan" as defined in ERISA (collectively, "Plans"), Debtor will not: (i) incur
any liability to the Pension Benefit Guaranty Corporation ("PBGC"); (ii)
participate in any prohibited transaction involving any of such Plans or any
trust created thereunder which would subject Debtor to a tax or penalty on
prohibited transactions imposed under the Code or ERISA; (iii) fail to make any
contribution which it is obligated to pay under the terms of such Plan; (iv)
allow or suffer to exist any occurrence of a "reportable event", or any other
event or condition which presents a risk of termination by the PBGC of any such
Plan; or (v) incur any withdrawal liability with respect to any Plan which is
not fully bonded.
(n) Taxes. Debtor has timely filed all tax returns (federal, state, local,
-----
and foreign) required to be filed by it and has paid or established reserves for
all taxes, assessments, fees, and other governmental charges upon its
properties, assets, income and franchises. Debtor does not know of any actual
or proposed additional tax assessments for any fiscal period against it which
would have a material adverse effect on it. Debtor will promptly pay and
discharge all taxes, assessments, and other governmental charges prior to the
date on which penalties are attached thereto, establish adequate reserves for
the payments of such taxes, assessments, and other governmental charges
(including cash reserves, if any,
6
<PAGE>
required by generally accepted accounting principles ("GAAP") for any taxes,
assessments, or other charges being contested), make all required withholding
and other tax deposits, and, upon request, provide Secured Party with receipts
or other proof that any or all of such taxes, assessments, or governmental
charges have been paid in a timely fashion; provided, however, that nothing
contained herein shall require the payment of any tax, assessment, or other
governmental charge so long as its validity is being contested in good faith and
by appropriate proceedings diligently conducted. Should any stamp, excise, or
other tax, including mortgage, conveyance, deed, intangible, or recording taxes
become payable in respect of this Security Agreement, the Notes, or any other
Loan Documents, Debtor shall pay the same (including interest and penalties, if
any) and shall hold Secured Party harmless with respect thereto.
(o) Labor Laws. Debtor is in compliance with the Fair Labor Standards Act.
----------
Debtor is not engaged in any unfair labor practice which would have a material
adverse effect on it. There are: (1) no unfair labor practice complaints
pending or, to the best knowledge of Debtor, threatened against Debtor before
the National Labor Relations Board and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements are pending or, to the
best knowledge of Debtor, threatened; (2) no strikes, work stoppages, or
controversies pending or threatened between Debtor and any of its employees; and
(3) no union representation questions that exist with respect to Debtor's
business and no union organizing activities that are taking place.
(p) Environmental Laws. Debtor has complied and will comply in all
------------------
material respects with all Environmental Laws (defined below) applicable to the
transfer, construction on, and operations of its property and business. Debtor
has (1) not received any summons, complaint, order, or similar notice that it is
not in compliance with, or that any public authority is investigating its
compliance with, any Environmental Laws and (2) no knowledge of any material
violation of any Environmental Laws on or about its assets or property. Debtor
will comply, in all material respects with all Environmental Laws and provide
Secured Party, promptly following receipt, copies of any correspondence, notice,
complaint, order, or other document that it receives asserting or alleging a
circumstance or condition which requires or may require a cleanup, removal,
remedial action or other response by or on the part of Debtor under
Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from Debtor for an alleged violation of any Environmental Laws. Debtor
will advise Secured Party in writing as soon as Debtor becomes aware of any
condition or circumstance that makes the environmental representations or
warranties contained in this Agreement inaccurate in any material respect. For
purposes of this Security Agreement, "Environmental Laws" means all federal,
state, and local laws, rules, regulations, orders, and decrees relating to
health, safety, hazardous substances, and environmental matters, including,
without limitation, the Resource Recovery and Reclamation Act of 1976, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Toxic Substances Control Act, the Clean Water Act of 1977, and the Clean Air
Act, all as amended from time to time.
7
<PAGE>
(q) No Liability. Debtor acknowledges and agrees that Secured Party shall
------------
not be liable for any acts or omissions nor for any error of judgment or mistake
of fact or law other than as a result of Secured Party's gross negligence or
willful misconduct.
(r) Setoff. Without limiting any other right of Secured Party, whenever
------
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, to set off and apply against any and all of the Indebtedness, any and all
monies then or thereafter owed to Debtor by Secured Party in any capacity,
whether or not the obligation to pay such monies owed by Secured Party is then
due. Secured Party shall be deemed to have exercised such right of setoff
immediately at the time of such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.
(s) Regulations. No proceeds of the loans or any other financial
-----------
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.
(t) Books and Records. Debtor shall maintain, at all times, true and
-----------------
complete books, records and accounts in which true and correct entries are made
of its transactions in accordance with GAAP and consistent with those applied in
the preparation of Debtor's financial statements. At all reasonable times, upon
reasonable notice, and during normal business hours, Debtor will permit Secured
Party or its agents to audit, examine and make extracts from or copies of any of
its books, ledgers, reports, correspondence, and other records. Secured Party
may verify any Collateral in any reasonable manner which Secured Party may
consider appropriate, and Debtor shall furnish all reasonable assistance and
information and perform any acts which Secured Party may reasonably request in
connection therewith.
(u) Written Notice. Debtor agrees to give Secured Party written notice of
--------------
any action or inaction by Secured Party or any agent or attorney of Secured
Party that may give rise to a claim against Secured Party or any agent or
attorney of Secured Party or that may be a defense to payment of the obligations
for any reason, including, but not limited to, commission of a tort or violation
of any contractual duty or duty implied by law. Debtor agrees that unless such
notice is fully given as promptly as possible (and in any event within thirty
(30) days) after Debtor has knowledge, or with the exercise of reasonable
diligence should have had knowledge, of any such action or inaction, Debtor
shall not assert, and Debtor shall be deemed to have waived, any claim or
defense arising therefrom.
(v) Indemnity. Debtor shall indemnify, defend and hold Secured Party, its
---------
parent, officers, directors, agents, employees, and attorneys harmless from and
against any loss, expense (including reasonable attorneys' fees and costs),
damage or liability arising directly or indirectly out of (i) any breach of any
representation, warranty or covenant contained herein and in the other Loan
Documents, (ii) any claim or cause of action that would deny
8
<PAGE>
Secured Party the full benefit or protection of any provision herein and in the
Loan Documents, and (iii) the ownership, possession, lease, operation, use,
condition, sale, return, or other disposition of the Collateral, except to the
extent the loss, expense, damage or liability arises solely and directly from
Secured Party's gross negligence or willful misconduct. If after receipt of any
payment of all or any part of the Indebtedness, Secured Party is for any reason
compelled to surrender such payment to any person or entity, because such
payment is determined to be void or voidable as a preference, impermissible set-
off, or a diversion of trust funds, or for any other reason, this Security
Agreement and the Loan Documents shall continue in full force and effect and
Debtor shall be liable to Secured Party for the amount of such payment
surrendered. The provisions of the preceding sentence shall be and remain
effective notwithstanding any contrary action which may have been taken by
Secured Party in reliance upon such payment, and any such contrary action so
taken shall be without prejudice to Secured Party's rights under this Security
Agreement and shall be deemed to have been conditioned upon such payment having
become final and irrevocable. Additionally, Debtor will pay or reimburse Secured
Party for any and all reasonable costs and expenses incurred in connection
herewith, including, but not limited to, attorneys' fees, filing fees, search
fees, and lien recordation. The provisions of this paragraph shall survive the
termination of this Security Agreement and the Loan Documents.
(w) Collateral Documentation. Debtor shall deliver to Secured Party prior
------------------------
to any advance or loan, satisfactory documentation regarding the Collateral to
be financed, including, but not limited to, such invoices, canceled checks
evidencing payments, or other documentation as may be reasonably requested by
Secured Party.
3. Prepayment. On any regular installment payment date under the Equipment
----------
Note or the Real Estate Note after January 1, 1996, Debtor may prepay in whole
or in part, the unpaid principal balance of the respective Note (provided that
any partial prepayments are in the amount of One Million and 00/100 Dollars
($1,000,000.00), or more, and, with respect to each respective Note, do not
occur more often than once in any calendar year), together with all accrued
interest on the principal being prepaid to the date of prepayment, provided that
along with and in addition to such prepayment Debtor shall pay (i) any and all
other sums due hereunder or under the respective Note, and (ii) a prepayment fee
as liquidated damages and not as a penalty, in a sum equal to the amount, if
any, by which (1) the aggregate present values of the amount that is the
percentage of each of the remaining installments of principal and interest due
under the respective Note corresponding to the percentage of the principal being
prepaid, discounted at a rate equal to (a) the yield to maturity as of the date
two (2) days prior to the date of the prepayment on United States Treasury Notes
with a final maturity approximately equal to the remaining term of the
respective Note, absent the prepayment, as published in The Wall Street Journal,
-----------------------
plus (b) one hundred (100) basis points (1.00%), exceeds (2) the amount of
principal being so prepaid. The prepayment fee described in clause (ii) above
shall also be due upon any acceleration of the maturity date of either of the
Notes, respectively, following the occurrence of an Event of Default described
in clauses (a), (b), (c), (e), (f), (g) or (h) of Section 4, below.
9
<PAGE>
4. Events of Default. If any one of the following events (each of which is
-----------------
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) days of its due date, or (b) any
warranty or representation of Debtor is untrue or inaccurate in any material
respect as of the date made, or (c) Debtor breaches or defaults in the
performance of any its agreements or covenants in Subsections 2(c), (d) or (f)
of this Agreement, or (d) Debtor breaches or defaults in the performance of any
other agreement or covenant hereunder and such breach or default shall continue
for thirty (30) calendar days after Debtor knows or, with the exercise of
reasonable diligence, should have known of the breach or default, unless such
breach or default is not susceptible to cure within thirty (30) days, in which
case, no Event of Default shall be deemed to have occurred so long as Debtor
shall have commenced the cure within such thirty (30) day period and thereafter
diligently prosecutes the same to completion, or (e) Debtor shall default in the
payment or performance of any debt or other obligation (excluding accounts
payable and accruals in the ordinary course of business) in excess of Five
Million and 00/100 Dollars ($5,000,000) owed by it to any person or entity,
including, but not limited to, Secured Party, or (f) Debtor becomes insolvent,
makes an assignment for the benefit of creditors or ceases to continue as a
going business, or (g) a receiver, trustee, conservator, or liquidator is
appointed for Debtor or for all or a substantial portion of Debtor's property,
with the approval or consent of Debtor, or without the approval or consent of
Debtor if the appointment is not terminated within forty-five (45) days after
first going into effect, or (h) a petition is filed by or against Debtor under
the Bankruptcy Code or any amendment thereto or under any other insolvency law
or laws providing for the relief of debtors, and, in the event such petition is
filed against Debtor involuntarily, the petition is not vacated or dismissed by
the earlier of (1) forty-five (45) days from its effective date, or (2) ten (10)
days prior to any proposed disposition of any assets pursuant to any such
proceeding, or (i) Secured Party reasonably considers that the prospect of full
performance and satisfaction by Debtor of the Indebtedness is imperiled, or (j)
if there is a material adverse change in the business or financial condition or
prospects of Debtor, or (k) Guarantor breaches or defaults in the performance of
any agreement or covenant under Guarantor's Guaranty delivered to Secured Party
in connection with the delivery of the Notes, then, and in any such event,
Secured Party shall have the right to exercise any one or more of the remedies
hereinafter provided.
5. Remedies. If an Event of Default shall occur, in addition to all rights
--------
and remedies of a secured party under the Uniform Commercial Code, Secured Party
may, at its option, at any time (a) declare the entire unpaid Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter into the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; and
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS IF ANY TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship,
10
<PAGE>
store, and repair the Collateral so removed and sell any or all of it at a
public or private sale or sales. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party will give Debtor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made, it being understood and
agreed that Secured Party may be a buyer at any public and, to the extent
permitted by law, private sale. The requirements, if any, for reasonable notice
will be met if such notice is mailed postage prepaid to Debtor at its address
shown above, at least five (5) days before the time of sale or disposition.
Debtor shall also be liable for and shall upon demand pay to Secured Party all
expenses incurred by Secured Party in connection with the undertaking or
enforcement by Secured Party of any of its rights or remedies hereunder or at
law, including, but not limited to, all expenses of repossessing, storing,
shipping, repairing, selling or otherwise disposing of the Collateral and legal
expenses, including reasonable attorneys' fees and court costs (through any and
all appeals and judgment enforcement actions, it being acknowledged and agreed
by Debtor that this provision shall survive and not merge with any such
judgment), all of which costs and expenses shall be additional Indebtedness
hereby secured. After any such sale or disposition, Debtor shall be liable for
any deficiency of the Indebtedness remaining unpaid, with interest thereon at
the rate set forth in the related Notes.
6. Cumulative Remedies. All remedies of Secured Party hereunder are
-------------------
cumulative, are in addition to any other remedies provided for by law or in
equity and may, to the extent permitted by law, be exercised concurrently or
separately, and the exercise of any one remedy shall not be deemed an election
of such remedy or to preclude the exercise of any other remedy. No failure on
the part of Secured Party to exercise, and no delay in exercising any right or
remedy, shall operate as a waiver thereof or in any way modify or be deemed to
modify the terms of this Security Agreement and the other Loan Documents or the
Indebtedness, nor shall any single or partial exercise by Secured Party of any
right or remedy preclude any other or further exercise of the same or any other
right or remedy.
7. Assignment. Secured Party may transfer or assign this Security Agreement,
----------
the Equipment Note, the Real Estate Note, any part of the Indebtedness and the
other Loan Documents, either together or separately without releasing Debtor or
the Collateral, and upon such transfer or assignment the assignee or holder
shall be entitled to all the rights, powers, privileges and remedies of Secured
Party to the extent assigned or transferred. The obligations of Debtor shall
not be subject, as against any such assignee or transferee, to any defense, set-
off, or counter-claim available to Debtor against Secured Party and any such
defense, set-off, or counter-claim may be asserted only against Secured Party.
8. Time is of the Essence. Time and manner of performance by Debtor of its
----------------------
duties and obligations under this Security Agreement, the Notes, and the other
Loan Documents is of the essence. If Debtor shall fail to comply with any
provision of this Security Agreement or any of the other Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be
11
<PAGE>
paid by Debtor upon demand and shall be added to the Indebtedness. Any such
action by Secured Party shall not constitute a waiver of Debtor's default.
9. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-----------
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. AT SECURED PARTY'S ELECTION
AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER
JURISDICTION, DEBTOR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF CALIFORNIA,
EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY
CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF DEBTOR,
WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF
MAILING THEREOF.
10. Further Assurance; Notice. Debtor shall, at its expense, do, execute and
-------------------------
deliver such further acts and documents as Secured Party may from time to time
reasonably require to assure and confirm the rights created or intended to be
created hereunder to carry out the intention or facilitate the performance of
the terms of this Security Agreement and the Loan Documents or to assure the
validity, perfection, priority or enforceability of any security interest
created hereunder. Debtor agrees to execute any instrument or instruments
necessary or expedient for filing, recording, perfecting, notifying,
foreclosing, and/or liquidating of Secured Party's interest in the Collateral
upon request of, and as determined by, Secured Party, and Debtor hereby
specifically authorizes Secured Party to prepare and file Uniform Commercial
Code financing statements and other documents and to execute same for and on
behalf of Debtor as Debtor's attorney-in-fact, irrevocably and coupled with an
interest, for such purposes. All notices required or otherwise given by either
party shall be deemed adequately and properly given if sent by registered or
certified mail or by overnight courier with a copy by facsimile to the other
party at the addresses stated herein or at such other address as the other party
may from time to time designate in writing and shall be deemed received three
(3) business days after deposit in the United States mail, if sent by registered
or certified mail, and upon delivery if sent by overnight courier.
11. WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR
--------------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS SECURITY AGREEMENT, THE NOTES, OR THE OTHER LOAN DOCUMENTS.
THIS WAIVER IS INFORMED AND FREELY MADE. DEBTOR AND SECURED PARTY ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN
THEIR RELATED FUTURE DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
12
<PAGE>
12. Complete Agreement. This Security Agreement and the other related Loan
------------------
Documents are intended by Debtor and Secured Party to be the final, complete,
and exclusive expression of the agreement between them. This Security Agreement
and the other related Loan Documents may not be altered, modified or terminated
in any manner except by a writing duly signed by the parties hereto. Debtor and
Secured Party intend this Security Agreement and the other related Loan
Documents to be valid and binding and no provisions hereof and thereof which may
be deemed unenforceable shall in any way invalidate any other provisions of this
Security Agreement and the other related Loan Documents, all of which shall
remain in full force and effect. This Security Agreement and the other related
Loan Documents shall be binding upon the respective successors, legal
representatives, and assigns of the parties. The singular shall include the
plural, the plural shall include the singular, and the use of any gender shall
be applicable to all genders. If there be more than one Debtor, the warranties,
representations and agreements herein are joint and several. The Schedules on
the following page[s] are a part hereof. Sections and subsections headings are
included for convenience of reference only and shall not be given any
substantive effect.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Security
Agreement as of the day and year first above written.
"SECURED PARTY" "DEBTOR"
HELLER FINANCIAL, INC., MERISEL PROPERTIES, INC.,
a Delaware corporation a Delaware corporation
By:________________________ By:___________________________
Name:______________________ Name:_________________________
Title:_____________________ Title:________________________
Fax:_______________________ Fax:__________________________
13
<PAGE>
SCHEDULE
DESCRIPTION OF COLLATERAL
Description of Collateral (Full description including make, model and serial
number):
SEE SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF BY REFERENCE.
Place where Collateral is to be kept:
2101 E. EL SEGUNDO BLVD., EL SEGUNDO, CALIFORNIA
Other liens, encumbrances or security interests to which Collateral is subject,
if any.
NONE.
Other Collateral
NONE.
If Collateral is attached or to be attached to real estate, set forth:
Address of Real Estate (Including County, block number, lot number, etc.):
SEE EXHIBIT B ATTACHED HERETO AND MADE A PART HEREOF BY REFERENCE.
Record Owner of Real Estate (Name and Address):
MERISEL PROPERTIES, INC.
If the real estate at which the Collateral is to be kept is leased:
Name and Address of Lessor of Real Estate:
NONE. ____________
Initials
14
<PAGE>
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged, and
to induce HELLER FINANCIAL, INC., a Delaware corporation ("Lender") to make
loans or advances, or extend credit or financial accommodations to MERISEL
PROPERTIES, INC., a Delaware corporation ("Debtor"), or to continue the same,
but without requiring Lender to do so, the undersigned, MERISEL FAB, INC., a
Delaware corporation ("Guarantor") guaranties and promises to pay to Lender, on
demand, in lawful money of the United States, the due and punctual payment and
performance of all indebtedness of Debtor to Lender arising under or in any way
connected with (i) that certain Promissory Note of even date in the amount of
Five Million and 00/100 Dollars ($5,000,000.00) made by Debtor in favor of
Lender, (ii) that certain Promissory Note of even date in the amount of Six
Million Five Hundred Thousand and 00/100 Dollars ($6,500,000.00) made by Debtor
in favor of Lender, and (iii) any document or instrument executed relating to
either of such Notes (collectively, the "Loan Documents"). The word
"indebtedness" is used herein in its most comprehensive sense and includes any
and all loans or performance obligations, notes, security agreements and
liabilities of Debtor to Lender including those existing, now or hereafter made,
entered into, incurred, created or owing, however arising, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Debtor may be liable individually or jointly with
others, or whether recovery upon such indebtedness may be or hereafter become
barred by any statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable. This is a guaranty of payment and
performance and not of collection. Guarantor's obligations hereunder shall be
unconditional (and shall not be subject to any defense, setoff, counterclaim or
recoupment whatsoever) irrespective of the genuineness, validity, regularity or
enforceability of the indebtedness or any conduct of Debtor and/or Lender which
might constitute a legal or equitable discharge of a surety, guarantor or
guaranty.
This is an absolute, unconditional and continuing guaranty relating to the
indebtedness, including that arising under successive transactions which shall
either continue the indebtedness or from time to time renew it after it has been
satisfied or create new indebtedness. This Guaranty shall not apply to any
indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed prior
to such date but consummated and actually created subsequent to such date shall
be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtor or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtor alone or whether Debtor be
joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
1
<PAGE>
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the time for payment of, or otherwise change the
terms or provisions of the indebtedness or any part thereof, including
increasing or decreasing the rate of interest thereon; (b) take and hold
collateral for the payment of this Guaranty or the indebtedness guaranteed, and
exchange, enforce, waive, and release any such collateral; (c) apply such
collateral and direct the order or manner of sale thereof as Lender in its
discretion may determine; and (d) release or substitute in whole or in part any
one or more of the endorsers, Guarantor or anyone else who may be partially or
wholly liable for any part of the indebtedness. Lender may without notice assign
this Guaranty in whole or in part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtor; (b) proceed against or exhaust any collateral
given by Debtor or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtor or by
reason of the cessation or modification from any cause whatsoever of the
liability of Debtor. Guarantor waives diligence, all presentments, demands for
performance, notices of non-performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
To the extent not determined to be prohibited by or in direct conflict with
12.5% Senior Notes Due 2004 of Merisel Inc., effective immediately upon the
occurrence of any Event of Default (as defined in the various Loan Documents),
and without any further action or notice by any party, Guarantor waives and
agrees not to assert any claim Guarantor may now or later have against Debtor.
Guarantor agrees that this paragraph is intended to benefit Debtor and is relied
upon by Lender. As used in this paragraph, the term 'claim' is defined in the
Bankruptcy Code, Section 101. Until such time as all of the indebtedness has
been fully and finally paid, Guarantor further hereby irrevocably waives and
releases any right of subrogation (whether contractual, under Section 509 of the
Bankruptcy Code or otherwise), reimbursement, contribution, exoneration, or
other similar right, or indemnity, or any right of recourse to collateral for
any of the indebtedness.
Guarantor agrees to pay reasonable attorneys' fees and all other costs and
expenses which may be incurred by Lender in the enforcement of this Guaranty and
agrees that all reasonable
2
<PAGE>
attorneys' fees, costs and expenses incurred in pursuing or enforcing rights
and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees that it will not, without the prior
written consent of Lender, merge, consolidate, dissolve (unless it is the
surviving entity), nor will it change the corporate structure or ownership
interests in the Debtor without the prior written consent of Lender.
Guarantor further agrees that this Guaranty shall continue to be effective
or be reinstated, as the case may be, if at any time payment, or any part
thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtor or otherwise.
To the extent such subordination, collection and enforcement is determined
not to be prohibited by or in direct conflict with the 12.5% Senior Notes Due
2004 of Merisel Inc., any indebtedness of Debtor now or hereafter held by or
owing to Guarantor is hereby subordinated to Lender and, after the occurrence of
an Event of Default, such indebtedness, if requested by Lender, shall be
collected, enforced, and received by Guarantor as trustee for Lender and paid
over to Lender.
The singular shall include the plural, the plural shall include the
singular, and the use of any gender shall be applicable to all genders. If any
Guarantor is a corporation, by executing and delivering this Guaranty, it
represents and warrants that the execution and delivery of this Guaranty has
been duly authorized by all necessary and appropriate corporate and shareholder
action.
In case any one or more of the provisions contained in this Guaranty should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including, without limitation, any destruction of Guarantor's right of
subrogation against Debtor and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
indebtedness or against any other person, whether by operation of Sections 580a,
580b, 580d, or 726 of the California Code of Civil Procedure, or any similar or
comparable provisions of the laws of any other jurisdiction, or any other
statutes or rules of law now or hereafter in effect, or otherwise. Without
limiting the generality of the foregoing, Guarantor understands and agrees that,
in the event Lender in its sole discretion
3
<PAGE>
forecloses any trust deed now or hereafter securing any or all of the
indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to Lender
for any deficiency, even though Guarantor will lose his right of subrogation
against Debtor, and even though Guarantor will be unable to recover from Debtor
the amount of the deficiency for which Guarantor is liable, and even though
Guarantor would have retained his right of subrogation against Debtor if Lender
had foreclosed said trust deed by judicial foreclosure as opposed to nonjudicial
foreclosure. In addition, Guarantor hereby waives any and all notice of Lender's
intent to accelerate the indebtedness hereunder and further waives any notice of
acceleration.
Without limiting the generality, scope or meaning of any other provision of
this Guaranty, Guarantor:
(i) acknowledges that Section 2856 of the California Civil Code authorizes and
validates waivers of a guarantor's rights of subrogation and reimbursement and
certain other rights and defenses available to Guarantor under California law;
(ii) hereby waives all rights of subrogation and reimbursement and all other
rights and defenses available by reason of Sections 2787 to 2855, inclusive, of
the California Civil Code (if for any reason such laws were deemed to apply to
Guarantor or this Guaranty), including, without limitation, (A) any defense
Guarantor may have to this Guaranty by reason of an election of remedies by
Lender, and (B) any rights or defenses Guarantor may have by reason of
protection afforded to Debtor and/or Guarantor with respect to the indebtedness
of Debtor to Lender, and/or the obligations under this Guaranty, pursuant to the
antideficiency or other laws of California (if for any reason such laws were
deemed to apply to Guarantor or this Guaranty) limiting or discharging any
indebtedness or obligations, including, without limitation, Section 580a, 580b,
580d, or 726 of the California Code of Civil Procedure;
(iii) hereby waives all rights and defenses arising out of an election of
remedies by Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Debtor by the
operation of Section 580d of the California Code of Civil Procedure or
otherwise, and even though that election of remedies does not provide Guarantor
or Debtor a "fair market value hearing" under Section 580a of the California
Code of Civil Procedure or other form of appraisal of any property securing the
indebtedness of Debtor to Lender;
(iv) hereby agrees and acknowledges that (A) Guarantor has reviewed the waivers
and other provisions set forth in this Guaranty with legal counsel selected by
Guarantor, and (B) the omission of any specific reference to statutes or
judicial decisions or omission of any other explanation of the rights waived in
this Guaranty shall not constitute a defense to the obligations of Guarantor
under this Guaranty.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT LENDER'S ELECTION AND WITHOUT LIMITING
LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, GUARANTOR HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
4
<PAGE>
ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXPRESSLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID,
DIRECTED TO THE LAST KNOWN ADDRESS OF DEBTOR OR GUARANTOR, WHICH SERVICE SHALL
BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
GUARANTOR HEREBY WAIVES ANY OBJECTION TO IMPROPER VENUE, FORUM NON CONVENIENS,
AND ANY RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION OR IN ANY
LITIGATION OR ANY COURT WITH RESPECT TO OR ARISING OUT OF THIS GUARANTY. THIS
WAIVER IS INFORMED AND FREELY MADE. GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT IT HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY, AND THAT IT WILL CONTINUE
TO RELY ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if there
be more than one), has executed and delivered this Guaranty independent of each
other and not relying upon or in consideration of the execution hereof by any
other of them, on this 29th day of December, 1995.
Attest:_____________________ MERISEL FAB, INC., a
Delaware corporation
By:_________________________
Name:_______________________
Title:______________________
Address of Witness Address of Guarantor
____________________________ ____________________________
____________________________ ____________________________
____________________________ ____________________________
5
<PAGE>
CERTIFICATION
I,___________________, do hereby certify that I am the duly elected and
qualified Secretary of MERISEL, INC., a(n) _________________ corporation, the
Guarantor named in the foregoing Guaranty; that at a (special) (regular) meeting
of the Board of Directors of said Corporation held on __________________, 199__,
at which meeting a quorum was present and acting throughout, the foregoing
Guaranty was submitted to, and approved by, the Board of Directors of said
Corporation, and that the officer that executed the Guaranty for and on behalf
of the Corporation was so authorized by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
said Corporation this 29th day of December, 1995.
_______________________________
Secretary
(Corporate Seal)
6
<PAGE>
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged, and
to induce HELLER FINANCIAL, INC., a Delaware corporation ("Lender") to make
loans or advances, or extend credit or financial accommodations to MERISEL
PROPERTIES, INC., a Delaware corporation ("Debtor"), or to continue the same,
but without requiring Lender to do so, the undersigned, MERISEL FAB, INC., a
Delaware corporation ("Guarantor") guaranties and promises to pay to Lender, on
demand, in lawful money of the United States, the due and punctual payment and
performance of all indebtedness of Debtor to Lender arising under or in any way
connected with (i) that certain Promissory Note of even date in the amount of
Five Million and 00/100 Dollars ($5,000,000.00) made by Debtor in favor of
Lender, (ii) that certain Promissory Note of even date in the amount of Six
Million Five Hundred Thousand and 00/100 Dollars ($6,500,000.00) made by Debtor
in favor of Lender, and (iii) any document or instrument executed relating to
either of such Notes (collectively, the "Loan Documents"). The word
"indebtedness" is used herein in its most comprehensive sense and includes any
and all loans or performance obligations, notes, security agreements and
liabilities of Debtor to Lender including those existing, now or hereafter made,
entered into, incurred, created or owing, however arising, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Debtor may be liable individually or jointly with
others, or whether recovery upon such indebtedness may be or hereafter become
barred by any statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable. This is a guaranty of payment and
performance and not of collection. Guarantor's obligations hereunder shall be
unconditional (and shall not be subject to any defense, setoff, counterclaim or
recoupment whatsoever) irrespective of the genuineness, validity, regularity or
enforceability of the indebtedness or any conduct of Debtor and/or Lender which
might constitute a legal or equitable discharge of a surety, guarantor or
guaranty.
This is an absolute, unconditional and continuing guaranty relating to the
indebtedness, including that arising under successive transactions which shall
either continue the indebtedness or from time to time renew it after it has been
satisfied or create new indebtedness. This Guaranty shall not apply to any
indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed prior
to such date but consummated and actually created subsequent to such date shall
be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtor or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtor alone or whether Debtor be
joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
<PAGE>
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the time for payment of, or otherwise change the
terms or provisions of the indebtedness or any part thereof, including
increasing or decreasing the rate of interest thereon; (b) take and hold
collateral for the payment of this Guaranty or the indebtedness guaranteed, and
exchange, enforce, waive, and release any such collateral; (c) apply such
collateral and direct the order or manner of sale thereof as Lender in its
discretion may determine; and (d) release or substitute in whole or in part any
one or more of the endorsers, Guarantor or anyone else who may be partially or
wholly liable for any part of the indebtedness. Lender may without notice assign
this Guaranty in whole or in part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtor; (b) proceed against or exhaust any collateral
given by Debtor or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtor or by
reason of the cessation or modification from any cause whatsoever of the
liability of Debtor. Guarantor waives diligence, all presentments, demands for
performance, notices of non-performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
To the extent such waiver and agreement is determined not to be prohibited
by or in direct conflict with the 12.5% Senior Notes Due 2004 of Merisel Inc.,
effective immediately upon the occurrence of any Event of Default (as defined in
the various Loan Documents), and without any further action or notice by any
party, Guarantor waives and agrees not to assert any claim Guarantor may now or
later have against Debtor. Guarantor agrees that this paragraph is intended to
benefit Debtor and is relied upon by Lender. As used in this paragraph, the term
'claim' is defined in the Bankruptcy Code, Section 101. Until such time as all
of the indebtedness has been fully and finally paid, Guarantor further hereby
irrevocably waives and releases any right of subrogation (whether contractual,
under Section 509 of the Bankruptcy Code or otherwise), reimbursement,
contribution, exoneration, or other similar right, or indemnity, or any right of
recourse to collateral for any of the indebtedness.
Guarantor agrees to pay reasonable attorneys' fees and all other costs and
expenses which may be incurred by Lender in the enforcement of this Guaranty and
agrees that all reasonable
2
<PAGE>
attorneys' fees, costs and expenses incurred in pursuing or enforcing rights
and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees that it will not, without the prior
written consent of Lender, merge, consolidate, dissolve (unless it is the
surviving entity), nor will it change the corporate structure or ownership
interests in the Debtor without the prior written consent of Lender.
Guarantor further agrees that this Guaranty shall continue to be effective
or be reinstated, as the case may be, if at any time payment, or any part
thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtor or otherwise.
To the extent such subordination, collection and enforcement is determined
not to be prohibited by or in direct conflict with the 12.5% Senior Notes Due
2004 of Merisel Inc., any indebtedness of Debtor now or hereafter held by or
owing to Guarantor is hereby subordinated to Lender and, after the occurrence of
an Event of Default, such indebtedness, if requested by Lender, shall be
collected, enforced, and received by Guarantor as trustee for Lender and paid
over to Lender.
The singular shall include the plural, the plural shall include the
singular, and the use of any gender shall be applicable to all genders. If any
Guarantor is a corporation, by executing and delivering this Guaranty, it
represents and warrants that the execution and delivery of this Guaranty has
been duly authorized by all necessary and appropriate corporate and shareholder
action.
In case any one or more of the provisions contained in this Guaranty should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including, without limitation, any destruction of Guarantor's right of
subrogation against Debtor and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
indebtedness or against any other person, whether by operation of Sections 580a,
580b, 580d, or 726 of the California Code of Civil Procedure, or any similar or
comparable provisions of the laws of any other jurisdiction, or any other
statutes or rules of law now or hereafter in effect, or otherwise. Without
limiting the generality of the foregoing, Guarantor understands and agrees that,
in the event Lender in its sole discretion
3
<PAGE>
forecloses any trust deed now or hereafter securing any or all of the
indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to Lender
for any deficiency, even though Guarantor will lose his right of subrogation
against Debtor, and even though Guarantor will be unable to recover from Debtor
the amount of the deficiency for which Guarantor is liable, and even though
Guarantor would have retained his right of subrogation against Debtor if Lender
had foreclosed said trust deed by judicial foreclosure as opposed to nonjudicial
foreclosure. In addition, Guarantor hereby waives any and all notice of Lender's
intent to accelerate the indebtedness hereunder and further waives any notice of
acceleration.
Without limiting the generality, scope or meaning of any other provision of
this Guaranty, Guarantor:
(i) acknowledges that Section 2856 of the California Civil Code authorizes
and validates waivers of a guarantor's rights of subrogation and reimbursement
and certain other rights and defenses available to Guarantor under California
law;
(ii) hereby waives all rights of subrogation and reimbursement and all other
rights and defenses available by reason of Sections 2787 to 2855, inclusive, of
the California Civil Code (if for any reason such laws were deemed to apply to
Guarantor or this Guaranty), including, without limitation, (A) any defense
Guarantor may have to this Guaranty by reason of an election of remedies by
Lender, and (B) any rights or defenses Guarantor may have by reason of
protection afforded to Debtor and/or Guarantor with respect to the indebtedness
of Debtor to Lender, and/or the obligations under this Guaranty, pursuant to the
antideficiency or other laws of California (if for any reason such laws were
deemed to apply to Guarantor or this Guaranty) limiting or discharging any
indebtedness or obligations, including, without limitation, Section 580a, 580b,
580d, or 726 of the California Code of Civil Procedure;
(iii) hereby waives all rights and defenses arising out of an election of
remedies by Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Debtor by the
operation of Section 580d of the California Code of Civil Procedure or
otherwise, and even though that election of remedies does not provide Guarantor
or Debtor a "fair market value hearing" under Section 580a of the California
Code of Civil Procedure or other form of appraisal of any property securing the
indebtedness of Debtor to Lender;
(iv) hereby agrees and acknowledges that (A) Guarantor has reviewed the
waivers and other provisions set forth in this Guaranty with legal counsel
selected by Guarantor, and (B) the omission of any specific reference to
statutes or judicial decisions or omission of any other explanation of the
rights waived in this Guaranty shall not constitute a defense to the obligations
of Guarantor under this Guaranty.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT LENDER'S ELECTION AND WITHOUT LIMITING
LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, GUARANTOR HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
4
<PAGE>
ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXPRESSLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID,
DIRECTED TO THE LAST KNOWN ADDRESS OF DEBTOR OR GUARANTOR, WHICH SERVICE SHALL
BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
GUARANTOR HEREBY WAIVES ANY OBJECTION TO IMPROPER VENUE, FORUM NON CONVENIENS,
AND ANY RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION OR IN ANY
LITIGATION OR ANY COURT WITH RESPECT TO OR ARISING OUT OF THIS GUARANTY. THIS
WAIVER IS INFORMED AND FREELY MADE. GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT IT HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY, AND THAT IT WILL CONTINUE
TO RELY ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Notwithstanding anything to the contrary above, Guarantor shall not have any
obligation or liability under this Guaranty until and unless the collateral
described in the Loan Documents, or any part thereof, is transferred to Merisel,
Inc., a Delaware corporation (Parent"), and Parent does not pay to Lender Two
Million and 00/100 Dollars ($2,000,000.00) in accordance with that certain
letter agreement dated December 29, 1995, between Parent and Lender.
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if there
be more than one), has executed and delivered this Guaranty independent of each
other and not relying upon or in consideration of the execution hereof by any
other of them, on this 29th day of December, 1995.
Attest:_____________________ MERISEL FAB, INC., a
Delaware corporation
By:_________________________
Name:_______________________
Title:______________________
Address of Witness Address of Guarantor
____________________________ ____________________________
____________________________ ____________________________
____________________________ ____________________________
5
<PAGE>
CERTIFICATION
I,___________________, do hereby certify that I am the duly elected and
qualified Secretary of MERISEL, INC., a(n) _________________ corporation, the
Guarantor named in the foregoing Guaranty; that at a (special) (regular) meeting
of the Board of Directors of said Corporation held on __________________, 199__,
at which meeting a quorum was present and acting throughout, the foregoing
Guaranty was submitted to, and approved by, the Board of Directors of said
Corporation, and that the officer that executed the Guaranty for and on behalf
of the Corporation was so authorized by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
said Corporation this 29th day of December, 1995.
__________________________________
Secretary
(Corporate Seal)
6
<PAGE>
EXHIBIT 10.37
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, CA 94612
Attention: William A. Durgin, Esq.
ASSESSOR'S PARCEL NO. 4138-007-011
DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING
------------------------
This Deed of Trust, Security Agreement, Assignment of Leases and Rents
and Fixture Filing ("Deed of Trust") is made as of the ____ day of December,
1995, among MERISEL PROPERTIES, INC., a Delaware corporation ("Grantor") whose
address is set forth below, HELLER FINANCIAL, INC., a Delaware corporation,
whose address is set forth below, as Beneficiary, and FIRST AMERICAN TITLE
COMPANY OF LOS ANGELES, whose address is set forth below, as Trustee.
THIS DOCUMENT IS ALSO A FIXTURE FILING IN ACCORDANCE WITH SECTION 9402(6) OF THE
CALIFORNIA COMMERCIAL CODE.
ARTICLE 1. DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
ASSIGNMENT. The assignment, contained in Article 4 of this Deed of
----------
Trust, from Grantor to Beneficiary, of all of Grantor's right, title and
interest in and to the Leases and the Rents.
AWARDS. All awards and payments made or hereafter to be made by any
------
municipal, township, county, state, Federal or other governmental agencies,
authorities or boards, or any other entity having the power of eminent domain to
Grantor, including any awards and payments for any taking of all or a portion of
the Mortgaged Property, as a result of, or by agreement in anticipation of, the
exercise of the right of condemnation or eminent domain, or for any change or
changes of grade of streets affecting the Mortgaged Property.
BENEFICIARY. Heller Financial, Inc., a Delaware corporation, and its
-----------
successors and assigns and the holders, from time to time, of the Notes.
BENEFICIARY'S ADDRESS. 500 West Monroe Street, Chicago, Illinois 60661.
---------------------
1
<PAGE>
BUILDINGS. All buildings, improvements, alterations or appurtenances
---------
now, or at any time hereafter, located upon the Land or any part thereof.
DEFAULT INTEREST RATE. The lesser of (i) a per annum rate equal to three
---------------------
percent (3%) above the interest rate first set forth in the Real Estate Note, or
(ii) the highest contract rate allowed by law to be collected by Beneficiary.
ENVIRONMENTAL CLAIM. Any claim, demand, notice of violation or
-------------------
responsibility, action, suit, loss, cost, damage, fine, penalty, lien, expense,
liability, judgment, proceeding, or injury, arising from, regarding, or in any
way connected with all or any part of the Mortgaged Property, whether formal or
informal, absolute or contingent, matured or unmatured, and whether brought or
asserted in any manner by any person, entity or governmental unit, agency or
body, respecting or arising directly or indirectly from any of the following:
(i) noise; (ii) pollution or contamination of the air, surface water, ground
water, or land; (iii) generation, handling, treatment, storage, release,
emission, migration (to or from the Mortgaged Property), disposal, or
transportation of solid, gaseous, or liquid waste, Hazardous Materials, or any
other substance; (iv) injury to or death of any person or persons directly or
indirectly connected with Hazardous Materials; (v) destruction or contamination
of any property directly or indirectly connected with Hazardous Materials; (vi)
removal of any and all Hazardous Materials from all or any portion of the
Mortgaged Property, (vii) precautions to protect against the release of
Hazardous Materials into the air, surface water, ground water, land, any public
domain, or any surrounding areas; (viii) any other act or omission concerning
Hazardous Materials not enumerated above; and/or (ix) any Requirements of
Environmental Law, whether imposed on or incurred by the Mortgaged Property,
Grantor, Beneficiary, or any owner, occupant, or person having any interest in
the Mortgaged Property.
ENVIRONMENTAL CONDITIONS. As defined in Section 5.1.18.
------------------------
ENVIRONMENTAL COSTS. As defined in Section 7.1.9.
-------------------
ENVIRONMENTAL PERMIT. Any permit, license, approval, or other
--------------------
authorization with respect to any activities, operations, or businesses
conducted on or in relation to the Mortgaged Property under any applicable law,
regulation, or other requirement of the United States or any state,
municipality, or other subdivision or jurisdiction related to pollution or
protection of health or the environment, including laws, regulations, or other
requirements relating to emissions, discharges, or releases or threatened
releases of Hazardous Materials into ambient air, surface water, ground water,
or land, or otherwise relating to the manufacture, processing, distribution,
use, generation, treatment, storage, disposal, transportation, or handling of
Hazardous Materials directly or indirectly related to the Mortgaged Property.
ENVIRONMENTAL PROVISIONS. As defined in Section 7.1.9.
------------------------
2
<PAGE>
EQUIPMENT NOTE. As defined under the definition of "Notes."
--------------
EQUIPMENT SECURITY AGREEMENT. That certain Security Agreement, dated of
----------------------------
even date with this Deed of Trust, between Merisel Properties, Inc. as Debtor
and Heller Financial, Inc. as Secured Party, securing payment of the Notes.
EVENT(S) OF DEFAULT. The events and occurrences described in Article 6
-------------------
of this Deed of Trust.
EXCHANGE ACT. The Securities and Exchange Act of 1934, as amended.
------------
FIXTURES. All fixtures now or hereafter affixed or attached to, or
--------
installed in, or used in connection with the operation of, the Land or
Buildings, whether or not permanently affixed thereto, together with all
accessions, replacements and substitutions thereto or therefor and the proceeds
thereof.
GRANTOR. The entity and individuals named as such in the preamble of
-------
this Deed of Trust, and successors and assigns, including, without limitation,
Grantor's successors in interest in and to the Mortgaged Property.
GRANTOR'S ADDRESS. 200 Continental Boulevard, El Segundo, California
-----------------
90245.
HAZARDOUS MATERIALS. Any oil, gasoline, petroleum products or
-------------------
byproducts, asbestos, material containing asbestos, explosives, chemical liquids
or solids, radioactive materials, polychlorinated biphenyls or related or
similar materials, or any other emission, gas, liquid, solid, substance,
material, product or byproduct defined or regulated as a hazardous or toxic
substance, material or waste, or as causing cancer or reproductive toxicity, by
any federal, state or local law, ordinance, rule or regulation, by judicial
interpretations thereof, or by lists of any federal, state or local governmental
agency, now or hereafter enacted or in force. Such laws include, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation
-------
Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery
-------
Act, 42 U.S.C. Section 6901, et seq.; the Toxic Substances Control Act, 15
-------
U.S.C. Sections 2601, et seq.; the Clean Water Act, 33 U.S.C. Sections 1251, et
------- --
seq.; the California Hazardous Waste Control Act, Health and Safety Code
- ----
Sections 25100, et seq.; the California Hazardous Substance Account Act, Health
-------
and Safety Code Sections 25330 et seq.; the California Safe Drinking Water and
-------
Toxic Enforcement Act, Health and Safety Code Sections 25249.5, et seq.;
-------
California Health and Safety Code Sections 25280, et seq. (Underground Storage
-------
of Hazardous Substances); the California Hazardous Waste Management Act, Health
and Safety Code Sections 25170.1, et seq.; California Health and Safety Code
-------
Sections 25501, et seq. (Hazardous Materials Response Plans and Inventory);
------
and/or the California Porter-Cologne Water Quality Control Act, Water Code
Sections 13000, et seq. and all future amendments thereof.
-------
3
<PAGE>
IMPOSITIONS. All (i) real estate and personal property taxes and other
-----------
taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for an easement or agreement maintained for the benefit of
the Mortgaged Property which at any time prior to or after the execution of the
Security Documents may be assessed, levied, or imposed upon the Mortgaged
Property or the rent or income received therefrom or any use or occupancy
thereof, and (ii) other taxes, assessments, fees and governmental charges
levied, imposed or assessed upon or against Grantor or any of its properties.
INDEBTEDNESS. The principal of and interest on and all other amounts,
------------
payments, fees, late charges and premiums due under the Notes (including any
future advances) and all other monies owed for any reason by Grantor to
Beneficiary under and/or secured by the Security Documents or any amendments,
modifications, renewals and extensions of any of the foregoing.
INSURED CASUALTY. As defined in Section 5.1.6.
----------------
LAND. The real estate described in Exhibit A attached hereto, also known
---- ---------
as 2101 East El Segundo Boulevard, El Segundo, Los Angeles County, California.
LEASES. Any and all leases, subleases, licenses, concessions or grants
------
of other possessory interest now or hereafter in force, oral or written,
covering or affecting the Mortgaged Property, or any part thereof, together with
all rights, powers, privileges, options and other benefits of Grantor
thereunder.
MORTGAGED PROPERTY. The Land, the Buildings, the Fixtures, the Leases,
------------------
the Rents and the Personalty, together with:
(i) all existing and future rights, privileges, permits, licenses, tenements,
hereditaments, rights-of-way, easements, appendages and appurtenances of the
Land and/or the Buildings belonging or in any way appertaining thereto and all
right, title and interest of Grantor in and to any streets, ways, alleys, strips
or gores of land adjoining the Land or any part thereof;
(ii) all existing and future estate, right, title, interest, claim or demand
whatsoever of Grantor, either at law or in equity, in and to the Land, the
Buildings, the Fixtures, the Leases, the Rents and the Personalty; and
(iii) all existing and future estate, right, title, interest, claim or demand
whatsoever of Grantor, either at law or in equity, in and to the Awards, or
insurance proceeds or other payments with respect to casualties affecting any of
the Mortgaged Property.
4
<PAGE>
NOTES. That certain promissory note (also referred to herein as the
-----
"Real Estate Note") dated of even date with this Deed of Trust, made by Grantor
to the order of Beneficiary, in the principal amount of Six Million Five Hundred
Thousand Dollars ($6,500,000.00), secured by this Deed of Trust and the
Equipment Security Agreement, together with all extensions, renewals,
modifications and amendments thereof; and that certain promissory note (also
referred to herein as the "Equipment Note") dated of even date with this Deed of
Trust, made by Grantor to the order of Beneficiary, in the principal amount of
Five Million Dollars ($5,000,000.00), secured by this Deed of Trust and the
Equipment Security Agreement, together with all extensions, renewals,
modifications and amendments thereof.
OBLIGATIONS. Any and all of the covenants, promises and other
-----------
obligations (other than the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Notes and/or the Security
Documents, and any and all extensions, renewals, modifications and amendments of
any of the foregoing.
PERMITTED ENCUMBRANCES. The encumbrances described, with particularity,
----------------------
in Exhibit B attached hereto and/or defined as Permitted Encumbrances in the
---------
Equipment Security Agreement.
PERSONALTY. All furniture, furnishings, equipment, machinery, trade
----------
fixtures and all other tangible and intangible personal property (other than the
Fixtures) now owned or hereafter acquired by Grantor (a) which are now or
hereafter used or owned in connection with the operation of the Land and/or the
Buildings and located in, upon or about or arising from the Land and/or the
Buildings, and/or (b) which are described as Collateral in the Equipment
Security Agreement, together, as to both (a) and (b), with all accessions,
replacements and substitutions thereto or therefor and the proceeds and products
thereof including without limitation: (1) all personal property located on the
Land or Buildings and used in the operation or occupancy of the Land or
Buildings or in any construction on the Land or Buildings, including, but not
limited to, all furniture and furnishings, machinery, fixtures, goods, office
equipment, machine tools, apparatus, supplies, materials, trade fixtures,
building service equipment, boilers, equipment (including, without limitation,
all equipment for the generation or distribution of air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating or air
conditioning purposes, or for sanitary or drainage purposes, or for the removal
of dust, refuse or garbage), partitions, appliances, ranges, refrigerators,
cabinets, laundry equipment, radios, televisions, awnings, window shades,
venetian blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, games, recreational and swimming pool
equipment and incinerators, and all vehicles and accessories, tools,
appurtenances, dyes, jigs, chattels and parts; (2) all general intangibles
relating to the ownership, development or use of the Land or Buildings and not
arising from Grantor's computer product sales and distribution business,
including, but not limited to, all governmental permits relating to construction
on the Land or Buildings, all licenses, permits, management agreements,
franchise agreements, service contracts, other contracts or agreements, all
names under or by which the Land or Buildings may at any time be operated or
known, and all rights to carry on business under any such names or any variant
5
<PAGE>
thereof, and all interests in any owner's or member's association in any way
relating to the Land or Buildings; (3) all water stock relating to the Land or
Buildings, all shares of stock or other evidence of ownership of any part of the
Land or Buildings that is owned by the Grantor in common with others, and all
documents of membership in any owners' or members' association or similar group
having responsibility for owning, managing or operating any part of the Land or
Buildings; (4) all plans and specifications prepared for construction of
improvements on the Land or Buildings and all studies, data and drawings related
thereto; and also all contracts and agreements of Grantor relating to the plans
and specifications or to the studies, data and drawings, or to the construction
of improvements on the Land or Buildings; (5) all sales agreements, deposit
receipts, escrow agreements and other ancillary documents and agreements entered
into with respect to the sale to any purchasers of any part of the Land or
Buildings, together with all deposits and other proceeds of the sale thereof;
(6) all damages, royalties and revenues of every kind, nature and description
whatsoever that Grantor may be entitled to receive from any person or entity
owning or having or hereafter acquiring a right to the oil, gas or mineral
rights and reservations of the Land; (7) all deposits made with or other
security given to utility companies by Grantor with respect to the Land or
Buildings, and all advance payments of insurance premiums made by Grantor with
respect thereto and all claims or demands with respect to insurance; (8) any
funds permitted to be held by Beneficiary under the Security Documents; (9) any
causes of action deemed to be assigned to Beneficiary under this Deed of Trust;
(10) all substitutions, renewals, improvements, attachments, accessions,
additions and replacements to any of the foregoing; and (11) all collections,
proceeds, insurance proceeds and products of any of the foregoing, including,
without limitation, damages, awards, settlements, compensation, interest thereon
and other proceeds of any voluntary or involuntary disposition or claim
respecting the Land, Buildings and foregoing personal property or any part
thereof (pursuant to judgment, condemnation award or otherwise) and all
documents, instruments, general intangibles, chattel paper and accounts which
may arise from the sale or disposition of any of the foregoing, all guaranties
of and security for any of the foregoing, and all books and records relating to
any of the foregoing. NOTWITHSTANDING THE FOREGOING, THE TERM "PERSONALTY" SHALL
NOT INCLUDE EQUIPMENT AND OTHER ITEMS OF PERSONAL PROPERTY OTHERWISE LISTED
ABOVE IN THIS DEFINITION WHICH (I) ARE ACQUIRED BY GRANTOR AFTER THE DATE OF
THIS DEED OF TRUST IN ADDITION TO AND NOT AS SUBSTITUTIONS OR REPLACEMENTS FOR
PERSONALTY EXISTING AS OF THE DATE HEREOF, AND (II) ARE USED PRIMARILY IN
GRANTOR'S COMPUTER PRODUCT SALES AND DISTRIBUTION BUSINESS, AND (III) ARE NOT
ITEMS USED PRIMARILY IN CONNECTION WITH THE OCCUPANCY OR OPERATION OF THE
BUILDINGS WHOSE ABSENCE WOULD IMPAIR THE VALUE OF THE BUILDINGS APPRAISED ON A
FREE STANDING BASIS. IN NO EVENT SHALL ITEMS OF REAL PROPERTY OR AWARDS, LEASES,
PROCEEDS, OR RENTS BE DEEMED EXCLUDED FROM THE DEFINITION OF THE MORTGAGED
PROPERTY AND THE LIEN AND/OR SECURITY INTERESTS OF THIS DEED OF TRUST.
PROCEEDS. As defined in Section 5.1.6.
--------
REAL ESTATE NOTE. As defined in the definition of "Notes."
----------------
REMEDIAL WORK. As defined in Section 5.1.18.
-------------
6
<PAGE>
RENTS. All of the rents, revenues, income, profits, deposits, tenders
-----
and other benefits payable under the Leases and/or arising from the use or
enjoyment of all or any portion of the Mortgaged Property.
REQUIREMENTS OF ENVIRONMENTAL LAW. All requirements of environmental,
---------------------------------
ecological, health, or industrial hygiene laws or regulations or rules of common
law related to the Mortgaged Property, including without limitation all
requirements imposed by any law, rule, order, or regulation of any federal,
state, or local executive, legislative, judicial, regulatory or administrative
agency, board, or authority, which relate in any way to (i) pollution or
protection of the air, surface water, ground water, or land; (ii) generation,
handling, treatment, storage, release, emission, migration or disposal of or
exposure to Hazardous Materials; or (iii) underground or above ground storage
tanks.
SECURITY AGREEMENT. The Security Agreement, contained in this Deed of
------------------
Trust, wherein and whereby Grantor grants a security interest in the Personalty
and the Fixtures to Beneficiary.
SECURITY DOCUMENTS. This Deed of Trust, the Equipment Security
------------------
Agreement, and any and all other documents executed by Grantor now or hereafter
securing the payment of the Indebtedness or the observance or performance of the
Obligations, provided that the Security Documents do not include that certain
separate Environmental Indemnity Agreement between Grantor and Beneficiary dated
of even date with this Deed of Trust.
TRANSFER. As defined in Section 5.1.19.
--------
TRUSTEE. The person, persons, or entity named as such in the preamble of
-------
this Deed of Trust and, as the case may be, his, their or its successors and
assigns.
TRUSTEE'S ADDRESS. 520 North Central Avenue, Glendale, California 91203.
-----------------
UCC. As defined in Section 3.1.
---
ARTICLE 2. GRANT
-----
2.1 GRANT. To secure the payment of the Indebtedness and the
-----
performance and discharge of the Obligations, Grantor by this instrument hereby
irrevocably grants, bargains, sells, assigns, mortgages, conveys and warrants
unto Trustee, in trust for Beneficiary, with power of sale and right of entry
and possession, the Mortgaged Property, to have and to hold the Mortgaged
Property unto Trustee, its successors and assigns forever.
2.2 CONDITION OF GRANT. If Grantor shall pay or cause to be paid the
------------------
entire Indebtedness as and when the same shall become due and payable and shall
observe, perform and discharge the Obligations, then the Security Documents and
the estate and rights granted by
7
<PAGE>
Grantor shall cease, terminate and become void, and shall be released or
reconveyed by Beneficiary, at the cost and expense of Grantor.
ARTICLE 3. SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
3.1 SECURITY AGREEMENT. This Deed of Trust shall also constitute a
------------------
"Security Agreement" within the meaning of, and shall create a security interest
under, the Uniform Commercial Code as adopted by the state in which the
Mortgaged Property is located (the "UCC") in the Personalty and the Fixtures.
As to the Personalty and Fixtures, the grant provisions of this Article 3 shall
control over the grant in trust provisions of Article 2 of this Deed of Trust.
3.2 SECURITY INTEREST. In order to further secure payment of the
-----------------
Indebtedness and the observance, performance and discharge of the Obligations,
Grantor hereby grants to Beneficiary a security interest under the UCC in the
Personalty and the Fixtures, and Beneficiary shall have all the rights with
respect to the Personalty and the Fixtures afforded to it by the UCC, in
addition to, but not in limitation of, the other rights afforded Beneficiary by
the Security Documents.
3.3 FINANCING STATEMENTS. Grantor agrees to and shall execute and
--------------------
deliver to Beneficiary, in form satisfactory to Beneficiary, such "Financing
Statements" and such further assurances as Beneficiary may, from time to time,
consider reasonably necessary to create, perfect and continue Beneficiary's
liens upon the Personalty and the Fixtures, and Beneficiary, at the expense of
Grantor, may or shall cause such statements and assurances to be recorded and
re-recorded, filed and re-filed, at such times and places as may be required or
permitted by law to so create, perfect and preserve such liens. Grantor shall
not change its name unless it notifies Beneficiary in writing of the proposed
new name at least thirty (30) days prior to changing its name.
3.4 FIXTURE FILING. This Deed of Trust is being recorded in the real
--------------
estate records of the county in which the Land is located as a fixture filing
and covers goods which are, and goods which become, fixtures on the Land and/or
the Buildings. This fixture filing is governed by the California Commercial
Code. Information concerning the security interest created under this Article 3
may be obtained from Beneficiary at Beneficiary's Address stated above.
ARTICLE 4. ASSIGNMENT OF RENTS AND LEASES
------------------------------
4.1 ASSIGNMENT OF RENTS. All of Grantor's rights, title and interest
-------------------
in and to the Rents are hereby absolutely and irrevocably assigned to
Beneficiary to be applied against the Indebtedness and the Obligations. Grantor
hereby appoints Beneficiary its true and lawful attorney-in-fact, with the
right, at Beneficiary's option at any time, to demand, receive and enforce
payment, to give receipts, releases and satisfactions, and to sue, either in
Grantor's or
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Beneficiary's name, for all Rents. Notwithstanding the foregoing Assignment of
Rents, so long as no Event of Default has occurred which remains uncured,
Beneficiary grants to Grantor the right and license to collect, receive, take,
use and enjoy such Rents, as they become due and payable, but not more than one
month in advance thereof. The foregoing assignment shall be fully operative
without any further action on the part of either party; and specifically,
Beneficiary shall be entitled at its option, upon the occurrence of an Event of
Default hereunder and for so long as such Event of Default is continuing, to
collect all Rents from the Mortgaged Property whether or not Beneficiary takes
possession of the Mortgaged Property. Upon the occurrence of an Event of
Default hereunder, the license hereby given to Grantor to collect the Rents from
the Mortgaged Property shall terminate automatically. The permission given by
Beneficiary to Grantor shall be reinstated upon a cure of such Event of Default
with Beneficiary's specific consent which shall not be unreasonably withheld.
This Assignment shall not be deemed or construed to constitute Beneficiary or
Trustee as a mortgagee in possession nor obligate Beneficiary or Trustee to take
any action or to incur expenses or perform or discharge any obligation, duty or
liability. Exercise of any rights under this Section and the application of the
Rents to the Indebtedness or the Obligations shall not cure or waive any Event
of Default but shall be cumulative of all other rights and remedies.
4.2 ASSIGNMENT OF LEASES. Grantor hereby assigns to Beneficiary all
--------------------
right, title and interest of Grantor in and to all Leases, together with all
security therefor and all monies payable thereunder, subject, however, to the
conditional permission given to Grantor above to collect the rentals under any
such Lease. The foregoing assignment of any Lease shall not be deemed to impose
upon Beneficiary any of the obligations or duties of Grantor provided in any
such Lease; and Grantor agrees to fully perform all obligations of the Lessor
under all such Leases. Upon Beneficiary's request, Grantor shall deliver to any
new lessee a notice of this assignment in form satisfactory to Beneficiary in
its sole discretion. Beneficiary may deliver such a notice to new lessees if
Grantor fails to do so within a reasonable time after Beneficiary's request.
From time to time, upon request of Beneficiary, Grantor shall specifically
assign to Beneficiary, by an assignment in writing in form approved by
Beneficiary and Grantor, which approval by Grantor and Beneficiary shall not be
unreasonably withheld, all right, title and interest of Grantor in and to any
and all Leases, together with all security therefor and all monies payable
thereunder, subject to the conditional permission given to Grantor above to
collect the rentals under any such Lease. Grantor shall also execute and
deliver to Beneficiary any notification, financing statement, or other document
reasonably required by Beneficiary to perfect the foregoing assignment as to any
such Lease.
4.3 EFFECT OF ASSIGNMENTS. This instrument constitutes an absolute and
---------------------
present assignment of the rents, royalties, issues, profits, revenue, income and
other benefits from the Mortgaged Property; subject, however, to the conditional
permission given to Grantor to collect, receive, take, use and enjoy the same as
provided above; provided, further, that the existence or exercise of such right
of Grantor shall not operate to subordinate this assignment to any subsequent
assignment by Grantor, in whole or in part, and any such subsequent assignment
by Grantor shall be subject to the rights of Trustee and Beneficiary hereunder.
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4.4 NO MERGER OF LEASEHOLD ESTATES. If both the lessor's and lessee's
------------------------------
estate under any Lease, or any portion thereof, becomes vested at any time in
one owner, this Deed of Trust and the lien created hereby shall not be adversely
affected by the application of the doctrine of merger unless Beneficiary so
elects in writing by recording a written declaration so stating. Unless and
until Beneficiary so elects, Beneficiary and any lessor and lessee shall
continue to have and enjoy all of the rights and privileges to the separate
estates. In addition, upon the foreclosure of the lien created by this Deed of
Trust on the Mortgaged Property, any Leases then existing and affecting all or
any portion of the Mortgaged Property shall not be destroyed or terminated by
merger or by the foreclosure unless Beneficiary or any purchaser at the sale so
elects. No act by or on behalf of Beneficiary or such purchaser shall
constitute a termination of any Lease unless Beneficiary gives written notice
thereof to the tenant or subtenant affected.
4.5 ASSIGNMENT TO BENEFICIARY CONTROLLING. The rights of Trustee in
-------------------------------------
the Leases and Rents created under Article 2 shall be subject to the rights of
Beneficiary in the Leases and Rents created under this Article 4.
ARTICLE 5. COVENANTS, REPRESENTATIONS AND WARRANTIES
-----------------------------------------
5.1 COVENANTS. Until the entire Indebtedness shall have been paid in
---------
full, Grantor hereby covenants and agrees as follows:
5.1.1 COMPLIANCE WITH LAWS. Grantor will promptly and faithfully
--------------------
comply with, conform to, and obey all present and future laws, ordinances,
rules, regulations and requirements of every duly constituted governmental
authority or agency and of every Board of Fire Underwriters having jurisdiction,
or similar body exercising similar functions, which may be applicable to it or
to the Mortgaged Property, or any part thereof, or to the use or manner of use,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of the Mortgaged Property, or any part thereof, whether or not
such law, ordinance, rule, order, regulation or requirement shall necessitate
structural changes or improvements or interfere with the use or enjoyment of the
Mortgaged Property. Notwithstanding the foregoing, Beneficiary agrees to take
no remedial action hereunder (x) based solely upon Grantor's failure to comply
with this Section 5.1.1 if such failure to so comply could not (i) result in a
material adverse effect on Grantor, Grantor's ability to perform its obligations
under the Security Documents, and/or the Mortgaged Property; (ii) subject
Beneficiary to any material liability; and/or (iii) jeopardize Beneficiary's
lien or interest in the Mortgaged Property or affect in any way the payments of
any sums required to be made under the Notes or Security Documents; or (y) based
solely on noncompliance with any law or other legal requirement described above
if Grantor is contesting the same by authorized proceedings in good faith and
with due diligence and provides security as may be reasonably required by
Beneficiary to assure compliance with the same.
5.1.2 PAYMENT OF IMPOSITIONS. Grantor will duly pay and discharge,
----------------------
or cause to be paid and discharged, the Impositions, such Impositions or
installments thereof to be paid prior to the day before any fine, penalty,
interest or cost may be added thereto or imposed by
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law for the non-payment thereof; provided, however, that if, by law, any
Imposition may be paid in installments, Grantor may pay the same in such
installments. Notwithstanding anything set forth herein, so long as an Event of
Default shall not have occurred hereunder and be continuing, Grantor shall have
the right to contest or object to the amount or validity of any Imposition by
appropriate legal proceedings so long as (i) Grantor notifies Beneficiary of
Grantor's intent to contest such Imposition; (ii) Grantor shall provide
Beneficiary with evidence satisfactory to Beneficiary that such proceedings
shall operate to prevent the sale of the Mortgaged Property or any portion
thereof; (iii) Grantor shall have furnished Beneficiary with a bond or other
assurances satisfactory to Beneficiary sufficient to satisfy such Imposition;
and (iv) upon any final determination of such contest which is not appealable or
not being appealed by Grantor, Grantor shall pay the amount of such Imposition
then due. Grantor will, within thirty (30) days following the due date of any
such payment, deliver to Beneficiary receipts evidencing the payment of all such
taxes, assessments, levies, fees, rents and other public or private charges
imposed upon or assessed against it or the Mortgaged Property or the revenues,
rents, issues, income or profits thereof.
5.1.3 IMPOUNDS FOR PAYMENT OF IMPOSITIONS. Upon or after the
-----------------------------------
occurrence of an Event of Default: (i) Grantor shall pay to Beneficiary monthly,
on each date on which a payment is due under the Real Estate Note, one twelfth
(1/12) of such amount as Beneficiary from time to time estimates will be
required to pay all of Impositions required to be paid by Section 5.1.2 and, if
Grantor has allowed the required insurance coverage to lapse or if an Event of
Default has otherwise occurred, insurance premiums for insurance required by
Section 5.1.5; (ii) Beneficiary's estimates shall be based on the amounts
actually payable or, if unknown, on one hundred ten percent (110%) of the
amounts actually paid for the year preceding that for which such payments are
being made, and any deficiencies shall be promptly paid by Grantor to
Beneficiary on demand; (iii) Grantor shall transmit bills for the Taxes and, if
applicable, insurance premiums, as soon as received, and when Beneficiary has
received from Grantor or on its account funds sufficient to pay the same,
Beneficiary shall pay such bills; and (iv) if the amount paid by Grantor in any
year exceeds the aggregate required, such excess shall be applied to impound
payments for the succeeding year. Beneficiary shall not be a trustee of funds
in said account and may commingle such funds with its general assets without any
obligation to pay interest thereon or account for any earnings, income or
interest on such funds.
5.1.4 REPAIR AND ALTERATIONS.
----------------------
(a) Grantor will keep the Mortgaged Property in good order and
condition and make all necessary or appropriate repairs, replacements and
renewals thereof and will use its best efforts to prevent any act or thing which
might impair the value of usefulness of the Mortgaged Property, ordinary wear
and tear excepted.
(b) Grantor will not commit or knowingly permit any waste of the
Mortgaged Property or any part thereof, or make or permit to be made any
alterations or additions to the Mortgaged Property which would have the effect
of materially diminishing the
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value thereof, or make or permit to be made any other alterations or additions
to the Mortgaged Property, of a material nature, without the prior written
consent of Beneficiary (unless and to the extent required under a Lease entered
into in compliance with Section 5.1.7).
(c) Grantor will not permit any of the Fixtures or Personalty to be
removed at any time from the Land and/or Buildings, without the prior written
consent of Beneficiary unless actually replaced by an article of equal
suitability and value and owned by Grantor free and clear of any lien or
security interest except such as may be approved in writing by Beneficiary,
which approval shall not unreasonably withheld.
5.1.5 INSURANCE.
---------
(a) Grantor will maintain insurance upon the Mortgaged Property
against loss by fire, windstorms, earthquake, flood (if the Mortgaged Property
is located in a designated flood plain) and such other hazards, casualties and
contingencies as follows: (i) insurance against loss or damage by fire and "all
risk" coverage perils in an amount equal to the full replacement cost of the
Buildings situated on the Mortgaged Property (less a commercially reasonable
deductible which is customarily maintained by landlords of office buildings
comparable to the Buildings with similar financing encumbrances), plus the cost
of debris removal; and such policy shall contain a full replacement cost
endorsement, an agreed amount endorsement and also endorsements for costs or
losses incurred for or as a result of demolition, increased costs of
construction, contingent operation of building codes, off premises utility
interruption and loss of ingress and/or egress; (ii) comprehensive general
public liability insurance against claims from bodily injury, death or property
damage occurring on, in or about the Mortgaged Property and the adjoining
streets, sidewalks and passageways, including the use and occupancy of Grantor's
grounds, structures and vehicles, such insurance to afford protection of not
less than Three Million Dollars ($3,000,000) per occurrence (less a commercially
reasonable deductible which is customarily maintained by landlords of office
buildings comparable to the Buildings with similar financing encumbrances); and
Beneficiary shall be named as an additional insured on such policies; (iii)
during the making of any alterations or improvements to the Mortgaged Property
(A) owner's contingent liability insurance covering claims not covered by the
general comprehensive liability insurance referred to above, and (B) worker's
compensation insurance covering all persons engaged in making such alterations
or improvements; (iv) if there are pressure fired vessels within the Mortgaged
Property, broad form boiler and machinery insurance on all equipment and objects
customarily covered by such insurance and providing for full repair and
replacement cost coverage; (v) if the Mortgaged Property is in an area
designated as a flood plain area Zone A or Zone V, flood insurance in such
amount as is customarily maintained by landlords of office buildings comparable
to the Buildings with similar financing encumbrances as may be reasonably
requested by Beneficiary; (vi) earthquake insurance and damage caused by
sprinkler systems in connection with earthquake casualty; and (vii) such other
appropriate insurance with respect to the Mortgaged Property as is customarily
maintained by landlords of office buildings comparable to the Buildings with
similar financing encumbrances as Beneficiary may require from time to time.
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(b) All policies of insurance to be furnished hereunder shall be
issued by companies and be in forms and amounts, with endorsements and on terms,
all reasonably satisfactory to Beneficiary, with a waiver of subrogation for the
benefit of Beneficiary and with mortgagee clauses attached to all policies in
favor of and in form satisfactory to Beneficiary, including a provision
requiring that the coverage evidenced thereby shall not be canceled, terminated,
reduced or materially modified by the insurer or any insured without thirty (30)
days' prior written notice to Beneficiary. Grantor does hereby assign, and
shall deliver the originals of, all policies, including additional and renewal
policies, to Beneficiary as collateral and further security for the payment of
all sums of money secured by this Deed of Trust, and, in the case of insurance
about to expire, shall deliver renewal or replacement policies not less than
thirty (30) days prior to their respective dates of expiration.
(c) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard mortgagee
clause acceptable to Beneficiary. Grantor shall immediately notify Beneficiary
whenever any such separate insurance is taken out and shall promptly deliver to
Beneficiary the policy or policies of such insurance. In the event of a
foreclosure or other transfer of title to the Mortgaged Property in lieu of
foreclosure, or by purchase at the foreclosure sale, or by the exercise of power
of sale, all interest in any insurance policies in force and any unearned
premiums thereon shall pass to Beneficiary, transferee or purchaser as the case
may be.
5.1.6 RESTORATION FOLLOWING CASUALTY. Grantor shall promptly notify
------------------------------
Beneficiary of any loss or damage by fire or other casualty, whether covered by
insurance or not. In case of loss or damage by fire or other casualty,
Beneficiary is authorized (a) to settle and adjust any claim under insurance
policies which insure against such risks, or (b) to allow Grantor to agree with
the insurance company or companies on the amount to be paid in regard to such
loss; provided, however, that so long as no Event of Default then exists
hereunder, Beneficiary shall permit Grantor to settle any such claims
aggregating no more than $500,000 so long as the proceeds thereof are applied by
Grantor to repair or replacement of Mortgaged Property and/or paid to
Beneficiary as a prepayment of the Indebtedness (the "Grantor Adjusted Claims")
and shall not settle or adjust any claim without the prior written consent of
Grantor, which consent shall not be unreasonably withheld or delayed. In either
case, except for Grantor Adjusted Claims, Beneficiary is authorized to collect
and give a receipt for any such insurance proceeds. Except for Grantor Adjusted
Claims, such insurance proceeds may, at the option of Beneficiary, be (i)
applied to the Indebtedness, whether due or not, together with payment of any
prepayment premium, or (ii) held by Beneficiary without any allowance of
interest and used to reimburse Grantor for the cost of the rebuilding or
restoration of buildings or improvements on the Mortgaged Property, on such
terms and conditions as Beneficiary may deem appropriate. If the proceeds are
made available by Beneficiary to reimburse Grantor for the cost of such
rebuilding or restoration, any surplus which may remain after payment of all
costs of rebuilding or restoration may, at the option of Beneficiary, be (i)
applied to the Indebtedness, whether due or not, together with payment of any
prepayment premium, or (ii) paid to Grantor as its interest may appear. In
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the event of any insured damage to or destruction of the Mortgaged Property or
any part thereof by fire or other casualty (the "Insured Casualty"), and if in
the reasonable judgment of Beneficiary the Mortgaged Property can be restored to
an architectural and economic unit of the same character and not less valuable
than the same was prior to the Insured Casualty, then Beneficiary shall permit
Grantor to obtain a construction loan secured by a deed of trust on the
Mortgaged Property, in an amount agreed upon by Grantor and Beneficiary but in
no event greater than the cost of restoring, repairing, replacing or rebuilding
the Buildings or the amount of the insurance proceeds (the "Proceeds"),
whichever is less, with a term not to exceed the amount of time reasonably
necessary to fulfill the requirements set forth in subparagraph (i) of this
paragraph. The Proceeds shall be applied to first pay off the construction loan
deed of trust and then reimburse Grantor for any other costs approved by
Beneficiary for restoring, repairing, replacing or rebuilding the Mortgaged
Property or any part thereof subject to the Insured Casualty, provided:
(a) The Mortgaged Property has been repaired or restored in
accordance with applicable laws to a complete architectural unit pursuant to
plans and specifications acceptable to Beneficiary, such that in Beneficiary's
opinion the Mortgaged Property has the same economic value and use after repair
or restoration as prior to the Insured Casualty.
(b) The insurer does not deny liability to the insureds, or the
Proceeds are not paid by the insurer with reservation of rights.
(c) The Proceeds are sufficient to complete such repair or
restoration, or Grantor deposits with Beneficiary prior to commencing repair or
restoration such additional amount as is necessary to assure completion.
(d) Disbursement of the Proceeds is made pursuant to prudent
construction lending procedures as reasonably determined by Beneficiary. At
Beneficiary's election, the disbursements may be administered by the title
insurer (or its agent) which insures this Deed of Trust. Proceeds will not be
disbursed until the repair and restoration of the Mortgaged Property have been
fully completed.
(e) The Proceeds shall be held by Beneficiary without interest or, at
Beneficiary's option, shall be deposited by Beneficiary in a time deposit
account(s) of a national banking institution whose accounts are insured by the
Federal Deposit Insurance Corporation. Said account(s) shall be subject to the
direction and control of Beneficiary and provide for immediate withdrawal
rights.
(f) Beneficiary must receive adequate evidence at the time of
disbursement that the cost of repair or restoration has been incurred or paid
and shall be given such lien protection as Beneficiary shall require, including
lien waivers and an endorsement to its existing lender's title policy.
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<PAGE>
(g) No Event of Default has occurred at any time prior to
disbursement.
(h) Grantor shall pay any actual expenses Beneficiary incurs related
to the Insured Casualty, including without limitation, any such expenses for
title insurance, administration of disbursements, inspections, architect's or
attorneys' fees.
(i) At least ninety percent (90%) of the total leasable space in the
Mortgaged Property has been leased in compliance with the provisions of Section
5.1.7.
(j) The repair or restoration shall be done under the supervision of
an architect acceptable to Beneficiary and pursuant to plans and specifications
approved by Beneficiary.
(k) The minimum appraised value of the Mortgaged Property after such
repair or restoration, as determined by a state certified appraiser acceptable
to and approved by Beneficiary (or if there is no state certification program
for real estate appraisers, by a member of the American Institute of Real Estate
Appraisers acceptable to and approved by Beneficiary), shall result in a loan to
value ratio not to exceed eighty percent (80%) of the original principal amount
of the Real Estate Note.
Notwithstanding the foregoing, and without implying any limitation on the other
provisions hereof, Beneficiary shall not be obligated to make Proceeds available
for repair or restoration of the Mortgaged Property if (a) except for Grantor
Adjusted Claims, such restoration or repair cannot reasonably be completed at
least twelve months prior to the maturity of the Real Estate Note, or (b) if
Beneficiary's security under this Deed of Trust is or would be impaired within
the meaning of applicable California law.
5.1.7 LEASE AGREEMENT; ATTORNMENT.
---------------------------
(a) Grantor agrees not to terminate, amend, or modify any of the Leases
or subleases, or grant any concessions in connection therewith, or to accept a
surrender thereof without the written consent of the Beneficiary, which consent
will not be unreasonably withheld as to Leases to Merisel, Inc. or one of its
subsidiaries on terms equivalent to the Lease(s) approved by Beneficiary and in
effect as of the date of recordation of this Deed of Trust, giving due regard to
the then financial condition of the lessee and preservation of cash flow
sufficient for debt service and operating expenses of the Mortgaged Property.
All Leases shall be in form and substance satisfactory to Beneficiary. Grantor
agrees not to execute any future Lease or sublease pertaining to the Mortgaged
Property without the prior written consent of Beneficiary which will not be
unreasonably withheld as to Leases having terms equivalent to the Lease in
effect as of the date hereof between Grantor and Merisel Americas, Inc. Grantor
shall not accept prepayment of any Rents exceeding a one month period under any
Lease.
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<PAGE>
(b) Subject to the foregoing, Grantor shall deliver to Beneficiary a
complete copy of each future Lease within three (3) days after execution of such
Lease, and shall require each lessee under a future Lease to execute,
acknowledge and deliver to Beneficiary an attornment agreement in form
satisfactory to Beneficiary.
5.1.8 PERFORMANCE OF LEASES AND OTHER AGREEMENTS. Grantor will duly
------------------------------------------
and punctually perform all covenants and agreements expressed as binding upon it
under the Leases and under any other agreements to which it is a party with
respect to the Mortgaged Property or any part thereof, and will use its best
efforts to enforce or secure the performance of each and every obligation and
undertaking of the respective lessees under the Leases and will appear and
defend, at its cost and expense, any action or proceeding arising under or in
any manner connected with the Leases or the obligations and undertakings of any
lessee or other party thereunder. Grantor will immediately notify Beneficiary
in writing of any notice of default received by Grantor from any tenant
thereunder and of any default, known to Grantor, by any lessee or other party
under a Lease.
5.1.9 PAYMENT OF RENTS. Grantor hereby agrees that the respective
----------------
lessees under the Leases, upon notice from Beneficiary of the occurrence of an
Event of Default, shall thereafter pay to Beneficiary the Rents due and to
become due under the Leases without any obligation on the part of the lessees to
determine whether an Event of Default in fact exists.
5.1.10 INSPECTION. Grantor will permit Beneficiary or authorized
----------
representatives of Beneficiary, at all reasonable times and with reasonable
notice, to inspect the Mortgaged Property to determine compliance of the Grantor
and the Mortgaged Property with the conditions and covenants set forth herein
and for any other purposes relating to Beneficiary's rights and remedies
hereunder, provided that no such inspection shall unreasonably interfere with
the operation of Grantor's or any of its lessee's respective businesses.
5.1.11 HOLD HARMLESS. Except with respect to Environmental Claims
-------------
described in Section 5.1.18 (and in addition to the provisions of Section
5.1.18), Grantor shall indemnify, defend and hold harmless Beneficiary and
Beneficiary's officers, directors, agents, employees, affiliates and
subsidiaries against any and all claims, actions, proceedings, losses, costs,
damages, liabilities, obligations, causes of action, fines, penalties or
expenses (including without limitation reasonable attorneys' fees) in any way
arising from or relating to the Mortgaged Property, this Deed of Trust or the
Obligations, or any act or omission of Grantor, except to the extent caused
solely by the gross negligence or intentional misconduct of the party seeking
indemnification. Each reference to Beneficiary in any provision of this Deed
of Trust pursuant to which Grantor is obligated to indemnify, defend or hold
harmless Beneficiary, shall be deemed to include Beneficiary and Beneficiary's
officers, directors, agents, employees, affiliates and subsidiaries, and shall
be fully enforceable by any of them notwithstanding any active or passive
negligence on the part of any of them. Grantor shall appear in and defend (or
pay the reasonable expenses of Beneficiary to defend, if Beneficiary gives
Grantor notice of its election to handle such defense) any action or proceeding
purporting to affect the security of this Deed of Trust
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and/or the rights and/or powers of Beneficiary hereunder, and Grantor shall pay
all reasonable costs and expenses (including reasonable costs of evidence of
title and attorneys' fees) in any action or proceeding in which Beneficiary may
so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to
enforce any obligations secured by this Deed of Trust, and/or to prevent the
breach hereof.
5.1.12 AWARDS. Grantor will file and prosecute its claim or claims
------
for any Awards in good faith and with due diligence and cause the same to be
collected and paid over to Beneficiary, and hereby irrevocably authorizes and
empowers Beneficiary, if it so desires, to file such claim and collect any
Awards and agrees that the proceeds of any Awards will be applied by Beneficiary
in reduction of any portion of the Indebtedness as Beneficiary may determine in
accordance with Article 8 hereof.
5.1.13 LICENSES. Grantor shall keep in full force and effect all
--------
licenses, permits and other governmental approvals which are necessary for the
operation of the Mortgaged Property and related facilities, and furnish evidence
satisfactory to Beneficiary that the Mortgaged Property and the use thereof
comply with all applicable zoning and building laws, regulations, ordinances and
other applicable laws. Grantor shall not initiate or support any change which
would affect the Mortgaged Property in any zoning or land use laws, Permitted
Encumbrances, or other laws, conditions, or encumbrances, without the prior
written consent of Beneficiary, which shall not be unreasonably withheld.
5.1.14 NO FURTHER ENCUMBRANCE. Except as otherwise provided in
----------------------
Section 5.1.6 above, Grantor shall not, without the prior written consent of
Beneficiary (which may be granted or withheld in Beneficiary's sole discretion),
or create or permit to be created or to remain, any mortgage, pledge, lien,
encumbrance or charge on, or conditional sale or other title retention agreement
with respect to, the Mortgaged Property or any part thereof or income therefrom,
other than the Security Documents and the Permitted Encumbrances.
5.1.15 MECHANIC'S LIEN. Grantor shall not permit or suffer any
---------------
mechanic's, materialman's or other lien to be created or to remain a lien upon
any of the Mortgaged Property. So long as an Event of Default shall not have
occurred and be continuing hereunder, Grantor shall have the right to contest or
object to the amount or validity of any such claim and demand by appropriate
administrative or judicial proceedings, in which event, the following provisions
shall apply: (a) Grantor shall give Beneficiary written notice of Grantor's
intent to so contest or object to such claim or demand involving a charge or
claim in excess of one hundred thousand dollars ($100,000); (b) Grantor shall
thereafter diligently proceed to cause such claim or demand to be removed and
discharged; and (c) Grantor, if requested by Beneficiary, shall deposit with
Beneficiary a bond or other assurance reasonably satisfactory to Beneficiary in
such amounts as Beneficiary shall require, but not more than one hundred and
fifty percent (150%) of the amount of the claim(s) or demand(s) plus costs,
expenses, including reasonable attorneys' fees, and interest.
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5.1.16 BOOKS AND RECORDS. Grantor shall keep and maintain at all
-----------------
times at Grantor's address stated above, or such other place as Beneficiary may
approve in writing, complete and accurate books of accounts and records adequate
to reflect correctly the results of the operation of the Mortgaged Property and
copies of all written contracts, correspondence, Leases and other documents
affecting the Mortgaged Property. Beneficiary and its designated agents shall
have the right to inspect Grantor's books, records, contracts, correspondence,
Leases and other documents affecting the Mortgaged Property at all reasonable
times on reasonable notice during regular business hours. In the event of a
foreclosure of this Deed of Trust, all of Grantor's books, records, contracts,
correspondence, Leases and other documents maintained in connection with the
Mortgaged Property shall be made available to the successful bidder at the
foreclosure sale for inspection and copying for a period of not less than three
(3) years following said sale.
5.1.17 UTILITIES. Grantor will not, without the prior written
---------
consent of Beneficiary, sell or contract to sell, or enter into an option to
sell, or exchange, assign, convey, transfer possession of (including, without
limitation, by lease) or otherwise dispose of all or any part of the utilities,
utility commitments or other agreements or rights of any nature relating to the
utilities, drainage ditches and/or treatment plants associated with the
Mortgaged Property. Grantor further covenants and agrees that it will take any
such action and execute, acknowledge, deliver and record and/or file any and all
instruments as may be necessary, desirable or proper to keep any existing or
future utility commitments covering the Mortgaged Property in a current and
valid condition and to keep the existing utility capacity for the Mortgaged
Property at or above its present level. As used herein, the term "utilities"
includes, without limitation, water, gas, electricity and storm and sanitary
sewer.
5.1.18 HAZARDOUS MATERIALS.
-------------------
(a) Representations. Grantor represents and warrants that (i) there
---------------
are no Hazardous Materials above, in, on, under or around the Mortgaged
Property, and (ii) neither Grantor nor, to the best knowledge of Grantor after
due and diligent inquiry, any previous owner or user of the Mortgaged Property,
generated, used, had, managed or released any Hazardous Materials above, in, on,
under, from or around the Mortgaged Property, such that in the case of either
(i) or (ii) the Mortgaged Property or any activity related to the Mortgaged
Property was or is in violation of any Requirements of Environmental Law,
including without limitation, environmental permit requirements or environmental
abatement, corrective, remedial or response action.
(b) No Violations. Without limiting the generality of Section 5.1.1
-------------
hereof, Grantor (i) shall not cause and will use its best efforts not to permit
any other person to cause the violation of any law relating to industrial
hygiene or environmental conditions in connection with the Mortgaged Property,
including soil and ground water conditions; (ii) shall not use or cause and will
use its best efforts not to permit any other person to use or cause the presence
or release of, a Hazardous Material, or generate or store any Hazardous
Materials on,
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to, from, under, over, in, about or affecting the Mortgaged Property, except in
accordance with all applicable laws; (iii) shall not manufacture or dispose of
any Hazardous Materials on, to, from, under, over, in, about or affecting the
Mortgaged Property; or (iv) shall not transport any Hazardous Materials to or
from the Mortgaged Property. As used in this Section 5.1.18, the term "release"
has the meaning assigned to such term in California Code of Civil Procedure
Sections 726.5 and 736, as such Sections may be amended from time to time.
Grantor shall keep and maintain the Mortgaged Property in compliance with, and
shall not cause or permit the Mortgaged Property to be in violation of, any
Requirements of Environmental Law.
(c) Compliance. Grantor shall, and Grantor shall cause all
----------
employees, agents, tenants, contractors and subcontractors of Grantor and any
other persons from time to time present on or occupying the Mortgaged Property
to, keep and maintain the Mortgaged Property in compliance with, and not cause
or knowingly permit the Mortgaged Property to be in violation of, any applicable
Requirements of Environmental Law. Neither Grantor nor any employees, agents,
tenants, contractors or subcontractors of Grantor or any other persons occupying
or present on the Mortgaged Property shall use, generate, manufacture, store or
dispose of on, under or about the Mortgaged Property or transport to or from the
Mortgaged Property any Hazardous Materials, except as such Hazardous Materials
as may be used, stored or transported in connection with the use of the
Mortgaged Property as a commercial office building and then only to the extent
permitted by law after obtaining all necessary permits and licenses therefor.
(d) Remedial Orders. In the event Grantor or Beneficiary is
---------------
obligated by an applicable federal, state or local law, ordinance or regulation
or otherwise directed by any governmental agency or authority, to clean up,
remove or encapsulate or cause the cleanup, removal, or encapsulation of any
Hazardous Materials from the Mortgaged Property, Grantor shall (i) promptly
undertake to arrange for such cleanup, removal or remedial acts, (ii) exercise
its best efforts to insure that such cleanup, removal or remedial acts shall be
conducted in a timely and diligent manner, and (iii) assume the cost and expense
of such cleanup, removal or remedial acts.
(e) Notices. Grantor shall give prompt written notice to Beneficiary
-------
of: (1) any proceeding or inquiry by any governmental authority (including,
without limitation, the United States Environmental Protection Agency, the
California Air Resources Board, any applicable Air Quality Management District,
the California Conservation Department, the California Environmental Protection
Agency, the California Environmental Affairs Agency, the California Department
of Health Services, the California Department of Toxic Substances Control, the
California Waste Management Board and/or the California Water Resources Control
Board) with respect to the presence of any Hazardous Materials on the Mortgaged
Property or the migration thereof from or to other property; (2) all claims made
or threatened by any third party against Grantor or the Mortgaged Property
relating to any loss or injury resulting from any Hazardous Materials; and (3)
Grantor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Mortgaged Property that Grantor knows is
reasonably
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likely to cause the Mortgaged Property or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of the
Mortgaged Property under any Requirements of Environmental Law, including,
without limitation, Grantor's discovery of any occurrence or condition on any
real property adjoining or in the vicinity of the Mortgaged Property that
Grantor knows is reasonably likely to cause the Mortgaged Property or any part
thereof to be classified as "border-zone property" under the provisions of
California Health and Safety Code Sections 25220 et seq. or any regulation
-- ----
adopted in accordance therewith, or to be otherwise subject to any restrictions
on the ownership, occupancy, transferability or use of the Mortgaged Property
under any Requirements of Environmental Law. Beneficiary shall have the right
to join and participate in, as a party if it so elects, any legal proceedings or
actions initiated in connection with any Environmental Conditions (as
hereinafter defined) to which the indemnity in subsection (f) below applies, at
Beneficiary's sole cost and expense.
(f) Indemnification. In addition to the provisions of Section
---------------
5.1.11, and with respect to any of the following which arise from environmental
conditions of the Mortgaged Property (collectively, "Environmental Conditions"),
Grantor shall and does hereby agree to protect, defend, indemnify and hold
harmless Beneficiary, its assigns and their respective officers, directors,
shareholders, employees, agents and affiliates and their respective heirs, legal
representatives, successors and assigns from and against all liabilities,
losses, costs, damages, expenses or claims including, but not limited to,
remedial, removal, response, abatement, cleanup, legal, investigative, and
monitoring costs and other related costs, expenses, losses, damages, penalties,
fines, liabilities, obligations, defenses, judgments, suits, proceedings, and
disbursements (including, without limitation, reasonable attorneys',
consultants' and experts' fees and disbursements) of any kind or of any nature
whatsoever which may at any time be imposed upon Beneficiary, incurred by
Beneficiary, or arise (directly or indirectly) as a result of: (i) any
Requirements of Environmental Law; (ii) any Environmental Claims (as defined
herein) directly or indirectly related to the Mortgaged Property and/or the use
or occupancy thereof; (iii) the failure or alleged failure of Grantor, or any
other party directly or indirectly connected with the Mortgaged Property, to
obtain, maintain, or comply with any Environmental Permit (as defined herein);
and/or (iv) the use, generation, storage, treatment, emission, migration (to or
from the Mortgaged Property), disposal, transportation, presence, release,
alleged presence, or alleged release of Hazardous Materials on, under or about
the Mortgaged Property or the soil, groundwater or soil vapor on, under or about
the Mortgaged Property, whether or not known to Grantor, whether foreseeable or
unforeseeable, regardless of the source of such Hazardous Material. This
indemnity shall survive the reconveyance of the lien of this Deed, or the
extinguishment of the lien by foreclosure or action in lieu thereof, and this
covenant shall survive such reconveyance or extinguishment. In accordance with
California Code of Civil Procedure Section 736, as such Section may be amended
from time to time, Beneficiary may bring an action for breach of contract
against Grantor to enforce this indemnity without foreclosing this Deed of Trust
judicially or nonjudicially or accepting a deed or assignment in lieu of
foreclosure. Grantor agrees to pay to Beneficiary, upon Beneficiary's demand,
all expenses, costs and other amounts incurred by Beneficiary in connection with
any such action under California Code of Civil Procedure Section 736.
Notwithstanding the foregoing, no person shall be entitled to
20
<PAGE>
indemnification under this Section 5.1.18(f) for any matter described above to
the extent the same was caused solely by the gross negligence or intentional
misconduct of the party seeking indemnification.
(g) Remediation. With respect to any Environmental Conditions to
-----------
which the indemnity in subsection (f) above shall apply, in the event that any
investigation, site monitoring, containment, cleanup, removal, restoration or
other remedial work of any kind or nature (the "Remedial Work") is reasonably
necessary under any applicable local, state or federal law or regulation, any
judicial order, or by any governmental or nongovernmental entity or person
because of, or in connection with, the future presence, suspected presence,
release or suspected release of Hazardous Materials in or into the air, soil,
groundwater, surface water or soil vapor at, on, about, under or within the
Mortgaged Property (or any portion thereof), Grantor shall within thirty (30)
days after written demand for performance thereof by Beneficiary (or such
shorter period of time as may be required under any applicable law, regulation,
order or agreement), commence to perform, or cause to be commenced, and
thereafter diligently prosecute to completion, all such Remedial Work. All
Remedial Work shall be performed by one or more contractors, approved in advance
in writing by Beneficiary, which approval shall not be unreasonably withheld or
delayed, and under the supervision of a consulting engineer approved in advance
in writing by Beneficiary, which approval shall not be unreasonably withheld or
delayed. All costs and expenses of such Remedial Work shall be paid by Grantor
including, without limitation, the charges of such contractor(s) and/or the
consulting engineer, and the reasonable attorneys' fees and costs incurred by
Beneficiary in connection with the monitoring or review of such contractors and
consulting engineer. In the event Grantor shall fail to timely commence, or
cause to be commenced, or fail to diligently prosecute to completion, such
Remedial Work, Beneficiary may, but shall not be required to, cause such
Remedial Work to be performed and all costs and expenses thereof, or incurred in
connection therewith, shall become part of the Indebtedness secured hereby. In
accordance with California Code of Civil Procedure Section 736, as such Section
may be amended from time to time, Beneficiary may bring an action for breach of
contract against Grantor to recover all costs and expenses incurred by
Beneficiary in connection with any Remedial Work without foreclosing this Deed
judicially or nonjudicially or accepting a deed or assignment in lieu of
foreclosure. Grantor agrees to pay to Beneficiary, upon Beneficiary's demand,
all expenses, costs and other amounts incurred by Beneficiary in connection with
any such action under California Code of Civil Procedure Section 736. Grantor
shall have the right to contest any such law, regulation or order referred to in
this subsection (g) so long as (i) such contest could not result in a material
adverse effect on Grantor, Grantor's ability to perform its obligations under
the Security Documents and/or the Mortgaged Property; (ii) could not subject
Beneficiary to any material liability; (iii) could not jeopardize Beneficiary's
lien or interest in the Mortgaged Property or affect in any way the payments of
any sums required to be made under the Notes or the Security Documents; (iv)
Grantor provides security as may be reasonably required by Beneficiary to assure
compliance with the Requirements of Environmental Law in connection with such
Remedial Work, and (v) such contest is conducted by authorized proceedings in
good faith and with due diligence.
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<PAGE>
(h) Entry. In the event that Grantor is in default under any of the
-----
Security Documents or has breached a covenant under this Section 5.1.18,
Beneficiary and Beneficiary's agents, employees or workmen are hereby authorized
to enter at any reasonable time upon any part of the Mortgaged Property for the
purposes of inspecting the same for Hazardous Materials and Grantors' compliance
with this Section and such inspections may include, without limitation, soil
borings. Beneficiary's rights hereunder include its rights under California
Civil Code Section 2929.5, as such Section may be amended from time to time.
Grantor acknowledges that, pursuant to California Code of Civil Procedure
Section 564(c), as such Section may be amended from time to time, Beneficiary
may be entitled to the appointment of a receiver to enforce its rights under
California Civil Code Section 2929.5. Grantor agrees to pay to Beneficiary,
upon Beneficiary's demand, all expenses, costs or other amounts incurred by
Beneficiary in performing any inspection and/or testing for the purposes set
forth in this clause, including, without limitation, all expenses, costs or
other amounts incurred by Beneficiary in obtaining the appointment of a receiver
as aforesaid. Beneficiary is under no duty, however, to visit or observe the
Mortgaged Property or to conduct tests, and any such acts by Beneficiary shall
be for the sole purpose of protecting Beneficiary's security and preserving
Beneficiary's and Trustee's rights under the Security Documents. In no event
shall any site visit, observation or testing by Beneficiary be a representation
that Hazardous Materials are or are not present in, on, or under the Mortgaged
Property or the Buildings, or that the construction is free from defective
materials or workmanship, or that there has been or shall be compliance with any
Security Document or any applicable governmental law. Neither Grantor nor any
other party is entitled to rely on any site visit, observation or testing by
Beneficiary.
(i) Exclusions. The foregoing provisions of this Section 5.1.18 do
----------
not apply to any ordinary use and incidental storage of small and insignificant
amounts of substances reasonably necessary for the regular and ordinary
maintenance of the Mortgaged Property, or consumed in the regular and ordinary
use of common office business machines, nor to gasoline, oil, and other ordinary
automotive fluids to the extent that they are contained in the common and
ordinary manner in motor vehicles visiting the Mortgaged Property, in each case
provided that the same do not constitute, give rise to, or create any
substantial risk of any violation of any Requirements of Environmental Law, or
any event, occurrence, or condition as a consequence of which, pursuant to any
Requirements of Environmental Law, (i) Grantor, Beneficiary, or any owner,
occupant, or person having any interest in the Mortgaged Property shall be
subject to any restriction on use, ownership or transferability or (ii) any
remedial work pertaining to Hazardous Materials shall be required at or in
connection with the Mortgaged Property.
5.1.19 TRANSFER OF MORTGAGED PROPERTY.
------------------------------
(a) Except as specifically set forth herein, without the prior written
consent of Beneficiary (which consent may be withheld for any reason or for no
reason or given upon such terms and conditions as Beneficiary deems necessary or
appropriate, all within Beneficiary's sole and absolute discretion), Grantor
shall not agree to, consummate, cause, suffer or permit any of
22
<PAGE>
the following (each, a "Transfer"), whether recorded or unrecorded, voluntarily
or involuntarily, directly or indirectly, by operation of law or otherwise: (i)
any sale, contract to sell, lease, grant of any option, conveyance, disposition,
alienation, assignment, pledge, condominium or similar declaration, covenant,
condition or restriction, lien, easement or other form of encumbrance, or other
form of transfer of all or any part of the Mortgaged Property or all or any part
of Grantor's right, title or interest in the Mortgaged Property, or (ii) any
merger, consolidation, dissolution, liquidation, winding up, or sale or other
transfer of all or substantially all of the assets of Grantor; or (iii) by
contract, through the issuance, transfer or ownership of voting securities, or
otherwise, there is any change in control of Grantor other than as described in
Section 5.1.19(b). Grantor agrees that, if Grantor breaches this Section
5.1.19(a), Beneficiary shall be entitled to declare all of the Indebtedness
immediately due and payable at the option of Beneficiary. The restrictions of
this Section 5.1.19(a) shall not apply to Leases or Permitted Encumbrances to
the extent the same are permitted under and in compliance with other specific
provisions of this Deed of Trust. If the Indebtedness is accelerated because of
a Transfer described in this Section 5.1.19(a), any prepayment premium specified
in the Notes shall also be due and payable as though such indebtedness was
voluntarily prepaid.
(b) In addition to the foregoing, in the event that there is any
merger, consolidation, dissolution, liquidation, winding up, or sale or other
transfer of all or substantially all of the assets of Merisel, Inc. pursuant to
which there is any change in control or cessation of such corporation or its
business; then, in the case of any of such events, Beneficiary shall have the
right (exercisable for any reason or for no reason, all within Beneficiary's
sole and absolute discretion) to declare all of the then outstanding
Indebtedness to be immediately due and payable, and Grantor shall thereupon pay
the same as a mandatory prepayment of the Indebtedness. No prepayment premium
shall be due under the Indebtedness as a result of any event described in this
Section 5.1.19(b).
(c) Notwithstanding the foregoing provisions of this Section 5.1.19,
Grantor shall not be prohibited by this Section 5.1.19 from effecting a Transfer
of all or any part of the Mortgaged Property to Merisel, Inc. if, but only if,
the foregoing restriction on such Transfer is determined to be prohibited by or
in direct conflict with the provisions of the 12.5% Senior Notes Due 2004 of
Merisel, Inc. (so long as the same are outstanding, and provided that no such
Transfer shall be deemed to release Grantor from any Indebtedness or Obligations
or release any Mortgaged Property from the lien and security interests of this
Deed of Trust).
5.1.20 MANAGEMENT. The Mortgaged Property shall at all times be
----------
operated by Grantor or by a management company approved by Beneficiary under a
management contract satisfactory in form and substance to Beneficiary. The
interests of the Grantor and the management company under any such contract
shall be subordinate to the rights of Beneficiary hereunder, and the management
agreement shall provide that Beneficiary may, at its option, terminate such
contract upon the occurrence of an Event of Default.
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5.1.21 USE OF MORTGAGED PROPERTY. Grantor shall not use the
-------------------------
Mortgaged Property or any part thereof, or allow the same to be used or
occupied, for any purpose other than for commercial purposes, or for any
unlawful purpose, or in violation of any certificate of occupancy or other
permit or certificate, or any law, ordinance or regulation, covering or
affecting the use or occupancy thereof. Grantor will not suffer any act to be
done or any condition to exist on the Mortgaged Property or any part thereof or
any article to be brought thereon, which may be dangerous (unless safeguarded as
required by law) or which may constitute a nuisance, public or private, or which
may void or make voidable any insurance then in force with respect thereto.
5.1.22 LAND USE. Unless required by applicable law, Grantor shall
--------
not permit changes in the use of any part of the Mortgaged Property from the use
existing at the time this Deed of Trust was executed. Grantor shall not
initiate or acquiesce in a change in the zoning classification of the Mortgaged
Property without Beneficiary's prior written consent.
5.1.23 TITLE. Grantor shall warrant and defend title to the
-----
Mortgaged Property against all claims and demands, subject to easements and
restrictions listed on Exhibit B attached hereto.
---------
5.1.24 NOTICES. Grantor shall provide Beneficiary with notice of any
-------
litigation, arbitration, or other proceeding or governmental investigation
pending or, to Grantor's knowledge, threatened against or relating to Grantor or
the Mortgaged Property.
5.1.25 FINANCIAL STATEMENTS.
--------------------
(a) Grantor shall timely comply in all respects with the provisions
of Section 2(i) and any other provisions of the Equipment Security Agreement
concerning the delivery of financial statements and other information described
therein as if such provisions were fully set forth in this Deed of Trust, and
such provisions shall be deemed incorporated herein by this reference such that
the terms "Debtor" therein shall also mean Grantor and "Secured Party" therein
shall also mean Beneficiary. Grantor shall continue to comply with such
provisions as if set forth herein until all of the Indebtedness and Obligations
are fully paid and performed, even though the Equipment Note may be prepaid
and/or the Equipment Security Agreement otherwise shall be terminated prior to
such full payment and performance.
(b) If requested by Beneficiary during the term of the Real Estate
Note, Grantor shall also furnish to Beneficiary, within one hundred (100) days
after the close of its fiscal year, a rent roll and an income and expense
statement, prepared on a cash basis, on the Mortgaged Property, and, in
addition, within thirty (30) days after a request by Beneficiary, Grantor shall
furnish a current rent roll and income and expense statement on the Mortgaged
Property, prepared on a cash basis, for the most recently completed calendar
quarter. The rent roll and the income and expense statement shall be certified
as to accuracy by Grantor. Grantor further agrees to promptly provide
Beneficiary from time to time with such other and further
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<PAGE>
information regarding the business, affairs and financial condition of Grantor
and any ultimate parent company of Grantor as Beneficiary may reasonably
request.
5.2 REPRESENTATIONS AND WARRANTIES OF GRANTOR. Grantor hereby
-----------------------------------------
represents and warrants to Beneficiary as follows, and agrees to give written
notice to Beneficiary of any breach of such representations and warranties:
5.2.1 DUE ORGANIZATION. Grantor is a corporation, duly organized,
----------------
validly existing and in good standing under the laws of the State of Delaware.
Grantor has the full power and authority to execute, deliver and perform its
obligations under this Deed of Trust, the Notes and the Security Documents.
5.2.2 NO CONFLICT. This Deed of Trust, the Notes and the Security
-----------
Documents and the performance of Grantor's obligations thereunder will not
violate any provision of law (including, but not limited to, any law relating to
usury), any order of any court or other agency or government, or any indenture,
partnership agreement or other agreement or instrument to which Grantor is a
party or by which Grantor or any of Grantor's property is bound, or be in
conflict with, result in a breach of or constitute (with due notice and/or lapse
of time) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of Grantor, except as
contemplated by the Deed of Trust, the Notes and the Security Documents, and no
action with respect thereto by Grantor is required.
5.2.3 CONSENTS. Grantor is not required to obtain the consent or
--------
approval of any private party or governmental agency for the execution, delivery
and performance by Grantor of this Deed of Trust, the Notes, the Security
Documents or the transactions contemplated thereby under any indenture,
agreement or other instrument or under any law.
5.2.4 SUITS. There are no suits, proceedings or investigations
-----
pending or threatened against or affecting Grantor, at law or in equity, or
before or by any governmental or administrative agency or instrumentality which,
if adversely determined, would have a material adverse effect on the Mortgaged
Property or the business or condition of Grantor.
5.2.5 JUDGMENTS. No judgment, decree or order of any court or
---------
governmental or administrative agency or instrumentality has been issued against
Grantor which has or may have any material adverse effect on the business or
condition of Grantor.
5.2.6 INFORMATION. All information, reports, papers and data given
-----------
to Beneficiary with respect to Grantor or others obligated under the terms of
the Security Documents are accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Beneficiary a true and
accurate knowledge of the subject matter thereof, subject to the qualifications
and other provisons of Section 2(g) of the Equipment Security Agreement.
25
<PAGE>
5.2.7 TITLE/RIGHT TO ASSIGN LEASES. As of the time and date of
----------------------------
recordation of this Deed of Trust, Grantor will have good and marketable title
in fee simple to the Land and Buildings, and good and marketable title to the
Fixtures and Personalty, and the right to assign the Leases and Rents to
Beneficiary free and clear of any prior assignment, liens, charges,
encumbrances, security interests and adverse claims whatsoever except the
Permitted Encumbrances.
5.2.8 LEASES. Grantor has not executed any previous assignment of
------
the Leases or of its right, title and interest therein or in the Rents to accrue
thereunder which will be or remain effective upon recordation of this Deed of
Trust. Grantor has delivered (or caused to be delivered) to Beneficiary a true
and complete copy of all of the existing Leases assigned hereunder, together
with all amendments, supplements and other modifications, and no material
default by Grantor or any other person under any existing Lease remains uncured.
5.2.9 PERMITTED ENCUMBRANCES. The Permitted Encumbrances have not
----------------------
materially interfered with the operation of the Mortgaged Property, nor does
Grantor reasonably foresee any material interference arising from the Permitted
Encumbrances during the term of the Notes.
5.2.10 TAXES. Grantor has filed all Federal, state, county and
-----
municipal income tax returns required to have been filed by it and has paid all
taxes which have become due pursuant to any assessments received by it.
5.2.11 USE OF MORTGAGED PROPERTY. The Mortgaged Property is being,
-------------------------
and will continue to be, lawfully used for commercial purposes.
ARTICLE 6. EVENTS OF DEFAULT
-----------------
The term "Event(s) of Default," as used in the Security Documents and the
Notes, shall mean the occurrence or happening, from time to time, of any one or
more of the following:
6.1 PAYMENT OF INDEBTEDNESS. If Grantor fails to pay all or any
-----------------------
portion of any installment or other payment of the Indebtedness within ten (10)
days after the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment or by acceleration or otherwise.
6.2 BANKRUPTCY, RECEIVERSHIP, INSOLVENCY, ETC. If voluntary or
------------------------------------------
involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be
commenced by or against Grantor, Merisel, Inc., and/or Merisel Americas, Inc. or
if bankruptcy, receivership, conservatorship, insolvency, reorganization,
dissolution, liquidation or other similar proceedings shall be instituted by any
of them or with respect to all or any part of their respective property under
the Federal Bankruptcy Code, as amended, or other law of the United States or of
any state or other competent jurisdiction, or if such proceedings are instituted
against any of them or all or
26
<PAGE>
any part of their respective property and any such corporation shall consent
thereto or shall fail to cause the same to be discharged within forty-five (45)
days, or if any of such corporations shall become insolvent, make an assignment
for the benefit of creditors, or cease to continue as a going business..
6.3 LAWS AFFECTING OBLIGATIONS AND INDEBTEDNESS. If subsequent to the
-------------------------------------------
date of this Deed of Trust, any governmental entity in which the Mortgaged
Property is located passes any law (a) which renders payment of the Indebtedness
and/or performance of the Obligations by Grantor unlawful, or (b) which
prohibits Beneficiary from exercising any of its rights and remedies under the
Security Documents.
6.4 FALSE REPRESENTATION. If any representation or warranty made by
--------------------
Grantor or others in, under or pursuant to the Notes or the Security Documents
(including, but not limited to, any representation or warranty made in Sections
5.1.18(a) and 5.2 hereof) shall prove to have been false or misleading in any
material respect as of the date on which such representation or warranty was
made.
6.5 CERTAIN DEFINED EVENTS. If Grantor shall default under any of the
----------------------
provisions of Sections 5.1.7(a), 5.1.17 or 5.1.19(a) of this Deed of Trust or if
any Event of Default as defined in the Equipment Security Agreement shall occur.
6.6 OTHER DEBT. Any default, after the expiration of any applicable
----------
grace period, by Grantor or by Merisel, Inc. in the payment or performance of
any debt, guaranty or other obligation in excess of five million dollars
($5,000,000), other than accounts payable and accruals in the ordinary course of
business, owed by either of such corporations to any person or entity,
including, but not limited to, Beneficiary.
6.7 OTHER PERFORMANCE. If Grantor shall default in the due observance
-----------------
or performance of any of the Indebtedness or the Obligations, other than Events
of Default specified above in this Article 6, and such default shall not be
curable, or if curable shall continue for a period of thirty (30) days after
written notice thereof from Beneficiary to Grantor (unless such default, if
curable, requires work to be performed, acts to be done or conditions to be
remedied which by their nature cannot be performed, done or remedied, as the
case may be, within such thirty (30) day period and Grantor shall commence to
cure such default within such thirty (30) day period and shall thereafter
diligently and continuously process the same to completion, but in no event
shall the period for cure exceed sixty (60) days or, if earlier, the earlier of
the maturity dates of the Notes, unless otherwise agreed in writing by
Beneficiary).
ARTICLE 7. DEFAULT AND FORECLOSURE
-----------------------
7.1 REMEDIES. If an Event of Default shall occur, Beneficiary may, at
--------
its option, by or through Trustee or otherwise, exercise one or more or all of
the following remedies:
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7.1.1 ACCELERATION. Declare the unpaid portion of the Indebtedness
------------
to be immediately due and payable, without further notice or demand (each of
which hereby is expressly waived by Grantor), whereupon the same shall become
immediately due and payable.
7.1.2 ENTRY ON MORTGAGED PROPERTY. Enter upon the Mortgaged Property
---------------------------
and take possession thereof and of all books, records, and accounts relating
thereto.
7.1.3 OPERATION OF MORTGAGED PROPERTY. Hold, lease, operate or
-------------------------------
otherwise use or permit the use of the Mortgaged Property, or any portion
thereof, in such manner, for such time and upon such terms as Beneficiary may
deem to be in its best interest (making such repairs, alterations, additions and
improvements thereto, from time to time, as Beneficiary shall deem necessary or
desirable) and collect and retain all earnings, rents, profits or other amounts
payable in connection therewith.
7.1.4 JUDICIAL PROCEEDINGS. Institute proceedings for the complete
--------------------
or partial foreclosure of this Deed of Trust or take such steps to protect and
enforce its rights whether by action, suit or proceeding in equity or at law for
the specific performance of any covenant, condition or agreement in the Notes or
in this Deed of Trust (without being required to foreclose this Deed of Trust),
or in aid of the execution of any power herein granted, or for any foreclosure
hereunder, or for the enforcement of any other appropriate legal or equitable
remedy or otherwise as Beneficiary shall elect.
7.1.5 SALE OF MORTGAGED PROPERTY. Cause the Mortgaged Property and
--------------------------
all estate, right, title and interest, claim and demand therein, or any part
thereof to be sold as follows:
(a) Beneficiary may proceed as if all of the Mortgaged Property were
real property, in accordance with subsection (d) below, or Beneficiary may elect
to treat any of the Mortgaged Property which consists of a right in action or
which is property that can be severed from the premises without causing
structural damage thereto as if the same were personal property, and dispose of
the same in accordance with subsection (c) below, separate and apart from the
sale of real property, with the remainder of the Mortgaged Property being
treated as real property.
(b) Beneficiary may cause any such sale or other disposition to be
conducted immediately following the expiration of any grace period, if any,
herein provided (or required by law) or Beneficiary may delay any such sale or
other disposition for such period of time as Beneficiary deems to be in its best
interest. Should Beneficiary desire that more than one such sale or other
disposition be conducted, Beneficiary may at its option, cause the same to be
conducted simultaneously, or successively on the same day, or at such different
days or times and in such order as Beneficiary may deem to be in its best
interest.
(c) Should Beneficiary elect to cause any of the Mortgaged Property
to be disposed of as personal property as permitted by subsection (a) above, it
may
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dispose of any part thereof in any manner now or hereafter permitted by Division
9 of the UCC or in accordance with any other remedy provided by law. Both
Grantor and Beneficiary shall be eligible to purchase any part of all of such
property at any such disposition. Any such disposition may be either public or
private as Beneficiary may so elect, subject to the provisions of the UCC.
Beneficiary shall give Grantor at least five (5) days prior written notice of
the time and place of any public sale or other disposition of such property or
of the time at or after which any private sale or any other intended disposition
is to be made, and if such notice is sent to Grantor it shall constitute
reasonable notice to Grantor.
(d) Should Beneficiary elect to sell the Mortgaged Property which is
real property or which Beneficiary has elected to treat as real property, upon
such election Beneficiary or Trustee shall give such Notice of Default and
Election to Sell as may then be required by law. Thereafter, upon the
expiration of such time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in the Notice of Sale,
shall sell such Mortgaged Property, or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Subsection 7.1.5(e)
hereof. Trustee for good cause may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the Mortgaged Property consists of several lots or
parcels, Beneficiary may designate the order in which such lots or parcels may
be offered for sale or sold, and may direct that such property be sold in one
parcel, as an entirety, or in such parcels as Beneficiary, in its sole
discretion, may elect. Grantor expressly waives any right which it may have to
direct the order in which any of the Mortgaged Property shall be sold, and its
rights, if any, to require the Mortgaged Property be sold as separate tracts,
lots, units, or parcels. Any person, including Grantor, Trustee or Beneficiary,
may purchase at the sale. Upon any sale Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession.
(e) Upon any sale of the Mortgaged Property, whether made under a
power of sale herein granted or pursuant to judicial proceedings, if the holder
of the Notes is a purchaser at such sale, it shall be entitled to use and apply
all or any portion of the indebtedness then secured hereby for or in settlement
or payment of all or any portion of the purchase price of the property
purchased, and, in such case, this Deed of Trust, the Notes and documents
evidencing expenditures secured hereby shall be presented to the person
conducting the sale in order that the amount of said indebtedness so used or
applied may be credited thereon as having been paid.
(f) In the event of a sale or other disposition of any such Mortgaged
Property or any part thereof, and the execution of a deed or other conveyance
pursuant thereto, the recitals in the deed or deeds of facts (such as of a
default, the giving of notice of default and notice of sale, demand that such
sale should be made, postponement of sale, terms of sale, sale, purchaser,
payment of purchase money, and any other fact affecting the regularity or
validity of
29
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such sale or disposition) shall be conclusive proof of the truth of such facts;
and any such deed or conveyance shall be conclusive against all persons as to
such facts recited therein.
7.1.6 RECEIVER. Beneficiary shall be entitled, as a matter of strict
--------
right, without notice and ex parte, and without regard to the value or occupancy
of the security, or the solvency of the Grantor, or the adequacy of the
Mortgaged Property as security for the Notes, to have a receiver appointed to
enter upon and take possession of the Mortgaged Property, collect the Rents and
profits therefrom and apply the same as the court may direct, such receiver to
have all the rights and powers permitted under the laws of the jurisdiction in
which the Mortgaged Property is located. Grantor hereby waives any requirements
on the receiver or Beneficiary to post any surety or other bond. Beneficiary or
the receiver may also take possession of, and for these purposes use, any and
all Personalty which is a part of the Mortgaged Property and used by Grantor in
the rental or leasing thereof or any part thereof. The expense (including the
receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant
to the powers herein contained shall be secured by this Deed of Trust.
Beneficiary shall (after payment of all reasonable costs and expenses incurred)
apply such Rents, issues and profits received by it on the Indebtedness in the
order set forth in Section 7.7 hereof. The right to enter and take possession
of the Mortgaged Property, to manage and operate the same, and to collect the
Rents, issues and profits thereof, whether by receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Beneficiary shall be
liable to account only for such Rents, issues and profits actually received by
Beneficiary.
7.1.7 ADDITIONAL RIGHTS AND REMEDIES. With or without notice, and
------------------------------
without releasing Grantor from the Indebtedness or Obligations, and without
becoming a mortgagee in possession, Beneficiary and Trustee shall have the right
to cure any breach or default of Grantor and, in connection therewith, to enter
upon the Mortgaged Property and to do such acts and things as Beneficiary or
Trustee deem necessary or desirable to protect the security hereof including,
but without limitation, to appear in and defend any action or proceedings
purporting to affect the security hereof or the rights or powers of Beneficiary
or Trustee hereunder; to pay, purchase, contest or compromise any encumbrance,
charge, lien or claim of lien which, in the judgment of either Beneficiary or
Trustee, is prior or superior hereto, the judgment of Beneficiary or Trustee
being conclusive as between the parties hereto; to obtain insurance; to pay any
premiums or charges with respect to insurance required to be carried hereunder;
and to employ counsel, accountants, contractors and other appropriate persons to
assist them.
7.1.8 WAIVER OF LIEN. In accordance with California of Code of Civil
--------------
Procedure Section 726.5, as such Section may be amended from time to time,
Beneficiary may waive its lien against the Mortgaged Property or any portion
thereof, together with fixtures or personal property thereon, to the extent such
property is "environmentally impaired" or is an "affected parcel" (as such terms
are defined in such Section), and may exercise any and all rights and remedies
of an unsecured creditor against Grantor and all of Grantor's assets and
property for
30
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the recovery of any deficiency, including, without limitation, seeking an
attachment order under California Code of Civil Procedure Section 483.010. No
such waiver shall be final or binding on Beneficiary unless and until a final
money judgment is obtained against Grantor. As between Beneficiary and Grantor,
for purposes of California Code of Civil Procedure Section 726.5, Grantor shall
have the burden of proving that the release or threatened release was not
knowingly or negligently caused or contributed to, or knowingly or willfully
permitted or acquiesced to by Grantor or any related party (or any affiliate or
agent of Grantor or any related party) and that Grantor made written disclosure
of the release to Beneficiary or that Beneficiary otherwise obtained actual
knowledge thereof prior to the making of the loan evidenced by the Notes.
Notwithstanding anything to the contrary contained in this Deed of Trust or the
other Security Documents, Grantor shall be fully and personally liable for all
judgments and awards entered against Grantor pursuant to California Code of
Civil Procedure 726.5 and such liability shall be an exception to any non-
recourse or exculpatory provision in this Deed of Trust or the other Security
Documents and shall not be limited to the original principal amount of the
obligations secured by this Deed of Trust. Grantor's obligations hereunder
shall survive the foreclosure, deed in lieu of foreclosure, release,
reconveyance or any other transfer of the Mortgaged Property or this Deed of
Trust. For the purpose of any action brought under this Section, Grantor hereby
waives the defense of laches and any applicable statute of limitations. For
purposes of California Code of Civil Procedure 726.5, the acts, knowledge and
notice of each "726.5 Party" shall be attributed to and be deemed to have been
performed by the party or parties then obligated on and liable for payment of
the Notes. As used herein, "726.5 Party" shall mean Grantor, any successor
owner to Grantor of all and any portion of the Mortgaged Property, and related
party of Grantor or any such successor and any affiliate or agent of Grantor,
any such successor or any such related party.
7.1.9 ACTION FOR ENVIRONMENTAL CLAIM. In accordance with, and
------------------------------
subject to limitations of, California Code of Civil Procedure Section 736,
Beneficiary may seek a judgment that Grantor has breached its covenants,
representations and/or warranties with respect to the environmental matters
contained in Section 5.1.18 of this Deed of Trust (the "Environmental
Provisions"), and may commence and maintain an action or actions in any court of
competent jurisdiction for enforcement of the Environmental Provisions and/or
recovery of any and all costs, damages, expenses, fees, penalties, fines,
judgments, indemnification payments to third parties, and other out-of-pocket
costs or expenses (including, without limitation, court costs, consultants' fees
and reasonable attorneys' fees, whether incurred in litigation or not and
whether before or after judgment), incurred or advanced by Beneficiary pursuant
to the Environmental Provisions (collectively, the "Environmental Costs"). All
Environmental Costs incurred by Beneficiary shall bear interest at the Default
Interest Rate. All Environmental Costs together with interest thereon shall be
secured by this Deed of Trust and shall enjoy the same priority as the original
principal amount of the Notes. Grantor acknowledges and agrees that
notwithstanding any term or provision contained in this Deed of Trust or in the
other Security Documents, Environmental Costs shall be exceptions to any
nonrecourse or exculpatory provision, if any, and Grantor shall be fully and
personally liable for Environmental Costs. Such liability shall not be limited
to the original principal amount of the obligations secured by this Deed of
Trust. Grantor's obligations hereunder shall survive foreclosure, deed in lieu
of foreclosure, release, reconveyance or any other
31
<PAGE>
transfer of the Mortgaged Property or this Deed of Trust. For the purposes of
any action brought under this Section 7.1.9, Grantor hereby waives the defense
of laches and any applicable statute of limitations.
7.1.10 OTHER. Exercise any other remedy specifically granted under
-----
the Security Documents or now or hereafter existing in equity, at law, by virtue
of statute or otherwise, including the rights described below.
7.2 SEPARATE SALES. Any real estate or any interest or estate therein
--------------
sold pursuant to any writ of execution issued on a judgment obtained by virtue
of the Notes, this Deed of Trust or the other Security Documents, or pursuant to
any other judicial proceedings under this Deed of Trust or the other Security
Documents, or pursuant to the power of sale granted herein, may be sold in one
parcel, as an entirety, or in such parcels, and in such manner or order as
Beneficiary, in its sole discretion, may elect.
7.3 REMEDIES CUMULATIVE AND CONCURRENT. The rights and remedies of
----------------------------------
Beneficiary as provided in the Notes, this Deed of Trust and in the Security
Documents shall be cumulative and concurrent and may be pursued separately,
successively or together against Grantor or against other obligors or against
the Mortgaged Property, or any one or more of them, at the sole discretion of
Beneficiary, and may be exercised as often as occasion therefor shall arise. The
failure to exercise any such right or remedy shall in no event be construed as a
waiver or release thereof, nor shall the choice of one remedy be deemed an
election of remedies to the exclusion of other remedies.
7.4 NO CURE OR WAIVER. Neither Beneficiary's nor Trustee's nor any
-----------------
receiver's entry upon and taking possession of all or any part of the Mortgaged
Property nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Indebtedness and
Obligations, nor the exercise of any other right or remedy by Beneficiary or
Trustee or any receiver shall impair the status of the security, or cure or
waive any default or notice of default under this Deed or Trust, or nullify the
effect of any notice of default or sale (unless all Indebtedness and Obligations
which are then due have been paid and performed and Grantor has cured all other
defaults), or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease
or option or a subordination of the lien of this Deed of Trust.
7.5 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS' FEES. Grantor agrees to
----------------------------------------------
pay to Beneficiary immediately and without demand all costs and expenses
reasonably incurred by Trustee and Beneficiary in exercising the remedies under
the Notes and Security Documents (including but without limitation, court costs
and reasonable attorneys' fees, whether incurred in litigation or not) with
interest at the greater of the Default Interest Rate or the highest rate payable
under any Indebtedness and Obligations, from the date of expenditure until said
sums have been paid. Beneficiary shall be entitled to bid, at the sale of the
Mortgaged Property held
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<PAGE>
pursuant to the power of sale granted herein or pursuant to any judicial
foreclosure of this instrument, the amount of said costs, expenses and interest
in addition to the amount of the other Indebtedness and Obligations as a credit
bid, the equivalent of cash.
7.6 WAIVER OF REDEMPTION, NOTICE, MARSHALING, ETC. Grantor hereby
----------------------------------------------
waives and releases (a) all benefit that might accrue to Grantor by virtue of
any present or future law exempting the Mortgaged Property, or any part of the
proceeds arising from any sale thereof, from attachment, levy or sale on
execution, or providing for any redemption or extension of time for payment, (b)
unless specifically required herein, all notices of Grantor's default or of
Beneficiary's election to exercise, or Beneficiary's actual exercise, of any
option or remedy under the Notes or the Security Documents; (c) any right to
have the liens against the Mortgaged Property marshaled; and (d) the right to
plead or assert any statute of limitations as a defense or bar to the
enforcement of the Notes or the Security Documents.
7.7 APPLICATION OF PROCEEDS. The proceeds of any sale of all or any
-----------------------
portion of the Mortgaged Property and the amounts generated by any holding,
leasing, operation or other use of the Mortgaged Property shall be applied by
Beneficiary in the following order:
(a) first, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing, repairing,
improving and selling the same (including without limitation payment of any
Impositions or other taxes);
(b) second, to the extent allowed by law, to the payment of reasonable
attorneys' fees and other legal expenses, including reasonable expenses and fees
incurred on appeals, and reasonable legal expenses and fees of a receiver;
(c) third, to the payment of late charges and prepayment premiums, if
any, owing under the Notes or the Security Documents;
(d) fourth, to the payment of accrued and unpaid interest on the
Indebtedness; and
(e) fifth, to the payment of the balance of the Indebtedness.
The balance, if any, shall be paid to the parties entitled to receive
it.
7.8 STRICT PERFORMANCE. Any failure by Beneficiary to insist upon
------------------
strict performance by Grantor of any of the terms and provisions of the Security
Documents or of the Notes shall not be deemed to be a waiver of any of the terms
or provisions of the Security Documents or the Notes and Beneficiary shall have
the right thereafter to insist upon strict performance by Grantor.
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<PAGE>
7.9 NO CONDITIONS PRECEDENT TO EXERCISE OF REMEDIES. Neither Grantor
-----------------------------------------------
nor any other person now or hereafter obligated for payment of all or any part
of the Indebtedness shall be relieved of such obligation (i) by reason of the
failure of Beneficiary to comply with any request of Grantor or of any other
person so obligated to take action to foreclose on this Deed of Trust or
otherwise enforce any provisions of the Security Documents or the Notes, or (ii)
by reason of the release, regardless of consideration, of all or any part of the
security held for the Indebtedness, or (iii) by reason of any agreement or
stipulation between any subsequent owner of the Mortgaged Property and
Beneficiary extending, amending or modifying any of the Indebtedness or
Obligations, or (iv) by reason of the occurrence of an Event of Default,
including but not limited to any transfer or disposition as prohibited by
Sections 5.1.14 and 5.1.19.
ARTICLE 8. CONDEMNATION
------------
8.1 CONDEMNATION. Grantor hereby assigns, transfers and sets over to
------------
Beneficiary all rights of Grantor to any award or payment in respect of (a) any
taking of all or a portion of the Mortgaged Property as a result of, or by
agreement in anticipation of, the exercise of the right of condemnation or
eminent domain; (b) any such taking of any appurtenances to the Mortgaged
Property or of vaults, areas of projections outside the boundaries of the
Mortgaged Property, or rights in, under or above the alleys, streets or avenues
adjoining the Mortgaged Property, or rights and benefits of light, air, view or
access to said alleys, streets, or avenues or for the taking of space or rights
therein, below the level of, or above the Mortgaged Property; and (c) any damage
to the Mortgaged Property or any part thereof due to governmental action, but
not resulting in, a taking of any portion of the Mortgaged Property, such as,
without limitation, the changing of the grade of any street adjacent to the
Mortgaged Property. Grantor hereby agrees to file and prosecute its claim or
claims for any such award or payment in good faith and with due diligence and
cause the same to be collected and paid over to Beneficiary to the extent of the
Indebtedness, and hereby irrevocably authorizes and empowers Beneficiary, in the
name of Grantor or otherwise, to collect and receipt for any such award or
payment and, in the event Grantor fails to act, or in the event that an Event of
Default has occurred and is continuing, to file and prosecute such claim or
claims.
8.2 APPLICATION OR PROCEEDS. All proceeds received by Beneficiary with
-----------------------
respect to a taking of all or any part of the Mortgaged Property or with respect
to damage to all or any part of the Mortgaged Property from governmental action
not resulting in a taking of the Mortgaged Property, shall be applied as
follows, in the order of priority indicated: (a) to reimburse Beneficiary for
all costs and expenses, including reasonable attorneys' fees incurred in
connection with collecting the said proceeds; (b) to the payment of late
charges, if any, owing under the Notes or the Security Documents; (c) to the
payment of accrued and unpaid interest on the Notes; (d) to the prepayment of
the unpaid principal of the Notes, without premium; and (d) to the payment of
the balance of the Indebtedness. The balance, if any, will be paid to Grantor.
8.3 EXCEPTED AWARDS. Notwithstanding the foregoing, Grantor shall not
---------------
be required to pay over any Awards or potential Awards referred to in this
Article 8 which
34
<PAGE>
individually and in the aggregate involve less than $100,000 and so long as an
Event of Default is not continuing at the time any such Award is made.
ARTICLE 9. GENERAL PROVISIONS
------------------
9.1 FURTHER ASSURANCES. Grantor, upon the reasonable written request
------------------
of Beneficiary, at its sole cost and expense, will execute, acknowledge and
deliver, or arrange for the execution, acknowledgment and delivery of, such
further instruments (including, without limitation, financing statements,
estoppel certificates and declarations of no set-off, attornment agreements and
acknowledgments of the Assignment or any assignment of the Notes and Security
Documents) and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of the Security Documents, to facilitate
the assignment or transfer of the Notes and the Security Documents and to
subject to the liens of the Security Documents any property intended by the
terms thereof to be covered thereby, and any renewals, additions, substitutions,
replacements or betterments thereto. Upon any failure of Grantor to execute and
deliver such instruments, certificates and other documents on or before fifteen
(15) days after receipt of written request therefor, Beneficiary may make,
execute and record any and all such instruments, and certificates and Grantor
irrevocably appoints Beneficiary the agent and attorney-in-fact of Grantor to do
so.
9.2 RECORDING AND FILING. Grantor, at its expense, will cause the
--------------------
Security Documents, all supplements thereto and any financing statements at all
times to be recorded and filed and corrected, re-recorded and re-filed in such
manner and in such places as Beneficiary shall reasonably request, and will pay
all such recording, filing, re-recording and re-filing taxes, fees and other
related charges.
9.3 NOTICE. Grantor hereby requests that a copy of any notice of
------
default and every notice of sale hereunder be mailed to it as provided by law at
the Grantor's Address. All notices, consents, demands, requests and other
communications required or permitted under the Security Documents and the Notes
shall be in writing and shall be deemed effective upon mailing by U.S. certified
or registered mail, postage prepaid, or depositing the same prepaid with a
nationally recognized overnight courier service providing receipted delivery
(such as DHL, UPS or Federal Express), addressed to the party for whom it is
intended at the Grantor's Address or the Trustee's Address, as the case may be,
or in the case of notices to Beneficiary, to Beneficiary at the Beneficiary's
Address. Any party may designate a change of address by written notice to the
other, given at least 10 business days before such change of address is to
become effective. Grantor may, from time to time, change the address to which
notice of default and notice of sale hereunder shall be sent by both recording a
request therefor and sending a copy of such request to Beneficiary.
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9.4 BENEFICIARY'S RIGHT TO PERFORM THE OBLIGATIONS. If Grantor shall
----------------------------------------------
fail to make any payment or perform any act required by the Notes or the
Security Documents following any applicable grace or cure periods specifically
provided therein, then, at any time thereafter, without notice to or demand upon
Grantor and without waiving or releasing any obligation or default, Beneficiary
may make such payment or perform such act for the account of and at the expense
of Grantor, and shall have the right to enter the Mortgaged Property for such
purpose and to take all such action thereon and with respect to the Mortgaged
Property as may be necessary or appropriate for such purpose. All sums so paid
by Beneficiary, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses so incurred together with interest
thereon at the Default Interest Rate, from the date of payment, shall constitute
additions to the Indebtedness secured by the Security Documents, and shall be
paid by Grantor to Beneficiary, on demand. If Beneficiary shall elect to pay
any Imposition, Beneficiary may do so in reliance on any bill, statement or
assessment procured from the appropriate public office, without inquiring into
the accuracy thereof or into the validity of such Imposition. Grantor shall
indemnify Beneficiary for all losses and expenses, including reasonable
attorneys' fees, incurred by reason of any acts performed by Beneficiary
pursuant to the provisions of this Section 9.4 or by reason of the Security
Documents, and any funds expended by Beneficiary to which it shall be entitled
to be indemnified, together with interest thereon at the Default Interest Rate
from the date of such expenditures, shall constitute additions to the
Indebtedness and shall be secured by the Security Documents and shall be paid by
Grantor to Beneficiary upon demand.
9.5 COVENANTS RUNNING WITH THE LAND. All covenants contained in the
-------------------------------
Security Documents shall run with the Mortgaged Property.
9.6 SEVERABILITY. In case any one or more of the Obligations shall be
------------
invalid, illegal or unenforceable in any respect, the validity of the Notes,
this Deed of Trust, the Security Documents and remaining Obligations shall be in
no way affected, prejudiced or disturbed thereby.
9.7 MODIFICATION. The Security Documents and the terms of each of them
------------
may not be changed, waived, discharged or terminated orally, but only by an
instrument or instruments in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is asserted.
9.8 COMPOUNDING OF INTEREST. All interest payable pursuant to the
-----------------------
Indebtedness, whether accruing before or after an Event of Default, shall
compound annually or, if and to the extent specified in the instruments and
agreements evidencing the Indebtedness or Obligations, more frequently.
9.9 TAX ON INDEBTEDNESS OR DEED OF TRUST. In the event of the passage,
------------------------------------
after the date of this Deed of Trust, of any law deducting from the value of
land for the purposes of taxation, any lien thereon, or imposing upon
Beneficiary the obligation to pay the whole, or any part, of the taxes or
assessments or charges or liens herein required to be paid by Grantor, or
36
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changing in any way the laws relating to the taxation of deeds of trust,
mortgages or debts as to materially affect the Deed of Trust or the
Indebtedness, the entire unpaid balance of the Indebtedness shall, at the option
of Beneficiary, after thirty (30) days written notice to Grantor, become due and
payable; provided, however, that if, in the reasonable opinion of Beneficiary's
counsel, it shall be lawful for Grantor to pay such taxes, assessments, or
charges, or to reimburse Beneficiary therefor, then there shall be no such
acceleration of the time for payment of the unpaid balance of the Indebtedness
if a mutually satisfactory agreement for reimbursement, in writing, is executed
by Grantor and delivered to Beneficiary within the aforesaid period.
9.10 MAXIMUM RATE OF INTEREST. Notwithstanding any provision in this
------------------------
Deed of Trust, or in any instrument now or hereafter relating to or securing the
Indebtedness evidenced by the Notes, the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall not exceed the limit, if any, imposed on Beneficiary by
applicable usury laws. In the event the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the limit
imposed by the applicable usury laws, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice by, between, or to any party hereto, be applied to the
reduction of the Indebtedness immediately upon receipt of such sums by
Beneficiary, with the same force and effect as though Grantor had specifically
designated such excess sums to be so applied to the reduction of the
Indebtedness and Beneficiary had agreed to accept such sums as a payment of the
Indebtedness not subject to any prepayment penalty, provided, however, that
Beneficiary may, at any time and from time to time, elect, by notice in writing
to Grantor, to waive, reduce, or limit the collection of any sums (or refund to
Grantor any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums as a prepayment of the Indebtedness.
9.11 SURVIVAL OF WARRANTIES AND COVENANTS. The warranties,
------------------------------------
representations, covenants and agreements set forth in the Security Documents
shall survive the making of the loan and the execution and delivery of the
Notes, and shall continue in full force and effect until the Indebtedness shall
have been paid in full.
9.12 APPLICABLE LAW AND CERTAIN WAIVERS. This instrument and the rights
----------------------------------
and obligations of the parties hereunder shall be governed by and construed in
accordance with the internal laws of the State of California without regard to
principles of conflicts of law. GRANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS DEED OF TRUST
AND/OR THE OBLIGATIONS. THIS WAIVER IS INFORMED AND FREELY MADE. GRANTOR
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT IT HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
INSTRUMENT,
37
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AND THAT IT WILL CONTINUE TO RELY ON THE WAIVER IN ITS RELATED FUTURE DEALINGS.
GRANTOR FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
9.13 SUBSTITUTION OF TRUSTEE. Beneficiary, acting alone, may, from time
-----------------------
to time, by instrument in writing, substitute a successor or successors to any
Trustee named herein or acting hereunder. Such instrument, executed,
acknowledged and recorded in the manner required by law, shall be conclusive
proof of proper substitution of such successor Trustee or Trustees, who shall
(without conveyance from the preceding Trustee) succeed to all of the title,
estate, rights, powers and duties of such preceding Trustee. Such instrument
shall contain the name of the original Grantor, Trustee and Beneficiary
hereunder, the book and page or instrument number where this Deed of Trust is
recorded and the name and address of the new Trustee. If a notice of default
has been recorded, this power of substitution cannot be exercised until after
the costs, fees, and expenses, of the then acting Trustee have been paid to such
Trustee, who shall endorse receipt thereof upon such instrument of substitution.
9.14 NO REPRESENTATIONS BY BENEFICIARY. By accepting or approving
---------------------------------
anything required to be observed, performed or fulfilled or to be given to
Beneficiary, pursuant to the Security Documents, including (but not limited to)
any officer's certificate, survey, appraisal or insurance policy, Beneficiary
shall not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not be or
constitute any warranty or representation with respect thereto by Beneficiary.
9.15 ACCEPTANCE OF TRUST. Trustee accepts the Trust created by this
-------------------
Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a
public record as provided by law.
9.16 RECONVEYANCE. Upon written request of Beneficiary stating that all
------------
sums secured hereby have been paid, and upon surrender of this Deed of Trust and
the Notes to Trustee for cancellation and retention, and upon payment of its
fees, Trustee shall reconvey, without warranty, the property then held
hereunder. The recitals in any such reconveyance of any matters or facts shall
be conclusive proof of the trust thereof. The grantee in such reconveyance may
be described as "the person or persons legally entitled thereto." Five (5)
years after issuance of such full reconveyance, Trustee may destroy the Notes
and this Deed of Trust (unless directed in such request to retain them).
9.17 COMPENSATION OF TRUSTEE. Trustee shall be entitled to reasonable
-----------------------
compensation for all services rendered or expenses incurred in the
administration or execution of the trusts hereby created and Grantor hereby
agrees to pay same. Trustee and Beneficiary shall be indemnified, held harmless
and reimbursed by Grantor for any liability, damage or expense,
38
<PAGE>
including reasonable attorneys' fees and amounts paid in settlement, which they
or either of them may incur or sustain in the execution of this trust or in the
doing of any act which they, or either of them are required or permitted to do
by the terms hereof or by law.
9.18 RECOURSE. The Indebtedness and the Obligations are intended to be,
--------
and shall be enforceable as, full recourse obligations and liabilities.
9.19 BROKERAGE COMMISSION. Any brokerage commission or finder's fee
--------------------
payable in connection with the loan evidenced by the Notes as a result of any
agreement, act or omission of Grantor or Grantor's agents or affiliates shall be
payable by Grantor and not by Beneficiary, and Grantor shall indemnify
Beneficiary and hold Beneficiary harmless against any claim of any broker or
finder arising out of such loan.
9.20 HEADINGS. The article headings and the section and subsection
--------
captions are inserted for convenience of reference only and shall in no way
alter or modify the text of such articles, sections and subsections.
9.21 INTENT. Grantor and Beneficiary intend the transaction represented
------
by the Obligations to be a loan from Beneficiary to Grantor and not a
partnership or joint venture with Beneficiary. Grantor hereby disclaims any
fiduciary or quasi-fiduciary relationship with Beneficiary.
9.22 TIME. Grantor agrees that time is of the essence in connection
----
with all obligations of Grantor herein, in the Notes and in all other Security
Documents.
9.23 ESTOPPEL CERTIFICATES. Grantor shall, within ten (10) days after
---------------------
written request, furnish to Beneficiary a duly acknowledged written statement
setting forth the amount of the debt secured by this Deed of Trust, stating
either that no set-offs or defenses exist against such debt, or, if such set-
offs or defenses are alleged to exist, the nature and amount thereof, and
providing such other information as Beneficiary may request.
9.24 RELEASE OF CERTAIN PERSONALTY. If and when Beneficiary shall
-----------------------------
become obligated to release the security interest and related liens and/or
filings under the UCC in and to certain personal property constituting
"Collateral" pursuant to applicable provisions of the Equipment Security
Agreement, Beneficiary shall also execute and deliver to Grantor such instrument
as may be appropriate to release such personal property from the lien of this
Deed of Trust, provided that in no event shall such release be deemed to extend
to any Personalty or Fixtures necessary for the normal operation or occupancy of
the Buildings or to any Buildings, Land, Leases, Proceeds, or Rents.
9.25 PREPAYMENT CHARGES. The terms of the Notes and any future advance
------------------
shall respectively govern rights of prepayment, if any, of Grantor and any
premium or other charges or fees due upon any prepayment by Grantor. No
provision of this Deed of Trust or any act or
39
<PAGE>
omission of Trustee or Beneficiary under this Deed of Trust shall be construed
to waive any prepayment premium, fee or other charge. Grantor agrees to pay any
prepayment premium, fee or other charge set forth in the Notes upon any
voluntary prepayment, upon any event specified therefor in the Equipment
Security Agreement and/or Notes, and/or upon any acceleration of the
Indebtedness and/or sale or other disposition of the Mortgaged Property
following any Event of Default specified in Sections 6.1, 6.2, 6.4, 6.5, 6.6 or
6.7 hereof. Grantor agrees that Beneficiary and Grantor have given individual
weight to the consideration for this Section 9.25 in connection with the
Indebtedness, and Grantor waives all benefits of Section 2954.10 of the
California Civil Code.
Initial: ________ (Grantor)
IN WITNESS WHEREOF, Grantor has executed this Deed of Trust as of the date first
above written.
GRANTOR:
MERISEL PROPERTIES, INC.
a Delaware corporation
By: /s/ Timothy Jenson
-----------------------------
40
<PAGE>
ALL-PURPOSE ACKNOWLEDGEMENT
State of California
County of
------------------
On , before me,
--------------------- ------------------------------
personally appeared
----------------------------------------------
personally known to me - OR -
---
proved to me on the basis of satisfactory evidence
---
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowleged to me that he/she/they execute the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity on behalf of which the person(s) acted, executed the
instrument.
Witness my hand and official seal,
- -----------------------------------------
Signature of Notary
ATTENTION NOTARY: Although the information requested below is OPTIONAL, it could
prevent fraudulent reattachment of this certificate.
CAPACITY CLAIMED BY SIGNER:
Individual Corporate Officer
--- --- Title(s)
Partner(s) Attorney-In-Fact
--- ---
Trustee(s) Other
--- ---
Guardian/Conservator
---
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document Number of Pages
Date of Document Signers Other Than Named Above
SIGNER IS REPRESENTING:
<PAGE>
EXHIBIT A
---------
LAND
LEGAL DESCRIPTION
THE LAND REFERRED TO HEREIN IS SITUATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:
PARCEL 13, IN THE CITY OF EL SEGUNDO, AS SHOWN UPON PARCEL MAP NO. 6527, FILED
IN BOOK 65 PAGE 86 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY.
EXCEPT THEREFROM SAID PARCEL, ALL OIL, GAS AND OTHER HYDROCARBON AND OTHER
MINERALS, WHETHER SIMILAR TO HEREIN SPECIFIED OR NOT, WITHIN OR THAT MAY BE
PRODUCED FROM SAID LAND, WITH NO RIGHT OR INTEREST OF ANY KIND THEREIN, EXPRESS
OR IMPLIED, IN THE SURFACE OF SAID LAND BUT WITH THE SOLE AND EXCLUSIVE RIGHT
FROM TIME TO TIME TO DRILL AND MAINTAIN WELLS AND SUPPORTING WORKS INTO OR
THROUGH SAID LAND BELOW A DEPTH OF 500 FEET AND TO PRODUCE, INJECT, STORE AND
REMOVE FROM AND THROUGH SUCH WELLS OR WORKS, OIL, GAS AND OTHER SUBSTANCES OF
WHATEVER NATURE INCLUDING THE RIGHT TO PERFORM ANY AND ALL OPERATIONS DEEMED
NECESSARY OR CONVENIENT FOR THE EXERCISE OF SAID RIGHTS, AS RESERVED BY STANDARD
OIL COMPANY OF CALIFORNIA, A CORPORATION, IN DEED RECORDED JUNE 30, 1969 AS
INSTRUMENT NO. 759, IN BOOK D4419 PAGE 266 OFFICIAL RECORDS.
A.P.N. 4138-007-001
<PAGE>
EXHIBIT B
---------
PERMITTED ENCUMBRANCES
1. GENERAL AND SPECIAL COUNTY AND/OR CITY TAXES, INCLUDING SPECIAL
ASSESSMENTS AND/OR PERSONAL PROPERTY TAXES, IF ANY
FISCAL YEAR: 1995-1996.
TOTAL: $109,507.86.
FIRST INSTALLMENT: $54,753.94.
SECOND INSTALLMENT: $54,753.92.
EXEMPTIONS,
(VETERANS OR HOMEOWNERS): $NONE.
CODE NO.: 8398.
PARCEL NO.: 4138-007-001.
1A. SUPPLEMENTAL TAXES IDENTIFIED AS 93-010.
BILL DATE: 11/9/95
ORIGINAL 1ST INSTALLMENT: $285.42 OPEN.
DELINQUENT DATE: 12/31/95.
ORIGINAL 2ND INSTALLMENT: $285.41 OPEN.
DELINQUENT DATE: 4/30/96.
PARCEL NO.: 4138-007-011.
1B. THE LIEN OF SUPPLEMENTAL TAXES AND/OR ADJUSTED TAXES, IF ANY, ASSESSED
PURSUANT TO THE CALIFORNIA REVENUE AND TAXATION CODE.
2. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDE IN A DOCUMENT
FOR: PIPE LINES CONDUITS AND SIMILAR APPURTENANCES, TOGETHER
WITH INGREESS AND EGRESS THERETO.
AFFECTS: THE MOST SOUTHERLY 10 FEET OF PARCEL 3 OF PARCEL MAP
6257.
RECORDED: JUNE 30, 1969 AS INSTRUMENT NO. 759 IN BOOK D4419 PAGE
266, OFFICIAL RECORDS.
AND MODIFIED BY DEED RECORDED IN BOOK D6079 PAGE 799, OFFICIAL RECORDS.
<PAGE>
3. COVENANTS, CONDITIONS AND RESTRICTIONS, (DELETING THEREFROM ANY
RESTRICTIONS BASED ON RACE, COLOR, OR CREED), AS PROVIDED IN A DOCUMENT,
RECORDED: JUNE 30, 1969 AS INSTRUMENT NO. 759 IN BOOK D4419 PAGE
266 OFFICIAL RECORDS.
4. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDED IN A DOCUMENT
FOR: UNDERGROUND COMMUNICATION STRUCTURES, CONDUITS AND
MANHOLES.
AFFECTS: THE WESTERLY 5 FEET OF PARCEL 3 OF PARCEL MAP NO. 6257.
RECORDED: MARCH 23, 1970 AS INSTRUMENT NO. 2420 IN BOOK D4664 PAGE
946 OFFICIAL RECORDS.
5. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDED IN A DOCUMENT
FOR: UNDERGROUND DRAINAGE SYSTEM.
AFFECTS: THAT PORTION DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF PARCEL 3, PARCEL
MAP NO. 6257, RECORDED IN BOOK 65 PAGE 86 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE ALONG THE NORTHERLY LINE OF SAID PARCEL
3, NORTH 89 DEGREES 55' 25" WEST 6.00 FEET; THENCE SOUTH
00" 00' 20" EAST ALONG A LINE WHICH IS PARALLEL WITH AND
6.00 FEET WESTERLY OF THE EASTERLY LINE OF SAID PARCEL
3, A DISTANCE OF 300.00 FEET TO THE SOUTHERLY LINE OF
SAID PARCEL 3; THENCE SOUTH 89 DEGREES 55' 25" EAST 6.00
FEET TO THE EASTERLY LINE OF SAID PARCEL 3; THENCE ALONG
SAID EASTERLY LINE, NORTH 00" 00' 20" WEST, A DISTANCE
OF 300.00 FEET TO THE POINT OF BEGINNING.
RECORDED: FEBRUARY 16, 1977 AS INSTRUMENT NO. 77-168808.
6. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDED IN A DOCUMENT
FOR: AN ELECTRICAL SUPPLY SYSTEM
AFFECTS: THE LAND AND THE ROOF OF THE BUILDING LOCATED WITHIN THE
FOLLOWING DESCRIBED LAND:
THAT PORTION OF PARCEL 3 OF PARCEL MAP NO. 6257,
DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHWESTERLY CORNER OF SAID PARCEL 3;
THENCE EASTERLY ALONG THE NORTHERLY LINE OF SAID PARCEL,
39.50 FEET; THENCE SOUTHERLY PARALLEL WITH THE WESTERLY
LINE OF SAID PARCEL, 52.50 FEET AND THE TRUE POINT OF
BEGINNING; THENCE EASTERLY PARALLEL WITH SAID NORTHERLY
LINE, 105 FEET; THENCE SOUTHERLY PARALLEL WITH SAID
WESTERLY LINE, 215 FEET; THENCE WESTERLY PARALLEL WITH
SAID NORTHERLY LINE, 105 FEET; THENCE NORTHERLY PARALLEL
WITH SAID WESTERLY LINE, 215 FEET.
RECORDED: FEBRUARY 20, 1980 AS INSTRUMENT NO. 80-173892.
SAID EASEMENT WAS GRANTED UPON CERTAIN COVENANTS AND CONDITIONS THEREIN
PROVIDED.
7. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDED IN A DOCUMENT
FOR: INGRESS AND EGRESS.
AFFECTS: THAT PORTION OF SAID PARCEL 3 OF PARCEL MAP NO. 6257,
LYING
<PAGE>
OUTSIDE OF SAID BUILDING SITE DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWESTERLY CORNER OF SAID PARCEL; THENCE
EASTERLY ALONG SAID NORTHERLY LINE, 214 FEET; THENCE
SOUTHERLY PARALLEL WITH SAID WESTERLY LINE, 256 FEET; THENCE
EASTERLY PARALLEL WITH SAID NORTHERLY LINE, 5 FEET; THENCE
SOUTHERLY PARALLEL WITH SAID WESTERLY LINE TO THE SOUTHERLY
LINE OF SAID PARCEL; THENCE WESTERLY ALONG SAID SOUTHERLY
LINE, 20 FEET; THENCE NORTHERLY PARALLEL WITH SAID WESTERLY
LINE, 78 FEET; THENCE WESTERLY PARALLEL WITH SAID SOUTHERLY
LINE, 28 FEET; THENCE NORTHERLY PARALLEL WITH SAID WESTERLY
LINE, 179 FEET; THENCE WESTERLY PARALLEL WITH SAID NORTHERLY
LINE TO SAID WESTERLY LINE.
RECORDED: FEBRUARY 20, 1980 AS INSTRUMENT NO. 80-173892.
SAID EASEMENT WAS GRANTED UPON CERTAIN COVENANTS AND CONDITIONS THEREIN
PROVIDED.
8. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS
PROVIDED IN A DOCUMENT
FOR: UNDERGROUND ELECTRICAL SUPPLY SYSTEM.
AFFECTS: A STRIP OF LAND 6 FEET IN WIDTH OUTSIDE OF SAID BUILDING
SITE AND WITHIN SAID PARCEL 3 OF PARCEL MAP 6257, THE CENTER
LINE OF SAID STRIP BEING DESCRIBED AS FOLLOWS:
COMMENCING AT A POINT IN THE CENTER LINE OF CONTINENTAL
BOULEVARD, AS NOW ESTABLISHED, DISTANT NORTHERLY THEREON
157.50 FEET FROM THE CENTER LINE OF EL SEGUNDO BOULEVARD, AS
NOW ESTABLISHED; THENCE EASTERLY PARALLEL WITH SAID CENTER
LINE OF EL SEGUNDO BOULEVARD, TO THE EASTERLY LINE OF SAID
CONTINENTAL BOULEVARD AND THE TRUE POINT OF BEGINNING;
THENCE CONTINUING EASTERLY PARALLELING SAID CENTER LINE OF
EL SEGUNDO BOULEVARD, 19 FEET ; THENCE NORTHEASTERLY TO A
POINT IN THE WESTERLY BOUNDARY OF SAID BUILDING SITE,
DISTANT NORTHERLY 171 FEET AND EASTERLY 40 FEET MEASURED AT
RIGHT ANGELS RESPECTIVELY FROM SAID CENTER LINES OF EL
SEGUNDO AND CONTINENTAL BOULEVARD.
RECORDED: FEBRUARY 20, 1980 AS INSTRUMENT NO. 80-173892.
9. AN UNRECORDED LEASE, AFFECTING THE PREMISES THERIN STATED, EXECUTED BY AND
BETWEEN THE PARTIES NAMED HEREIN, FOR THE TERM AND UPON THE TERMS AND
PROVISIONS THEREIN PROVIDED,
TYPE OF LEASE: COMMERCIAL
DATED: MARCH 10, 1993.
LESSOR: KILROY-FREEHOLD EL SEGUNDO COMPANY, A CALIFORNIA GENERAL
PARTNERSHIP.
LESSEE: NICHOLS RESEARCH CORPORATION, A DELAWARE CORPORATION.
DISCLOSED BY: SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
RECORDED JULY 29, 1993 AS INSTRUMENT NO. 93-1456117.
AFFECTS: SAID LAND.
MATTERS AFFECTING THE PRESENT INTEREST OF THE LESSOR OR LESSEE ARE NOT SHOWN
HEREIN.
THE LESSOR'S INTEREST IN SAID LEASE WAS ASSIGNED
TO: MERISEL PROPERTIES, INC., A DELAWARE CORPORATION.
RECORDED: OCTOBER 16, 1995 AS INSTRUMENT NO. 95-1666934.
10. MATTERS DISCLOSED BY A ALTA SURVEY PREPARED BY C.W. COOK CO. DATED AUGUST
1984, AND UPDATED NOVEMBER 5, 1987 AND REVISED AUGUST 2, 1995, AS JOB NO. F-
95-1623-A AS FOLLOWS:
A. ANY EASEMENT OR LESSER RIGHT, FOR THE PURPOSE HEREIN STATED, INCLUDING
INCIDENTAL PURPOSES, FOR THE PEDESTRIAN TRAFFIC 2.9' ALONG THE NORTH
BOUNDARY LINE.
B. ANY EASEMENT OR LESSER RIGHT, FOR THE PURPOSES HEREIN STATED, INCLUDING
INCIDENTAL PURPOSES, FOR THE VAULT, SOUTHERN CALIFORNIA EDISON VAULT AND
GAS METER LOCATED WEST OF THE 5-STORY CONCRETE BUILDING.
C. THE FACT THAT A GAS PLAQUE 0.8'X0.8' IS LOCATED ON THE BACK OF SIDEWALK
ALONG EL SEGUNDO BOULEVARD, AND AS SHOWN IN THE NOTES ON SAID SURVEY.
D. THE FACT THAT EXCEPTION NO. 2 IS PART STATES THAT NO TREES SHALL BE
PLANTED IN THE 10' STRIP AND THERE ARE 11 TREES IN THIS EASEMENT.
E. SURVEY STATES THAT THE SIX FOOT EASEMENT SHOWN IN DOCUMENT RECORDED
FEBRUARY 20, 1980 AS INSTRUMENT NO. 80-173892 IS NOT SHOWN IN OUR TITLE
REPORT. THE EASEMENT WAS SHOWN IN A SUPPLEMENTAL REPORT DATED JULY 11,
1995.
F. THE FACT THAT THE STAIRWAY LOCATED ON THE WESTERLY SIDE OF THE BUILDING
LOCATED ON SAID LAND ENCROACHES OVER A PORTION OF THE SOUTHERN
CALIFORNIA EDISON COMPANY EASEMENT REFERRED TO IN EXCEPTION NO. 8.
<PAGE>
EXHIBIT 10.38
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
-AND-
MERISEL (UK) LIMITED
<PAGE>
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
AND
MERISEL (UK) LIMITED
STANDARD CONDITIONS FOR PURCHASE OF DEBTS
1. DEFINITIONS
-----------
1.1 The headings in the Agreement and these Conditions are for convenience
only and shall in no way affect their construction. The following
expressions shall have the meaning set out opposite each:
ADDITIONAL DISCOUNTING - a charge calculated daily at the rate shown in
CHARGE the Particulars on the basis of a 360 day year on
the debit balance on the Current Account during any
period that such debit balance shall exceed the
Funding Limit shown in the Particulars.
ADJUSTED EQUITY - Tangible Net Worth plus all obligations to The
Merisel Group.
APPROVED DEBT - A debt referred to in a Schedule delivered to us
which at that time or any time thereafter
(i) is not an Ineligible Debt; and
(ii) in relation to which you are not and have
not been in breach of any warranty or
undertaking contained in this Agreement;
and
(iii) which is undisputed.
BASE RATE - the Base Rate or any replacement or substituted
rate for sterling as quoted by National Westminster
Bank plc or its successors from time to time.
COLLECTION - a remittance received at our bank in respect of
a Debt.
COLLECTION AGENT - the party authorised by us from time to time to
collect Debts and deal with Related Rights on our
behalf in accordance with
<PAGE>
the provisions of this Agreement, including inter
alia clauses 7.2 to 7.9 inclusive.
COLLECTION DATE - the day that we receive funds for value in our
bank account from a Collection.
CONCENTRATION LIMIT - the amount (referred to in the Particulars) of
Outstanding Approved Debts, owing by any Customer
which must not be exceeded.
CONTRACT OF SALE - any contract for the supply of Goods (as defined
in this Agreement) by you with the exception of
those contracts entered into by your Swiss branch
with persons carrying on business outside the United
Kingdom.
CONTRACTED AMOUNT - in relation to a Debt, the total amount under a
Contract of Sale payable to you by a Customer
including any tax or duty but before any deduction
or allowance for prompt payment or otherwise.
CREDIT AND COLLECTION - your standard policies and procedures as defined
POLICY in the Merisel Europe Credit Manual provided to us
at the date of this Agreement or as the same may be
revised from time to time with our approval.
CURRENT ACCOUNT - an account maintained by or on behalf of us in
your name, to show the balance at any time between:
(i) all payments made to you and all costs,
expenses, charges and other sums paid or payable by
you to us (including contingent liabilities); and
(ii) the amount of all Purchase Prices credited
following Collections.
CUSTOMER - any entity which incurs or may incur any
obligation to make payment under a Contract of Sale.
<PAGE>
DEBT - the amount (or where the context so admits a part
of the amount) of any obligation incurred by a
Customer under a Contract of Sale (including any tax
or duty payable to you).
DEBTS PURCHASED - an account maintained by us to which all
ACCOUNT Scheduled Debts are debited and all credit notes are
credited and to which all Collections and Write Offs
are credited.
DEFAULTED DEBT (i) a Debt which remains unpaid for 60 days or
more from the original due date for payment;
or
(ii) a Debt due by an Insolvent Customer; or
(iii) a Debt which in accordance with your Credit
and Collection Policy approved by us should be
written off as uncollectable.
DEFAULT RATIO - the ratio (expressed as a percentage) computed as
of the last day of each of your fiscal months by
taking
(i) the total value of all Defaulted Debts as of
such date and dividing it by
(ii) the total amount of all Outstanding Debts on
such date.
DELINQUENCY RATIO - the ratio (expressed as a percentage) computed
as of the last day of each of your fiscal months by
taking
(i) the total of all Debts which shall at such
date have been unpaid for between 30 days and
60 days from the original due date for payment
and dividing such total by
(ii) the total amount of all Outstanding Debts on
such date.
DELIVERED - in relation to Goods - the giving of possession or
the giving of control to the Customer in accordance
with a Contract of Sale; and
- in relation to work done or services rendered -
complete performance.
"Deliver" and "delivery" shall be construed
accordingly.
DILUTION RATIO - the ratio (expressed as a percentage) computed as
of the last day of each of your fiscal months by
taking
(i) the aggregate balance of credit notes which
have been issued by you (it being agreed that
you will be deemed
<PAGE>
to have issued such credit notes by making
credit entries in your books reducing the
Outstanding Debts), during the period of four
months ending with and including such month at
whose end the ratio shall be computed;
and dividing it by
(ii) the aggregate amount of all Outstanding Debts
which shall have accrued during such period.
DISCOUNTING CHARGE - a charge calculated daily, at the rate shown in
the Particulars on the basis of a 360 day year, on
the amount of each Prepayment.
EXTERNAL LIABILITIES - all balance sheet liabilities including any debit
balance of the Current Account less obligations to
The Merisel Group.
FUNDED LIABILITIES - all balance sheet liabilities subject to a
Discounting Charge, interest or similar fee
including any debit balance of the Current Account
hereunder.
FUNDING LIMIT - the amount of the debit balance, specified in the
Particulars, on the Current Account which must not
at any time be exceeded.
FUNDING LINE - the sum specified in the Particulars.
GOODS - actual merchandise, software, services or work and
materials.
INELIGIBLE DEBTS - at any time and from time to time:
(i) Defaulted Debts; or
(ii) any sums due from credit insurers; or
(iii) any Debt payable by a Department or Ministry
or Agency of the Crown or similar in relation
to a foreign government or payable by a
Customer who does not a carry on a business;
or
(iv) any Debts whose invoice shall be adressed to
a Customer outside the United Kingdom or
expressed in a currency other than Sterling
(unless approved of by us); or
(v) any Debt subject to a contra account by the
Customer or
<PAGE>
(vi) any Debts in excess of the Concentration
Limit in the date order of their creation; or
(vii) any Debt which is to be rebated to the
Customer; or
(viii) the full amount of all Debts owing by a
Customer with 20% or more by value of its
Debts overdue by more than sixty days; or
(ix) any Debt on account of a Contract of Sale
which has not been completely performed; or
(x) any Debt within a category, or owing by a
Customer notified at any time by us to you,
in our absolute discretion but this shall not
apply both (i) for 10 days following such
notice and (ii) retrospectively to Debts
already in existence; or
(xi) any Debt payable by a Customer in which The
Merisel Group has a direct or indirect
ownership interest or an employee or director
of The Merisel Group; or
(xii) all Debts of any Customer whose instrument in
or towards the discharge of a Debt shall not
be honoured on first presentation; or
(xiii) all Debts payable by stage or instalment
payments;
(xiv) all Debts in respect of which you cannot
comply with your warranties and undertakings
to us; or
(xv) all Debts disputed by Customers.
INITIAL SURVEY FEE - a fee payable to us by you in respect of our first
Survey.
INSOLVENCY - in relation to an individual:
(i) his bankruptcy; or
(ii) his sequestration.
- in relation to a partnership:
(i) its winding up; or
(ii) the bankruptcy or sequestration of any or all
the partners.
- in relation to any limited company:
(i) the passing of a resolution for a voluntary
winding up (other than for the purpose of a
solvent re-organisation or reconstruction);
or
(ii) the making of a winding up order; or
(iii) the appointment of an administrator pursuant
to the Insolvency Act 1986; or
<PAGE>
(iv) a receiver or an administrative receiver being
appointed to all or any part of its property.
- in relation to any entity:
(i) any voluntary arrangement under the Insolvency
Act 1986; or
(ii) the appointment of a judicial factor.
and "Insolvent" shall be construed accordingly.
INTANGIBLES - all goodwill, licences, the excess of cost over book
value of acquired assets, franchise fees, organisational
costs, capitalised costs, amounts owing by The Merisel
Group, its directors, officers or employees, and the
amount by which the aggregate of the following exceed
500,000 pounds - any prepaid expenses, deposits,
leasehold improvements net of depreciation and any asset
classified on your balance sheet as "other" unless
specifically defined.
LOSS RATIO - the ratio (expressed as a percentage) computed as of
the last day of each of your fiscal months by taking:
(i) an amount equal to the total value of all Write
Offs during the period of 12 months ending with and
including such months less an amount equal to the
total of all Recoveries during such period;
and dividing it by
(ii) the aggregate amount of all Debts paid by Customers
during such period.
NET VALUE - the Contracted Amount of each Scheduled Debt less any
deduction allowed or allowable for prompt payment or
otherwise.
OUTSTANDING DEBTS - Debts unrecovered by funds cleared for value at our
bank.
PARTICULARS - the matters referred to in that part of the Agreement
headed "Particulars".
QUARTERLY SURVEY FEE - the fee payable by you to us following each survey.
<PAGE>
PERMITTED CONTRACT - any Contract of Sale entered into by you in the
course of your Business (specified in the Particulars)
with a Customer carrying on business in a Permitted
Country and which provides for payment in Sterling or a
Permitted Currency.
PERMITTED COUNTRY - a country or territory listed in the Particulars or
otherwise agreed in writing by us (provided that our
approval has not been withdrawn).
PERMITTED CURRENCY - pounds sterling or any other currency for payment of
a Contract of Sale for which we have given our prior
written approval or which appears in the Particulars.
POLICY - the credit insurance policy referred to in Condition
10.7.
PREPAYMENT - the amount up to which we shall be prepared to prepay
before Collection on account of the Purchase Price of
each Approved Debt calculated at the percentage shown in
the Particulars subject always to the limitations
contained in Conditions 4, 5 and 9.
PURCHASE PRICE - the amount payable by us to you for each Debt,
together with its Related Rights, purchased by us
calculated at the amount specified in and payable in
accordance with Condition 5.2
RECOVERY - any amount collected in relation to a Write Off.
RELATED RIGHTS - the benefit of all guarantees, indemnities,
insurances, instruments and securities given to or held
by you securing or otherwise supporting any Debt; and
- any ledger, computer data, statement or other record
and any invoice, delivery note or other document on
which or by which and any Debt is recorded or evidenced;
and
- all your rights pursuant to the Contract of Sale but
without any obligation on us to complete the Contract of
Sale; and
- all bank statements evidencing receipt of monies
toward settlement of a Debt; and
- ownership of any Transferred Goods.
<PAGE>
SCHEDULE - in relation to a Debt not previously Scheduled to
us - the delivery by you to us of a schedule of Debts
which shall have come into existence in such form and by
such method, whether in writing, by electronic data
transfer, or other means, as shall be prescribed by us
from time to time and where appropriate its receipt by
us and "Scheduled" shall be construed accordingly.
SURVEY - the exercise by us of our rights under Condition 11.1
TANGIBLE NET WORTH - the net book value of all your assets and liabilities
determined in accordance with generally accepted
accounting practices but excluding all Intangibles.
TERMINATION EVENT - any event entitling us immediately to terminate this
Agreement whether or not we shall so terminate.
TERMS OF PAYMENT - your conditions, including the Terms of Payment
specified in the Particulars or such other conditions as
are approved by us, as to the method and time for
payment of a Debt and included in the Contract of Sale;
these may include a settlement discount up to 5% or such
higher amount as may be agreed between us and you.
THE MERISEL GROUP - Merisel Inc., its successors or assigns and any
company or business in which Merisel Inc. or its
successors or assigns has a majority direct or indirect
ownership interest.
TRADING CONDITIONS - the standard conditions (other than the Terms of
Payment) upon which you enter into Contracts of Sale and
as approved by us from time to time in writing.
TRANSFERRED GOODS - Goods relating to a Contract of Sale giving rise to
any or all Debts purchased by us hereunder which any
Customer shall reject, or shall return or attempt to
return to us or you or indicate a wish to do so and in
respect of which no credit note has been issued; or
- which you or we recover from the Customer in the
exercise of your rights under the Contract of Sale
giving rise to any or all Debts purchased by us
hereunder and in respect of which no credit note has
been issued.
<PAGE>
UNITED KINGDOM - United Kingdom of Great Britain and Northern Ireland
and the Channel Islands and the Isle of Man.
WE OR US OR OUR - Deutsche Financial Services (UK) Ltd.
(WHETHER UPPER OR LOWER CASE)
WORKING DAY - a day when both we and National Westminster Bank Plc
in the City of London shall be open for the conduct of
all normal business.
WRITE OFF - a Debt written off by you or which should have been
written off in accordance with your Credit and
Collection Policy or which shall have been passed to an
outside body for collection.
YOU OR YOUR - Merisel (UK) Limited.
(WHETHER UPPER CASE OR LOWER CASE)
1.2 Unless the context otherwise indicates, the singular includes the
plural and any gender shall include any other gender.
1.3 Where in or in relation to any place outside England and Wales the
meaning of a word or expression used in the Agreement is to be
considered and such word or expression has no counterpart in that
place, it shall, unless the context otherwise requires, have the
meaning of its closest equivalent in that place.
1.4 References to clauses are to clauses in the Agreement and
references to Conditions are to the numbered sections appearing in
this document.
1.5 References to an Act of shall be deemed to include each act as
amended, modified or re-enacted or any order, rule or regulation
made thereunder.
1.6 The meaning of general words introduced by the word "other" shall
not be limited by reference to any proceeding word or enumeration
indicating a particular class of acts matters or things.
1.7 If any provision of this Agreement shall to any extent be invalid
or unenforceable then the remainder of this Agreement shall not be
affected or impaired.
1.8 For purposes of all calculations of financial covenants and
undertakings and warranties herein, You or Your shall not include
Merisel (UK) Ltd, (Swiss Branch). Your reports and financial
statements will separately identify your UK operations and your
Swiss operations where appropriate.
<PAGE>
2. DURATION
--------
2.1 This Agreement shall begin on the Commencement Date referred to in
the Particulars and continue until terminated by the period of
notice referred to in the Particulars.
2.2 Upon or at any time after the happening of a Termination Event, we
shall have the right at any time immediately to terminate this
Agreement by giving written notice to you unless we have in writing
agreed to waive such a Termination Event or have continued to make
Prepayments for a period in excess of 30 days thereafter with full
knowledge of the occurrence of such Termination Event.
2.3 Except as otherwise provided, termination shall not affect the
rights or obligations of either you or us in relation to any Debt
then vested in us. This Agreement shall continue to bind both you
and us for so long as may be necessary to satisfy such rights and
obligations, and particularly until all sums due to us have
actually been recovered.
2.4 This Agreement shall remain effective notwithstanding any change in
your name, constitution or composition.
3. APPLICABILITY, TITLE TO DEBTS AND SCHEDULES
-------------------------------------------
3.1 This Agreement shall apply only to the Debts or classes of Debts
referred to in the Particulars.
3.2 The ownership of each Debt and its Related Rights shall, as regards
Debts existing at the Commencement Date, vest in us on that date
and as regards future Debts shall vest in us automatically upon
such Debts coming into existence. If for any reason any Debt or any
Related Rights shall fail effectively to vest in us then you will
hold them on trust for us. We may at any time following a
Termination Event give notice to the Customer or any other person
of the existence of such trust and that payment is to be made to
us. By our execution hereof we acknowledge intimitation of such
trust.
3.3 On the Commencement Date you will furnish us with a Schedule of
Debts then in existence. Thereafter further Schedules of Debts
shall be furnished to us within two days of the Delivery of Goods
or at such other time as may be stipulated by us.
3.4 Following a Termination Event, we may at any time require you, at
your expense, to complete and deliver to us a duly executed written
assignment of any Debt or its Related Rights with all stamp duty
thereon paid and in a form approved by us.
<PAGE>
4. YOUR INDEMNITY AND REPAYMENT OBLIGATIONS
----------------------------------------
4.1 Without limiting any other rights that we may have hereunder or
under applicable law you hereby agree to indemnify us from and
against any and all claims, losses, damages, penalties, interest
and reasonable legal fees including costs awarded against us (all
of the foregoing being collectively referred to as "Indemnified
Amounts"), which may be imposed on, incurred by or asserted against
us in any way arising out of or relating to any breach of your
obligations under the terms of Conditions 10.1 to 10.10 inclusive,
or from your gross negligence or wilful misconduct in the
performance of your duties as the Collection Agent under the terms
of Clauses 7.1 to 7.9 of the Agreement, excluding, however,
(i) Indemnified Amounts to the extent resulting from gross
negligence or wilful misconduct on the part of us, or
(ii) consequential, indirect, punitive or exemplary damages; or
(iii) recourse solely for uncollectible and uncollected Debt if
there has been no breach of Conditions 10.1 to 10.10.
provided, however, that if a court of competent jurisdiction in a
final non-appealable order determines that such Indemnified Amounts
arose in part from our gross negligence or wilful misconduct, we
shall reimburse you for the portion of such Indemnified Amount
resulting from our 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, you shall be repaid any amounts reimbursed under preceding
clauses that due to such determination it should not have paid.
"Gross negligence" for the purpose of this Agreement including
these Conditions shall be construed and interpreted according to
the laws of the State of California, USA.
4.2 If indemnification is to be sought hereunder by us, we shall
promptly notify you of the commencement of any litigation,
proceeding or other action commenced by a third party in respect
thereof; provided, however, that the failure to notify you shall
not relieve you from any liability or obligation that it may have
hereunder or otherwise to us, except to the extent you are actually
prejudiced thereby.
Notwithstanding anything to the contrary contained herein, you
shall not have any obligation to hold harmless or indemnify us for
the amount of any financial settlement if we enter into any such
financial settlement of a claim made against us without the prior
written consent of you, which consent will not be unreasonably
withheld or delayed. In the event you shall not consent to any
proposed settlement, then you shall notify us in writing of the
amount
<PAGE>
which you are willing to pay (and if no such written notification
is provided, you will be deemed to consent to the entire cash
settlement); provided that you shall in any event continue to be
obligated to hold harmless and indemnify us for legal costs in
relation to such Indemnified Amounts as provided herein. If, for
any reason, no settlement is made, all indemnity obligations under
this Condition 4 shall continue.
4.3 You will forthwith repay to us upon demand any Prepayment
previously made in respect of any Outstanding Debt which was
Ineligible at the time it was Scheduled.
4.4 You will forthwith repay us on demand any payment made to you
following the Collection of an Ineligible Debt which may at any
time thereafter be set aside under the laws of insolvency.
5. PURCHASE PRICE AND PAYMENTS BY US
---------------------------------
5.1 Your right to payment of the Purchase Price of any Debt shall be
exercisable solely by withdrawals from the Current Account, within
the Funding Limit and subject to the restrictions imposed by these
Conditions.
5.2 The Purchase Price of each Debt (together with its Related Rights)
purchased by us shall be calculated at its Net Value less the
Discounting Charge or the Additional Discounting Charge. In the
event that a Debt or a portion thereof becomes a Write Off we may
at any time reduce the Purchase Price of any debt by the amount of
the Write Off to the extent that such reduction does not exceed the
difference between the debit balance of the Debts Purchased Account
and the debit balance of the Current Account prior to such
reduction.
5.3 Upon each Debt being Scheduled we shall provisionally debit its
Purchase Price in the Debts Purchased Account referred to in
Condition 7.2. For administrative convenience we shall make such
entry at its Scheduled value. We shall subsequently make any
necessary adjustment including those following Write Off.
5.4 (i) The amount of each Collection shall be credited to the Debts
Purchased Account on its Collection Date in or towards
settlement of the Purchase Price of the Debt and on the same
day an equivalent amount shall be credited to the Current
Account.
(ii) If a Collection is only for part payment of a Debt, then only
a proportionate amount of the Purchase Price shall be payable
following such Collection.
(iii) You will promptly notify us of any Write Offs. On
notification we shall credit the Debts Purchased Account with
the value of such Write Off subject to the terms and
conditions provided in Condition 9.3.
<PAGE>
(iv) For convenience we shall accumulate the applicable
Discounting Charges and Additional Discounting Charges and
debit the aggregate to the Current Account on the last day of
each calendar month or earlier at our discretion.
5.5 Subject to our rights of defence and set-off and other rights
contained in Condition 9.1 to 9.3 inclusive and to our rights of
set off and retention contained in Conditions 5.7 to 5.10
inclusive, you may draw any credit balance on the Current Account
and in order to enable you to have Prepayments in accordance with
clause 1.9 you may make further withdrawals from the Current
Account provided that the Funding Limit shall not be exceeded. A
request for payment to your bank on the same day must be made to us
in writing before 11.00 a.m.
5.6 The amounts of all payments by us pursuant to Condition 5.5 shall
be debited to the Current Account. You will repay to us forthwith
upon demand any amount by which any Prepayment shall exceed the
amount of the Purchase Price.
5.7 We shall not be obliged to make any payment when any petition when
application for your Insolvency shall be pending.
5.8 On or at any time after the occurrence of any Termination Event and
during any applicable period which you may have to remedy such
Termination Event (whether or not we exercise our rights to
terminate this Agreement) we shall not be obliged to make any
Prepayment or any other payment before the Collection Date.
5.9 If the Funding Limit shall be exceeded at any time we shall not be
obliged to make any payment in or towards settlement of the
Purchase Price until the debit balance on the Current Account shall
be reduced below the Funding Limit.
5.10 We shall not be obliged to make any Prepayment before the
Collection Date of a Debt if we have any necessity to verify the
existence or amount of Debt or obtain such information about the
relevant Customer as we the may require.
6. OUR FEES AND CHARGES
--------------------
6.1 We shall charge you the Discounting Charge or the Additional
Discounting Charge, whichever shall be appropriate, which shall be
debited monthly to the Current Account. The credit of any part of
the Purchase Price to the Current Account prior to the Collection
Date of the Debt shall not be taken into account in making such
calculation. Any debit to the Current Account shall be treated as a
Prepayment for the purpose of such calculation which shall be made
on the daily balance on the Current Account.
<PAGE>
6.2 We shall charge you the Initial Survey Fee upon the Commencement
Date and the Quarterly Survey Fee immediately after each Survey not
to exceed one Quarterly Survey Fee per fiscal quarter.
6.3 We shall charge you the Annual Commitment Fee in equal instalments
in advance on the first day of each month. The amount shall change
with effect from any change in the Funding Line. The termination of
this Agreement prior to an anniversary following a Termination
Event shall not give rise to entitlement to any rebate of the
Annual Commitment Fee, the balance of which shall forthwith become
due and payable.
6.4 We acknowledge thousand receipt of pounds. your non-returnable
Documentation Fee of fifteen thousand pounds.
6.5 If before the second anniversary of the Commencement Date of this
Agreement you shall terminate this Agreement then, if such
termination occurs during the first six months from the
Commencement Date you shall pay to us a sum equivalent to 0.25%
(point twenty five of one per cent) of the Funding Line in place at
that time. If such termination shall take place after the first six
months but before the second anniversary of the Commencement Date
you shall pay to us 15,000 pounds (fifteen thousand pounds).
6.6 You will repay to us upon demand all reasonable bank charges in
maintaining any bank account into which Collections are to be paid
or in remitting monies to you.
6.7 Value Added Tax, as applicable, shall be added to all fees and
charges, stated in the Particulars or referred to in these
Conditions.
7. ACCOUNTS
--------
7.1 We shall maintain the Current Account in your name.
7.2 We shall maintain the Debts Purchased Account in your name to which
the Scheduled value of Debts shall be debited and all Collections
and Write Offs shall be credited.
7.3 Following termination of your collection agency, we shall maintain
accounts in the names of each Customer to which Debts at their
Scheduled value shall be debited and their respective Collections
shall be credited.
7.4 We shall send to you statements of the Current Account and the
Debts Purchased Account in the form annexed hereto together with a
copy of the bank statement relating to the bank account in which
Collections are deposited. Such accounts and information shall be
deemed to be correct and binding upon you (except as to manifest
errors) unless we are notified in writing of any errors within 10
days of the date of receipt.
<PAGE>
7.5 Once a week on such days as we shall specify, you will prepare and
forward to us a compliance certificate relating to all Debts
purchased, prepared as of the Working Day immediately preceding
such certificate and computed in accordance with the example
annexed hereto.
7.6 After receipt from us of a copy of each periodic Debts Purchased
Account, you will complete and deliver to us within 5 Working Days
a period end reconciliation to reconcile the sales ledger control
account balance shown in your books to the Debts Purchased Account
shown in our books.
7.7 You will prepare and deliver to us by the Reporting Date in each
month the following reports prepared as at the close of business on
the last Working Day of your preceding fiscal month:
(i) a listing by Customer of Outstanding balances together with
an analysis as to the ageing of such Debts (commonly known as
an "Aged Debtor Analysis");
and
(ii) a monthly investor report in the form annexed hereto.
7.8 If called upon by us following a Termination Event you shall
instruct all Customers to cause all payments in respect of Debts to
be made directly to such bank account in our name as we may
nominate, and with such mandates as we may require.
7.9 All sums received by you in or towards the discharge of Debts shall
promptly be deposited in such bank account as we may direct, duly
endorsed if so required. You will not mix any sums so received with
your own funds nor bank them into any other account but hold them
strictly upon trust for us.
7.10 You will, upon request, promptly furnish to us copies of such other
information, documents, records, computer tapes, disks, reports,
analyses and accounts (independently audited or otherwise)
concerning Debts, their related Rights or Contracts of Sale or
which are necessary or reasonably desirable to collect Debts or the
condition or operations, financial or otherwise of your company, or
The Merisel Group.
7.11 Following termination of your collection agency we shall render
statements of account to Customers at such intervals as we shall
consider necessary.
7.12 Any account maintained by us and certified by our Company Secretary
to be a true and accurate copy shall be final and conclusive
evidence in any proceedings as to the sums received and paid by us
or due by you except only to the extent that specific errors and
omissions shall be proved.
<PAGE>
8. CURRENCIES
----------
8.1 The Purchase Price of a Debt shall, unless otherwise agreed, only
be paid in sterling.
9. SET OFF AND OTHER RIGHTS
------------------------
9.1 We shall have the right at any time to set-off against sums due by
us to you the amount of monies due by you to us. We may in our
absolute discretion make a reasonable estimate of such amounts,
where the same cannot immediately be determined. Such liability and
sums, together with the items in the Current Account, shall then be
treated as being consolidated into a single Current Account.
However, we shall promptly provide to you a full accounting with
respect to such estimates and refund any overpayment once such
amounts have been determined.
9.2 Any debit balance arising on the Current Account from such
treatment shall become immediately payable to us and any credit
balance shall become immediately payable to you. We may at any time
combine accounts recording transactions between us.
9.3 Should you no longer have our agency to procure the Collection of
Debts, we may also include in the amount to be set-off against you
under Condition 9.1, all reasonable costs of collecting Debts. The
amount you may set off under Condition 9.1 or this Condition shall
not at the time of such set off exceed the difference between the
debit balance of the Debts Purchased Account and the debit balance
of the Current Account prior to such set off.
10. YOUR UNDERTAKINGS AND WARRANTIES
--------------------------------
10.1 You undertake that throughout the currency of this Agreement you
will promptly disclose to us any material changes or material
prospective changes in your constitution or control or material
facts or matters known to you which might reasonably be expected to
influence our decision to pay the Purchase Price of a Debt or to
make a Prepayment
10.2 The delivery of a Schedule shall, in relation to each Debt referred
to in it, be deemed to include your following warranties and
undertakings; namely that:
(i) payment of the Schedule amount of the Debt is an existing
and binding obligation of the Customer referred to in the
Schedule and that the invoice arises out of a Permitted
Contract which is subject to and conforming with the law of
England in all material respects and which is subject to
your Terms of Payment, referred to in the Particulars, and
the Trading Conditions and is payable in a Permitted
Currency;
<PAGE>
(ii) in respect of any Debt stated by you to be an Approved
Debt the Goods have been Delivered, you know of no reason
why the Customer should not accept the Goods and the Debt
is not subject to any dispute, set off or claim, whether
justified or not (and if the Customer is Insolvent or
deceased that the person having the duty to administer the
Customer's estate will accept a claim or proof of Debt for
the unpaid balance of the Debt) and each Debt has been
subject to credit approval in accordance with your
standard Credit and Collection Policy;
(iii) you have the absolute right to assign the Debt which is
unencumbered by any charge, lien, equity trust or tracing
or other right which affects or may affect the Debt or its
Related Rights and that upon notice of assignment being
given to the Customer the Debt will be payable only to us;
(iv) no other person has or will have any interest in or other
right relating to any such Debt or its Related Rights;
(v) the Customer has an established place of business, and has
no right, other than under the Terms of Payment, the
exercise of which would reduce or extinguish the Scheduled
amount of the Debt;
(vi) as trustee for us you will hold and keep separate from
your other money any remittance in payment of or on
account of or in any way relating to a Debt or its Related
Rights vested in us and shall immediately deliver to us
the identical remittance or, when required by us, shall
pay the identical remittance direct into our bank account
or any other bank account stipulated by us; by our
execution hereof we acknowledge intimation of the
foregoing trust; if it be necessary for any cheque or
remittance to be endorsed to us to enable us to receive
payment then you will endorse the same to us and give our
bankers any indemnity required in respect of non
transferable cheques;
(vii) you have all requisite consents licences and permits for
the performance of the Contract of Sale and to enter into
this Agreement and for you or your assignees to receive
payment in the Permitted Currency of the Debt;
(viii) you will promptly perform all your further or continuing
obligations to the Customer under the Contract of Sale
and, at our request will provide satisfactory evidence of
such performance; in the event of any failure of such
performance, you will permit us, if we so require, on such
terms as we may reasonably consider appropriate, to
perform any such obligations at your expense;
(ix) there is and will be no breach of any obligation owed or
owing to any Customer under a Contract of Sale related to
such Debt and that you will pay all carriage and shipping
charges in accordance with the Contract of Sale;
(x) you will have no obligation to any Customer that can be
offset against the Debt other than under the Contract of
Sale giving rise to the Debt;
(xi) no Debt will be reduced except in accordance with the
terms of a Contract of Sale or in accordance with your
Credit and Collection Policy;
<PAGE>
(xii) upon a Customer becoming entitled to a credit against a
Scheduled Debt you will promptly issue and despatch a
credit note. However, following a Termination Event you
will not issue any credit note relating to a Debt
purchased by us without our prior approval;
(xiii) you will not grant any extension of time for modify or
terminate any Debt other than in payment nor waive,
accordance with your Credit and Collection Policy agreed
with us;
(xiv) the Debt has not arisen from an agreement regulated by the
Consumer Credit Act 1974.
10.3 You undertake to us that:
(i) you will ensure that all your warranties in respect of
Debts shall remain fulfilled until all monies due to us
(whether from you, any Customer or otherwise) under the
Agreement and these Conditions shall have been discharged;
(ii) all signatories and statements invoice, notification or
other contained in or appearing on every document supplied
to us and relating order, to a Debt are true and genuine;
(iii) your internal and published accounts contain wording to
indicate the sale and purchase of the Debts;
(iv) no invoice shall be rendered to a Customer before Delivery
of the whole of the Goods to which the invoice relates;
(v) you will advise us immediately should an event occur
which if not remedied would result in a Termination Event;
(vi) you will advise us at all times of information adversely
affecting the creditworthiness any of Customer liable to
pay more than (Pounds)250,000;
(vii) in your books of account you will treat as a Write Off any
Debt which is placed in the hands of a third party to
effect recovery or which should be written off in
accordance with your Credit and Collection Policy
approved by us and will promptly advise us of such
WriteOffs;
(viii) you will not create in favour of any other party any
assignment mortgage, charges lien, trust, pledge,
encumbrance or trust over Debts or any monies due from us
to you without prior written consent, which may be given
or withheld in our absolute discretion and upon such terms
as we see fit;
(ix) you will not allow your Tangible Net Worth to fall below
the amount shown in the Particulars for 10 or more
successive Working Days at any time;
(x) you will not allow the ratio of your Funded Liabilities to
your Tangible Net Worth to exceed the ratio shown in the
Particulars for 10 or more successive Working Days at any
time;
(xi) you will not allow the ratio of your External Liabilities
to your Adjusted Equity to exceed the ratio shown in the
Particulars for 10 or more successive Working Days at any
time.
10.4 You will not without our prior consent enter into any other
agreement for the purchase or discounting of the Debts.
<PAGE>
10.5 You represent and warrant to us that:
(i) you are a corporation duly incorporated, validly existing and
in good standing under the laws of England;
(ii) the execution, delivery and performance by you of this
Agreement are within your corporate powers, have been duly
authorised by all necessary corporate action and do not
contravene:
(a) your Memorandum and Articles of Association; or
(b) law or any contract or other contractual restriction
binding on or affecting you, and do not result in
or require the creation of any encumbrance upon or
with respect to any of your assets;
(iii) no authorisation, approval or action by, and no notice to or
filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by
you of this Agreement or for the perfection of or the
exercise by us of our rights and remedies under this
Agreement;
(iv) this Agreement is legal, valid and binding obligation of
yours enforceable against you in accordance with its terms
except as may be limited by law and does not contravene the
terms of any other agreement entered into by you or The
Merisel Group.
10.6 You warrant to us that you will maintain in full force and effect
and in a form reasonably acceptable to us a credit insurance policy
covering loss from the insolvency of Customers.
10.7 You will obtain from the issuer of the Policy and execute the
documentation necessary for us to be added as joint insured to the
Policy and for the payment via us of all amounts payable
under such Policy. You further warrant to us that:
(i) the proposal submitted by you to such issuer (on the basis of
which the Policy was issued) was in every way complete and
correct; and
(ii) at all times from the issue of the Policy you have fully
complied with the terms and conditions of the Policy; and
(iii) there has been no act or omission which might invalidate the
Policy.
10.8 You undertake, until the complete discharge of all your liabilities
to us:
(i) to disclose, when submitting any proposal to the Insurer,
every fact or matter which you know or ought to know might
influence the Insurer in relation to the issue of the
Policy; and
(ii) to fully comply with the terms and conditions of the Policy;
and
(iii) to ensure that there will be no act or omission, as a result
of which the Policy may be invalidated.
10.9 If you shall fail in any way to comply with the Policy then we may,
but shall not be obliged to, make good your failure. The amount of
any resulting payment made by us shall be debited to your Current
Account.
<PAGE>
10.10 Monies paid under the Policy shall be treated as a payment from the
Customer a to which such loss shall relate.
11. YOUR ACCOUNTS AND RECORDS
-------------------------
11.1 You agree to allow any duly authorised representative or agent of
ours at any time during normal business hours:
(a) to attend and enter any of your premises to inspect, verify,
check and copy (at your expense) all books, accounts, computer
or other records, orders, proofs of completion of the Contract
of Sale, banking records and statements, and original
correspondence, and such other papers as we may require in
relation to Debts and Related Rights; and
(b) to discuss matters arising with any of your officers or
employees having requisite knowledge; and
(c) to verify the existence of Debts, reconcile your ledger
balances and records to our records; and
(d) to test and review your ageing of Debts, contra accounts and
Ineligible Debts; and
(e) to verify transactions from the Contract of Sale to the
collection of Debts; and
(f) to review your purchase ledger; and
(g) undertake such other tasks as we may reasonably require.
Without prejudicing our rights such attendance will routinely occur
at quarterly intervals and only more frequently should consider our
investment in Debts we to be at risk.
11.2 You will supply us with your quarterly interim financial statements
showing the results of your operations within 50 days of the end of
each quarter or at such other intervals as we may specify.
11.3 You will furnish us upon request with statements certified or
audited by an independent professional firm of accountants showing
your financial position and the results of your operations within
six months of your financial year end or at such other interval as
we may stipulate following a Termination Event.
11.4 At any time at our request you will promptly deliver to us or as
instructed by us all sales ledgers, books of account, computer
records or such other documents that we may request in relation to
Debts and Related Rights. However, such request may only be given
upon or at any time after termination of your duties as our
Collection Agent.
<PAGE>
12. CREDIT BALANCES
---------------
12.1 You irrevocably authorise us to make payment to any Customer in
respect of a credit balance on that Customer's account, whether
arising from the issue of a credit note by you or otherwise.
13. RELATED RIGHTS INCLUDING TRANSFERRED GOODS
------------------------------------------
13.1 You will at all times respect our rights as the purchaser of the
Related Rights. Whilst you are the Collection Agent as provided in
the you may as our agent take possession of any Transferred Goods
and use them or sell them on such terms as are reasonable. The
proceeds of sale, after deduction of all costs and expenses
relating to such possession or sale, shall be remitted to us and
shall be treated by us as a payment of or on account of the Debt to
which such Goods relate. After termination of your agency we shall
exercise such right exclusively unless otherwise agreed.
13.2 You must promptly notify us of all Transferred Goods not in our
possession if the value of such Goods relating to an individual
Customer exceeds (Pounds)100,000 or such other figure as we may
from time to time notify you. Until further notice you shall have
the right to sell all Transferred Goods for our account.
14. ALLOCATION OF RECEIPTS, CREDITS AND ALLOWANCES
----------------------------------------------
14.1 Following a Termination Event we may appropriate any Collection, or
any credit, allowance or dividend, in or towards the discharge of
any Debt in priority to any other Scheduled Debt despite any
contrary appropriation by you or the Customer.
15. NOTIFICATION TO CUSTOMERS, COLLECTION OF DEBTS AND DISPUTES
-----------------------------------------------------------
15.1 Following a Termination Event we may notify the assignment of Debts
to each Customer who is or may become indebted to you in such form
and at such intervals as we may reasonably determine or we may also
require you to give such notification at your expense at such
intervals and upon such documents as we may stipulate.
15.2 Following a Termination Event, we shall have the sole and exclusive
right of collecting and enforcing payment of any Debt and its
Related Rights vested in us, in such reasonable manner as we in our
absolute discretion may decide. We may institute, conduct, defend
or compromise in the name of either you or us on such terms as we
may reasonably think fit, any legal proceedings by or against us or
you in relation to such Debt and its Related Rights. Prior to your
Insolvency we shall notify you of any proceedings issued against
Customers.
<PAGE>
You will be bound by any reasonable action done by us under this
Condition, including any corresponding reduction in the Purchase
Price.
15.3 You will, upon reasonable request and at your own cost, provide
every assistance and co-operate fully in such collection or
enforcement. You will, as required by us, exercise any rights as
seller to recover Goods in accordance with your Contracts of Sale
or enforce any Related Rights.
15.4 You will upon request notify us in writing of any dispute that
shall arise with a Customer. You will take all proper steps to
resolve any disputed Debt and to keep us fully informed of all
steps taken.
15.5 Following a Termination Event (whether before or after proceedings)
we shall have the right at your expense to resolve a dispute with a
Customer on such terms as we may in our absolute discretion
consider appropriate and you will be bound by such resolution,
including any corresponding reduction in the Purchase Price of the
relative Debt.
15.6 We or our agents, may take such steps, as we believe necessary to
verify the existence and amount of Debts or the creditworthiness of
Customers.
16. COMMUNICATIONS WITH BANKS, AUDITORS, AND ACCOUNTANTS
----------------------------------------------------
16.1 You confirm that you have irrevocably authorised your bank,
auditors and accountants to provide us with such information as we
may require. We are authorised to request such information
following prior written notice to you.
17. TRANSFER OF AGREEMENT
---------------------
17.1 For the proper performance of our duties we may transfer our rights
or sub-contract or delegate any of our obligations in such manner
as we see fit, following your approval, such approval not to be
unreasonably withheld. You may not transfer, charge, sub-contract,
delegate or otherwise deal with this Agreement or the rights,
benefits and obligations under this Agreement without our prior
written consent.
18. TERMINATION EVENTS
------------------
18.1 Following a material breach by you of any term of the Agreement or
these Conditions (including any covenant, warranty or undertaking
but with the exception of any breaches specifically defined in
Condition 18.3) which you fail to remedy within 15 days of being
called upon do so by us, we may at any time by written notice to
you terminate this Agreement.
<PAGE>
18.2 If within 365 days of remedying such a material breach you again
breach the same term of the Agreement or these Conditions, then we
may at any time by written notice to you terminate this Agreement.
18.3 We may, at any time, by written notice to you, terminate this
Agreement forthwith at any time after the happening of any of the
following events:
(i) your breaching Conditions 10.2 (i) to (viii) inclusive in
any material respect and you do not forthwith repay to us
within 1 Working Day any Prepayment previously made in
respect of any Outstanding Debt related to such breach or
your breaching Conditions 10.3 (v); or 10.3 (viii) to (xi)
inclusive; or 10.4; or
(ii) your material breach of any other agreement between you and
us or any agreement between you and any other company
within the Deutsche Bank group not being remedied when
called upon to do so within such period as may be provided
for such remedy within such agreement; or
(iii) any member of The Merisel Group, having an agreement with
us or any other company in the Deutsche Bank group
materially breaking such agreement and not remedying such
breach within such period as may be provided for such
remedy within such agreement; or
(iv) your failing for a period of 5 Working Days to deliver a
Schedule to us containing Debts not previously notified; or
(v) your Insolvency; or
(vi) any petition in excess of (Pounds)1,000,000 being presented
or meeting being called in either case for your Insolvency
or any arrangement, whether formal or informal, or the
execution of a trust deed, being made or proposed for the
benefit of creditors generally; or
(vii) there being any change whether direct or indirect, in your
ownership, control, constitution or composition (other than
as a result of a solvent reconstruction, reorganisation or
amalgamation which shall result in the control of your
Company remaining with The Merisel Group) which we, in our
absolute discretion, consider significant and to which we
have not given our written approval; or
(viii) there is an adverse change in your financial condition or
operating performance, other than as in accordance with
Condition 10.3 (ix) to (xi), which a prudent purchaser of
debts would consider material to its investment and which
you fail to remedy within 30 days of being so requested by
us; or
(ix) your income or assets being seized under any execution of a
judgement, distress for rent or a garnishee order in
respect of you is made on us; or
(x) your ceasing, or threatening to cease, to carry on your
Business; or
(xi) any final judgement or award in excess of (Pounds)1,000,000
is entered against you which remains unsatisfied for thirty
days in excess of applicable insurance; or
(xii) if we have good cause to believe that any guarantor or
indemnifier of your obligations to us or or any person who
has given to us a
<PAGE>
peformance agreement in respect of this Agreement shall be
unable to comply in full with his obligations and you fail
to satisfy us that this is not the case within 10 days of
being notified by us of our concern; or
(xiii) if any of the events referred to in sub-conditions 18.3
(v), (viii), (ix), (x), shall occur in relation to any
member of the Merisel Group who has given to us a
performance agreement in respect of this agreement; or
(xiv) any material breach by any person of any covenant or
undertaking in consideration of which we have entered into
or continued with this Agreement and which is not remedied
within 10 days of being called up to do so if such breach
is capable of remedy; or
(xv) if any of your obligations or the obligations of Merisel
Inc. to third parties for the repayment of borrowed money
in excess of (Pounds)5,000,000 or its equivalent in any
other currency shall be declared due prior to their stated
maturity dates by reason of default or shall not be paid
when due; or
(xvi) if any of the representations contained in Condition 10.5
made to us by you or on your behalf at any time (whether
before or after the Commencement Date of this Agreement)
shall prove to be untrue in any material respect; or
(xvii) if on the last day of any fiscal month the Default Ratio or
the Delinquency Ratio or the Dilution Ratio or the Loss
Ratio or the aggregate of Default Ratio and the Delinquency
Ratio shall exceed the percentage shown against each in the
Particulars; or
(xviii) if the debit balance on the Current Account shall exceed
the Funding Limit stated in the Particulars for 5 or more
consecutive Working Days.
19. PRESERVATION OF OUR RIGHTS AND VARIATIONS
-----------------------------------------
19.1 Our rights under the Agreement shall not be affected by the grant
of time or indulgence to you or to any Customer or to any other
person nor by any waiver of or failure or delay in exercising any
rights or options whether under the Agreement or otherwise.
19.2 We shall be entitled to rely upon any act done or document signed
or communication sent by any person purporting to act sign or send
on your behalf.
19.3 You will carry out the procedural steps stipulated by us for the
efficient working of the Agreement.
19.4 Any variation of the Agreement must be in writing and signed by or
on behalf of both you and us but may be constituted by one or more
document.
<PAGE>
20. CONFIDENTIALITY
---------------
20.1 You and we both acknowledge to each other that in the course of
operating the arrangements envisaged by this Agreement, that we shall
each have knowledge of trade secrets and confidential information
relating to each other. Accordingly, we each undertake to be bound to
each other that we will at all times, whether before or after
termination of this Agreement, maintain such information, except
information which is already in the public domain other than as a
result of any breach of this Condition, confidential to the receiving
party and will not disclose the same to any other party except as
required by due process of law or with the written consent of the
other party at any time. Such consent shall be treated as including a
term that before such disclosure to a third party that the third party
must become bound to the party making the disclosure in similar terms
as to confidentiality as herein. The foregoing shall not prevent you
from disclosing this document (a) if required to be filed with the
Securities and Exchange Commission, (b) to your accountants,
attorneys, lawyers and advisers who agree to maintain its
confidentiality, (c) the general terms hereof to any investor or
lender to The Merisel Group who agrees to maintain its
confidentiality.
21. NOTICES
-------
21.1 Any notice given by us under this Agreement (unless otherwise
indicated) may be delivered, posted, sent by facsimile transmission or
other means of electronic data communication to you at your address
stated in the Agreement or to your registered office or to any other
place at which you carry on business or handed personally to any of
your Directors or your Company Secretary.
21.2 Any such notice shall be treated as served;
(i) if delivered, at the time of delivery;
(ii) if sent by post, on the second day following the date of
posting;
(iii) if sent by facsimile transmission or electronic data
communication at the time of transmission;
(iv) if handed personally, at the time of such handing.
21.3 Any oral notice permitted by this Agreement to be given by us shall be
effective upon being communicated to any officer or employee of yours.
21.4 Any written notice by your required under this Agreement shall be
effective as from the date we receive the notice at our registered
office or such other address that we may in writing specify to you for
this purpose.
22. PROPER LAW AND JURISDICTION
---------------------------
This Agreement shall be subject to the laws of England and you hereby
submit to the jurisdiction of the English Courts without prejudice to
our right to take proceedings in the courts of any other competent
jurisdiction.
<PAGE>
The above are the Standard Terms and Conditions for the Purchase of Debts
incorporated in the Agreement whose Commencement Date is 16th October
1995 between Deutsche Financial Services (UK) Limited and you, namely
Merisel (UK) Limited, which have been signed on behalf of both parties for
the purposes of identification.
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
Signed on behalf of ) /s/ Melvin F. Brown
Deutsche Financial Services ) ----------------------------
(UK) Limited by ) Director
Melvin F. Brown *
-----------------------
* Insert full names of Director/Company Secretary
MERISEL (UK) LIMITED
Signed on behalf of MERISEL (UK) ) /s/ Derek Anderson
LIMITED by ) ----------------------------
Derek Anderson * ) Director/Company Secretary
-----------------------
* Insert full names of Director/Company Secretary
<PAGE>
AGREEMENT FOR THE SALE AND PURCHASE OF DEBTS
--------------------------------------------
BETWEEN
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
AND
MERISEL (UK) LIMITED
<PAGE>
2
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
----------------------------------------
AGREEMENT FOR THE SALE AND PURCHASE
------------------------------------
OF DEBTS
--------
PARTICULARS
- -----------
1. PARTIES: 1.1 We: Deutsche Financial Services (UK)
Limited
Of: Unit 2, Woking Eight
Forsyth Road
Woking, Surrey
GU21 5SB
Incorporated in England and Wales
with official number 2549477
AND
1.2 You: Merisel (UK) Limited
941 Great West Road
Brentford
Middlesex
TW8 9DD
Incorporated in England and Wales
with official number: 1659016
1.2 This Agreement is made on 12th October, 1995.
1.3 The Commencement date shall be 16th October 1995.
(Condition 2.1)
1.4 You must give us as least three months written notice at any time to
terminate this Agreement. We must give you at least six months written
notice to expire at 18 months or at 2 years from the Commencement Date of
this Agreement and at least three months written notice given any time
after the second anniversary of the Commencement Date.
(Condition 2.1)
1.5 This Agreement shall apply to the following Debts or classes of Debts: All
Debts due by Customers in the United Kingdom.
(Condition 3.1)
1.6 Permitted Countries: United Kingdom.
(Definitions of Permitted Contract and Condition 10.2 (i))
<PAGE>
1.7 Your maximum Terms of Payment are 60 days from the date of each invoice.
(Conditions 1.1 and 10.2 (i))
1.8 Your Business is: the Distribution of Micro Computer Products and
Software. (Condition 1, the definition of Permitted Contract and Condition
18.1 (vii))
1.9 Prepayments will be available in respect of Approved Debts up to the
equivalent of 80% per cent of the Net Value of each Scheduled Approved
Debt.
(Condition 5.5)
1.10 The Concentration Limit shall be 2,500,000 pounds (Two million five
hundred thousand pounds) or such other amount as we may determine
following 30 days notice to you.
(Condition 1.1 Definition of Ineligible Debts)
1.11 The Funding Limit shall be the lesser of 80 per cent of the Net Value of
Outstanding Approved Debts or the Funding Line at any time.
(Condition 5.5)
1.12 The Funding Line shall be 25 million pounds (Twenty Five Million Pounds).
(Clause 1.11)
1.13 The Discounting Charge shall be 1.875 per cent (one point eight hundred
and seventy five per cent) above the Base Rate of National Westminster
Bank plc from time to time in force.
(Condition 6.1)
1.14 The Additional Discounting Charge shall be 3 per cent above the Base Rate
of National Westminster Bank plc from time to time in force.
(Condition 6.1)
1.15 The Annual Commitment Fee shall be three quarters of one per cent of the
Funding Line in existence at the Commencement Date or in existence at any
time thereafter and shall be payable in equal monthly instalments in
advance on the first day of each month. It shall rise to one per cent of
the Funding Line following a Termination Event.
(Condition 6.3)
1.16 The Initial Survey Fee shall be 2,500 pounds and the Quarterly Survey Fee
shall be 2,500 pounds.
(Condition 6.2)
1.17 The Documentation Fee shall be 15,000 pounds.
(Condition 6.4)
1.18 The Reporting Date shall be fifteen Working Days from the end of each of
your Fiscal Months.
(Condition 7.7)
<PAGE>
1.19 The Default Ratio must not exceed 9%.
(Condition 18.1 (xv))
1.20 The Delinquency Ratio must not exceed 12%.
(Condition 18.1 (xv))
1.21 The aggregate Default and Delinquency Ratio must not exceed 15%.
(Condition 18.1 (xv))
1.22 The Dilution Ratio must not exceed 15%.
(Condition 18.1 (xv))
1.23 The Loss Ratio must not exceed 2%.
(Condition 18.1 (xv))
1.24 Your Tangible Net Worth must be not less than 5 million pounds.
(Condition 10.3 (x))
1.25 The ratio of your Funded Liabilities to your Tangible Net Worth must not
exceed 8 to 1.
(Condition 10.3 (xi))
1.26 The ratio of your External Liabilities to your Adjusted Equity must not
exceed 9 to 1.
(Condition 10.3 (xii))
1.27 The Annual Collection Fee payable to you shall be 0.25% (point twenty five
of one per cent) of the Funding Line from time to time and shall be
payable in equal monthly instalments in advance on the first day of each
month.
PURPOSE
- -------
2. This Agreement is for the sale by you and the purchase by us of those of
your Debts to which this Agreement applies.
INCORPORATION OF CONDITIONS
- ---------------------------
3. This Agreement incorporates our Standard Terms and Conditions for the
Purchase of Debts (''The Conditions'') which have been supplied to you and
are signed for identification purposes by both parties. Reference to the
''Agreement'' here and in the Conditions shall include both this document
and the Conditions. The terms set out in this document and the Conditions
are the only terms agreed between you and us. Certain words and phrases
with initial letters in capitals have special meanings which are explained
in Condition 1.
<PAGE>
SALE AND PURCHASE OF DEBTS
- --------------------------
4. Upon the terms of this Agreement you agree to sell and we agree to
purchase all of the Debts referred to in clause 1.5 of the Particulars and
their Related Rights arising under Contracts of Sale entered into by you
with your Customers which shall be in existence on the Commencement Date
or which shall arise during the currency of this Agreement.
THE PARTICULARS
- ---------------
5. The Particulars, which apply to this Agreement are those set out above.
The Conditions referred to in parentheses in the Particulars indicate
where, inter alia, such Particulars apply to the Conditions.
ABSENCE OF NOTICE OF ASSIGNMENT
- -------------------------------
6. Until further notice from us to you neither we nor you shall give notice
to your Customers of the assignment of Debts. However, following a
Termination Event and on request by us (whether or not your agency
referred to in Clause 7 below shall have been terminated) you shall
promptly give notice, in such form as we may reasonably require, to all or
any of your Customers of the assignment to us of your Debts, including
Debts not then in existence.
YOU TO ACT AS AGENT TO PROCURE COLLECTION OF DEBTS
- --------------------------------------------------
COLLECTION AGENT'S DUTIES
- -------------------------
7.1 Until further notice from us to the contrary you are appointed to act as
the Collection Agent in respect of Debts vested us. You hereby accept such
appointment.
7.2 The Collection Agent shall attempt to collect all sums due in respect of
Debts as and when they become due and enforce and administer the accounts
and render statements to Customers at your cost and expense but as agent
for us, subject at all times to our right in our reasonable discretion to
direct and control such activities.
7.3 In performing your functions and duties on our behalf as the Collection
Agent, you shall exercise the same care that you would exercise in the
collection of Debts for your own account, which standard of care shall not
be less than the standard of care prevalent in the industry in which you
the engage.
7.4 With respect to each Debt you shall have the power and authority, on our
behalf, to take action in accordance with your Credit and Collection
Policy, as approved by us, in relation to the repossession and resale of
Goods and Related Rights. We may request from time to time information
relating to all Debts and you will promptly
<PAGE>
provide us with any information reasonably requested. If we appoint
another person as the Collection Agent we may take credit adjustments for
your account.
7.5 In the enforcement or collection of any Debt vested in us you may, until
further notice from us, sue thereon in your own name without stating that
you are our agent. You may also sue thereon stating that you are bringing
such action as an agent of ours but only if we shall give our prior
approval. However, nothing contained herein shall limit our right,
exercisable in our sole discretion, after a Termination Event to sue or
proceed against any Customer in our own name.
7.6 In no event shall a Collection Agent knowingly take any action that would
make us a party to any litigation without our express prior written
consent.
7.7 We may at any time following a Termination Event terminate your functions
as the Collection Agent by delivery to you of a written notice of such
termination. Upon such termination, and without limitation:
(i) we, or a third party designated by us, shall administer the
administrative, servicing and collection functions with respect to
Debts vested in us to the standard of a reasonable and prudent
purchaser of Debts, and
(ii) we shall, at any time thereafter, be entitled to notify Customers to
make payment of amounts due thereunder directly to us at an address
designated by us or to such third party or a bank or other
depository as may be designated by us.
7.8 Whilst you are the Collection Agent we shall pay you the Annual Collection
Fee referred to in the Particulars in equal monthly instalments. If we
terminate your agency we will cease to pay you the Annual Collection Fee.
7.9 You will not hold yourself out as our agent for any other purpose. You
will not appoint any other person as agent for the collection of Debts
(including external debt collection agents or lawyers) without our prior
approval except in the normal course of business. Whilst such agency
subsists Conditions 15.1 to 15.3 inclusive will not be enforced by us and
Condition 15.6 will be used without referring to us by name.
ACCOUNTS
- --------
8. Until further notice from us you will maintain accounts in the names of
each Customer to which Debts at their Scheduled value shall be debited and
their respective Collections shall be credited. You will supply up to date
copies of such accounts to us at any time upon request.
<PAGE>
POWER OF ATTORNEY
- -----------------
9.1 As security for the performance of your obligation you irrevocably appoint
us, our Directors, our Company Secretary and every Manager of ours jointly
and each of them severally to be your attorney, both during and after
termination of the Agreement however occurring and until all monies due to
us have been paid and all obligations of yours to us have been discharged.
The sole purpose of such appointment is for perfecting our title to any
Debt or its Related Rights or to secure performance of any of your
obligations under the Agreement or otherwise or to Customers.
9.2 By such irrevocable appointment we may at any time:
(i) execute or sign deeds and documents (including assignments);
(ii) complete, deal with or endorse cheques and other instruments and
remittances;
(iii) perform such other lawful acts as we may in our reasonable
discretion consider necessary or expedient to perfect our title to
any Debts or their Related Rights.
9.3 By such irrevocable appointment we may at any time following a Termination
Event:
(i) obtain payment of Debts;
(ii) institute, conduct or defend proceedings;
(iii) settle your indebtedness to us or to Customers;
(iv) perform such other lawful acts as we may in our reasonable
discretion consider necessary or appropriate.
9.4 You irrevocably authorise us to allow any assignee of ours to perform any
of the acts set out in Clause 9.1.
9.5 You agree to ratify anything lawfully done by any attorney, or agent under
the powers set out above.
UNDERSTANDING
- -------------
10. You acknowledge:
(i) having read and understood the Agreement; and
(ii) having had the opportunity before signing to take independent legal
advice as to the rights and obligations of you and us under this
Agreement.
SPECIAL TERMS
- -------------
11. It shall be a condition precedent to the making of any Prepayment that the
Performance Agreement of Merisel Inc. be given in our favour in respect of
your obligations at any time to us.
<PAGE>
8
To indicate our respective intentions to be bound by the terms of this document
it has been duly executed as a deed by each party.
MERISEL (UK) LIMITED
- --------------------
SIGNED and DELIVERED as a Deed on ) /s/ Derek Anderson
behalf of MERISEL (UK) LIMITED ) ---------------------------
on 1995 ) Signature of Director
by (insert full name of Director) )
/s/ Derek Anderson ) /s/ Gordon Ross
- --------------------------------- ) ---------------------------
Director ) Signature of *Director
and by (insert full name of ) Company Secretary
*Director/Company Secretary) )
/s/ Gordon Ross )
- --------------------------------- )
DEUTSCHE FINANCIAL SERVICES (UK) LIMITED
- ----------------------------------------
SIGNED and DELIVERED as a Deed on )
behalf of DEUTSCHE FINANCIAL SERVICES )
(UK) LIMITED on 1995 )
by )
Full Names: /s/ Melvin F. Brown ) /s/ Melvin Brown
------------------------- ) ---------------------------
(Director) ) Signature of Director
and by )
Full Names: /s/ Nigel W. Pearson ) /s/ Nigel Pearson
------------------------- ) ---------------------------
(Company Secretary) ) Signature
Company Secretary
*Delete as applicable.
<PAGE>
EXHIBIT 10.39
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of February 12,
1996 by and between Michael D. Pickett ("Pickett") and Merisel, Inc., a Delaware
corporation (the "Corporation").
R E C I T A L S:
- - - - - - - -
A. Pickett has tendered his resignation as a director of the
Corporation effective February 12, 1996. Effective February 12, 1996, the Board
of Directors of the Corporation has terminated that certain Employment Agreement
effective April 1, 1992 between the Corporation and Pickett (the "Employment
Agreement").
B. The Corporation desires to enter into an arrangement to
facilitate a smooth transition from Pickett to his successor. In addition, the
Corporation desires to obtain certain benefits as more fully set forth herein.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants contained herein, the parties agree as follows:
1. Continuation of Employment. The Corporation agrees to continue
--------------------------
to employ Pickett, and Pickett agrees to continue to serve the Corporation as an
employee on a non-exclusive basis on the terms set forth in this Agreement.
Pickett's employment shall continue pursuant to this Agreement and shall
terminate on June 14, 1996 (the "Employment Term"). In particular, to fulfill
his obligations as an employee, Pickett shall be available at reasonable times
and upon reasonable notice, but in any event no more than forty (40) hours per
month, to provide information to the Corporation's Chief Executive Officer
("CEO") to facilitate a smooth transition. Pickett shall report only to the
Corporation's CEO. The Corporation and Pickett intend that Pickett shall be
providing information and reporting only to the CEO and shall not receive any
non-public information from the CEO. The Corporation and Pickett agree to
cooperate in good faith in the scheduling of Pickett's duties so that such
duties will not interfere with any full time employment accepted by Pickett in
compliance with Section 6(a).
2. Compensation and Benefits. Pickett shall receive compensation at
-------------------------
the rate of $31,350.00 per month during the Employment Term, which shall be paid
every four weeks in accordance with the Corporation's current payroll practices.
The Corporation shall deduct from the compensation paid to Pickett under this
Section 2, any required amount for social security, federal and state income tax
withholding, federal or state unemployment insurance contributions and state
disability insurance. In the event Pickett dies or becomes disabled during
<PAGE>
the Employment Term, the Corporation agrees that it shall pay any amount
remaining unpaid for the Employment Term as a death or disability benefit to
Pickett's estate on the same terms set forth above. Pickett shall not incur any
expenses in rendering his services hereunder unless such expenses have received
the prior approval of the CEO. The Corporation shall from time to time promptly
reimburse Pickett, upon receipt of proper documentation, for all reasonable out-
of-pocket pre-approved expenses that are incurred by Pickett during the
Employment Term. Pickett shall not be entitled to receive any compensation or
benefits from the Corporation for his employment during the Employment Term
except as expressly set forth herein.
3. Other Agreements. The Corporation and Pickett further agree as
----------------
follows:
(a) Effective as of the date hereof, because Pickett's hours of
employment shall be less than 30 per week, in accordance with standard
Corporation practice, Pickett shall not be entitled to participate in the
Corporation's 401k plan or health, disability and life insurance programs. The
Corporation will reimburse Pickett for the cost of his COBRA payments under the
Corporation's health insurance plans for a period of 18 months from the date
hereof. The amount of such reimbursement shall be grossed up so that Pickett
will receive an amount equal to the COBRA payments made by him, after taking
into account applicable taxes. The Corporation will take such steps as are
appropriate to cause the administrator of the Deferred Compensation Plan to pay
the amounts due to Pickett in accordance with the Plan's terms. The Corporation
shall transfer or convert to Pickett, at the request of Pickett and upon
Pickett's payment in cash of the cash surrender value (as defined in the
Employment Agreement) determined on the date of such transfer or conversion, at
Pickett's sole cost and expense, the life insurance policy identified in
Section 11 of the Employment Agreement.
(b) The Corporation will pay Pickett for all accrued salary and
unused accrued vacation pay through the date hereof.
(c) The Option Committee has caused the next installments of 22,500,
6,061 and 46,875 unvested options to purchase the stock of the Corporation at
$11.375 per share, $4.579 per share and $6.3125 per share, respectively,
previously granted to Pickett to vest as of the date hereof.
(d) The Corporation shall pay up to $20,000 to third parties for the
cost of reasonable outplacement services provided to Pickett.
(e) The Corporation agrees to reimburse Pickett for up to $15,000 of
legal and accounting fees.
4. Return of Property. Pickett represents that he has delivered to
------------------
the Corporation all property of the Corporation, or any subsidiary or affiliate
thereof, and all documents and materials (and copies thereof), of whatever
nature in his possession, relating to
2.
<PAGE>
the Corporation or any subsidiary or affiliate thereof, or any of their products
and/or services, including (without limitation) information contained in or on
computer files, disks or other data storage mediums; provided however that the
Corporation shall transfer to Pickett the computer equipment and the office
furniture located in his office at the Corporation as more fully described on
Exhibit A (collectively, the "Furniture") and upon termination of the Employment
Term, a Porsche (the "Automobile") described on Exhibit A hereto. The
Corporation shall continue to insure the Automobile during the Employment Term.
The Corporation shall transfer title to the Furniture and Automobile free and
clear of any claims, encumbrances, liens or loan balances to Pickett on the date
of this Agreement. Pickett acknowledges that while he may keep the software
described on Exhibit A (the "Software"), the Corporation is not transferring
title to any of the Software and makes no representation or warranty as to its
ability to provide such Software to Pickett. Pickett shall pay all federal,
state and local taxes which may be due as a result of such transfer.
5. Relationship of the Parties. Pickett shall have no power
---------------------------
hereunder to act in the name of, or on behalf of, the Corporation or in any way
to bind the Corporation in any regard except in connection with the negotiation
for the potential sale of Merisel Australia Pty. Ltd. to Tech Pacific
Corporation (provided that any agreement relating to such sale shall be subject
to Board approval). Pickett shall indemnify and hold the Corporation harmless,
to the maximum extent permitted by applicable law, against any claims, losses,
damages or expenses, including reasonable attorneys' fees, arising out of
Pickett's violation of restrictions upon his authority set forth in this
Agreement. The Corporation shall hold Pickett harmless for claims, actions,
damages, liabilities or expenses arising out of activities performed in the
course of his performance hereunder as directed by the Corporation; provided
that this sentence shall not relieve Pickett of liability based upon his gross
negligence or wilful misconduct.
6. Noncompetition and Related Covenants.
------------------------------------
(a) Pickett agrees that from the date hereof until the earlier
of February 12, 1997 or the occurrence of a Change of Control (as defined
below)(the "Applicable Period"), he will not directly or indirectly: (a) own or
control any debt, equity or other interest in (except as a passive investor of
less than 1% of the capital stock or publicly traded notes or debentures of a
publicly held company), or (b) (1) act as a director, officer, manager,
employee, participant or consultant to or accept or solicit any office to act as
any of the foregoing or (2) be obligated to or connected in any advisory,
business or ownership capacity in each case with respect to any of Tech Data
Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics,
Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc.,
Vanstar Corp. or Arrow Electronics, Inc. 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
business of any of them.
3.
<PAGE>
A "Change of Control" shall be deemed to occur if (i) any person,
corporation, partnership, trust, association, enterprise (each a "Person") or
group of Persons acting in concert as a partnership or other group (a "Group of
Persons"), shall become the beneficial owner, whether as a result of a tender or
exchange offer, open market purchase, privately negotiated purchases or
otherwise, directly or indirectly, of outstanding capital stock of the
Corporation possessing at least 50% of the voting power (for the election of
directors) of the outstanding capital stock of the Corporation, or (ii) there
shall be a sale of all or substantially all of the Corporation's assets or the
Corporation shall merge or consolidate with another corporation and the
stockholders of the Corporation 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 ownership of the
purchasing, surviving or parent corporation by the stockholders of the
Corporation before the transaction or (iii) a majority of the Board of Directors
of the Corporation shall be replaced, over a two-year period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors then still in office who were either members of such Board of
Directors at the beginning of such period or whose election as a member of such
Board of Directors was previously so approved.
(b) During the Applicable Period, Pickett will not, directly or
indirectly, and shall not cause or assist any other person or entity to solicit
any person that is or was employed at any time on or after January 1, 1996, by
Merisel, Inc. or any of its subsidiaries (collectively, "Merisel") for any
purpose, including to hire or employ such person, whether on Pickett's own
behalf or on behalf of a supplier, competitor or customer of Merisel. As used
herein the word "indirectly" includes but is not limited to, attempting to
induce any Associate of Merisel to leave Merisel for any purpose. In the event
that an employee leaves during the Applicable Period not by reason of any
solicitation by Pickett, Pickett may request the Corporation's permission
subsequently to hire that former employee, which approval will not be
unreasonably withheld.
(c) Pickett further agrees not to divulge to anyone any
negative, untrue or defamatory information, whether or not proprietary or
confidential, concerning Merisel's business, such information includes, but is
not limited to formulae, process, methods of marketing, sales or marketing
manuals, special price tables or schedules, customers lists, financial, sales,
marketing or other strategies of any of other information about Merisel. The
Corporation shall not make any statement which disparages the personal or
business reputation of Pickett.
(d) Pickett shall cooperate in good faith with the Corporation
and the Corporation's counsel in connection with any pending administrative
proceeding, arbitration, mediation or litigation or subsequent administrative
proceeding, arbitration, mediation or
4.
<PAGE>
litigation relating to the time of his employment with the Corporation,
including but not limited to providing information and /or documents,
participating in informal interviews(s) and appearing for depositions(s) and/or
testimony if deemed necessary by the Corporation. Notwithstanding the
foregoing, nothing in this paragraph shall obligate Pickett to expend any sum or
incur any liability in connection with such cooperation.
(e) In consideration of Pickett's performance of the covenants
contained in this Section 6, the Corporation shall make the following payments
to Pickett:
<TABLE>
<S> <C>
On August 12, 1996 $200,000
January 1, 1997 $100,000
February 12, 1997 $200,000
</TABLE>
Upon a Change of Control all installments of the payment due under this Section
6(e) shall be paid immediately to Pickett.
7. Confidential Information. Pickett shall not in any manner use
------------------------
(other than in the performance of services under this Agreement) or disclose any
trade secrets, information with respect to customers, suppliers or products,
prices, call lists or other confidential plans, processes, procedures, business
concepts, forecasts, drawings, ideas, discoveries, material or information
concerning the operations, business or financial affairs of the Corporation, or
any subsidiary or affiliate thereof, gained during or as a result of his
employment by the Corporation. Pickett agrees that he shall not in any manner
use (other than in the performance of services under this Agreement) or disclose
any confidential third party information gained during or as a result of his
employment by with the Corporation. The parties agree that the terms and
conditions of this Agreement, except with respect to Section 6.1(a) and 9.1,
shall remain confidential and shall not be disclosed to any other person (other
than Pickett's family members, attorneys, and accountants who shall be informed
of and bound by the confidentiality provisions of this Agreement) other than as
required by court order, legal process or applicable law or as otherwise agreed
to by Pickett and the Corporation. Any disclosures permitted hereunder shall
not be made in a manner derogatory to any other party hereto. The provisions of
this Section 7 shall not apply to any information which becomes generally
available to the public, other than as a result of any disclosure, direct or
indirect, by Pickett.
8. Duty of Loyalty. Pickett agrees that during the Employment Term
---------------
he will be bound by the same rules and duties, including the duty of loyalty, as
are Associates of the Corporation generally.
9. Miscellaneous.
-------------
9.1 Attorneys' Fees; Injunctive Relief. All controversies,
----------------------------------
claims, disputes, and matters in question arising out of, or relating to, this
Agreement or the breach
5.
<PAGE>
thereof, shall be decided by arbitration in accordance with the provisions of
this paragraph. The arbitration proceedings shall be conducted under the
applicable rules of the American Arbitration Association or its successor in
effect at the time a demand for arbitration under the rules is made. The
arbitration board will consist of three arbitrators, one chosen by the
Corporation and one by Pickett and the third selected by the two arbitrators so
chosen. The decision of the majority of the arbitrators, including
determination of amount of any damages suffered, shall be conclusive, final, and
binding the parties hereto, and their respective heirs, legal representatives,
successors, and assigns. The arbitrators shall be bound to follow California
law and case precedent. Any decision of the arbitrators will not be binding if
the arbitrators fail to follow California law and case precedent. The losing
party shall pay to the successful party its expenses in the arbitration for
arbitration costs, including arbitrators' fees and attorneys' fees, fees for
expert testimony, and for other expenses of presenting its case.
Notwithstanding the foregoing, and in addition to the remedy of arbitration the
parties agree that the violation of the provisions of Section 6 and/or 7 cannot
be reasonably or adequately compensated in damages and, in addition to any other
relief to which the Corporation may be entitled by reason of such violation, the
Corporation shall also be entitled to permanent and temporary injunctive and
equitable relief. Without limiting the generality of the foregoing, Pickett
specifically acknowledges that a showing by the Corporation of any breach of any
provision of Section 6 and/or 7 shall constitute, for the purposes of all
judicial determinations of the issue of injunctive relief, conclusive proof of
all of the elements necessary to entitle the Corporation to interim and
permanent injunctive relief against Pickett, without the necessity of proving
actual damages. If any legal action or other proceeding is brought for the
enforcement of this Agreement or because of an alleged dispute, breach, default
or misrepresentation in connection with the provisions hereof, the prevailing
party or parties shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding in addition to any other
relief to which it or they may be entitled. The Corporation acknowledges that
paragraph 3 of the Indemnity Agreement dated as of February 11, 1992 includes
claims by the Corporation against the Indemnitee.
9.2 Termination of Agreement. This Agreement shall terminate
------------------------
immediately upon a determination by the Corporation's Board of Directors (with
the approval of Messrs. Steffensen, Miller [and Brill], to the extent each of
them is a director at such time) that Pickett has materially breached any of the
terms of Sections 6 and/or 7 hereof. Upon such termination, the Corporation
shall have no further obligations under this Agreement, including any obligation
to make payments to Pickett under Section 2 or Section 6. Notwithstanding such
termination of this Agreement, Sections 6 and 7 shall remain operative and in
full force and effect regardless of the termination of this Agreement and shall
be binding upon and enure to the benefit of any successors and assigns of the
Corporation and any heirs, legatees, assignees and legal representatives of
Pickett. This Agreement shall be null and void if Pickett cancels that certain
Waiver and Release Agreement dated as of the date hereof (the "Release").
6.
<PAGE>
9.3 Notices. Except as otherwise provided herein, any notice
-------
or demand which, by the provisions hereof, is required or which may be given to
or served upon the parties hereto shall be in writing and, if by telegram,
telecopy or telex, shall be deemed to have been validly served, given or
delivered when sent, if by personal delivery, shall be deemed to have been
validly served, given or delivered upon actual delivery and, if mailed, shall be
deemed to have been validly served, given or delivered three business days after
deposit in the United States mails, as registered or certified mail, with proper
postage prepaid and addressed to the party or parties to be notified, at the
following addresses (or such other address(es) as a party may designate for
itself by like notice):
If to the Corporation: Merisel, Inc.
200 Continental Blvd.
El Segundo, California 90245
Attention: Chief Executive Officer
If to Pickett: Michael D. Pickett
16950 Avenida de Santa Ynez
Pacific Palisades, California 90272
9.4 Successors and Assigns. The parties hereto acknowledge
----------------------
that the Corporation shall have the right to assign, with absolute discretion,
any or all of its rights and obligations under this Agreement to any of its
affiliates, successors and assigns, and this Agreement shall inure to the
benefit of, and be binding upon, such respective affiliates, successors and
assigns of the Corporation, in the same manner and to the same extent as if such
affiliates, successors and assigns were original parties hereto. In the event of
a failure to perform by an assignee, the Corporation shall remain liable
hereunder. The Corporation 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 Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it whether or not such
succession had taken place. This Agreement shall be deemed to be personal to
Pickett and shall not be assignable by Pickett.
9.5 Governing Law. This Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of the State of
California (without regard to choice of law principles). The arbitrator or
parties agree that all actions and proceedings arising directly or indirectly
hereunder shall be litigated or otherwise resolved in the State of California
and hereby waive any objection based on forum non conveniens and any objection
to venue of any action instituted hereunder.
9.6 Amendment; Waiver. This Agreement may be amended only by
-----------------
an instrument in writing executed by the parties hereto. No waiver, expressed or
implied, of
7.
<PAGE>
any breach of any covenant, agreement or duty shall be held or construed as a
waiver of any other breach of the same or any other covenant, agreement or duty.
9.7 Entire Agreement. This Agreement and the Release
----------------
constitute the entire agreements of the parties hereto and fully supersede and
replace any and all prior agreements and understandings, whether oral or
written, express or implied, between the parties pertaining to the subject
matter of this Agreement and the Release.
9.8 Severability. Should any provision of this Agreement be
------------
declared or be determined by any arbitrator or court to be illegal or invalid,
the validity of the remaining parts, terms or provisions shall not be affected
thereby and the illegal or invalid part, term or provisions shall be deemed not
to be part of this Agreement. The parties intend this Agreement to be enforced
as written. However, if any provision, or any part thereof, is held to be
unenforceable because of the scope or duration of such provision, Pickett and
the Corporation agree that the arbitrator or court making such determination
shall have the power to reduce the scope, duration and/or area of such
provisions in order to make such provision enforceable to the fullest extent
permitted by law, and/or to delete specific words and phrases ("blue-
penciling"), and in its reduced or blue-penciled form such provision shall then
be enforceable and shall be enforced.
9.9 Captions. The captions of the several sections and
--------
paragraphs of this Agreement are used for convenience only and shall not be
considered or referred to in resolving questions of interpretation with respect
to this Agreement.
9.10 Counterparts. This Agreement may be executed in
------------
counterparts, each of which will be deemed an original, and both of which
together shall constitute one and the same Agreement.
9.11 Negotiation. Pickett acknowledges that he has had an
-----------
opportunity to negotiate with regard to the terms of this Agreement and to
receive advice of counsel with regard to it and has carefully read and
considered this Agreement and fully understands the extent and impact of its
provisions, and has executed this Agreement voluntarily and without coercion,
undue influence, threats, or intimidation of any kind or type whatsoever.
8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE CORPORATION:
MERISEL, INC.
By:__________________________
Its:_______________________
Pickett:
_____________________________
Michael D. Pickett
9.
<PAGE>
EXHIBIT A
Furniture
- ---------
Desk
8 Chairs
Executive Chair
Small file credenza
Large credenza
Large Bookshelf
Small glass table
Small phone table
Printer
Monitor
Keyboard mouse
Docking station with CD ROM
Thinkpad laptop
All pictures and awards
Software on computer
Crystal chess set
Dictaphone
Calculator
Automobile*
- ----------
1990 Porsche
VIN # WPOAB296XLS450989
* Inclusive of cellular phone and hands free mount and accessories already
installed in vehicle.
Owned by Pickett:
- ----------------
Popcorn Popper
Stereo, CD and speakers
Cellular phone charger
Wooden clock
At Pickett's Home
- -----------------
Monitor
Tape backup
Canon portable printer
Keyboard, mouse
<PAGE>
WAIVER AND RELEASE AGREEMENT
This Release is given
By the Releasor(s): Michael D. Pickett
Address: 16950 Avenida de Santa Ynez
Pacific Palisades, California 90272
hereinafter referred to as "I",
To the Releasee(s): MERISEL, INC. and its parent, division, subsidiary and
affiliated corporations (including predecessors and
successors) and their Officers, Directors, Employees
and Representatives
sometimes hereinafter referred to as "you."
1. Release. I hereby release and give up any and all actions, causes of
-------
actions, claims and rights (hereinafter "Claims") which I may have against you.
This releases all claims, including those of which I am not aware and those not
mentioned herein. This Waiver and Release Agreement ("Agreement") applies to
Claims resulting from anything that has happened up to now. I specifically
release any and all Claims relating in any way to my employment relationship, or
the termination of my Employment Agreement effective April 1, 1992, with you,
including but not limited to any Claims arising under the Age Discrimination in
Employment Act, the Older Workers Benefit Protection Act of 1990, Title VII of
the Civil Rights Act of 1964, the Equal Pay Act, the Employee Retirement Income
Security Act, the Fair Labor Standards Act, the Consolidated Omnibus Budget
Reconciliation Act of 1986, or any other federal, state or local laws or
ordinances and any common law claims under tort, contract, or any other theories
now or hereafter recognized. This Agreement specifically includes, but without
limitation, all Claims arising out of my employment relationship with you.
Notwithstanding anything set forth in this Agreement, the terms of this
Agreement do not apply to any claims arising under agreements, plans or
provisions of law set forth on Exhibit A hereto.
2. Waiver. I hereby acknowledge and assume all risks or chances that the
------
injuries claimed to have resulted from the above stated matter may become
greater or more extensive than now known, anticipated or expected. I understand
that this instrument shall be effective as a full and final release of all
Claims. I acknowledge that I am familiar with and have been provided with
separate consideration for that portion of Section 1542 of the Civil Code of the
State of California which provides as follows:
"A general release does not extend
to claims which the creditor does
not know or suspect to exist in his
favor at the time of executing the
release, which if known by him must
have materially affected his
settlement with debtor."
<PAGE>
I waive any right that I have under the above-mentioned Section 1542 to the
fullest extent that I may lawfully waive all such rights pertaining to the
subject matter of this Agreement. In connection with the above waiver, I am
aware that I may hereafter discover Claims or facts in addition to or different
from those I now know or believe to exist with respect to the subject matter of
this instrument or you. However, I and my successors and assigns hereby settle
and release all of the Claims which I may have against you.
3. No Admissions. I agree and acknowledge that this Agreement is not to
-------------
be construed as an admission of any violation of any federal, state or local
statutes, ordinance or regulation or any duty allegedly owed by you to me. You
specifically disclaim any liability to me on any basis.
4. Time Periods. I have been given the opportunity to take a period of
------------
at least twenty-one (21) days within which to consider this Agreement. If I
choose to sign this Release before that time period expires, I do so knowingly
and voluntarily. I also understand that I have the right to change my mind and
cancel this Agreement within seven (7) days following the date that I have
signed it. This Agreement will not be effective until the end of this seven (7)
day period.
5. Consideration. In exchange for, consideration of and reliance on my
-------------
execution of this Release, you have (a) executed and agreed to perform that
certain Agreement, dated February 12, 1996, and (b) agreed to deliver to me
immediately upon the expiration of the seven (7) day time period referred to in
Paragraph 4 above, the payments pursuant to Section 7.1(a) of that certain
Employment Agreement effective April 1, 1992. I agree that I will not seek
anything further, including any other payment from you. I further agree, in
return for receipt of the foregoing payments, to abide by all of your rules,
policies and procedures applicable to current and former associates.
6. Confidentiality. I agree that the terms and conditions of this
---------------
Agreement shall remain confidential and shall not be disclosed to any other
person (other than my family members, attorneys, and accountants who shall be
informed of and bound by the confidentiality provisions of this Agreement) other
than as required by court order, legal process or applicable law or as otherwise
agreed to by you and me. I understand that this provision regarding
confidentiality constitutes a substantial inducement for you to enter into this
Release.
7. Who is Bound. I am bound by this Agreement. Anyone who succeeds to my
------------
rights and responsibilities, such as my heirs or the executor of my estate, is
also bound by this Agreement. This Agreement is made for your benefit and that
of anyone who succeeds to your rights and responsibilities.
8. No Inducements. I further warrant that no promise or inducement for
--------------
this Agreement has been made except as set forth herein, that this Agreement is
executed without reliance upon any statement or representation by any person or
parties released, their officers,
2.
<PAGE>
directors, employees, agents or representatives, concerning any fact material to
my act in releasing them, and that I am legally competent to execute this
Agreement and accept full responsibility therefor.
9. Representations. I understand and agree that I understand the
---------------
contents, implications, and consequences of this Agreement, and that I agree to
the terms of this Release and have executed it voluntarily. I have had an
opportunity to discuss the terms of this Agreement with individuals of my own
choosing who are not associated with you. I have been advised by you to consult
with an attorney of my own choosing.
10. Entire Agreement. This Agreement and the Agreement dated as of
----------------
February 12, 1996 constitute the entire agreements between you and I concerning
the subject matter hereof and supersede all prior agreements between you and I.
This Agreement may not be modified orally. I understand and agree to the terms
of this Agreement.
11. Governing Law. This Agreement is made and entered into in the State
-------------
of California and shall in all respects be interpreted, enforced and governed
under the laws of said State. The language of all parts of this Agreement shall
cases to be construed as a whole, according to its fair meaning, and not
strictly for or against you or I.
12. Invalidity. Should any provisions of this Agreement be determined by
----------
any court to be illegal or invalid, the validity of the remaining parts, terms
or provisions shall not be affected thereby and said illegal or invalid part,
term or provision shall be deemed not to be a part of this Agreement.
14. Arbitration. All controversies, claims, disputes, and matters in
-----------
question arising out of, or relating to, this Agreement or the breach thereof,
shall be decided by arbitration in accordance with the provisions of this
paragraph. The arbitration proceedings shall be conducted under the applicable
rules of the American Arbitration Association or its successor in effect at the
time a demand for arbitration under the rules is made. The arbitration board
will consist of three arbitrators, one chosen by each of us and the third
selected by the two arbitrators so chosen. The decision of the majority of the
arbitrators, including determination of amount of any damages suffered, shall be
conclusive, final, and binding on each of us, and our respective heirs, legal
representatives, successors, and assigns. The arbitrators shall be bound to
follow California law and case precedent. Any decision of the arbitrators will
not be binding if the arbitrators fail to follow California law and case
precedent. The losing party shall pay to the successful party its expenses in
the arbitration for arbitration costs, including arbitrators' fees and
attorneys' fees, fees for expert testimony, and for other expenses of presenting
its case.
I ACKNOWLEDGE AND AGREE THAT I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY
PRIOR TO EXECUTING THIS AGREEMENT; THAT TO THE EXTENT I HAVE DESIRED I HAVE
AVAILED MYSELF OF THAT RIGHT; THAT I HAVE CAREFULLY READ AND UNDERSTAND ALL OF
THE PROVISIONS OF THIS
3.
<PAGE>
AGREEMENT; THAT I WAS INFORMED I HAD TWENTY-ONE (21) DAYS IN WHICH TO CONSIDER
THIS AGREEMENT AND HAVE VOLUNTARILY WAIVED SUCH TWENTY-ONE (21) DAY
CONSIDERATION PERIOD; THAT I MAY REVOKE THIS AGREEMENT WITHIN SEVEN (7) DAYS
AFTER YOU HAVE EXECUTED IT; AND THAT I AM VOLUNTARILY ENTERING INTO THIS
AGREEMENT.
Please sign both copies of this Agreement on the line below to acknowledge your
agreement, retain one for your files and return the other in the enclosed self-
addressed stamped envelope.
IN WITNESS WHEREOF, the undersigned has executed this AGREEMENT as of
the date written freely and voluntarily.
DATED AS OF: February 12, 1996 MERISEL, INC.
By:______________________
DATED AS OF: February 12, 1996 ACKNOWLEDGED AND AGREED:
_________________________
4.
<PAGE>
EXHIBIT A
---------
Indemnity Agreement dated as of February 11, 1992 between the Corporation and
Michael D. Pickett
Agreement dated as of February 12, 1996 between the Corporation and Michael D.
Pickett
The following employee benefit plans:
Deferred Compensation Plan with related Split Dollar Life Insurance
Agreement and Collateral Security Assignment Agreement.
401(k) Plan
The option agreements between the Corporation and Mr. Pickett evidencing the
following options:
<TABLE>
<S> <C>
1986 113,600
1987 36,400
150,000
1991 35,109
89,762
1992 150,000
1995 24,241
1995 187,500
</TABLE>
California Labor Code (S)2802
<PAGE>
EXHIBIT 10.40
SHARE PURCHASE AGREEMENT
------------------------
between
MERISEL, INC
------------
and
MERISEL ASIA, INC
-----------------
and
TECH PACIFIC HOLDINGS LTD
-------------------------
ACN 002 956 096
BAKER & McKENZIE
Solicitors
Level 26, AMP Centre Rialto
50 Bridge Street 525 Collins Street
SYDNEY NSW 2000 MELBOURNE VIC 3000
Tel: (02) 225-0200 Tel: (03) 9617-4200
Fax: (02) 223-7711 Fax: (03) 9614-2103
- --------------------------------------------------------------------------------
(C) 1996 Baker & McKenzie
This document is subject to copyright.
No reproduction is permitted without the written consent of Baker & McKenzie.
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
CLAUSE
NUMBER HEADING PAGE
- ------ ------- ----
<C> <S> <C>
1. INTERPRETATION 1
--------------
1.1 Definitions 1
1.2 Interpretation 6
1.3 Payments 7
2. SALE OF SHARES 8
--------------
2.1 Sale and Purchase 8
2.2 All of Sale Shares 8
3. TERMS OF PAYMENT OF PURCHASE PRICE 8
----------------------------------
4. SETTLEMENT OF INTER-COMPANY LOANS 8
---------------------------------
5. RESTRICTIONS ON PURCHASER 9
-------------------------
5.1 Use of Name 9
5.2 Excluded Names 9
6. COMPLETION 9
----------
6.1 Time and Place of Completion 9
6.2 Obligations of Purchaser on Completion 9
6.3 Obligations of Vendor on Completion 10
6.4 Adjusted Loan Amount 12
6.5 Non Compliance 12
6.6 Time of Delivery 12
6.7 Post-Completion 13
6.8 Released Obligations 13
7. WARRANTIES AND INDEMNITY 13
------------------------
7.1 Warranties 13
7.2 Reliance 13
7.3 Disclosures 14
7.4 Indemnity 14
7.5 Waiver of Rights Against Company 14
7.6 Assignment of Warranties 15
7.7 Warranty/Indemnity Payments 15
7.8 Vendor Covenants 15
7.9 Employees 16
7.10 Confidentiality Undertakings 16
7.11 Return of Information in the Event of Termination 16
8. LIMITATION ON CLAIMS 16
--------------------
8.1 Limit 16
8.2 Thresholds 16
8.3 Excess 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLAUSE
NUMBER HEADING PAGE
- ------ ------- ----
<C> <S> <C>
8.4 Time Limits 17
8.5 Tax Disputes 17
8.6 Sales Tax Issues 17
8.7 Liability for Sales Tax Matters 18
8.8 Claims and Records 19
9. NON-COMPETE AND CONFIDENTIALITY 19
-------------------------------
9.1 General Covenants 19
9.2 Restraints Fair and Reasonable 20
9.3 Exceptions 20
9.4 Severability 21
9.5 Period of Restraint 21
9.6 Area of Restraint 21
9.7 Change of Shareholding 21
10. GUARANTEE AND INDEMNITY 22
-----------------------
10.1 Guarantee 22
10.2 Separate and Principal Obligations 22
10.3 Obligations of Guarantor Unaffected 22
10.4 Indemnity 22
10.5 Payments in Gross 22
10.6 No Representations by Purchaser 23
10.7 Waiver of Rights by Guarantor 23
10.8 No Rights Against the Vendor 23
10.9 Power to Grant the Guarantee 23
10.10 Guarantor not Insolvent 23
11. DISCLOSURE AND ANNOUNCEMENTS 24
----------------------------
11.1 Provisions to Remain Confidential 24
11.2 Permitted Disclosures 24
11.3 Announcements 25
11.4 Survival of Obligations 25
12. NOTICES 25
-------
12.1 Address for Notice 25
12.2 Time of Receipt 26
13. MISCELLANEOUS 26
-------------
13.1 Further Assurances 26
13.2 Amendment 26
13.3 Costs 26
13.4 Assignment 27
13.5 Waiver 27
13.6 Counterparts 27
13.7 Invalidity 27
13.8 Consents and Approval 28
13.9 Governing Law 28
13.10 Jurisdiction 28
13.11 Non-Merger 28
13.12 Effect of Termination 28
13.13 Entire Agreement 29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLAUSE
NUMBER HEADING PAGE
- ------ ------- ----
<C> <S> <C>
13.14 Survival of Indemnities 29
13.15 Rights Cumulative 29
13.16 Indemnity Unaffected 29
Execution 30
ANNEXURE 1 - WARRANTIES 31
1. Interpretation 31
2. Corporate 31
3. Contracts 33
4. Assets and Rental Assets 34
5. Securities and Financing 35
6. Trading and Operational Matters 35
7. Taxation 37
8. Insolvency Events 39
9. Litigation 40
10. Accounts 40
11. Properties 41
12. Confidential Information 43
13. Personnel 43
14. Industrial Relations 45
15. Arrangements with Connected Persons 46
16. Matters Since the Accounts Date 46
17. Insurance 48
18. Miscellaneous 48
ANNEXURE 2 - DELETED BY PARTIES 50
ANNEXURE 3 - EXCESS STOCK 51
ANNEXURE 4 - EXCLUDED NAMES 52
ANNEXURE 5 - RELEASED OBLIGATIONS 53
ANNEXURE 6 - SALE SHARES 54
ANNEXURE 7 - FORM OF RESIGNATION 55
ANNEXURE 8 - DEED OF RELEASE 56
</TABLE>
<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made on the 7th day of MARCH __, 1996
- --------------
BETWEEN
- -------
MERISEL, INC of 200 Continental Boulevard, El Segundo California 90245, United
- ------------
States of America (the "Guarantor");
MERISEL, ASIA INC of 200 Continental Boulevard, El Segundo California 90245,
- -----------------
United States of America (the "Vendor");
AND
- ---
TECH PACIFIC HOLDINGS LTD ACN 002 956 096 of 55 Mentmore Avenue,
- -------------------------
Rosebery, New South Wales 2018 Australia (the "Purchaser").
RECITALS:
- --------
A. The Company carries on the Business.
B. Prior to the date of this Agreement, the Vendor has delivered to the
Purchaser the Accounts.
C. The Vendor wishes to sell and the Purchaser wishes to purchase the Sale
Shares.
D. The Guarantor wishes to enter into this Agreement to guarantee the
performance by the Vendor of its obligations under this Agreement.
OPERATIVE PROVISIONS
- --------------------
1. INTERPRETATION
--------------
1.1 Definitions
-----------
In this Agreement, unless the context otherwise requires:
"Accounts" means the audited balance sheet of the Company prepared as at
the Accounts Date and the audited profit and loss account of the Company
for the year ended on that date, together with any notes forming part of
them;
"Accounts Date" means December 31, 1995;
"Adjusted Loan Amount" means $11,175,000;
"Advisor" means any person or persons who provides professional taxation,
accounting, management or legal advice, including accountants, solicitors
and barristers;
"Agreement" means this Share Purchase Agreement including all annexures;
"Australian Accounting Standards" means:
(a) the accounting standards approved for the purpose of the Corporations
Law;
<PAGE>
(b) the requirements of the Corporations Law in relation to the
preparation and content of accounts; and
(c) generally accepted accounting principles and practices in Australia
consistently applied, except where inconsistent with the standards or
requirements referred to in paragraphs (a) or (b);
"Authorisation" includes:
(a) any authorisation, approval, agreement, consent, licence, permit,
permission, filing, registration, resolution, direction, declaration
or exemption; and
(b) in relation to anything which will be prohibited or restricted by law
if a Governmental Agency intervenes or acts within a specified period
after notification to it, the expiry of that period without
intervention or action;
"Bank" means a bank authorised under the Banking Act 1959 (Cth), or under
the laws of a State, to carry on banking business in Australia or in that
State;
"Books and Records" means originals and copies in machine readable or
printed form or in the form of plates, blocks, negatives or tapes of all
registers, books, reports, correspondence, files, records, accounts and
documents relating to or used in connection with the Company including,
without limitation:
(a) marketing, promotional and sales materials, research and information;
(b) terms and conditions of sale, price lists and business forms;
(c) records and information concerning suppliers to and customers of the
Business;
(d) instructional materials;
(e) operational and financial records including, without limitation, those
materials delivered to the Purchaser by the Company as part of the due
diligence process;
(f) stock records;
(g) environmental assessments, reports and audits;
(h) details of trading arrangements with significant customers of the
Business;
(i) employment records; and
2
<PAGE>
(j) all books and records required to be maintained under any law;
"Business" means the business carried on at the date of this Agreement by
the Company of the distribution of computer hardware and software products
to computer resellers in Australia;
"Business Day" means any day, other than a Saturday or Sunday, on which the
Banks open for business in New South Wales;
"Business Names" means all business names and trade names (whether or not
registered) under which the Business or any part of it is carried on
whether within or outside Australia but excluding the Excluded Names;
"Citibank Facility" means the loan facility between the Company and
Citibank in effect at the date of this Agreement which the Purchaser will
either take over or pay off on Completion at the option of Citibank;
"Company" means Merisel Pty Limited ACN 006 726 503;
"Completion" means completion of the sale and purchase of the Sale Shares
under this Agreement;
"Completion Date" means the date of this Agreement;
"Confidential Information" means all know-how, trade secrets, ideas,
concepts, technical and operational information and other information
which, by its nature, or by the circumstances of its disclosure, is or
could reasonably be expected to be regarded as confidential to the Company
or to any third party with whose consent the Company uses that information;
"Contracts" means all agreements to which the Company is a party or by
which it may be bound including all agreements referred to in any annexure;
"Disclosures" means the disclosures of the Vendor under clause 7.3 and
contained in the disclosure letter dated prior to or the same date as this
Agreement;
"Dollars" and "$" means the lawful currency of Australia;
"Environmental Requirement" means any law relating to the environment and,
without limitation, includes any law regulating or otherwise relating to:
(a) land use or occupation of land or buildings;
(b) heritage preservation, protection or conservation of natural or
cultural resources;
3
<PAGE>
(c) pollution or contamination of air, water or soil;
(d) waste or chemical disposal;
(e) toxic, hazardous, poisonous or dangerous substances; or
(f) noise or odour;
"Excess Stock" means the inventory of the Company set out in annexure 3 to
be acquired by the Vendor on Completion;
"Excess Stock Amount" means the amount of $2,175,000;
"Excluded Names" means those names which are excluded from the sale and
purchase of the Sale Shares and which are identified in annexure 4;
"Governmental Agency" includes, without limitation, any government, whether
federal, state, territorial or local and any minister, department, office,
commission, delegate, instrumentality, agency, board, authority or other
organ of government, whether statutory or otherwise;
"Guarantor Associate" means:
(a) any Related Body Corporate (as defined in the Corporations Law) of the
Guarantor;
(b) any director, secretary or chief executive officer of the Guarantor;
(c) any "Relative" (as defined in the Income Tax Assessment Act, 1936
(Cth)) of the Guarantor or any person described in paragraph (b);
(d) any corporation in relation to which the Guarantor or any one or more
of the persons described in paragraphs (b) or (c):
(i) directly or indirectly controls the composition of its board of
directors;
(ii) is in a position to cast, or directly or indirectly controls the
casting of, more than half of the maximum votes that might be
cast at a general meeting of the corporation; or
(iii) holds more than one half of the issued capital of the
corporation;
"Leasehold Properties" means the real properties or premises leased or
licensed by the Company;
"Liabilities" includes all liabilities, whether actual or contingent,
present or future, quantified or unquantified;
4
<PAGE>
"Non-Permitted Payment" means any payment, set-off, combination of
accounts, application or any other action in breach of clause 7.8;
"Notices" means all notices, consents, approvals, nominations and other
communications that may be given by one Party to another under this
Agreement;
"Parties" means the parties to this Agreement and "Party" means a party to
this Agreement;
"Property Leases" means the leases and licences for the Leasehold
Properties true and complete copies of which have been provided to the
Purchaser by the Vendor and two copies of which have been initialled by the
Parties for the purposes of identification;
"Purchase Price" means $1.00;
"Released Obligations" means the liabilities, guarantees and securities
described in annexure 5 to the extent that they relate to liabilities
incurred by the Company;
"Relevant Schemes" means all superannuation schemes, retirement benefit
schemes or other pension arrangements and all employment benefit programs
or arrangements such as medical, dental or life insurance to which the
Company is a party or which the Company arranges for its officers or
employees or former officers or employees, true and complete copies of
which have been provided to the Purchaser by the Vendor and two copies of
which have been initialled by the Parties for the purposes of
identification;
"Rental Assets" means assets in the possession or control of and/or owned
or used by the Company (other than the Leasehold Properties) which are the
subject of lease, rental, hire purchase, credit sale or similar agreements;
"Sale Shares" means the shares in the Company details of which are set out
in annexure 6, together with all rights attaching to the shares as at
Completion;
"Security Interest" includes any mortgage, charge, bill of sale, pledge,
deposit, lien, encumbrance, hypothecation, arrangement for the retention of
title and any other right, interest, power or arrangement of any nature
having the purpose or effect of providing security for, or otherwise
protecting against default in respect of, the obligations of any person;
"Stock" means all raw materials, supplies, packaging and containers, work-
in-progress, finished products, parts and components and other inventory
used, sold or supplied in connection with the Business including items of
stock in transit or on consignment to customers;
5
<PAGE>
"Tax" includes income tax, company tax, group tax, undistributed profits
tax, capital gains tax, fringe benefits tax, sales tax, payroll tax, land
tax, stamp duty, financial institutions duty, debit tax, estate duty, gift
duty, municipal tax, rates, customs and other import duties and any other
tax, levy, charge, impost, fee, deduction, duty, withholding or remittance
of any nature, payable now or in the future or required to be remitted to,
or imposed, levied, collected, withheld or assessed by any Governmental
Agency and includes any interest, expense, fine, penalty or other charge on
these amounts;
"Third Party Interest" includes any Security Interest, option, voting
arrangement, easement, restrictive covenant, notation, lease, interest
under any agreement, interest under any trust, or other right, equity,
entitlement or other third party interest of any nature;
"TPIL" means Tech Pacific International Limited; and
"Warranties" means the representations, warranties and covenants made by
the Vendor under clause 7.1 and "Warranty" means any one of them.
1.2 Interpretation
--------------
In this Agreement, unless the context otherwise requires:
(a) words importing the singular include the plural and vice versa;
(b) references to any document (including this Agreement) include
references to that document as amended, consolidated, supplemented,
novated or replaced;
(c) references to an agreement include any undertaking, deed, agreement or
legally enforceable order, arrangement or understanding whether
written or not;
(d) references to paragraphs, clauses, recitals and annexures are
references to paragraphs and clauses of, and recitals and annexures
to, this Agreement;
(e) headings are for convenience only and must be ignored in construing
this Agreement;
(f) references to any person or any Party include references to their or
its respective successors, permitted assigns or substitutes, executors
and administrators;
(g) references to law include references to any constitutional provision,
treaty, decree, convention, statute, act, regulation, rule, ordinance,
proclamation, subordinate legislation,
6
<PAGE>
by-law, judgment, rule of common law, rule of equity, rule of any
applicable stock exchange, guideline, code, order, approval and
standard (including Australian Standard published by the Standards
Association of Australia);
(h) references to any law are references to that law as at the date of
this Agreement;
(i) references to judgment include references to any order, injunction,
decree, determination and award of any court or tribunal;
(j) references to proceeding include any litigation, arbitration,
injunction, investigation, prosecution and summons;
(k) references to any person include references to any individual,
company, body corporate, association, partnership, joint venture,
trust and Governmental Agency;
(1) references to deliver include cause to be delivered and references to
sell, transfer and assign include, (respectively) procure the sale,
transfer and assignment of;
(m) references to time are references to New South Wales time;
(n) a warranty, representation, covenant, liability, obligation or
agreement given or entered into by more than one person binds them
jointly and severally;
(o) if a period of time is specified from, after or before a given day or
the day of an act or event, it is to be calculated exclusive of that
day; and
(p) if a payment or other act must be made or done on a day which is not a
Business Day, then it must be made or done on the next following
Business Day.
1.3 Payments
--------
Unless the context otherwise requires, where an amount is required to be
paid under this Agreement, that amount must be paid by bank cheque to the
recipient or otherwise in accordance with the written direction of the
recipient if that written direction is received by the payor not less than
two Business Days before the date on which payment is due.
7
<PAGE>
2. SALE OF SHARES
--------------
2.1 Sale and Purchase
-----------------
The Vendor as beneficial owner of the Sale Shares agrees to sell the Sale
Shares and the Purchaser agrees to purchase the Sale Shares for the
Purchase Price, free from all Third Party Interests.
2.2 All of Sale Shares
------------------
The Purchaser is not obliged to complete the purchase of any of the Sale
Shares unless the purchase of all of the Sale Shares is completed
simultaneously.
3. TERMS OF PAYMENT OF PURCHASE PRICE
----------------------------------
The Purchaser must pay the Purchase Price to the Vendor at Completion.
4. SETTLEMENT OF INTER-COMPANY LOANS
---------------------------------
(a) The Guarantor covenants that neither the Guarantor nor any Guarantor
Associate in the period from January 1, 1996 to Completion has
received or has been credited with a Non-Permitted Payment.
(b) On or immediately following Completion the Guarantor and the Guarantor
Associates shall forgive any and all outstanding loans owed to the
Guarantor and the Guarantor Associates by the Company.
(c) On Completion, the Guarantor will be required to deliver to the
Purchaser and the Company the Deed of Release referred to in annexure
8 pursuant to which it acknowledges for itself and the Guarantor
Associates that all claims by the Guarantor or the Guarantor
Associates against the Company have been discharged in full.
(d) The Purchaser shall advance to the Company on Completion an amount
equal to the Adjusted Loan Amount.
(e) The Vendor covenants that it shall cause the Company to authorise the
Purchaser to pay directly to the Vendor rather than to the Company the
amount required to be advanced to the Company pursuant to paragraph
(d).
(f) The Vendor covenants that it shall pay any moneys received by it
pursuant to paragraph (e) which are properly owed by the Company to
the Guarantor or another Guarantor Associate to the Guarantor or that
Guarantor Associate (as the case may be). The
8
<PAGE>
Vendor and the Guarantor covenant that receipt by the Vendor of any
such amounts shall constitute a full and final discharge by the
Guarantor or that Guarantor Associate (as the case may be) of that
amount owing by the Company.
5. RESTRICTIONS ON PURCHASER
-------------------------
5.1 Use of Name
-----------
The Purchaser agrees that it will procure that the Company will not at any
time after Completion trade under any name which suggests a connection with
the name "Merisel" except that the Company shall be entitled to:
(a) sell any of the Company's Stock existing at Completion which has the
Merisel name affixed to it for a period of six months after Completion
for the purpose of fulfilling all pre-existing commitments of the
Company entered into on or prior to Completion; and
(b) state that the Company was formerly named "Merisel Pty Limited" in all
of the Company's stationery for a period of 6 months after Completion.
5.2 Excluded Names
--------------
Prior to Completion, the Company transferred to a Guarantor Associate the
Excluded Names. For the avoidance of doubt, these names do not form part of
the assets of the Company acquired by the Purchaser pursuant to this
Agreement and the Purchaser agrees that the Company shall not at any time
after Completion trade under the Excluded Names except that the Company
shall be entitled to continue to use such names (other than the name
"Merisel" except in the circumstances referred to in clause 5.1) for a
period of six months after the Completion Date for the purpose of
fulfilling all pre-existing commitments entered into by the Company on or
prior to Completion.
6. COMPLETION
----------
6.1 Time and Place of Completion
----------------------------
Completion must take place at Level 27, 50 Bridge Street, Sydney, New South
Wales 2000 on the Completion Date, or at any other place agreed by the
Parties.
6.2 Obligations of Purchaser on Completion
--------------------------------------
(a) At Completion, the Purchaser must:
(i) pay the Purchase Price to the Vendor;
9
<PAGE>
(ii) cause the Adjusted Loan Amount to be paid to the Vendor in
accordance with clause 4; and
(iii) cause the Company to repay all outstanding obligations to
Citibank under the Citibank Facility.
(b) In addition, the Purchaser shall pay the cost of shipping (including
insurance) the Excess Stock to the Vendor's Californian distribution
centre by sea freight.
6.3 Obligations of Vendor on Completion
-----------------------------------
At Completion the Vendor must:
(a) deliver transfers of the Sale Shares to the Purchaser duly executed by
the registered holders in favour of the Purchaser together with the
share certificates for the Sale Shares;
(b) deliver all waivers or consents to the Purchaser to enable the
Purchaser to be registered as holders of the Sale Shares;
(c) deliver the following documents in respect of the Company to the
Purchaser:
(i) all available copies of the Memorandum and Articles of
Association;
(ii) the common seal and duplicate seals;
(iii) the Books and Records;
(iv) the certificates of incorporation;
(v) certificates of registration of the Business Names;
(vi) duly stamped originals of the Property Leases and the Contracts;
(vii) all other property of the Company in the possession of the
Vendor;
(d) either:
(i) deliver to the Purchaser the executed resignations of each of
the directors and secretaries of the Company, those resignations
to be in the form set out in annexure 7 and to take effect from
the close of the meeting referred to in paragraph (g); or
10
<PAGE>
(ii) procure the removal of such persons referred to in sub-paragraph
(i) from office with such removal to take effect on or before
the close of the meeting referred to in paragraph (h);
(e) upon payment of the Adjusted Loan Amount execute and deliver to the
Purchaser a Deed of Release (referred to in clause 4(c)) in the form
set out in annexure 8;
(f) cause a meeting of the directors of the Company to be held and to
procure at that meeting, subject to payment of stamp duty (if any):
(i) approval for registration of the transfers of the Sale Shares or
other relevant shares (as applicable); and
(ii) cancellation of the existing share certificates for the Sale
Shares and the issue of new certificates for the Sale Shares or
other relevant shares (as applicable) in favour of the
Purchaser;
(g) cause a meeting of the directors of the Company to be held and to
procure at that meeting:
(i) the approval and execution of the Deed of Release referred to in
paragraph (e);
(ii) appointment of those persons nominated by the Purchaser as
directors and secretary of the Company and who have consented in
writing to act and to change the registered office of the
Company to the address nominated by the Purchaser;
(iii) acceptance of the resignations of directors and secretaries
received under paragraph (d); and
(iv) appointment of new signatories to the Company's bank accounts
and revocation of existing authorities to operate those bank
accounts, as advised by the Purchaser to the Vendor;
(h) cause a meeting of shareholders of the Company to be held and to
procure at that meeting the removal of the persons (if any) referred
to in sub-paragraph (d)(ii);
(i) deliver to the Purchaser certified copies of any powers of attorney
under which any document referred to in this clause 6.3 is executed or
11
<PAGE>
evidence satisfactory to the Purchaser of the authority of any person
signing on another's behalf;
(j) deliver to the Purchaser a certified copy of a special resolution of
the shareholders of the Company approving the change of name of the
Company to a name which does not include the word "Merisel" or any
word confusingly similar thereto and being a name which the Purchaser
has consented to;
(k) acquire the Excess Stock from the Company by crediting the Excess
Stock Amount to the Company in its loan account and such payment shall
not constitute a Non-Permitted Payment;
(1) deliver to the Purchaser a US legal opinion in a form satisfactory to
the Purchaser;
and must do, or procure to be done, all other things which are required by
this Agreement to be done by the Vendor or the Guarantor at Completion, or
which are reasonably required by the Purchaser to vest in the Purchaser the
full possession and benefit of the Sale Shares.
6.4 Adjusted Loan Amount
--------------------
The Parties agree that they will procure the repayment to the Guarantor and
the Guarantor Associates (in the relevant amounts) of the Adjusted Loan
Amount on Completion in the manner referred to in clause 4.
6.5 Non Compliance
--------------
If any provision of this clause 6 is not complied with by the Party
required to comply with that provision on the Completion Date, the non-
defaulting Party may:
(a) defer Completion to a date not more than 28 days after the Completion
Date (in which event the provisions of this clause 6.5 will apply to
Completion so deferred);
(b) proceed to Completion so far as is practicable (without prejudice to
its remedies under this Agreement including, without limitation, its
rights to sue under an indemnity or for breach of Warranty); or
(c) terminate this Agreement by notice to the other Party.
6.6 Time of Delivery
----------------
Delivery of documents and the performance of obligations pursuant to and in
accordance with clauses 6.2, 6.3 and 6.4 will be deemed to have occurred
simultaneously and no
12
<PAGE>
delivery or payment will be deemed to have been made until all deliveries
and payments have been made.
6.7 Post-Completion
---------------
At the request of the Purchaser, after the Completion Date the Vendor must
give to the directors of the Company all information and explanations
relating to the business and affairs of the Company prior to the Completion
Date as those directors may reasonably require to comply with any statutory
requirements.
6.8 Released Obligations
--------------------
(a) Within 30 days after Completion the Purchaser must use its reasonable
endeavours to procure the full and unconditional release of the Vendor
from the Released Obligations.
(b) The Purchaser indemnifies the Vendor from and against any and all
claims, actions, proceedings, judgments, damages, losses, costs,
expenses or liabilities, incurred or suffered by, or brought or made
against the Vendor arising directly or indirectly under or by virtue
of the Released Obligations except that the Purchaser will not be
liable to indemnify the Vendor pursuant to this clause to the extent
that the claim, action, proceeding, judgment, damage, loss, cost,
expense or liability arises from or constitutes a breach of any of the
Warranties.
7. WARRANTIES AND INDEMNITY
------------------------
7.1 Warranties
----------
The Vendor represents, warrants and covenants to and with the Purchaser
that each statement contained in annexure 1 is now and will at and until
Completion be true, accurate and not misleading (but where any statement is
expressed to be made only at a particular date it is given only at that
date). Each Warranty is separate and independent and except as expressly
provided is not limited by reference to any other Warranty or provision of
this Agreement.
7.2 Reliance
--------
The Vendor acknowledges that the Purchaser has been induced to enter into
this Agreement by the Warranties and has fully relied on the truth and
accuracy of the Warranties to pay the Purchase Price and to make to the
Company the loans contemplated in clause 4, and that any loss it may suffer
from breach of Warranties will include any loss resulting from its
inability to recover such loans.
13
<PAGE>
7.3 Disclosures
-----------
The Warranties are given subject only to matters fully, fairly and
specifically disclosed in the Disclosures or in this Agreement and any
written information relating to the Company of which the Purchaser has
actual knowledge provided that the Purchaser shall not be deemed to have
actual knowledge of any and all Disclosures directly or indirectly related
to sales tax including, without limitation, the letter from Deloitte Touche
Tohmatsu to the Company dated March 1, 1996 contained in the Disclosures,
and any and all Disclosures in respect of sales tax shall not reduce to any
extent whatsoever the liability of the Vendor and Guarantor under the
Warranties.
7.4 Indemnity
---------
Subject to clauses 8.1 to 8.4, the Vendor indemnifies the Purchaser for
itself and as trustee for its successors in title and the Company from and
against all proceedings, actions, claims, demands, losses (including any
diminution in the value of assets of the Company or the value of the Sale
Shares, whether or not realised), obligations, liabilities and damages
arising directly or indirectly from, and any costs, charges and expenses
incurred by the Purchaser or the Company in connection with any Warranty
being untrue, inaccurate or misleading or arising out of or in connection
with any breach of this Agreement by the Vendor.
7.5 Waiver of Rights Against Company
--------------------------------
The Vendor agrees with the Purchaser (for itself and as trustee for the
Company) to waive any rights which it may have in respect of any
misrepresentation or inaccuracy in, or omission from, any information or
advice supplied by the Company or its officers, employees or Advisors and
relied on by the Vendor in giving the Warranties or preparing the
Disclosures provided that this clause will not prevent the Vendor from
taking action against any Advisor in its own right and provided that in the
event that the Vendor or the Guarantor wishes to make, bring or commence
any actions, claims, demands, causes of action or proceedings against any
Advisors to the Company in the Company's name, the Vendor or the Guarantor,
as the case may be, must:
(a) prior to making, bringing or commencing any such actions, claims,
demands, causes of action or proceedings, provide to the Company a
recent written legal opinion by a reputable independent legal advisor
which states that the Company has a valid and meritable cause of
action against that Advisor and sets out the grounds for and the
merits of such a cause of action; and
14
<PAGE>
(b) if within thirty days from the date that the Vendor or the Guarantor
provides that legal opinion to the Company the Company does not make,
bring or commence any actions, claims, demands, causes of action or
proceedings in relation to that cause of action, then the Vendor or
the Guarantor may commence any actions, claims, demands, causes of
action or proceedings in respect of that cause of action against that
Advisor in the Company's name and shall be solely liable for and shall
bear all costs, charges, losses, liabilities, damages and expenses
arising out of or incurred in connection with those actions, claims,
demands, causes of action or proceedings. Each of the Vendor and the
Guarantor hereby unconditionally and irrevocably indemnifies the
Company, its officers and its employees from and against all such
costs, charges, losses, liabilities, damages and expenses in relation
to such action, claim, demand, cause of action or proceeding.
7.6 Assignment of Warranties
------------------------
The benefit of the Warranties may be assigned in whole or in part and
without restriction to any person that acquires the Company from the
Purchaser.
7.7 Warranty/Indemnity Payments
---------------------------
If any sum payable by the Vendor under this clause is subject to Tax
(whether by deduction or withholding or direct assessment of the
recipient), payment must be increased by the amount necessary to ensure
that after deduction, withholding or payment of Tax, the recipient will
receive an amount equal to the payment otherwise required to be made.
7.8 Vendor Covenants
----------------
The Vendor covenants that, except as disclosed in the Disclosures, during
the period from the Accounts Date to the date of this Agreement, the Vendor
caused the Company:
(a) to conduct its business in the normal and ordinary course in the same
manner as it was conducted prior to the Accounts Date;
(b) to not:
(i) enter into any agreement which was of an unusual nature, was in
any way outside the ordinary course of its business or would
have had a material adverse effect on the Company;
15
<PAGE>
(ii) institute changes in management policy of a significant nature;
or
(iii) declare or satisfy any dividends or other distributions of
profit.
7.9 Employees
---------
The Vendor covenants that it used its best efforts (short of granting
additional severance benefits) to procure that the employees of the Company
as at the date of this Agreement continued as employees of the Company up
to and after Completion and took all reasonable steps to ensure that the
Business was not subject to or threatened by any interruption by virtue of
an industrial dispute.
7.10 Confidentiality Undertakings
----------------------------
Except as required by law, following Completion, the Vendor and the
Guarantor must not use or disclose and must not permit any other person to
use or disclose any Confidential Information of the Purchaser or the
Company to any person other than those of its own officers, employees,
professional and financial advisors and bankers as the Vendor and Guarantor
reasonably think necessary and then only on a strictly confidential basis.
7.11 Return of Information in the Event of Termination
-------------------------------------------------
If this Agreement is terminated, each Party must return to the other all
confidential information and any other information obtained by either Party
in respect of the other (to the extent that it is in written or deliverable
form).
8. LIMITATION ON CLAIMS
--------------------
8.1 Limit
-----
The provisions of this clause 8 shall operate to define and limit the
liability of the Vendor in respect of any claims made under or in
connection with the Warranties (and references to "claim" and "claims"
should be construed accordingly), to establish the circumstances within
which claims may be made.
8.2 Thresholds
----------
No liability will attach to the Vendor unless the aggregate amount of all
claims for which it would, in the absence of these provisions, be liable
shall exceed $250,000, in which event the Vendor shall subject to the other
provisions of this Agreement be liable for the full amount of such claims
and not just the excess above $250,000. For the avoidance of doubt, this
clause does not apply to any individual claim in excess of $250,000, the
full amount of which will be recoverable.
16
<PAGE>
8.3 Excess
------
No liability shall attach to the Vendor where the amount of any claim under
the Warranties is for an amount less than $5,000. This $5,000 limitation
shall apply on a "per claim" or "per event" basis. Each set of similar
factual circumstances shall constitute one claim or event.
8.4 Time Limits
-----------
No liability shall attach to the Vendor in respect of a claim unless
written particulars thereof shall have been notified in writing to the
Vendor before the date (as the case may be) set forth below in respect of
the provision or matter under or in respect of a breach of which the claim
has been made:
(a) Warranties which contemplate a claim being made by any person (other
than the Purchaser, its directors or employees) against the Company -
12 months after the Completion Date;
(b) Warranties relating to Tax - 4 years after the Completion Date unless
fraud or tax evasion is involved in which case the time period is
unlimited; and
(c) Warranties which do not fall within paragraphs (a) and (b) - 6 months
after the Completion Date.
8.5 Tax Disputes
------------
Notwithstanding any other provisions of this Agreement, if the Company
receives any notice, inquiry or claim in respect of any Tax (including any
audit or inquiry), the Purchaser shall, and shall procure that the Company
shall, to the extent permitted by law:
(a) give notice to the Vendor with all reasonable diligence and in any
event within fourteen days of such notice, inquiry or claim; and
(b) provide to the Vendor such information and correspondence as may be
reasonably necessary to ensure that the Vendor remains properly
apprised of the progress of any such notice, inquiry or claim.
8.6 Sales Tax Issues
----------------
In addition to the obligations of the Purchaser under clause 8.5, if the
Company:
(a) receives any notice, inquiry or claim in respect of the compliance by
the Company with its obligations under any relevant sales tax
legislation prior to the Completion Date; or
17
<PAGE>
(b) the Company notifies any relevant authority with jurisdiction in
respect of any sales tax legislation of such practices existing prior
to the Completion Date (either a "relevant matter"), then the
Purchaser shall, and shall procure that the Company shall, to the
extent permitted by law:
(i) defer all representations and responses until the Vendor or its
nominated representatives have been given a reasonable
opportunity to familiarise themselves with the relevant matter
and have the opportunity to respond to such notice, inquiry or
claim or proposal to notify a relevant authority;
(ii) ensure all dealings with any relevant matter is conducted in the
presence of the Vendor or its nominated representative in the
name of the Company but at the cost of the Vendor;
(iii) give all reasonable assistance to the Vendor and its nominated
representative in relation to any relevant matter; and
(iv) pay to the Vendor any amount on account of cost or refund
received by the Company in relation to any relevant matter.
8.7 Liability for Sales Tax Matters
-------------------------------
Notwithstanding any other provision of this Agreement, the Vendor and the
Guarantor shall have no liability to the Purchaser arising from or relating
to a breach of Warranty in respect of any relevant matter if:
(a) the Purchaser materially defaults in its obligations under clause 8.6;
or
(b) the Company enters into any settlement with any relevant authority in
respect of sales tax, without the consent of the Guarantor which
consent shall not be unreasonably withheld. It shall be unreasonable
for the Guarantor to withhold consent if:
(i) Deloitte Touche Tohmatsu ("DTT") is engaged by the Company and
the Guarantor at the cost of the Guarantor in respect of the
relevant matter;
(ii) DTT have the opportunity to meet the representatives of the
Sales Tax Office to discuss and negotiate under the authority of
the Company and the Guarantor; and
18
<PAGE>
(iii) DTT (or another mutually agreeable third party) recommend that
in all the circumstances:
(A) it is a fair settlement to the Company considering only
issues arising prior to the Completion Date and not
considering the fact that the Company may be indemnified by
the Vendor or the Guarantor; and
(B) it is a fair settlement to the Guarantor, ignoring any
advantage through delay in payment and considering that the
Vendor and Guarantor may be obligated to indemnify the
Company for such claim.
8.8 Claims and Records
------------------
The Purchaser shall, and shall procure that the Company shall:
(a) not make any claim for a refund or credit in respect of any Tax paid
by the Company prior to Completion without the prior consent of the
Vendor (which consent shall not be unreasonably withheld); and
(b) keep all records relating to the calculation, assessment and payment
of Tax in the period until Completion available for a period of not
less than four years.
9. NON-COMPETE AND CONFIDENTIALITY
-------------------------------
9.1 General Covenants
-----------------
Subject to clause 9.3, neither the Guarantor nor any Guarantor Associate
will, directly or indirectly, whether solely or jointly with any other
person and whether as principal, agent, officer, employee, shareholder,
partner, advisor, consultant or otherwise:
(a) for that period of years determined in accordance with clause 9.5
after the Completion Date, within the area determined in accordance
with clause 9.6 carry on or be engaged or involved in any trade,
business or undertaking which is in competition with the Business;
(b) for that period of years determined in accordance with clause 9.5
after the Completion Date canvass, solicit, or entice away from the
19
<PAGE>
Company the custom of any person who as at Completion or at any time
during the period of 12 months prior to the Completion Date was a
client, customer, identified prospective customer, representative or
agent of the Company or had a course of dealing with the Company;
(c) for that period of years determined in accordance with clause 9.5
after the Completion Date, employ, solicit or entice away from the
Company any person who as at the Completion Date or at any time during
the period of 12 months prior to Completion was an officer, manager,
consultant or employee of the Company whether or not that person would
commit a breach of contract by reason of leaving the Company;
(d) use or register at any future time a name or trade mark which includes
all or part of any Business Name or trade mark or any confusingly
similar word or words in such a way as to be capable of or likely to
be confused with the business names or any name or trade marks of the
Company; or
(e) attempt, counsel, procure or otherwise assist any person to do any of
the acts referred to in paragraphs (a) through to (d).
9.2 Restraints Fair and Reasonable
------------------------------
The Vendor and Guarantor acknowledge that:
(a) the covenants given in clause 9 are material to the Purchaser's
decision to enter into this Agreement; and
(b) the restraints contained in clause 9 are:
(i) fair and reasonable as to subject matter, area and duration; and
(ii) reasonably required by the Purchaser to protect the business,
financial and proprietary interests of the Company.
9.3 Exceptions
----------
Nothing in this clause prevents the Vendor from being a holder for the
purpose of investment only of marketable securities at the time of
acquisition quoted on a recognised stock exchange being collectively not
more than 5% in aggregate of the issued share capital of the listed
company.
20
<PAGE>
9.4 Severability
------------
(a) Each of the agreements, obligations and restrictions set out in clause
9.1 is separate, severable and independent.
(b) If clause 9.1 or any part of it is wholly or partly void, invalid, or
otherwise unenforceable that clause or that part will be deemed
eliminated or modified to the extent necessary to make the balance of
this Agreement and that clause or part enforceable.
9.5 Period of Restraint
-------------------
The period of years applicable to clauses 9.1(a), (b) and (c) will be:
(a) 5 years, or if that period is determined to be unenforceable, then
(b) 4 years, or if that period is determined to be unenforceable, then
(c) 3 years, or if that period is determined to be unenforceable, then
(d) 2 years, or if that period is determined to be unenforceable, then
(e) 12 months.
9.6 Area of Restraint
-----------------
The area applicable to clause 9.1(a) will be:
(a) Australia or if that area is determined to be unenforceable, then
(b) New South Wales, Victoria, Queensland and Western Australia, or if
that area is determined to be unenforceable, then
(c) New South Wales.
9.7 Change of Shareholding
----------------------
If either:
(a) the Purchaser ceases to be a subsidiary of TPIL otherwise than with
the consent of the Guarantor, which consent shall not be unreasonably
withheld; or
(b) the Purchaser fails to comply with a written direction from any of its
holding companies to release this clause 9,
21
<PAGE>
then this clause 9 shall cease to apply. For the purposes of this clause
"holding company" and "subsidiary" shall have the same meaning as under
the Corporations Law.
10. GUARANTEE AND INDEMNITY
-----------------------
10.1 Guarantee
---------
In consideration of the Purchaser entering into this Agreement, the
Guarantor guarantees to the Purchaser the due, complete and punctual
performance of all the covenants, Warranties, agreements and all other
obligations of the Vendor arising under this Agreement and the payment of
all moneys payable by the Vendor under this Agreement; provided, however,
that the benefits of this Agreement including, without limitation, clause
8, shall accrue to the Guarantor to the same extent as the Vendor.
10.2 Separate and Principal Obligations
----------------------------------
The obligations of the Guarantor under this clause constitute a direct,
primary and unconditional liability to pay on demand to the Purchaser any
sum or sums which the Vendor may be or become liable to pay under this
Agreement provided that where the liability arises or may arise from a
breach of a Warranty a claim has first been notified to the Vendor in
accordance with clause 8.
10.3 Obligations of Guarantor Unaffected
-----------------------------------
The obligations of the Guarantor under this guarantee and indemnity will
not be affected in any way by any act, omission, matter or thing which but
for this provision might operate to release it from its obligations under
this clause.
10.4 Indemnity
---------
As a separate and alternative obligation, any amount not paid by the
Guarantor under or pursuant to this clause on the basis of a guarantee
shall nevertheless be recoverable from the Guarantor on the basis of an
indemnity; provided, however, that the benefits of this Agreement
including, without limitation, clause 8, shall accrue to the Guarantor to
the same extent as the Vendor.
10.5 Payments in Gross
-----------------
All moneys payable by the Guarantor under this Agreement shall be paid in
full without set-off or counterclaim and free and clear of any present or
future Taxes, deduction or withholding of any kind.
22
<PAGE>
10.6 No Representations by Purchaser
-------------------------------
Subject to clause 7.3, the Guarantor agrees that it has not granted this
guarantee and indemnity as a result of, by reason of, or in reliance
upon, any representation or information of any kind whatsoever made or
given by or on behalf of the Purchaser.
10.7 Waiver of Rights by Guarantor
-----------------------------
The Guarantor waives in favour of the Purchaser all rights whatsoever
(whether at law or otherwise) against the Purchaser, the Vendor and any
other person and any property so far as necessary to give effect to this
Agreement.
10.8 No Rights Against the Vendor
----------------------------
The Guarantor shall not call on the Purchaser to sue or take proceedings
against the Vendor or raise a defence, set-off or counterclaim of itself
or of the Vendor in reduction of its liability hereunder.
10.9 Power to Grant the Guarantee
----------------------------
The Guarantor warrants to the Purchaser that it has full corporate
power, capacity and authority to grant the guarantee and indemnity it
has granted pursuant to this clause 10 and this guarantee and indemnity
constitutes a valid and legally binding obligation of the Guarantor.
10.10 Guarantor not Insolvent
-----------------------
The Guarantor warrants to the Purchaser that:
(a) The Guarantor has not applied for or consented to the appointment
of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its
property.
(b) The Guarantor is not unable to pay its debts as such debts become
due.
(c) The Guarantor has not made a general assignment for the benefit of
its creditors.
(d) The Guarantor has not commenced a voluntary case under the US
Federal Bankruptcy Code (as now or hereafter in effect).
(e) The Guarantor has not filed a petition seeking to take advantage of
any other law providing for the relief of debtors.
23
<PAGE>
(f) The Guarantor has not failed to controvert in a timely or appropriate
manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the US Federal Bankruptcy Code (as now or
hereafter in effect).
(g) The Guarantor has not taken any corporate action for the purpose of
effecting any of the events referred to in paragraphs (a) to (f).
(h) No proceeding or case has been commenced, without the application or
consent of the Guarantor, in any court of competent jurisdiction
seeking:
(i) the liquidation, reorganisation, dissolution, winding up or
composition or readjustment of the Guarantor's debts; or
(ii) the appointment of a trustee, receiver, custodian or liquidator
of it or of all or any substantial part of its assets,
and no such proceeding or case has continued undismissed or unstayed
and in effect for a period of 60 days; and no order for relief has
been entered in an involuntary case under the US Federal Bankruptcy
Code (as now or hereafter in effect) against the Guarantor.
11. DISCLOSURES AND ANNOUNCEMENTS
-----------------------------
11.1 Provisions to Remain Confidential
---------------------------------
Subject to clauses 11.2 and 11.3, the Parties must not disclose or announce
to any person and must not permit or procure any other person to disclose
or announce to any person the existence or details of negotiations leading
to this Agreement, the provisions of this Agreement or any matters relating
to this Agreement.
11.2 Permitted Disclosures
---------------------
A Party may make or permit or procure another person to make disclosures:
(a) to those of its employees, officers, professional or financial
advisors and bankers as the Party reasonably thinks necessary but only
on a strictly confidential basis; and
(b) if disclosure is required by applicable law, but only if the form and
terms of that disclosure have first been notified to the other Parties
and the other Parties have had a reasonable opportunity to comment on
the form and terms.
24
<PAGE>
11.3 Announcements
-------------
Any Party may make announcements or statements at any time in the form
previously agreed by the Parties in writing, that agreement not to be
unreasonably withheld.
11.4 Survival of Obligations
-----------------------
This clause 11 will survive termination of this Agreement.
12. NOTICES
-------
12.1 Address for Notices
-------------------
All Notices must be:
(a) in writing;
(b) addressed to the recipient at the address or facsimile number set
out in paragraph (i) or (ii) (as applicable) or to any other address
or facsimile number a Party may notify to the other:
(i) to the Vendor or the Guarantor:
Address:
200 Continental Boulevard
El Segundo, California 90245
United States of America
Attention:
General Counsel
Facsimile No: 0011 1 310 615-1234
(ii) to the Purchaser:
Address:
Tech Pacific Holdings Limited
55 Mentmore Avenue
Rosebery NSW 2018
Australia
Attention:
Graham Pickles
Facsimile No:
(612) 697 8528
(c) sent to the recipient by hand, prepaid post (airmail if outside
Australia) or facsimile; and
(d) signed by a person duly authorised by the sender.
25
<PAGE>
12.2 Time of Receipt
---------------
Without limiting any other means by which a Party may be able to prove that
a Notice has been received by another Party, a Notice will be deemed to be
duly received:
(a) if sent by hand, when left at the address of the recipient;
(b) if sent by pre-paid post, 5 days (if posted within Australia to an
address in Australia) or 10 days (if posted from one country to
another) after the date of posting; or
(c) if sent by facsimile, on receipt by the sender of an acknowledgment
or transmission report generated by the machine from which the
facsimile was sent indicating that the facsimile was sent in its
entirety to the recipient's facsimile number.
In the event, however, a Notice is received on a day which is not a
Business Day, or is received after 5.00 pm on any Business Day, that Notice
will be deemed to be duly received at 9.00 am on the first Business Day
after that day.
13. MISCELLANEOUS
-------------
13.1 Further Assurances
------------------
(a) Each Party must, at its own expense and when requested by another
Party, promptly do, execute and deliver everything reasonably
necessary to give full effect to this Agreement and the transactions
contemplated by this Agreement, and must procure all relevant third
parties to do the same.
(b) At the request of the Purchaser, the Vendor must execute under seal a
power of attorney in favour of the Purchaser or a person nominated by
the Purchaser to enable the Purchaser (or its nominees) to attend and
vote at general meetings of the Company and to otherwise exercise
rights attaching to the Sale Shares.
13.2 Amendment
---------
This Agreement may be amended only by an instrument in writing signed by
all of the Parties.
13.3 Costs
-----
Each Party must bear its own costs for the preparation, execution and
completion of this Agreement and the
26
<PAGE>
documents and transactions contemplated by this Agreement except that the
Purchaser must bear all stamp duty chargeable on this Agreement, the
transfer of the Sale Shares and any other documents contemplated by this
Agreement.
13.4 Assignment
----------
Subject to clause 7.6, a Party may not assign any of its rights under this
Agreement without the prior written consent of the other Parties.
13.5 Waiver
------
(a) A waiver of a provision of or right under this Agreement is
effective only if it is in writing signed by the Party granting the
waiver.
(b) A waiver is effective only in the specific instance and for the
specific purpose for which it is given.
(c) A single or partial exercise of a right does not preclude any other
or further exercise of that right or the exercise of any other right.
(d) Failure by a Party to exercise or delay in exercising a right does
not prevent its exercise or operate as a waiver.
(e) A Party is not liable for any loss, cost or expense of any other
Party caused or contributed to by the waiver, exercise, attempted
exercise, failure to exercise or delay in the exercise of a right.
13.6 Counterparts
------------
This Agreement may be executed in any number of counterparts and all
counterparts taken together will constitute one instrument.
13.7 Invalidity
----------
Any provision of this Agreement which is invalid or unenforceable in any
jurisdiction will as to that jurisdiction only be read down or severed to
the extent of that invalidity or unenforceability. The remaining provisions
of this Agreement which are self-sustaining and capable of separate
enforcement without regard to the read down or severed provision in that
jurisdiction are and continue to be valid and enforceable in accordance
with their terms.
27
<PAGE>
13.8 Consents and Approval
---------------------
A Party may give its consent conditionally or unconditionally or
withhold its approval or consent in its absolute discretion unless this
Agreement expressly provides otherwise.
13.9 Governing Law
-------------
This Agreement is governed by and construed in accordance with the laws
of the State of New South Wales.
13.10 Jurisdiction
------------
Each Party irrevocably and unconditionally:
(a) submits to the non-exclusive jurisdiction of the courts of the State
of New South Wales and any court which may hear appeals from those
courts;
(b) waives any objection it may now or in the future have to proceedings
being brought in those courts, any claim that any proceedings
brought in those Courts have been brought in an inconvenient forum
or any claim that those courts do not have jurisdiction; and
(c) agrees that any document required to be served in any proceedings
brought may be served in the manner in which Notices may be given
under clause 12. This Agreement does not preclude any other mode of
service permitted by law.
13.11 Non-Merger
----------
The Warranties and other representations and agreements of the Parties in
this Agreement are continuing and will not merge or be extinguished on
Completion and will survive after Completion.
13.12 Effect of Termination
----------------------
If this Agreement is terminated under clause 6.5 then:
(a) each Party is released from its obligations to further perform the
Agreement except those obligations which by their nature survive
termination; and
(b) each Party retains the rights and remedies it has against any other
Party (including, without limitation, its rights and remedies
arising prior to termination).
28
<PAGE>
13.13 Entire Agreement
----------------
This Agreement, together with any documents referred to in this
Agreement or executed simultaneously in connection with this Agreement,
comprises the entire agreement between the Parties with respect to the
subject matter of this Agreement and supersedes all prior understandings,
agreements, representations and correspondence.
13.14 Survival of Indemnities
-----------------------
(a) Subject to clause 8.4, the indemnities contained in this Agreement
are continuing obligations of the Parties separate and independent
from their other obligations and will survive termination of this
Agreement.
(b) Subject to clauses 8.2 and 8.3, it is not necessary for a Party to
incur expense or make payment before enforcing a right of indemnity
conferred by this Agreement.
13.15 Rights Cumulative
-----------------
The rights, remedies and powers of the Parties contained in this
Agreement are cumulative and do not exclude any rights, remedies or
powers otherwise provided to the Parties.
13.16 Indemnity Unaffected
--------------------
The indemnities contained in this Agreement are absolute and
unconditional in any and all circumstances and will not be prejudiced,
released, discharged or otherwise affected by any investigation by or on
behalf of the Party having the benefit of the indemnity or by any act,
matter or thing which might otherwise have the effect of prejudicing,
releasing, discharging or affecting the liability of the Party giving
the indemnity under the indemnity.
29
<PAGE>
EXECUTED as an agreement.
- --------
SIGNED for and on )
- ------ )
behalf of )
MERISEL, INC )
- ------------ )
by KELLY MARTIN )
------------ )
its duly authorised )
representative in the ) /s/ Kelly Martin
presence of: ) ----------------------------------
Signature of duly authorised
representative
/s/ Lesley Mobbs
____________________________________
Signature of Witness
Lesley Mobbs
____________________________________
Name of Witness
SIGNED for and on )
- ------ )
behalf of )
MERISEL ASIA, INC. )
- ------------------ )
by KELLY MARTIN )
------------ )
its duly authorised )
representative in the ) /s/ Kelly Martin
presence of: ) ----------------------------------
Signature of duly authorised
representative
/s/ Lesley Mobbs
_____________________________________
Signature of Witness
Lesley Mobbs
_____________________________________
Name of Witness
SIGNED for and on )
- ------ )
behalf of )
TECH PACIFIC HOLDINGS LTD )
- ------------------------- )
by GRAHAM PICKLES )
-------------- )
its duly authorised )
representative in the ) /s/ GRAHAM PICKLES
presence of: ) ----------------------------------
Signature of duly authorised
representative
/s/ DAVID MORRIS
- ---------------------------------
Signature of Witness
David Morris
- ---------------------------------
Name of Witness
30
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
Merisel (UK) Limited........................... United Kingdom
Merisel Canada, Inc............................ Canada
Merisel S.N.C.................................. France
Merisel GESmbh................................. Austria
MIFINCO, Inc................................... Delaware
Merisel Latin America, Inc..................... Delaware
Softsel Foreign Sales Corporation.............. U.S. Virgin Islands
Merisel GmbH................................... Germany
Merisel Mexico S.A. de C.V..................... Mexico
Merisel Americas, Inc.......................... Delaware
Merisel Europe, Inc............................ Delaware
Merisel FAB, Inc............................... Delaware
Merisel Asia, Inc.............................. Delaware
Merisel Information Services, Inc.............. Delaware
Merisel Licensing, Inc......................... Delaware
Merisel Properties, Inc........................ Delaware
Merisel Capital Funding, Inc................... Delaware
Merisel Netherlands B.V........................ Netherlands
Merisel France, Inc............................ Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR MERISEL, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,378
<SECURITIES> 0
<RECEIVABLES> 437,843
<ALLOWANCES> 24,786
<INVENTORY> 561,230
<CURRENT-ASSETS> 1,035,357
<PP&E> 141,581
<DEPRECIATION> 51,200
<TOTAL-ASSETS> 1,230,334
<CURRENT-LIABILITIES> 754,493
<BONDS> 321,375
0
0
<COMMON> 299
<OTHER-SE> 154,167
<TOTAL-LIABILITY-AND-EQUITY> 1,230,334
<SALES> 5,956,967
<TOTAL-REVENUES> 5,956,967
<CGS> 5,633,278
<TOTAL-COSTS> 5,633,278
<OTHER-EXPENSES> 338,476
<LOSS-PROVISION> 39,435
<INTEREST-EXPENSE> 37,583
<INCOME-PRETAX> (105,690)
<INCOME-TAX> (21,779)
<INCOME-CONTINUING> (83,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,911)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
