<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) SEPTEMBER 19, 1997
-----------------------
MERISEL, INC.
-------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-17156 95-4172359
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
200 CONTINENTAL BOULEVARD, EL SEGUNDO, CALIFORNIA 90245-0948
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 615-3080
--------------------
<PAGE>
Item 5. OTHER EVENTS
On September 19, 1997, Merisel, Inc. (the "Company") issued the press release
attached hereto as Exhibit 99.1 (the "Press Release") announcing that it has
entered into an agreement (the "Stock and Note Purchase Agreement") with a
subsidiary of Stonington Partners, Inc. ("Stonington") under which Stonington
has loaned $137.1 million to the Company in the form of an unsecured convertible
debt instrument (the "Note") due January 31, 1998 if the debt is not converted
into equity prior to that time. Stonington has also made an equity investment
of $14.9 million in exchange for approximately 4.9 million shares (the "Initial
Shares") of common stock of the Company ("Common Stock"). The Stock and Note
Purchase Agreement, attached hereto as Exhibit 99.2, provides that, upon a
favorable stockholder vote and certain other conditions, the Note, attached
hereto as Exhibit 99.3, will automatically convert into Common Stock (the
"Conversion Shares"). The Conversion Shares and the Initial Shares would
together represent approximately 62.4 percent of the outstanding Common Stock.
The Company also entered into a registration rights agreement, attached hereto
as Exhibit 99.4, providing for the registration by the Company of the Initial
Shares, the Conversion Shares and, under certain circumstances, the Note.
The proceeds from the issuance of the Initial Shares and the Note were used to
repay substantially all of the senior and subordinated debt of the Company's
North American operating subsidiary, Merisel Americas, Inc.
The Press Release also announced that the Company's agreement with certain of
the holders of the Company's 12 1/2% Senior Notes due 2004 (the "12.5% Notes")
terminated as of September 19, 1997 after such holders declined to extend their
agreement with respect to their debt restructuring plan. Accordingly, the 12.5%
Notes will remain outstanding, and, to bring the interest on the 12.5% Notes
current, and as required by the Indenture governing the 12.5% Notes (the
"Indenture"), approximately $8 million has been deposited with the Indenture
trustee for payment on October 16, 1997 to holders of 12.5% Notes of record on
October 6, 1997. The Company believes that, given such deposit for payment, it
is in full compliance with all of its obligations under the Indenture.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 Press release dated September 19, 1997
99.2 Stock and Note Purchase Agreement, dated Sepetmber 19, 1997,
among Phoenix Acquisition Company II, L.L.C., Merisel, Inc. and
Merisel Americas, Inc.
99.3 Convertible Promissory Note dated Septmeber 19, 1997 of Merisel,
Inc. and Merisel Americas, Inc.
99.4 Registration Rights Agreement, dated Septmeber 19, 1997, by and
among Merisel, Inc., Merisel Americas, Inc. and Phoenix
Acquisition Company II, L.L.C.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERISEL, INC.
Date: September 22, 1997 By: /s/ KAREN A. TALLMAN
-----------------------
Karen A. Tallman
Vice President, General Counsel and
Secretary
3
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Contacts:
(800) 686-1910 (24-hour pager)
James Illson
Senior Vice President, Finance and CFO
(310) 615-1295
Karen Tallman
Vice President, General Counsel
(310) 615-1235
Financial Media/Investor Relations:
Charles B. Freedman, Assistant Treasurer
(310) 615-1376
Rivian Bell
(310) 615-6812
STONINGTON PARTNERS FUNDS $152 MILLION
FOR EQUITY, DEBT INVESTMENTS IN MERISEL
MERISEL AGREEMENT WITH NOTEHOLDERS TERMINATES;
COMPANY TO MAKE INTEREST, PRINCIPAL PAYMENTS TODAY
El Segundo, Calif. (Sept. 19, 1997) Merisel, Inc. (NASDAQ:MSEL) announced that
it has entered into an agreement today with Stonington Partners, Inc., a New
York-based investment firm, under which Stonington has loaned $137.1 million to
the company in the form of an unsecured convertible debt instrument to refinance
existing operating company debt. As part of the agreement, Stonington is also
making an equity investment of $14.9 million in exchange for approximately 4.9
million shares of common stock.
The proceeds of the debt and equity investment will be used to retire
substantially all of the senior and subordinated debt, aggregating approximately
$148 million, of Merisel Americas, Inc., the Merisel subsidiary that operates
the company's North American distribution businesses. Upon conversion of the
Stonington debt to equity, which is subject to stockholder approval, the
operating company will be essentially debt free, except for trade payables.
The parent company's $125 million principal amount of 12.5% Senior Notes will
remain outstanding. To bring the interest on the notes current, and as required
by the indenture relating to the 12.5% Senior Notes, approximately $8 million
has been deposited with the indenture trustee for payment on Oct. 16 to
noteholders of record on Oct. 6, 1997. The company believes that, given such
deposit for payment, it is in full compliance with all of its obligations under
the indenture. The reinstatement of the interest payments on the 12.5% Senior
Notes occurred after the noteholders declined to extend their agreement with
respect to their debt restructuring plan.
<PAGE>
Merisel/Stonington Agreement
Page 2
Under the terms of the agreement with Stonington, the convertible debt will take
the form of bridge financing substantially due Jan. 31, 1998, if the debt is not
converted to equity prior to that time. The note will convert automatically to
common stock upon a favorable stockholder vote and satisfaction of certain other
conditions. The converted debt, together with the $14.9 million equity
investment, would represent approximately 62.4 percent of the then outstanding
common stock. Current stockholders would retain an equity interest equal to
37.6 percent of the post-restructuring common stock. The agreement also
eliminates the need for a prepackaged plan of reorganization.
"This new agreement provides a viable way to restructure our operating company
debt and retain maximum value for stockholders while allowing Merisel to partner
with a well-financed, proven investment organization," stated Dwight A.
Steffensen, Merisel chairman and chief executive officer. "While we were
prepared to put the noteholder restructuring plan to a stockholder vote, given
the termination of the noteholder agreement, the company has elected to
implement the Stonington proposal as the best available alternative.
Accordingly, we intend to move aggressively to complete the necessary
documentation and solicit stockholder acceptance of the Stonington debt
conversion plan.
"The benefits of the Stonington plan are substantial. The agreement
contemplates a significant deleveraging of the operating company. Further, until
the conversion is approved and occurs, Stonington has agreed to defer payment of
interest on the $137 million loan, and the deferred amounts would be included in
the debt converted to equity. Stonington has agreed to assist the company in
obtaining additional working capital financing and, should stockholders approve
the debt conversion, to provide a $50 million, six-month working capital loan
until such financing is available. The fresh capital should result in improved
purchasing arrangements that should translate into more competitive programs for
our value-added resellers and commercial dealer and retail customers."
The Stonington agreement will be filed Sept. 22 with the Securities and Exchange
Commission (SEC) as part of a form 8-K. The company expects to file a new proxy
statement with the SEC shortly. A stockholder meeting to consider the plan will
be scheduled later this fall.
Merisel, Inc. (NASDAQ:MSEL) is a leader in the distribution of computer hardware
and software products and reported 1996 sales of $3.44 billion from its North
American operations. Merisel distributes a full line of 25,000 products and
services from the industry's leading manufacturers to more than 45,000 resellers
throughout North America. In addition, the company provides a full range of
customized, value-added services. Merisel also offers dedicated support to high-
end resellers through the Merisel Open Computing Alliance (MOCAtm ), which is
dedicated to Sun Microsystems and related third-party products. @Merisel, the
company's corporate home page, is located at http://www.merisel.com. Additional
information can be obtained by fax at (310) 615-6811.
# # #
<PAGE>
EXHIBIT 99.2
================================================================================
STOCK AND NOTE PURCHASE AGREEMENT
by and among
Phoenix Acquisition Company II, L.L.C.
Merisel, Inc.
and
Merisel Americas, Inc.
Dated September 19, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
<S> <C>
SECTION 1.01. Definitions................................................... 1
ARTICLE II
Purchase; Funding and Closing
SECTION 2.01. Closing....................................................... 4
SECTION 2.02. Funding....................................................... 5
SECTION 2.03. Purchase; Purchase Price...................................... 5
ARTICLE III
Representations and Warranties of Parent and the Company
SECTION 3.01. Organization; Certificate of Incorporation; By-laws........... 5
SECTION 3.02. Capitalization................................................ 6
SECTION 3.03. Authority..................................................... 7
SECTION 3.04. Noncontravention; Filings and Consents........................ 7
SECTION 3.05. SEC Documents; Financial Statements; Undisclosed Liabilities.. 8
SECTION 3.06. Information Supplied.......................................... 9
SECTION 3.07. Absence of Certain Changes or Events.......................... 9
SECTION 3.08. Litigation.................................................... 10
SECTION 3.09. Absence of Changes in Benefit Plans........................... 10
SECTION 3.10. Employee Benefits; ERISA...................................... 10
SECTION 3.11. Labor Matters................................................. 12
SECTION 3.12. Key Employees................................................. 12
SECTION 3.13. Taxes......................................................... 13
SECTION 3.14. Compliance with Applicable Laws; Permits...................... 13
SECTION 3.15. Environmental Matters......................................... 13
SECTION 3.16. Insurance..................................................... 14
SECTION 3.17. Parent Contracts.............................................. 15
SECTION 3.18. Intellectual Property......................................... 15
SECTION 3.19. Receivables................................................... 16
SECTION 3.20. Inventories................................................... 16
SECTION 3.21. State Takeover Statute........................................ 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.22. Voting Requirements........................................... 17
SECTION 3.23. Brokers....................................................... 17
SECTION 3.24. No Insolvency................................................. 17
ARTICLE IV
Representations and Warranties of Lender
SECTION 4.01. Organization.................................................. 17
SECTION 4.02. Authority..................................................... 17
SECTION 4.03. Noncontravention; Filings and Consents........................ 18
SECTION 4.04. Information Supplied.......................................... 18
SECTION 4.05. Financing..................................................... 19
SECTION 4.06. Acquisition of Purchased Shares and Conversion Shares for
Investment.................................................. 19
SECTION 4.07. Brokers....................................................... 19
ARTICLE V
Covenants of Parent, the Company and Lender
SECTION 5.01. Conduct of Business........................................... 19
SECTION 5.02. No Solicitation; Company Recommendation....................... 22
SECTION 5.03. Revolving Credit Facility and Stand-by Commitment............. 24
ARTICLE VI
Additional Agreements
SECTION 6.01. Stockholders Meeting; Preparation of the Proxy Statement...... 25
SECTION 6.02. Access to Information; Confidentiality........................ 25
SECTION 6.03. Approvals and Consents; Cooperation........................... 26
SECTION 6.04. Stock Option Plans............................................ 26
SECTION 6.05. Fees and Expenses............................................. 26
SECTION 6.06. Notification.................................................. 27
SECTION 6.07. Rights of Stockholders to Participate in Certain Transactions. 28
SECTION 6.08. Public Announcements.......................................... 29
SECTION 6.09. Use of Proceeds............................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE VII
Conditions Precedent
<S> <C>
SECTION 7.01. Conditions to Each Party's Obligation to Effect the Funding
and the Purchase............................................. 29
SECTION 7.02. Additional Conditions to Lender's Obligation to Effect the
Funding and the Purchase..................................... 30
SECTION 7.03. Additional Conditions to Parent's Obligation to Effect the
Funding and the Purchase..................................... 31
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination................................................... 32
SECTION 8.02. Effect of Termination......................................... 32
SECTION 8.03. Amendment..................................................... 33
SECTION 8.04. Extension; Waiver............................................. 33
ARTICLE IX
General Provisions
SECTION 9.01. Survival of Representations................................... 33
SECTION 9.02. Notices....................................................... 33
SECTION 9.03. Interpretation................................................ 34
SECTION 9.04. Counterparts.................................................. 34
SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries................ 34
SECTION 9.06. Assignment.................................................... 34
SECTION 9.07. Specific Performance.......................................... 35
SECTION 9.08. Governing Law................................................. 35
</TABLE>
iii
<PAGE>
STOCK AND NOTE PURCHASE AGREEMENT (this "Agreement") dated September
---------
19, 1997 among Phoenix Acquisition Company II, L.L.C., a Delaware limited
liability company ("Lender") (whose sole member is Stonington Capital
------
Appreciation 1994 Fund, L.P., which is managed by Stonington Partners, Inc.
("Stonington")), Merisel, Inc., a Delaware corporation ("Parent"), and Merisel
- ------------ ------
Americas, Inc., a Delaware corporation and wholly owned subsidiary of Parent
(the "Company").
-------
WHEREAS, Lender desires to purchase (the "Purchase") from Parent and
--------
Parent desires to sell to Lender 4,901,316 shares of newly issued Common Stock
(the "Purchased Shares");
----------------
WHEREAS, Lender also desires to transfer $137,100,000 to Parent for
the benefit of the Company in exchange for a Convertible Promissory Note (the
"Note") to be issued by Parent and the Company, in substantially the form
- -----
attached hereto as Exhibit A;
WHEREAS, the Purchase and the Funding (as defined below) are to occur
substantially simultaneously.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Lender, Parent and the Company hereby agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Definitions. As used in this Agreement, the following
-----------
terms shall have the following meanings:
"Affiliate" with respect to any person, shall mean any other person
---------
who, directly or indirectly, controls, is controlled by, or is under common
control with such first person.
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended as of the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidentiality Agreement" means the confidentiality letter dated
-------------------------
June 24, 1997 between Parent and Lender.
<PAGE>
2
"control" with respect to any person, means the power to direct
-------
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
"DGCL" means the Delaware General Corporation Law.
----
"Environmental Laws" means any federal, state, local or foreign
------------------
statute, law, ordinance, regulation, rule, code or order and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution,
protection, preservation or restoration of the environment or natural resources,
including and/or relating to the use, handling, transportation, treatment,
storage, disposal, processing, release or discharge of Hazardous Materials, in
effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification
---------------------
number, license or other authorization required of Parent or its subsidiaries
under any applicable Environmental Law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Hazardous Materials" means (a) any petroleum, petroleum products, by
-------------------
product or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical or substance
regulated as toxic or hazardous or as a pollutant or contaminant or waste under
any applicable Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement Act of
-------
1976, as amended.
"Indenture" means the indenture dated as of October 15, 1994 between
---------
Parent and the Bank of New York, as successor to NationsBank of Texas, N.A., as
Trustee.
"knowledge" or "known" means with respect to Parent or the Company the
--------- -----
actual knowledge, after due inquiry, of the executive officers of Parent or any
of its subsidiaries.
"lien" means any encumbrance, hypothecation, infringement, lien,
----
mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of any
nature whatsoever of, on, or with respect to any asset, property or property
interest; provided, however, that the term "lien" shall not include (i) liens
-------- -------
for water and sewer charges and current taxes not yet due and payable or being
contested in good faith, (ii) mechanics', carriers', workers', repairers',
materialmen's,
<PAGE>
3
warehousemen's and other similar liens arising or incurred in the ordinary
course of business or (iii) all liens approved in writing by the other party
hereto.
"Limited Waiver Agreement" means the Limited Waiver and Voting
------------------------
Agreement dated as of April 11, 1997 by and among Parent and certain holders of
the 122% Senior Notes.
"Material Adverse Effect" means any change or effect that is, or would
-----------------------
be reasonably likely to be, materially adverse to the assets, liabilities,
business, operations, properties (including intangible properties), condition
(financial or otherwise) or results of operations of Parent and its
subsidiaries, taken as a whole.
"person" means an individual, corporation, partnership, joint venture,
------
association, trust, unincorporated organization or other similar entity.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"subsidiary" of any person means another person, of which such first
----------
person (either alone or through or together with any other subsidiary) owns an
amount of the voting securities, other voting ownership or voting partnership
interests which is sufficient to elect at least a majority of its Board of
Directors or other governing body, or if there are no such voting interests, 50%
or more of the equity interests.
"122% Senior Notes" means Parent's 122% Senior Notes due December 31,
-----------------
2004 issued under the Indenture.
In addition, the following terms are defined in the Section indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Agreement.............................. PREAMBLE
Benefit Plans.......................... (S)3.10
Closing................................ (S)2.01
Closing Date........................... (S)2.01
Commitment Letter...................... (S)5.03
Common Stock........................... (S)3.02
Commonly Controlled Entity............. (S)3.10
Conversion............................. (S)3.02
Conversion Date........................ (S)3.19
Conversion Shares...................... (S)6.01
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
Employee Agreements.................... (S)3.10
Equivalent Amount...................... (S)6.07
ERISA.................................. (S)3.10
Expenses............................... (S)6.05
Foreign Benefit Plan................... (S)3.10
Funding................................(S)2.02(a)
Funding Proceeds.......................(S)2.02(b)
Governmental Entity....................(S)3.04(b)
Lender................................. PREAMBLE
Lender Offeree......................... (S)6.07
Limited Waiver and Agreement to Amend..(S)7.02(d)
Note................................... PREAMBLE
1997 Stock Plan........................ (S)3.10
Parent................................. PREAMBLE
Parent Contract........................ (S)3.17
Parent Intellectual Property........... (S)3.18
Parent Stockholder Approvals........... (S)3.22
Preferred Stock........................ (S)3.02
Proceeds...............................(S)2.03(b)
Proxy Statement........................(S)3.04(b)
Purchase............................... PREAMBLE
Purchased Shares....................... PREAMBLE
Remarketing Facility...................(S)5.03(b)
Reverse Stock Split.................... (S)3.04
SEC Documents.......................... (S)3.05
Stockholders Meeting................... (S)6.01
Stock Option Plans..................... (S)6.04
Stonington............................. PREAMBLE
Takeover Proposal......................(S)5.02(a)
taxes.................................. (S)3.13
Termination Fee........................(S)6.05(d)
Third Party Offer...................... (S)6.07
Transaction Fee........................(S)6.05(b)
</TABLE>
ARTICLE II
Purchase; Funding and Closing
-----------------------------
SECTION 2.01. Closing. The closing of the Funding and the Purchase
-------
(the "Closing") shall take place at 10:00 a.m. on the first business day after
-------
the satisfaction or waiver of the conditions set forth in Article VII (the
"Closing Date") at the offices of
- -------------
<PAGE>
5
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, unless
another date or place is agreed to in writing by the parties hereto.
SECTION 2.02. Funding. (a) At the Closing, upon the terms and
-------
subject to the conditions set forth herein, Parent shall deliver to Lender, and
Lender shall accept and purchase from Parent and the Company, the Note (the
"Funding").
- --------
(b) At the Closing, upon the terms and subject to the conditions set
forth herein, Parent shall deliver to Lender the Note against payment by Lender
to Parent of $137,100,000 (the "Funding Proceeds") by wire transfer in
----------------
immediately available funds to such account as Parent shall designate to Lender
at least one business day prior to the Closing Date.
SECTION 2.03. Purchase; Purchase Price. (a) At the Closing, upon
------------------------
the terms and subject to the conditions set forth herein, Parent agrees to sell
to Lender, and Lender agrees to purchase from the Parent, the Purchased Shares.
(b) At the Closing, Lender shall pay to the Parent $14,900,000 (such
amount together with the Funding Proceeds being referred to herein as, the
"Proceeds") for the Purchased Shares, by wire transfer in immediately available
- ---------
funds to such account as Parent shall designate to Lender at least one business
day prior to the Closing Date.
(c) At the Closing, Parent shall deliver to Lender a stock certificate
evidencing the Purchased Shares in definitive form, dated the Closing Date and
registered in the name of Lender.
ARTICLE III
Representations and Warranties of Parent and the Company
--------------------------------------------------------
Each of Parent and the Company hereby represents and warrants to
Lender as follows:
SECTION 3.01. Organization; Certificate of Incorporation; By-laws.
---------------------------------------------------
(a) Each of Parent and the Company and each of Parent's other subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority and all necessary government approvals to own, lease and operate
its properties and to carry on its business as now being conducted. Each of
Parent and the Company and each of Parent's other subsidiaries is duly qualified
or licensed to do business and in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the
<PAGE>
6
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) Each of Parent and the Company has made available to Lender
complete and correct copies of its certificate of incorporation and by-laws, and
the certificate of incorporation and by-laws or other comparable charter or
organizational documents of its subsidiaries, in each case as amended to the
date of this Agreement.
(c) Schedule 3.01(c) sets forth a true and accurate list of all the
subsidiaries of Parent that are required to be listed by Parent in its annual
report on Form 10-K. All the outstanding shares of capital stock of each
subsidiary are owned by Parent or by another wholly owned subsidiary of Parent,
free and clear of all liens, and are duly authorized, validly issued, fully paid
and nonassessable.
SECTION 3.02. Capitalization. The authorized capital stock of Parent
--------------
consists of 50,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), and 1,000,000 shares of preferred stock, par value $.01 per
- -------------
share (the "Preferred Stock"). As of September 18, 1997, (i) 30,078,495 shares
---------------
of Common Stock were issued and outstanding and no shares of Preferred Stock
were issued and outstanding, and (ii) 1,690,252 shares of Common Stock were
reserved for issuance upon exercise of the outstanding stock options granted
under the Stock Option Plans. All the outstanding shares of Common Stock are,
the Purchased Shares will be, and, subject to obtaining the requisite approvals
of Parent's stockholders, all shares of Common Stock which are to be issued upon
conversion of the Note (the "Conversion"), will be, when issued in accordance
----------
with the terms of the Note, duly authorized, validly issued, fully paid and
nonassessable and free of any pre-emptive rights in respect thereto. No bonds,
debentures, notes or other indebtedness of Parent convertible into voting
securities of Parent are issued or outstanding and, except as set forth above,
(i) no shares of capital stock or other voting securities of Parent are
outstanding, (ii) no equity equivalents, interests in the ownership or earnings
of Parent or other similar rights are outstanding other than stock appreciation
rights issued to Dwight Steffensen that relate to 500,000 phantom shares of
Common Stock, the proceeds of which may be paid in cash or stock and (iii) other
than options issued under the Stock Option Plans, the stock appreciation rights
referred to in clause (ii) of this Section 3.02 and as set forth on Schedule
3.02, there are no existing options, warrants, calls, subscriptions or other
rights or agreements or commitments relating to the capital stock of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to
issue, transfer or sell any shares of capital stock, or other equity interest
in, Parent or any of its subsidiaries or obligating Parent or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date of this
Agreement, there are no outstanding contractual obligations of Parent or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its subsidiaries.
<PAGE>
7
SECTION 3.03. Authority. Each of Parent and the Company has the
---------
requisite corporate power and authority to execute and deliver this Agreement
and the Note. Parent has the requisite corporate power and authority to issue
the Purchased Shares and, subject to obtaining the Parent Stockholder Approvals,
to issue the Conversion Shares. The execution and delivery of this Agreement
and the Note by each of Parent and the Company and the consummation by each of
Parent and the Company of the transactions contemplated hereby and by the Note
have been duly authorized by all necessary corporate action on the part of
Parent and the Company, as the case may be, and, except for the Parent
Stockholder Approvals, no other corporate proceedings on the part of Parent or
the Company are necessary to authorize this Agreement or to consummate the
Funding, the Purchase, the Conversion and the other transactions contemplated
hereby and by the Note. Each of this Agreement and the Note has been duly and
validly executed and delivered by each of Parent and the Company and, assuming
the due execution hereof by Lender in the case of this Agreement, constitutes
the valid and binding obligation of Parent and the Company, enforceable against
Parent and the Company in accordance with its terms.
SECTION 3.04. Noncontravention; Filings and Consents. (a) Except as
--------------------------------------
set forth in Schedule 3.04 and assuming receipt of the Parent Stockholder
Approvals and the application of the Proceeds as provided in Section 6.09, the
execution and delivery of this Agreement and the Note by Parent and the Company
do not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions of this Agreement and the Note by Parent and
the Company will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the properties or assets of Parent, the Company or any of Parent's other
subsidiaries under (i) the certificate of incorporation, as amended, or by-laws
of Parent, the Company or the comparable charter or organizational documents of
any of Parent's other subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent, the Company or any of
Parent's other subsidiaries or their respective properties or assets or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, the Company or any of Parent's other subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (w) have a Material Adverse Effect,
(x) impair in any material respect Lender's ability to own, possess or exercise
the rights of an owner with respect to the Note, the Purchased Shares or the
Conversion Shares, (y) reasonably be expected to impair, in any material
respect, the ability of Parent or the Company to perform its obligations under
this Agreement or the Note or (z) prevent or impede, in any material respect,
the consummation of the transactions contemplated by this Agreement or the Note.
<PAGE>
8
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
-------------------
by Parent, the Company or any of Parent's other subsidiaries in connection with
the execution and delivery of this Agreement or the Note by Parent, the Company
or the consummation by Parent and the Company of the transactions contemplated
by this Agreement or the Note, except for (i) with respect to issuance of the
Conversion Shares, the filing of a notification and report form under the HSR
Act, (ii) the filing with the SEC of a proxy statement relating to the approval
by Parent's stockholders of the one-for-five reverse stock split of the Common
Stock (the "Reverse Stock Split"), the issuance of the Conversion Shares and the
-------------------
1997 Stock Plan (as amended or supplemented from time to time, the "Proxy
-----
Statement"), (iii) the filing of a listing application with Nasdaq Stock Markets
- ---------
National Market with respect to listing the Conversion Shares and the Purchased
Shares, (iv) the filing of an amendment to Parent's certificate of incorporation
following receipt of the requisite stockholder approval to reflect the Reverse
Stock Split and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate (x) impair, in any material
respect, the ability of Parent to perform its obligations under this Agreement
or the Note or (y) prevent or significantly delay consummation of the
transactions contemplated by this Agreement or the Note.
SECTION 3.05. SEC Documents; Financial Statements; Undisclosed
------------------------------------------------
Liabilities. (a) Parent has filed all reports, proxy statements, forms, and
- -----------
other documents with the SEC since December 31, 1993 including, without
limitation, the Registration Statement on Form S-4, filed on May 19, 1997 as
amended, as required under the Securities Act and the Exchange Act
(collectively, the "SEC Documents"). As of their respective dates, (i) the SEC
-------------
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents
and (ii) none of the SEC Documents when filed contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements of Parent included in the SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of
<PAGE>
9
unaudited statements, to normal year-end audit adjustments which did not or will
not, individually or in the aggregate, have a Material Adverse Effect).
(c) Except as set forth in the SEC Documents filed and publicly
available prior to the date of this Agreement, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent audited consolidated balance sheet
included in the SEC Documents filed and publicly available prior to the date of
this Agreement, neither Parent nor any of its subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, would have a Material
Adverse Effect.
SECTION 3.06. Information Supplied. The Proxy Statement, including
--------------------
all information incorporated therein by reference, will not, on the date the
Proxy Statement is first mailed to Parent's stockholders and at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation or warranty is made by
Parent with respect to statements made or incorporated by reference therein
based on information supplied by Lender specifically for inclusion or
incorporation by reference therein. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
SECTION 3.07. Absence of Certain Changes or Events. Except as
------------------------------------
disclosed in the SEC Documents filed and publicly available prior to the date of
this Agreement or as set forth in Schedule 3.07, since December 31, 1996,
Parent, the Company and Parent's other subsidiaries have conducted their
respective businesses only in the ordinary course consistent with past practice,
and there has not been (i) any Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
Parent's capital stock, (iii) any split, combination or reclassification of any
of Parent's capital stock or any issuance or the authorization for issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by Parent or any of its subsidiaries to
any officer of Parent or any of its subsidiaries of any increase in
compensation, including any increases or modifications described in Section
3.09, except in the ordinary course of business consistent with past practice,
(y) any granting by Parent or any of its subsidiaries to any such officer of any
increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired, or (z) except for
termination arrangements in the ordinary course of business consistent with past
practice with employees other than any executive officer of Parent, any entry by
Parent or any of its subsidiaries into any employment, severance or termination
agreement, (v) any damage, destruction or loss, whether or not covered by
insurance, that would have a Material Adverse Effect, (vi) any change in
accounting methods, principles or practices by Parent materially affecting its
assets, liabilities or business, except insofar as may have been
<PAGE>
10
required by a change in generally accepted accounting principles, (vii) any
waiver, settlement, release or compromise of any material claims or litigation
or (viii) any revaluation in any material respect to any of Parent's or its
subsidiaries' assets, including writing down of inventory or writing-off notes
or accounts receivables.
SECTION 3.08. Litigation. Except as disclosed in the SEC Documents
----------
filed and publicly available prior to the date of this Agreement or as set forth
in Schedule 3.08, there are no suits, actions or proceedings pending or, to the
knowledge of Parent, threatened against Parent, the Company or any of Parent's
other subsidiaries that would have a Material Adverse Effect. Except as
disclosed in the SEC Documents filed and publicly available prior to the date of
this Agreement, neither Parent, the Company nor any of Parent's other
subsidiaries is subject to any outstanding order, writ, injunction or decree
that would have a Material Adverse Effect.
SECTION 3.09. Absence of Changes in Benefit Plans. Except as
-----------------------------------
disclosed in Schedule 3.09, since December 31, 1996 there has not been any
adoption or amendment in any material respect by Parent or any of its
subsidiaries of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
retirement, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of Parent or any of its subsidiaries.
Except as disclosed in Schedule 3.09, there exist no employment, consulting,
severance, termination or indemnification agreements, arrangements or
understandings between Parent or any of its subsidiaries and any current or
former employee, officer or director of Parent or any of its subsidiaries, and
there is no oral or written understanding or arrangement to enter into any such
agreement with any such individual.
SECTION 3.10. Employee Benefits; ERISA. (a) Schedule 3.10(a)
------------------------
contains a list of (i) all "employee benefit plans" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, stock-based award,
-----
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, including payroll practices, with respect to which Parent or
any of its subsidiaries or any other person or entity that, together with
Parent, is treated as a single employer under Section 414(b), (c), (m) or (o) of
the Code (each, together with Parent, a "Commonly Controlled Entity") has any
--------------------------
current obligation or which are currently maintained, contributed to or
sponsored by a Commonly Controlled Entity for the benefit of any current or
former employees, officers, agents or directors of Parent or any of its
subsidiaries (all of the foregoing being herein called "Benefit Plans") and (ii)
-------------
all employment, consulting, retention, termination, severance or other contracts
or agreements (excluding stock option agreements) pursuant to which Parent or
any of its subsidiaries has any obligation with respect to any current or former
employees, officers, agents or directors
<PAGE>
11
of Parent or any of its subsidiaries (the "Employee Agreements"). Parent has
-------------------
made available to Lender true and complete copies of (v) each Employee Agreement
(or in the case of any unwritten Employee Agreement, a description thereof), (w)
each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (x) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required), (y) the most recent summary plan description (or similar document)
for each Benefit Plan for which a summary plan description is required or was
otherwise provided to plan participants or beneficiaries and (z) each trust
agreement and group annuity contract relating to any Benefit Plan.
(b) Except as disclosed in Schedule 3.10(b), all Benefit Plans and
related trusts that are intended to be tax-qualified plans have been the subject
of determination letters from the Internal Revenue Service to the effect that
such Benefit Plans and related trusts are qualified and exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the knowledge of Parent, has
revocation been threatened; no event has occurred and no circumstances exist
that would adversely affect the tax qualification of such Benefit Plan nor has
any such Benefit Plan been amended since the date of its most recent
determination letter or application therefor in any respect that would adversely
affect its qualification or materially increase its costs.
(c) Each Benefit Plan and any Benefit Plan that is not subject to
United States law (a "Foreign Benefit Plan") has been administered in all
--------------------
material respects in accordance with its terms. The Benefit Plans are, and have
been administered, in compliance in all material respects with the applicable
provisions of ERISA, the Code, and all other applicable laws. All employer and
employee contributions to each Foreign Benefit Plan required by law in the
applicable jurisdiction or by the terms of the Foreign Benefit Plan have been
made or accrued in accordance with normal accounting procedures.
(d) No Commonly Controlled Entity has incurred any liability under or
arising out of Title IV of ERISA that would have a Material Adverse Effect, and
no fact or event exists that could reasonably be expected to result in such
liability. None of the assets of any Commonly Controlled Entity is the subject
of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code
and no member of any Commonly Controlled Entity has been required to post
security under Section 307 of ERISA or Section 401(a)(29) of the Code with
respect to any Benefit Plan, and no fact or event exists which could reasonably
give rise to any such lien or requirement to post any such security.
(e) None of the Benefit Plans (nor any plan previously maintained or
contributed to by a Commonly Controlled Entity within the last six years) is a
multiemployer plan (within the meaning of 3(37) or 4001(a)(3) of ERISA) or a
single employer pension plan
<PAGE>
12
(with the meaning of 4001(a)(15) of ERISA) for which any member of the Commonly
Controlled Entity could incur liability under Section 4063 or 4064 of ERISA.
(f) None of the Commonly Controlled Entities, any officer of any
Commonly Controlled Entity, any of the Benefit Plans which are subject to ERISA,
any trusts created thereunder or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject Parent, any of its subsidiaries or any officer
of Parent or any of its subsidiaries to any tax or penalty on prohibited
transactions imposed by such Section 4975 or to any liability under Section
502(i) or (l) of ERISA that would have a Material Adverse Effect. With respect
to each Benefit Plan, no member of any Commonly Controlled Entity is currently
liable for any excise tax arising under Section 4971, 4972, 4979, 4980 or 4980B
of the Code that would have a Material Adverse Effect, and no fact or event
exists which could reasonably give rise to any such liability.
(g) Except as set forth in Schedule 3.10(g), no employee of Parent or
any of its subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Benefit
Plan as a result of the consummation of the transactions contemplated by this
Agreement and the Note. In addition, Parent has taken all actions necessary
(or, as appropriate, has refrained from taking action) to ensure that neither
the execution of this Agreement and the Note nor the consummation of the
transactions contemplated hereunder or thereunder shall result in the
acceleration of vesting or exercisability of any options, or the triggering of
any additional rights, under any Stock Option Plan. Without limiting the
generality of the foregoing, the Board of Directors of Parent has determined in
writing that neither the execution of this Agreement nor the consummation of the
transactions contemplated hereunder or under the Note shall be considered a
"Change of Control" under the terms of the 1997 Stock Award and Incentive Plan
(the "1997 Stock Plan").
---------------
SECTION 3.11. Labor Matters. Except as set forth in Schedule 3.11,
-------------
there are no controversies pending or, to the knowledge of Parent, threatened
between Parent and any of its subsidiaries and any of their employees, except
for such controversies which would not have a Material Adverse Effect. Neither
Parent nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Parent
or any of its subsidiaries.
SECTION 3.12. Key Employees. Parent has previously provided Lender
-------------
all requested information relating to each current salaried employee, officer,
director, consultant or agent of Parent or any of its subsidiaries whose annual
compensation exceeded $150,000 in 1996.
<PAGE>
13
SECTION 3.13. Taxes. Except as set forth in Schedule 3.13, each of
-----
Parent, the Company and each of Parent's other subsidiaries has filed all
material tax returns and reports required to be filed by it and has paid (or
Parent has paid on its behalf) all material taxes required to be paid by it, and
the most recent financial statements contained in the SEC Documents filed and
publicly available prior to the date of this Agreement reflect an adequate
reserve for all taxes due and payable by Parent, the Company and each of
Parent's other subsidiaries for all taxable periods and portions thereof through
the date of such financial statements; and no material deficiencies for any
taxes have been proposed, asserted or assessed against Parent, the Company or
any of Parent's other subsidiaries, and no requests for waivers of the time to
assess any such taxes are pending. The statute of limitations for federal
income tax returns has expired for all tax years through 1991. As used in this
Agreement, "tax" or "taxes" means any and all Federal, state, local and foreign
tax and other assessments of a similar nature (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) whether imposed directly or through withholding (including but
not limited to income, franchise, property, sales, use, payroll, employment,
excise, ad valorem, and stamp taxes).
SECTION 3.14. Compliance with Applicable Laws; Permits. Except as
----------------------------------------
set forth in Schedule 3.14, neither Parent, the Company nor any of Parent's
other subsidiaries is in conflict with, or in default or violation of (i) any
domestic (federal, state or local) or foreign law, statute, ordinance, rule,
regulation, order, judgment, decision, writ, injunction or decree applicable to
Parent, the Company or any of Parent's other subsidiaries or by which any of
their respective properties are bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent, the Company or any of Parent's
other subsidiaries is a party or by which Parent, the Company or any of Parent's
other subsidiaries or any of their respective properties are bound or affected,
except for such conflicts, defaults or violations which would not, individually
or in the aggregate, have a Material Adverse Effect. Parent, the Company and
Parent's other subsidiaries have all permits, licenses and franchises from
Governmental Entities required to conduct their businesses as now being
conducted, except for such permits, licenses and franchises the absence of which
would not, in the aggregate, result in a Material Adverse Effect.
SECTION 3.15. Environmental Matters. Except as disclosed in the SEC
---------------------
Documents filed and publicly available prior to the date of this Agreement or
set forth in Schedule 3.15 and except as would not result in a Material Adverse
Effect:
(a) Each of Parent, the Company and Parent's other subsidiaries (i)
is in compliance with all applicable Environmental Laws and (ii) holds all
Environmental Permits required for the operation of its business as
currently conducted and (iii) is in compliance with the terms and
conditions of all such Environmental Permits.
<PAGE>
14
(b) Neither Parent, the Company nor any of Parent's other
subsidiaries has received any written claim, demand, notice or complaint
alleging violation of, or liability under, any Environmental Laws.
(c) Neither Parent, the Company nor any of Parent's other
subsidiaries has received any written request for information relating to,
or been notified that it is a potentially responsible party under, CERCLA
or any similar state law.
(d) Neither Parent, the Company nor any of Parent's other
subsidiaries has entered into or agreed to any consent decree or order, and
is not subject to any judgment, decree or judicial order, relating to
compliance with Environmental Laws or Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of Hazardous Materials, and, to the knowledge of Parent, no
investigation, litigation or administrative proceeding is pending or
threatened with respect thereto for which Parent, the Company or any of
Parent's other subsidiaries would reasonably be expected to be held liable.
(e) None of the real properties owned or leased by Parent, the
Company or Parent's other subsidiaries is listed or, to the knowledge of
Parent, proposed for listing, on the "National Priorities List" under
CERCLA, as updated through the date hereof, or any similar state list of
sites requiring investigation or cleanup.
(f) No Hazardous Materials have been released, discharged or disposed
of on, or transported to or from, any of the real properties owned or
occupied by Parent, the Company or Parent's other subsidiaries in any
manner or quantity which requires investigation, assessment, monitoring,
remediation or cleanup under currently applicable Environmental Laws.
(g) Each of Parent and the Company has provided to Lender copies of
all environmental audits, assessments or studies within its possession, or
in the possession of any of Parent's other subsidiaries, with respect to
the facilities or real property currently owned, leased or operated by
Parent, the Company or any of Parent's other subsidiaries.
SECTION 3.16. Insurance. Parent, the Company and Parent's other
---------
subsidiaries have obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms and covering such risks, including fire and other risks
insured against by extended coverage, as is reasonably prudent, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with the activities of Parent, the Company or Parent's other
subsidiaries or any properties owned, occupied or controlled by Parent, the
Company or
<PAGE>
15
Parent's other subsidiaries, in such amount as reasonably deemed necessary by
Parent, the Company or Parent's other subsidiaries.
SECTION 3.17. Parent Contracts. Except as disclosed in the SEC
----------------
Documents filed and publicly available prior to the date hereof or as disclosed
on Schedule 3.17, neither Parent, the Company nor any of Parent's other
subsidiaries is a party to or bound by (a) any contract or commitment for
capital expenditures in excess of $250,000 for any one project not included in
Parent's capital budget previously provided to Lender, (b) contracts or
commitments for the purchase of materials or supplies or for the performance of
services over a period of more than 60 days from the date of this Agreement and
calling for aggregate future payments, if other than in the ordinary course, of
$1,000,000 and otherwise of $5,000,000 or more during the term of such contract
or commitment, excluding purchase orders for inventory, (c) any contract that is
a "material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) that has not been filed or incorporated by reference in the SEC
Documents filed and publicly available prior to the date of this Agreement, (d)
any contract that contains a non-compete or any exclusivity provisions or
restrictions on Parent's or its subsidiaries' ability to conduct any business
with respect to any geographic area or (e) any contract that would prohibit or
materially delay the consummation of the Funding, the Purchase, the Conversion
or the other transactions contemplated by this Agreement or the Note. Each
contract, arrangement, commitment or understanding of the type described in this
Section 3.17, whether or not set forth in Schedule 3.17, is referred to as a
"Parent Contract". Except as disclosed in the SEC Documents filed and publicly
- ----------------
available prior to the date hereof or as disclosed on Schedule 3.17, each Parent
Contract: (a) is valid and binding on the respective parties thereto and is in
full force and effect and (b) upon consummation of the transactions contemplated
by this Agreement, shall continue in full force and effect without penalty or
other adverse consequence. Except as disclosed in the SEC Documents filed and
publicly available prior to the date hereof or as disclosed on Schedule 3.17,
none of Parent or any of its subsidiaries is in material breach of, or default
under, any Parent Contract, and, to the knowledge of Parent, no other party to
any Parent Contract is in material breach thereof or default thereunder. Except
as disclosed in the SEC Documents filed and publicly available prior to the date
hereof or as disclosed on Schedule 3.17, there is no contract, agreement or
other arrangement granting any person any preferential right to purchase, other
than in the ordinary course of business consistent with past practice, any of
the properties or assets of Parent, the Company or any of Parent's other
subsidiaries.
SECTION 3.18. Intellectual Property. Except as set forth on Schedule
---------------------
3.18, Parent, the Company and Parent's other subsidiaries own or possess
adequate licenses or other valid rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade dress, trade name rights,
copyrights, servicemarks, trade secrets, applications for trademarks and for
servicemarks, mask works, know-how and other proprietary rights and information
used in the conduct of their businesses ("Parent Intellectual Property") except
----------------------------
<PAGE>
16
where the failure to own or possess such rights would not have a Material
Adverse Effect, and, to Parent's knowledge, no person is currently challenging
the validity of any of the foregoing. To the knowledge of Parent and the
Company, the conduct of the business of Parent, the Company and Parent's other
subsidiaries does not infringe any intellectual property of any third party. To
the Parent's knowledge, there are no infringements by any third party of any
proprietary rights owned by or licensed by or to Parent, the Company or any of
Parent's other subsidiaries. Except as set forth on Schedule 3.18, none of
Parent, the Company or any of Parent's other subsidiaries has licensed any
Parent Intellectual Property to any third party. Schedule 3.18 hereto lists, as
of the date hereof, all United States and foreign patents and patent
applications, trademark registrations and applications therefor, registered
copyrights and applications therefor and trade names of Parent, the Company and
Parent's other subsidiaries.
SECTION 3.19. Receivables. The accounts receivable of Parent and its
-----------
subsidiaries reflected in the most recent consolidated financial statements
included in the SEC Documents filed and publicly available prior to the date of
this Agreement, and all accounts receivable of Parent and its subsidiaries
arising since such date, are valid receivables not subject to setoff or
counterclaim, are current and collectible subject to the reserve for bad debts
set forth in such financial statements with respect to the accounts receivable
reflected in such financial statement and subject to reserves taken in the
ordinary course of business and that would not, individually or in the aggregate
have a Material Adverse Effect with respect to accounts receivable arising since
the date of such financial statements, represent bona fide claims against
debtors for sales, services performed or other charges arising on or before the
date thereof, and all the services performed that gave rise to such accounts
were delivered or performed in all material respects in accordance with the
applicable orders, contracts or customer requirements.
SECTION 3.20. Inventories. The inventory of supplies, raw materials,
-----------
work in process and finished goods of Parent, the Company and Parent's other
subsidiaries consists only of items of quality and quantity commercially usable
and salable in the ordinary course of business, except for any items of obsolete
material or material below standard quality, all of which have been written down
to realizable market value, or for which adequate reserves have been provided in
accordance with generally acceptable accounting principles, and the current
amount of such inventory is reasonable in the present circumstances of the
business of Parent, the Company and Parent's other subsidiaries.
SECTION 3.21. State Takeover Statute. The Board of Directors of
----------------------
Parent has taken all actions necessary under the DGCL, including approving the
Funding, the Purchase, the issuance of the Conversion Shares and the other
transactions contemplated in this Agreement and the Note to ensure that the
restrictions on business combinations set forth in Section 203 of the DGCL do
not or will not apply to the Funding, the Purchase or the Conversion or any of
the transactions contemplated by this Agreement and the Note.
<PAGE>
17
SECTION 3.22. Voting Requirements. (a) Other than the affirmative
-------------------
vote of the holders of a majority of the outstanding shares of the Common Stock
entitled to vote, which is necessary to approve the Reverse Stock Split and the
affirmative vote of the holders of a majority of the shares of Common Stock
casting votes, which is necessary to approve the issuance of the Conversion
Shares and to implement the 1997 Stock Plan (such votes being collectively
referred to herein as the "Parent Stockholder Approvals"), no vote of the
----------------------------
holders of any capital stock of the Company is necessary to approve the
transactions contemplated by this Agreement.
(b) The Board of Directors of the Parent has recommended, upon the
terms and subject to the conditions set forth in this Agreement, to the
stockholders of Parent that such stockholders vote at the Stockholders Meeting
to approve the Reverse Stock Split, the issuance of the Conversion Shares and
the 1997 Stock Plan.
SECTION 3.23. Brokers. No broker, investment banker, financial
-------
advisor or other person, other than Donaldson, Lufkin & Jenrette, the fees and
expenses of which will be paid by Parent, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Parent. Parent has provided Lender true and correct copies of
the agreements between Parent and Donaldson, Lufkin & Jenrette.
SECTION 3.24. No Insolvency. None of Parent, the Company or any of
-------------
Parent's other subsidiaries is now or, after giving effect to the issuance of
the Note and the consummation of the transactions contemplated hereby and
thereby will be (i) insolvent, (ii) left with unreasonably small capital with
which to engage in its anticipated business or (iii) incurring debts beyond its
ability to pay such debts as they become due.
ARTICLE IV
Representations and Warranties of Lender
----------------------------------------
Lender hereby represents and warrants to Parent and the Company as
follows:
SECTION 4.01. Organization. Lender is a limited liability company
------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as it is now being conducted.
SECTION 4.02. Authority. Lender has all requisite corporate power
---------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation
<PAGE>
18
of the transactions contemplated hereby by Lender have been duly authorized by
Lender and no other limited liability company proceedings on the part of Lender
are necessary to authorize this Agreement or to consummate the Funding, the
Purchase, the Conversion and the other transactions contemplated by this
Agreement or the Note. This Agreement has been duly and validly executed and
delivered by Lender and, assuming the due execution hereof by Parent and the
Company, constitutes the legal, valid and binding obligation of Lender,
enforceable against Lender in accordance with its terms.
SECTION 4.03. Noncontravention; Filings and Consents. (a) The
--------------------------------------
execution and delivery of this Agreement by Lender do not, and the consummation
of the transactions contemplated by this Agreement and the Note and compliance
with the provisions of this Agreement and the Note by Lender will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien upon any of the properties or assets of
Lender under, (i) the certificate of formation or by-laws of Lender, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Lender or its properties or assets or (iii) subject to the governmental filings
and other matters referred to in paragraph (b) below, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Lender or its
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights or liens that individually or in
the aggregate would not (x) reasonably be expected to impair, in any material
respect, the ability of Lender to perform its obligations under this Agreement
or (y) prevent or impede, in any material respect, the consummation of any of
the transactions contemplated by this Agreement or the Note.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by Lender in
connection with the execution and delivery of this Agreement by Lender or the
consummation by Lender of any of the transactions contemplated by this Agreement
or the Note except for (i) the filing of a notification and report form under
the HSR Act and (ii) such other consents, approvals, orders, authorizations,
registrations, declaration and filings the failure of which to be obtained or
made would not, individually or in the aggregate, (x) impair, in any material
respect, the ability of Lender to perform its obligations under this Agreement
or (y) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement or the Note.
SECTION 4.04. Information Supplied. None of the information supplied
--------------------
or to be supplied by Lender expressly for inclusion or incorporation by
reference in the Proxy Statement will on the date the Proxy Statement is first
mailed to Parent's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit
<PAGE>
19
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
SECTION 4.05. Financing. Lender has, or will have at the time of the
---------
Closing, sufficient cash available to purchase the Purchased Shares and the
Note.
SECTION 4.06. Acquisition of Purchased Shares and Conversion Shares
-----------------------------------------------------
for Investment. Lender is acquiring the Purchased Shares, the Note and,
- --------------
following the Conversion, the Conversion Shares for investment and not with a
view toward, or for sale in connection with, any distribution thereof, or with
any present intention of distributing or selling the Purchased Shares, the Note,
or, following the Conversion, the Conversion Shares. Lender agrees that the
Purchased Shares, the Note and, following the Conversion, the Conversion Shares
may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act, and without compliance with foreign securities laws, in each case, to the
extent applicable.
SECTION 4.07. Brokers. No broker, investment banker, financial
-------
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Lender.
ARTICLE V
Covenants of Parent, the Company and Lender
-------------------------------------------
SECTION 5.01. Conduct of Business. Parent covenants and agrees that
-------------------
during the period between the date of this Agreement and through and including
the earlier of the termination of this Agreement or the Conversion Date, unless
Lender shall otherwise agree in writing (including, without limitation, in this
Agreement and the Note), the businesses of Parent and its subsidiaries shall be
conducted only, and Parent and its subsidiaries shall not take any action except
in the ordinary course of business consistent with past practice and Parent
shall use its best efforts (i) to preserve substantially intact the business
organization of Parent and its subsidiaries, including its officers and
employees, (ii) to keep available the services of the present officers and key
employees of Parent and its subsidiaries and (iii) consistent with past
practice, to preserve the present relationships of Parent and its subsidiaries
with customers, suppliers and other persons with which Parent or any of its
subsidiaries has significant business relations. By way of amplification and
not limitation of the foregoing sentence, except as contemplated by this
Agreement and the Note, Parent shall not, and shall cause its subsidiaries not
to, during the period between the date of this Agreement and through and
including the earlier of the termination of this Agreement or
<PAGE>
20
the Conversion Date, directly or indirectly do, or propose or commit to do, any
of the following except with the prior written consent of Lender, which consent
shall not be unreasonably withheld:
(a) (i) other than dividends or distributions by any direct or
indirect wholly owned subsidiary of Parent declare or pay any dividends on
or make other distributions in respect of any of its shares of capital
stock, (ii) other than the Reverse Stock Split, split, combine or
reclassify any of its shares of capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) repurchase, redeem
or otherwise acquire, or permit any subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock;
(b) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or any
securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any
other ownership interest other than (i) the issuance of shares of Common
Stock upon the exercise of Stock Options or stock appreciation rights or
warrants outstanding on the date of this Agreement and in accordance with
the present terms of such options or stock appreciation rights, (ii)
issuances by a wholly owned subsidiary of Parent of its capital stock to
Parent, (iii) the issuance of Stock Options to certain employees in
fulfillment of the existing arrangements set forth on Schedule 3.02 with
respect to the issuance of such Stock Options in regular annual
installments and (iv) Stock Options to purchase up to an aggregate of
20,000 shares of Common Stock to be issued to newly hired management
employees consistent with past practices of Parent and the Company;
(c) amend or propose to amend its certificate of incorporation, as
amended, or by-laws or other comparable organization documents;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof;
(e) sell, lease, subject to any lien or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its assets,
other than in the ordinary course consistent with past practice;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any
<PAGE>
21
debt securities of Parent or any of its subsidiaries or guarantee any debt
securities of others, except in the ordinary course of business consistent
with past practice;
(g) make any tax election that would have a Material Adverse Effect
or settle or compromise any income tax liability of Parent or any of its
subsidiaries that would have a Material Adverse Effect (Parent shall,
before filing or causing to be filed any material tax return of Parent or
any of its subsidiaries, consult with Lender and its advisors as to the
positions and elections that are not in the ordinary course and that are
inconsistent with past practices which may be taken or made by Parent with
respect to such return);
(h) pay, discharge, settle or satisfy any claim, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of Parent included
in the SEC Documents filed and publicly available prior to the date of this
Agreement or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice or any such
settlement or satisfaction of any claim, liability or obligation for which
Parent pays less than $100,000 in respect of such settlement or claim,
liability or obligation, or waive the benefit of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which
Parent or any of its subsidiaries is a party;
(i) except in the ordinary course of business, terminate, cancel or
request any material change in, or agree to any material change in any
Parent Contract to which Parent or such subsidiary is a party or waive,
release or assign any material rights or claims or enter into any contract
or agreement material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole;
(j) (i) grant any increase in the compensation of any of its
directors, officers or key employees, except for increases for officers and
employees in the ordinary course of business consistent with past practice,
(ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing
Benefit Plans or Employee Agreements as in effect on the date of this
Agreement to any director, officer or key employee, (iii) except as set
forth on Schedule 5.01(j)(iii) enter into any new employment, severance or
termination agreement with any person who is a director, officer or key
employee or (iv) except as may be required to comply with applicable law,
become obligated under any Benefit Plan that was not in existence on the
date of this Agreement or amend any such plan in existence on the date of
this Agreement to enhance the benefits
<PAGE>
22
thereunder; provided, however, that (x) Parent may adopt the 1997 Stock
-------- -------
Plan in the form previously approved by the Board of Directors of Parent
and provided to Lender, and (y) Parent may make grants pursuant to the 1997
Stock Plan in substitution for grants under existing Stock Option Plans but
only to the extent that, taking into account all options outstanding under
the existing Stock Option Plans and all such grants made under the 1997
Stock Plan, the number of shares of Common Stock subject to outstanding
stock options or other awards shall not exceed 8% of the Common Stock
outstanding after giving effect to the transactions contemplated by this
Agreement and the Note;
(k) make or authorize any capital expenditure in excess of $250,000
for any one project or $500,000 in the aggregate, other than those
contemplated by Parent's capital budget, a copy of which was previously
provided to Lender;
(l) take any action that may reasonably be expected to result in any
of the representations and warranties of Parent set forth in this Agreement
being or becoming untrue, or in any of the conditions to Lender set forth
in Article VII not being satisfied;
(m) take any action or fail to take any action which individually or
in the aggregate would have a Material Adverse Effect; or
(n) agree in writing or otherwise to do any of the foregoing.
SECTION 5.02. No Solicitation; Company Recommendation. (a) Parent
---------------------------------------
shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, Parent or any of its
subsidiaries to (i) solicit or initiate, or knowingly encourage (including by
way of furnishing information), or take any other action designed to facilitate,
any inquiries or the making of any proposal which constitutes a Takeover
Proposal or (ii) participate in any discussions or negotiations regarding a
Takeover Proposal; provided, however, that if the Board of Directors of Parent,
-------- -------
after consultation with, and based on the advice of, outside counsel, determines
in good faith that it is necessary to do so in order to comply with its
fiduciary duties to Parent's stockholders under applicable law, Parent may, in
response to a Takeover Proposal that was not solicited by Parent or which did
not otherwise result from a breach of this Section 5.02(a), and subject to
Parent providing prior notice to Lender of its decision to take such action and
subject to compliance with this Section 5.02(a) and Section 5.02(c), (x) furnish
information with respect to Parent to any persons pursuant to a confidentiality
agreement on terms no less favorable to Parent than those contained in the
Confidentiality Agreement and (y) participate in discussions or negotiations
regarding such Takeover Proposal. For purposes of this Agreement, "Takeover
--------
Proposal" means any proposal or offer from any person relating to any direct or
- --------
indirect
<PAGE>
23
acquisition or purchase of a business that constitutes 25% or more of the net
revenues, net income or the assets of Parent and its subsidiaries, taken as a
whole, or of 25% or more of any class of equity securities of Parent or any of
its subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 25% or more of any class of equity
securities of Parent or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Parent or any of its subsidiaries, other than the
transactions contemplated by this Agreement and the Note.
(b) Except as set forth in this Section 5.02(b), neither the Board of
Directors of Parent nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Lender, the approval or
recommendation by the Board of Directors or any such committee of the issuance
of the Conversion Shares and the Reverse Stock Split, (ii) approve or recommend,
or propose to approve or recommend, any Takeover Proposal or (iii) enter into
any agreement with respect to any Takeover Proposal. Notwithstanding the
foregoing, in the event the Board of Directors of Parent determines in good
faith after consultation with, and based on the advice of, outside counsel, that
failure to do so would be inconsistent with its fiduciary duties to Parent's
stockholders under applicable law, the Board of Directors of Parent may withdraw
or modify its approval or recommendation of the issuance of the Conversion
Shares and the Reverse Stock Split, approve or recommend a Takeover Proposal, or
enter into an agreement with respect to a Takeover Proposal, in each case at any
time after midnight on the third business day following Lender's receipt of
written notice advising Lender that the Board of Directors of Parent has
received a Takeover Proposal, specifying the material terms and conditions of
such Takeover Proposal and identifying the person making such Takeover Proposal;
provided that such information shall be kept confidential by Lender under the
- --------
terms of the Confidentiality Agreement.
(c) In addition to the obligations of Parent set forth in paragraphs
(a) and (b) of this Section 5.02, Parent shall promptly advise Lender of any
request for information or of any Takeover Proposal, or any proposal with
respect to any Takeover Proposal, the material terms and conditions of such
request or Takeover Proposal, and the identity of the person making any such
Takeover Proposal or inquiry. Parent will keep Lender fully informed of the
status and details (including amendments or proposed amendments) of any such
request, Takeover Proposal or inquiry; provided that such information shall be
--------
kept confidential by Lender under the terms of the Confidentiality Agreement.
(d) Nothing contained in this Section 5.02 shall prohibit Parent from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to
Parent's stockholders if, in the opinion of the Board of Directors of Parent,
after consultation with, and based on the advice
<PAGE>
24
of, outside counsel, failure so to disclose would be inconsistent with its
fiduciary duties under applicable law.
SECTION 5.03. Revolving Credit Facility and Stand-by Commitment. (a)
-------------------------------------------------
Lender shall use its reasonable best efforts to obtain, on behalf of and at the
expense of Parent, prior to the Conversion Date an executed commitment letter
from one or more financial institutions reasonably satisfactory to Parent for a
revolving credit facility to provide working capital for the operating
subsidiaries of Parent following the Conversion Date in the aggregate amount of
$100,000,000 and otherwise having terms and conditions that are commercially
reasonable and reasonably satisfactory to Parent and Lender (the "Commitment
----------
Letter"). In the event that Lender is unable to obtain, on behalf of and at the
- ------
expense of Parent, the Commitment Letter prior to the Conversion Date, (i)
Lender shall continue following the Conversion Date to use its reasonable best
efforts to obtain, on behalf of and at the expense of Parent, the Commitment
Letter and (ii) Lender shall provide a revolving credit facility for such
purpose of at least $50,000,000 and having terms and conditions substantially
similar to those set forth on Exhibit B.
(b) Lender shall use its reasonable best efforts to obtain, on behalf
of and at the expense of Parent, prior to the Conversion Date an executed
commitment letter from one or more financial institutions reasonably
satisfactory to Parent for a stand-by credit or remarketing facility having
terms and conditions that are commercially reasonable and reasonably
satisfactory to Lender and Parent for the repurchase or remarketing, as the case
may be, of any 122% Senior Notes put to Parent pursuant to Section 4.15 of the
Indenture following the Conversion (the "Remarketing Facility").
--------------------
(c) In connection with Lender's undertakings in Sections 5.03(a) and
5.03(b), Parent and the Company shall (i) make reasonably available for
inspection by any such financial institution, and any attorney or other agent
thereof, all relevant financial and other records, pertinent corporate documents
and properties of Parent, the Company and the other subsidiaries of Parent
requested by such financial institution, (ii) cause Parent's and the Company's
officers, directors and employees to supply all relevant information reasonably
requested by any such financial institution or any such attorney or agent in
connection with providing such revolving credit agreement or the Remarketing
Facility, as the case may be, (iii) make such representation and warranties to
any such financial institution, in form, substance and scope as are customarily
made by borrowers or issuers under such circumstances, (iv) use its reasonable
best efforts to obtain opinions of counsel to Parent and the Company, if so
requested by any such financial institution, covering such matters as are
customarily covered in such opinions, and (v) deliver such documents and
certificates as may be reasonably requested by any such financial institution or
such attorney or other agent.
<PAGE>
25
ARTICLE VI
Additional Agreements
---------------------
SECTION 6.01. Stockholders Meeting; Preparation of the Proxy
----------------------------------------------
Statement. (a) Parent will, as soon as practicable following the date of this
- ---------
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of approving the
--------------------
Reverse Stock Split, the issuance of the shares of Common Stock to be issued
pursuant to the Note as set forth therein (the "Conversion Shares") and the 1997
-----------------
Stock Plan. Subject to the provisions of Section 5.02(b), Parent will, through
its Board of Directors, recommend to its stockholders approval of the Reverse
Stock Split, the issuance of the Conversion Shares and the 1997 Stock Plan.
Without limiting the generality of the foregoing, Parent agrees that its
obligations pursuant to the first sentence of this Section 6.01(a) shall not be
affected by the commencement, public proposal, public disclosure or
communication to Parent of any Takeover Proposal.
(b) Parent will as soon as practicable prepare and file a preliminary
Proxy Statement with the SEC, and Lender will cooperate in such preparation and
filing. In addition, Parent will respond, and Lender will cooperate in
responding, to any comments of the SEC or its staff, and Parent will cause the
Proxy Statement to be mailed to Parent's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC or its
staff. Parent will notify Lender promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Lender with copies of all correspondence between Parent or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement. If at any time prior to the Stockholders
Meeting there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, Parent will promptly prepare (and if relating
to Lender, Lender will also promptly cooperate with the Parent in preparing) and
mail to its stockholders such an amendment or supplement. Parent will not file
or mail any Proxy Statement, or any amendment or supplement thereto, to which
Lender reasonably objects, if such objection relates to the information provided
by Lender for inclusion in the Proxy Statement.
SECTION 6.02. Access to Information; Confidentiality. Subject to the
--------------------------------------
Confidentiality Agreement, Parent shall afford to Lender, and to Lender's
officers, employees, accountants, counsel, financial advisors and other
representatives, reasonable access during normal business hours during the
period prior to the Conversion Date to all the properties, books, contracts,
commitments and records of Parent and the Company and Parent's other
subsidiaries and, during such period, Parent and the Company shall furnish
promptly to Lender (a) a copy of each report, schedule, registration statement
and other document filed by it or its subsidiaries during such period pursuant
to the requirements of
<PAGE>
26
federal or state securities laws and (b) all other information concerning its or
its subsidiaries, business, properties and personnel as Lender may reasonably
request.
SECTION 6.03. Approvals and Consents; Cooperation. (a) Upon the
-----------------------------------
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other party in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the issuance of
the Conversion Shares, the Reverse Stock Split and the other transactions
contemplated by this Agreement and the Note, including (i) the obtaining of any
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the transactions
contemplated by this Agreement, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed and (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
(b) Lender and Parent shall file as soon as practicable after the
date hereof notifications under the HSR Act and shall respond as promptly as
practicable to all inquiries or requests received from the Federal Trade
Commission or the Antitrust Division of the Department of Justice for additional
information or documentation and shall respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other
Governmental Entity in connection with antitrust matters.
SECTION 6.04. Stock Option Plans. Following the effective date of
------------------
the 1997 Stock Plan, no additional options or other awards shall be granted
under any stock option plan listed on Schedule 3.10(a) (the "Stock Option
------------
Plans") other than the 1997 Stock Plan and the 1992 Stock Option Plan for
Nonemployee Directors.
SECTION 6.05. Fees and Expenses. (a) Except as provided in this
-----------------
Section 6.05, all fees and expenses incurred in connection with this Agreement,
the Funding, the Purchase, the Conversion and the other transactions
contemplated hereby and by the Note shall be paid by the party incurring such
fees or expenses, whether or not the Funding or the Purchase is consummated.
(b) Parent shall pay in immediately available funds, by wire transfer
to an account designated by Lender, to Stonington upon demand a fee of $7.5
million (the
<PAGE>
27
"Termination Fee") plus reimbursement for all Expenses if (i) Parent enters into
---------------
a definitive agreement in accordance with Section 5.02(b), (ii) the Board of
Directors of Parent shall have withdrawn or modified in any manner adverse to
Lender its approvals or recommendations to Parent's stockholders of the issuance
of the Conversion Shares or the Reverse Stock Split or shall have approved a
Takeover Proposal, (iii) the Parent's stockholders shall not have approved the
issuance of the Conversion Shares or the Reverse Split and prior to the
Stockholders Meeting a Takeover Proposal shall have been publicly announced and
not withdrawn, or (iv) the Parent Stockholder Approvals are not obtained by
January 31, 1998 and within 12 months following the date on which this Agreement
is terminated pursuant to Section 8.01 a Takeover Proposal shall have been
consummated; provided, that in the event that (x) none of the events set forth
--------
in clauses (i) through (iii) of this sentence has occurred and (y) the Parent
Stockholder Approvals have been obtained, then, if the condition to Conversion
set forth in Section 4.01(e) of the Note has not been satisfied by January 31,
1998, and, as a consequence the Conversion has not occurred by such date,
Parent's obligations with respect to payment of the Termination Fee pursuant to
this Section 6.05(b) shall terminate. For purposes of this Section 6.05,
"Expenses" means all out-of-pocket expenses and fees incurred by Lender and its
--------
Affiliates (including, without limitation, fees and expenses payable to legal,
accounting, financial and other professional advisors, but excluding any
judgments, fines or amounts paid in settlement of any pending or threatened
legal proceeding against Lender or its affiliates) arising out of, in connection
with or related to this Agreement and the Note and the transactions contemplated
hereby and thereby.
(c) In addition to any Expenses payable to Lender pursuant to Section
6.05(b), with respect to any lawsuit commenced against Lender, any Affiliate of
Lender, Parent or the Company in connection with the transactions contemplated
hereby, provided that Lender has not breached any material term of this
--------
Agreement, Parent shall promptly reimburse Lender or any such Affiliate of
Lender for all Expenses in connection with or arising from any such litigation
and, in the event that the Conversion does not occur pursuant to the Note as a
result of such litigation, Parent shall promptly reimburse Lender or such
Affiliate for all Expenses.
(d) At Closing, Parent shall pay Stonington a transaction fee of $3
million, payable in immediately available funds by wire transfer to an account
designated by Stonington (the "Transaction Fee").
---------------
SECTION 6.06. Notification. Each of Parent and the Company shall
------------
give prompt notice to Lender of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
<PAGE>
28
Agreement; provided, however, that no such notification shall affect the
-------- -------
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 6.07. Rights of Stockholders to Participate in Certain
------------------------------------------------
Transactions. (a) Following the Conversion, so long as any of Lender or any of
- ------------
its Affiliates owns 40% or more of the outstanding shares of Common Stock (prior
to giving effect to any transaction which is the subject of this Section 6.07),
none of Lender or any of its Affiliates (the "Lender Offeree") shall, directly
--------------
or indirectly, in one transaction or a series of related transactions, transfer
for value to a single person or any group of persons (as such term is used in
Rule 13d-1(b) under the Exchange Act), other than an Affiliate of Lender, shares
of Common Stock constituting more than 20% of the then issued and outstanding
shares of Common Stock, unless each other holder of shares of Common Stock is
provided with the opportunity, at the option of each such holder, to transfer an
"Equivalent Amount" (as defined below) of shares of Common Stock to such third
-----------------
party on the same terms and conditions as offered to the Lender Offeree. If any
Lender Offeree receives any such offer from a third party (a "Third Party
-----------
Offer") that such Lender Offeree intends to accept, such Lender Offeree shall
cause such third party to offer to acquire, on the same terms and conditions as
contained in the Third Party Offer, an Equivalent Amount of the shares of Common
Stock of each such other holder, which offer will comply with the provisions of
the Securities Act and the Exchange Act applicable thereto. For purposes of
this Section 6.07, "Equivalent Amount" means with respect to any holder of
-----------------
shares of Common Stock, the number of shares of Common Stock owned by such
holder equal to the product of (x) the total number of shares of Common Stock
proposed to be transferred by the Lender Offeree to the third party multiplied
by (y) a fraction, the numerator of which shall be the total number of shares of
Common Stock then owned by such holder and the denominator of which shall be the
total number of shares of Common Stock then issued and outstanding.
(b) The Lender Offeree may transfer to such third party the greater
of (i) the number of shares of Common Stock by which the total number of such
shares originally proposed to be transferred by the Lender Offeree to such third
party exceeds the sum of the aggregate Equivalent Amount of shares of Common
Stock of all other such holders and (ii) the number of shares of Common Stock by
which the total number of such shares originally proposed to be transferred by
the Lender Offeree to such third party exceeds the sum of the aggregate
Equivalent Amount of shares of Common Stock actually tendered to be sold to such
third party by all other such holders.
(c) If any such third party does not offer to purchase shares of
Common Stock from the other stockholders of Parent as provided in this Section
6.07, then the entire proposed sale by the Lender Offeree of any shares of its
Common Stock to such third party shall be invalid.
<PAGE>
29
(d) If, at the expiration of any period during which a Third Party
Offer is open in accordance with the applicable provisions of the Securities Act
and the Exchange Act, any holder of shares of Common Stock shall not have
accepted such Third Party Offer with respect to all or any portion of the
Equivalent Amount of shares of Common Stock of such holder, such holder shall be
deemed to have thereby waived all of its rights with respect to the transfer of
such shares of Common Stock to such third party on the terms and conditions
specified in such Third Party Offer.
SECTION 6.08. Public Announcements. Subject to consultation with the
--------------------
other parties hereto, each party may make an initial press release concerning
this Agreement and the Note and the transactions contemplated hereby and thereby
and, thereafter, Lender, Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any of the transactions contemplated hereunder and
shall not issue any such press release or make any such public statement prior
to such consultation, except to the extent required by applicable law or the
requirements of any applicable stock exchange regulations, in which case the
issuing party shall use its reasonable best efforts to consult with the other
party prior to issuing any such release or making any such public statement.
SECTION 6.09. Use of Proceeds. The Proceeds shall be used to (a)
---------------
repay the outstanding principal amount under, accrued and unpaid interest due
on, and any prepayment penalty with respect to each of (i) the Revolving Credit
Agreement among the Company and Merisel Europe, Inc. and the lenders thereto
dated as of April 12, 1996, (ii) the senior notes issued pursuant to the Amended
and Restated Senior Note Purchase Agreement between the Company and the
noteholders party thereto dated as of December 23, 1993, as subsequently
amended, and (iii) the subordinated notes issued pursuant to the Amended and
Restated Subordinated Note Purchase Agreement between the Company and the
noteholders party thereto dated as of December 23, 1993, as subsequently amended
and (b) pay the Transaction Fee to Stonington.
ARTICLE VII
Conditions Precedent
--------------------
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Funding and the Purchase. The respective obligations of each party to effect
- ------------------------
the Funding and the Purchase are subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) No Injunctions or Restraints. No statute, rule, regulation,
----------------------------
executive order, decree, temporary restraining order, preliminary or
permanent injunction or
<PAGE>
30
other order issued by any Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Funding, the Purchase or the
Reverse Stock Split or the issuance of the Conversion Shares shall be in
effect; provided, however, that, in the case of a decree, injunction or
-------- -------
other order, each of the parties shall have used its best efforts to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
(b) Consents. All consents, approvals and authorizations required to
--------
be obtained prior to the Closing Date from any third party in connection
with this Agreement and the transactions contemplated hereunder shall have
been obtained, except where the failure to obtain same would not have a
Material Adverse Effect.
SECTION 7.02. Additional Conditions to Lender's Obligation to Effect
------------------------------------------------------
the Funding and the Purchase.
- ----------------------------
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Parent and the Company contained in this Agreement (i) that is
qualified as to materiality shall be true and correct and (ii) that is not so
qualified shall be true and correct in all material respects, in each case as of
the Closing Date as though made as of the Closing Date (except that the accuracy
of representations and warranties that by their terms speak only as to an
earlier date will be determined as of such earlier date). Lender shall have
received a certificate of the Chief Executive Officer of each of Parent and the
Company dated the Closing Date to that effect.
(b) Agreements and Covenants. Each of Parent and the Company shall
------------------------
have performed or complied in all material respects with all obligations
required to be performed by it under this Agreement on or prior to the Closing
Date. Lender shall have received a certificate of the Chief Executive Officer
of each of Parent and the Company dated the Closing Date to that effect.
(c) Absence of a Material Adverse Change. There shall have been no
------------------------------------
material adverse change in the assets, liabilities, business, operations,
properties (including intangible properties), condition (financial or otherwise)
or results of operations of Parent and its subsidiaries, taken as a whole.
(d) Absence of Litigation. There shall be no (i) injunction, order or
---------------------
similar restraint issued by any Governmental Entity of competent jurisdiction
that imposes limitations on Lender's ability to exercise full rights of
ownership with respect to the Purchased Shares, the Note or Conversion Shares or
(ii) finding that Parent has breached or is in breach of any material obligation
under the Limited Waiver Agreement or the Limited Waiver and Agreement to Amend
dated as of April 14, 1997 by and among Parent, the Company, Merisel Europe,
Inc. and the other parties thereto (the "Limited Waiver and
------------------
<PAGE>
31
Agreement to Amend"), whether preliminary, interlocutory or final, by a
- ------------------
Governmental Entity of competent jurisdiction.
(e) Registration Rights Agreement. The Registration Rights Agreement,
-----------------------------
in substantially the form attached hereto as Exhibit C, shall have been executed
and delivered to Lender by Parent and the Company.
(f) Waiver Agreements. Each of the Limited Waiver Agreement and the
-----------------
Limited Waiver and Agreement to Amend shall have terminated in accordance with
its terms.
(g) Accounts Receivable. The net book value of the accounts
-------------------
receivable of Parent and its subsidiaries shall be at least $225,600,000.
SECTION 7.03. Additional Conditions to Parent's Obligation to Effect
------------------------------------------------------
the Funding and the Purchase.
- ----------------------------
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Lender contained in this Agreement (i) that is qualified as to
materiality shall be true and correct and (ii) that is not so qualified shall be
true and correct in all material respects, in each case as of the Closing Date
as though made as of the Closing Date (except that the accuracy of
representations and warranties that by their terms speak only as to an earlier
date will be determined as of such earlier date). Parent shall have received a
certificate of the member of Lender dated the Closing Date to that effect.
(b) Agreements and Covenants. Lender shall have performed or complied
------------------------
in all material respects with all obligations required to be performed by it
under this Agreement on or prior to the Closing Date. Parent shall have
received a certificate of the member of Lender to that effect.
(c) Waiver Agreements. Each of the Limited Waiver Agreement and the
-----------------
Limited Waiver and Agreement to Amend shall have terminated in accordance with
its terms.
(d) Absence of Breach. There shall be no finding that Parent has
-----------------
breached or is in breach of any material obligation under the Limited Waiver
Agreement or the Limited Waiver and Agreement to Amend.
<PAGE>
32
ARTICLE VIII
Termination, Amendment and Waiver
---------------------------------
SECTION 8.01. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing Date:
(a) by mutual written consent of Lender, Parent and the Company;
(b) by either Lender, on the one hand, or Parent and the Company, on
the other hand, if the Closing Date shall not have occurred on or before
the tenth business day from the date hereof; provided that the right to
--------
terminate this Agreement under this Section 8.01(b) shall not be available
to any party whose failure to fulfill any obligations under this Agreement
has been the cause of, or resulted in, the failure of the Closing Date to
occur on or before such date; or
(c) by either Lender, on the one hand, or the Parent and the Company
on the other hand, if any Governmental Entity of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Funding,
the Purchase, the Reverse Stock Split, the issuance of the Conversion
Shares or any other transactions contemplated herein and such order, decree
or ruling or other action shall have become final and nonappealable;
(d) by either Lender or Parent, if at the Stockholders Meeting the
Parent Stockholder Approvals are not obtained;
(e) by Lender, provided that Lender has not breached any material term
of this Agreement, if the Board of Directors of Parent shall have withdrawn
or modified in any manner adverse to Lender its approval or recommendation
to Parent's stockholders of the Reverse Stock Split or the issuance of the
Conversion Shares or shall have approved a Takeover Proposal;
(f) by Parent, in connection with entering into a definitive agreement
in accordance with Section 5.02(b), provided it has complied with all
provisions thereof, including the notice provisions therein, and that it
makes simultaneous payment of the Termination Fee and Expenses pursuant to
Section 6.05(b).
SECTION 8.02. Effect of Termination. In the event of termination of
---------------------
this Agreement by either Parent and the Company, on the one hand, or Lender, on
the other hand, as provided in Section 8.01, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of Lender, Parent or the Company,
<PAGE>
33
other than the provisions of Section 3.23, Section 4.07, Section 6.05, this
Section 8.02 and Article IX and except to the extent that such termination
results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.03. Amendment. This Agreement may not be amended except by
---------
an instrument in writing signed on behalf of each of the parties.
SECTION 8.04. Extension; Waiver. Any agreement on the part of a
-----------------
party to any waiver shall be valid only if set forth in any instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Survival of Representations. If the Funding occurs,
---------------------------
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive until the Conversion Date, at
which time they shall expire and be of no further force and effect.
SECTION 9.02. Notices. All notices, requests, claims, demands and
-------
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such address
for a party as shall be specified by like notice):
(a) if to Lender, to:
Stonington Partners, Inc.
767 Fifth Avenue
48th Floor
New York, New York 10153
Attention: Albert J. Fitzgibbons III
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Clare O'Brien, Esq.
<PAGE>
34
(b) if to Parent or the Company, to:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245
Attention: Dwight A. Steffensen
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Attention: Joseph Giunta, Esq.
SECTION 9.03. Interpretation. When a reference is made in this
--------------
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 9.04. Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (provided, however, that the provisions of the
Confidentiality Agreement shall remain valid and in effect) and, is not intended
to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.06. Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that Lender may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to any affiliate of Lender, but no such assignment shall
relieve Lender of any of its obligations under this Agreement. Subject to
<PAGE>
35
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.07. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy at law or in equity.
SECTION 9.08. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of New York, without
regard to any applicable conflicts of law.
<PAGE>
36
IN WITNESS WHEREOF, Lender, Parent and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
Phoenix Acquisition Company II, L.L.C.
by: Stonington Capital Appreciation 1994
Fund, L.P., as a member,
by: Stonington Partners, L.P., its
general partner,
by: Stonington Partners, Inc. II, its
general partner
By /s/ ALBERT J. FITZGIBBONS III
---------------------------------
Name: Albert J. Fitzgibbons III
Title: Partner
Merisel, Inc.
By /s/ DWIGHT A. STEFFENSEN
---------------------------------
Name: Dwight A. Steffensen
Title: Chief Executive Officer
Merisel Americas, Inc.
By /s/ DWIGHT A. STEFFENSEN
---------------------------------
Name: Dwight A. Steffensen
Title: Chief Executive Officer
<PAGE>
Exhibit 99.3
------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE STATES OF THE UNITED STATES.
CONVERTIBLE PROMISSORY NOTE
U.S.$137,100,000 Dated: September 19, 1997
FOR VALUE RECEIVED, the undersigned, Merisel, Inc. ("Merisel Parent")
--------------
and Merisel Americas, Inc. ("Merisel Americas"), each a Delaware corporation
----------------
(each individually, a "Co-Issuer" and, collectively, the "Co-Issuers"), HEREBY
--------- ----------
JOINTLY AND SEVERALLY PROMISE TO PAY to the Holder hereof (or its permitted
transferees or assignees) the principal amount of $137,100,000, to be repaid in
the amounts and on the respective maturity dates set forth below:
<TABLE>
<CAPTION>
Aggregate
Principal Amount Maturity Date
---------------- -------------
<S> <C>
$123,900,000 January 31, 1998
$4,400,000 March 10, 1998
$4,400,000 March 10, 1999
$4,400,000 March 10, 2000
</TABLE>
ARTICLE I
DEFINED TERMS
SECTION 1.01. Certain Defined Terms. As used in this Note, the
---------------------
following terms shall have the following meanings:
"Additional Restructuring Fees" means all fees directly or indirectly
-----------------------------
related to the restructuring, amending or monitoring of Debt of Merisel Parent
or any of its Subsidiaries, including, without limitation, amendment fees, legal
fees, consultant fees, financial advisor fees and other related fees.
<PAGE>
"Affiliate" means, as applied to any Person, any other Person
---------
controlling, controlled by or under common control with such Person.
"Asset Sale" means any sale, transfer or disposition of assets or Sale
----------
and Leaseback Transaction permitted under Section 5.02(f)(vi).
"Average Consolidated Net Inventory" means for any fiscal quarter, (i)
----------------------------------
the consolidated amount of inventory of Merisel Parent on the first day of such
period plus the consolidated amount of inventory of Merisel Parent on the last
day of the first month of such fiscal quarter plus the consolidated amount of
inventory of Merisel Parent on the last day of the second month of such fiscal
quarter plus the consolidated amount of inventory of Merisel Parent on the last
day of such fiscal quarter divided by (ii) four, all as determined in accordance
with GAAP.
"Board of Directors" means the board of directors of Merisel Parent.
------------------
"Business Day" means a day of the year on which banks in New York City
------------
or the City of Los Angeles are not authorized or required to close.
"Capital Leases" means leases of property (whether real, personal or
--------------
mixed) which should, in accordance with GAAP, be recorded as capital leases.
"Cash Equivalents" means readily marketable short term direct
----------------
obligations of the United States of America and certificates of deposit issued
by commercial banks of recognized standing operating in the United States of
America rated A or higher and prime commercial paper.
"Change of Control" means either (i) Merisel Americas ceases to be a
-----------------
wholly-owned Subsidiary of Merisel Parent or Merisel Parent enters into a
definitive agreement with respect to the foregoing; or (ii) any Person or any
two or more Persons acting in concert shall have acquired, or shall have entered
into a definitive agreement providing for the acquisition of, beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act), directly or indirectly, of Securities of
Merisel Parent (or other Securities convertible into such Securities), other
than the Notes, representing 50% or more of the combined voting power of all
Securities of Merisel Parent entitled to vote in the election of directors.
"Common Stock" means the common stock, par value $.01 per share, of
------------
Merisel Parent.
"Company Stockholder Approvals" means, collectively, (i) the
-----------------------------
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of Merisel Parent entitled to vote which is necessary to approve
the Reverse Stock Split and (ii) the affirmative vote of the holders of a
majority of the shares of Common Stock of Merisel Parent casting
<PAGE>
3
votes which is necessary to approve the issuance of the shares of Common Stock
of Merisel Parent issuable upon a conversion pursuant to Section 4.01 hereof and
to implement the 1997 Stock Award and Incentive Plan of Merisel Parent.
"Consolidated Adjusted Tangible Net Worth" means Consolidated Tangible
----------------------------------------
Net Worth calculated without giving effect to any foreign currency translation
adjustments.
"Consolidated Capital Expenditures" means, for any period, with
---------------------------------
respect to any Person, the expenditures with respect to capital assets (whether
paid in cash or other consideration or accrued as a liability and including that
portion of Capital Leases that is capitalized on the consolidated balance sheet
of such Person and its Subsidiaries) by such Person and its Subsidiaries during
that period that in conformity with GAAP are included in "capital expenditures."
"Consolidated Debt" means Debt (other than intercompany Debt) of
-----------------
Merisel Parent and its consolidated Subsidiaries.
"Consolidated Debt Equivalents" means, as of any date of
-----------------------------
determination, the aggregate of Consolidated Debt plus the aggregate amount of
liability assumed or net cash proceeds received by Merisel Parent and its
consolidated Subsidiaries in an accounts receivable securitization, transfer or
sale (without duplication).
"Consolidated EBITSDA" means, for any period, with respect to Merisel
--------------------
Parent and its consolidated Subsidiaries, the sum of the amounts for such period
of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii)
Consolidated Interest Charges, (iv) total depreciation expense and (v) total
amortization expense less other non-cash items increasing Consolidated Net
Income, all determined in accordance with GAAP.
"Consolidated Interest Charges" means, for any period, the sum of (i)
-----------------------------
total interest expense during such period of Merisel Parent and its consolidated
Subsidiaries with respect to all Debt (including, without limitation, the
interest component of Capital Leases), plus (ii) the discount expense on sales
of commercial paper and fees associated with the sales of accounts receivable
permitted under Section 5.02(j), all determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income of
-----------------------
Merisel Parent and its consolidated Subsidiaries for such period determined in
accordance with GAAP (but without taking into account the effects of (i)
Additional Restructuring Fees or (ii) any write-downs in connection with any
sale of any Subsidiaries of Merisel Parent or any restructuring in connection
with such sale), after deducting portions of income properly attributable to
minority interests, if any, in the stock and surplus of such Subsidiaries,
<PAGE>
4
provided that there shall be excluded (a) the income of any Person accrued prior
to the date it became a Subsidiary of Merisel Parent or was merged into or
consolidated with Merisel Parent or any of its Subsidiaries or such Person's
assets were acquired by Merisel Parent or any of its Subsidiaries, (b) any gains
or losses on the sale or other disposition of investments permitted by Section
5.02(g) hereof or fixed or capital assets, and any taxes on such excluded gains
and any tax deductions or credit on account of any such excluded losses, (c) the
proceeds of any life insurance policy, (d) earnings resulting from any
reappraisal, revaluation or write-up of assets, (e) any deferred or other credit
representing any excess of the equity in any Subsidiary of Merisel Parent at the
date of acquisition thereof over the amount invested in such Subsidiary, (f) any
gain or loss arising from the acquisition of any securities of Merisel Parent or
any of its Subsidiaries and (g) any reversal of any contingency reserve not in
the ordinary course of business, except to the extent that provisions for such
contingency reserve shall have been made from income arising during the most
recently audited fiscal year.
"Consolidated Net Worth" means, as of any date of determination, total
----------------------
consolidated assets of Merisel Parent and its consolidated Subsidiaries minus
total consolidated liabilities of Merisel Parent and its consolidated
Subsidiaries, such assets and liabilities each to be determined in accordance
with GAAP, including in the determination of total consolidated liabilities
Subordinated Debt.
"Consolidated Payables" has the meaning set forth in Section 5.01(j).
---------------------
"Consolidated Rental Payments" means, for any period, the aggregate
----------------------------
amount of all rents paid and payable by Merisel Parent and its Subsidiaries on a
consolidated basis during that period under all Operating Leases.
"Consolidated Tangible Net Worth" means, as of any date of
-------------------------------
determination, the Consolidated Net Worth of Merisel Parent (but without taking
into account the effects of (i) Additional Restructuring Fees or (ii) any write-
downs in connection with any sale of any Subsidiaries of Merisel Parent or any
restructuring in connection with such sale), less goodwill, patents, trademarks,
organizational expenses, deferred research and development costs, deferred
marketing expenses and other intangible assets of Merisel Parent and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Contingent Obligations" means, as applied to any Person, any direct
----------------------
or indirect liability, contingent or otherwise, of that Person with respect to
any Debt, Lease, dividend, letter of credit or other obligation of another
Person, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable, including, without limitation, any such obligation for which
that Person is in effect liable
<PAGE>
5
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or to maintain
the solvency or any balance sheet, income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the non-
delivery or non-furnishing thereof, in any case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the amount of the obligation so guaranteed or otherwise supported.
"Conversion Date" means (i) in the case of conversion pursuant to
---------------
Section 4.01(a), the date on which the conditions contained in Sections 4.01(c)
and 4.01(d) are satisfied or, to the extent permissible, waived as provided
therein, or (ii) in the case of conversion pursuant to Section 4.01(b), the date
on which the conditions contained in Section 4.01(c) are satisfied or, to the
extent permissible, waived as provided therein and on which a Holder satisfies
the requirements set forth in Section 4.02(a).
"Current Market Price" per share of Common Stock means (i) the average
--------------------
of the last reported sale price of the Common Stock on the NASDAQ National
Market System for 30 consecutive Trading Days commencing 45 Trading Days before
the day in question or (ii) if the Common Stock shall not be quoted on the
NASDAQ National Market System, the price that could be negotiated in an arm's-
length free market transaction, for cash, between a willing seller and a willing
buyer, neither of whom is under pressure or compulsion to complete the
transaction, as determined by a U.S. investment banking institution of national
repute.
"Debt" means (i) indebtedness for borrowed money; (ii) obligations
----
evidenced by bonds, debentures, notes or other similar instruments; (iii)
obligations to pay the deferred purchase price of property or services (it being
understood that Debt shall not include obligations both (a) classified as
accounts payable, accrued liabilities or income taxes payable under GAAP and (b)
incurred in the ordinary course of business); (iv) principal obligations as
lessee under Capital Leases; (v) reimbursement obligations under letters of
credit; (vi) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise assure a creditor against loss in respect of, indebtedness or the
obligations referred to in clauses (i) through (iv) above; or (vii) liabilities
in respect of unfunded vested benefits under plans covered by Title IV of ERISA,
provided that no obligations included in Debt shall be included in more than one
- --------
of clauses (i) through (vii); provided further that Debt shall not include any
-------- -------
obligations under or
<PAGE>
6
resulting from any agreement for the sale, transfer or securitization of
accounts receivable permitted by Section 5.02(j) and Section 5.02(a)(vi).
"Employee Benefit Plan" means any Pension Plan, any employee welfare
---------------------
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of Merisel Parent or any
ERISA Affiliate of Merisel Parent and that is not exempted from ERISA pursuant
to regulations promulgated thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time and any successor statute.
"ERISA Affiliate" means, as applied to any Person, any trade or
---------------
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
Section 414(b) and (c) of the Internal Revenue Code of Section 4001 of ERISA;
provided, however, that no Foreign Subsidiary shall be considered an ERISA
- -------- -------
Affiliate unless at least one of such Subsidiary's employee benefit plans are
subject to ERISA.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Excess Cash and Excess Cash Equivalents" means with respect to any
---------------------------------------
Person, all cash and Cash Equivalents in excess of what is required for the
normal operation of the business of such Person.
"Existing Receivables Program" has the meaning set forth in Section
----------------------------
5.02(j).
"Foreign Subsidiary" means a Subsidiary other than a Subsidiary
------------------
incorporated in a state of the United States of America.
"GAAP" means generally accepted accounting principles set forth in
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Entity" means any federal, state or local government or
-------------------
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign.
"Hazardous Materials" means (i) any oil, flammable substances,
-------------------
explosives, radioactive materials, hazardous wastes or substances, toxic wastes
or substances or any
<PAGE>
7
other materials or pollutants which (a) pose a hazard to any property of Merisel
Parent or any of its Subsidiaries or to Persons on or about such property or (b)
cause such property to be in violation of any Hazardous Materials Laws; (ii)
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts per
million; (iii) any chemical, material or substance defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste" or "toxic substances"
or words of similar import under any applicable provincial, local, state or
federal law or under the regulations adopted or publications promulgated
pursuant thereto, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec.
9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
Sec. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Sec. 6901, et seq.; the Federal Water Pollution Control Act, as amended,
33 U.S.C. Sec. 1251, et seq.; applicable state statutes and (iv) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority or may or could pose a hazard to the
health and safety of the occupants of any of the properties of Merisel Parent or
any of its Subsidiaries or the owners and/or occupants of property adjacent to
or surrounding any such property.
"Hazardous Materials Laws" means federal, state, provincial or local
------------------------
laws, ordinances, regulations, or policies now or hereafter existing or enacted
relating to the environment, health and safety, any Hazardous Materials
(including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof) or to industrial hygiene or the
environmental conditions on, under or about any of the property of Merisel
Parent or any of its Subsidiaries, including, without limitation, soil and
groundwater conditions.
"Holder" shall mean each holder from time to time of an outstanding
------
Note.
"Incipient Default" means an event which would constitute an Event of
-----------------
Default but for the requirement that notice be given or time elapse or both.
"Indenture" means the Indenture dated as of October 15, 1994 between
---------
Merisel Parent, as Issuer, and Nationsbank of Texas, N.A., as Trustee, relating
to the 12 1/2% Senior Notes.
"Interest Rate Agreement" means any interest rate swap agreement,
-----------------------
interest rate cap agreement, interest rate collar agreement or other similar
agreement.
"Lien" means any lien, mortgage, deed of trust, assignment, pledge,
----
security interest or other charge or encumbrance, or any preferential
arrangement which has the
<PAGE>
8
practical effect of constituting a lien or security interest; provided, however,
-------- -------
that any restrictions contained in any software license or any vendor repurchase
right, territorial distribution or export restriction, authorized dealer
requirement or any other restriction imposed by Merisel Parent's or its
Subsidiaries' vendors to control the distribution channel for their products
shall not constitute a "Lien" as defined herein.
"Limited Waiver and Agreement to Amend" means the Limited Waiver and
-------------------------------------
Agreement to Amend dated as of April 14, 1997 among Merisel Parent, Merisel
Americas, Merisel Europe, Inc., the Consenting Lenders parties thereto, the
Consenting Senior Noteholders parties thereto and the Consenting Subordinated
Noteholders parties thereto.
"Limited Waiver and Voting Agreement" means the Limited Waiver and
-----------------------------------
Voting Agreement dated as of April 11, 1997 among Merisel Parent and the
Consenting Noteholders parties thereto.
"Loan Documents" means the Notes, the Stock and Note Purchase
--------------
Agreement and all other writings related to the Notes, now or hereafter executed
by or on behalf of either Merisel Parent or Merisel Americas and delivered to
any Holder, together with all agreements, instruments or documents referred to
therein or contemplated thereby.
"Majority Holders" means, at any time, Holders of at least 60% of the
----------------
aggregate principal amount of the outstanding Notes.
"Material Adverse Effect" means any change or effect that is, or would
-----------------------
be reasonably likely to be, materially adverse to the assets, liabilities,
business, prospects, operations, properties (including intangible properties),
condition (financial or otherwise) or results of operations of Merisel Parent
and its Subsidiaries, taken as a whole.
"Merisel Americas" has the meaning specified in the first paragraph of
----------------
this Note.
"Merisel Canada" means Merisel Canada, Inc., a corporation organized
--------------
under the laws of Ontario, Canada.
"Merisel Parent" has the meaning specified in the first paragraph of
--------------
this Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA and which is maintained for employees of Merisel
Parent or any ERISA Affiliate of Merisel Parent.
"Net Asset Sale Proceeds" means, with respect to any Asset Sale, cash
-----------------------
payments (including any cash received by way of repayment of intercompany Debt
or
<PAGE>
9
deferred payment pursuant to, or by monetization of, a note receivable or
otherwise, but only as and when so received) received from such Asset Sale, net
of any reasonable costs and expenses incurred in connection with such Asset
Sale, including without limitation (i) reasonable legal fees and expenses, (ii)
taxes reasonably estimated to be actually payable within one year of the date of
such Asset Sale, including income taxes as a result of any gain recognized in
connection with such Asset Sale, (iii) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Debt to parties other
than Merisel Parent or any of its Subsidiaries that is secured by a Lien on the
stock or assets in question and that is required to be paid under the terms
thereof as a result of such Asset Sale and (iv) amounts reserved in accordance
with GAAP for (1) liabilities due and payable within twelve months from the date
of such Asset Sale retained by the seller in connection with such Asset Sale and
(2) indemnities provided by the Seller relating to inventory and/or accounts
receivable in connection with such Asset Sale, in an aggregate amount not to
exceed 5% of the purchase price payable in cash with respect to such Asset Sale;
provided that in the case of any Asset Sale by a Foreign Subsidiary of Merisel
- --------
Parent, Net Asset Sale Proceeds shall not include cash proceeds applied to the
repayment to parties other than Merisel Parent or any of its Subsidiaries of
local lines of credit of such Subsidiary; and provided further that Net Asset
-------- -------
Sale Proceeds shall include all amounts in respect of payment, forgiveness,
cancellation or reduction of intercompany Debt in connection with or arising out
of such Asset Sale.
"Note" or "Notes" means this Note or any portion thereof (including
---- -----
notes issued pursuant to Section 4.02(c), Section 7.04 or Section 7.05 hereof).
"Operating Lease" means, as applied to any Person, any lease
---------------
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"Pension Plan" means any employee plan which is subject to Section 412
------------
of the Internal Revenue Code and which is maintained for employees of Merisel
Parent or any ERISA Affiliate of Merisel Parent, other than a Multiemployer
Plan.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Receivables Program" has the meaning specified in Section 5.02(j).
-------------------
"Related Accrued Interest Rights" means, with respect to any Note or
-------------------------------
portion thereof, the right to receive all accrued and unpaid interest (including
deferred interest and interest on deferred interest, if any) relating thereto.
<PAGE>
10
"Reverse Stock Split" means the one-for-five reverse stock split of
-------------------
shares of Common Stock of Merisel Parent.
"Sale and Leaseback Transaction" means, with respect to any Person,
------------------------------
any transaction in which such Person, directly or indirectly, becomes or remains
liable as lessee or as a guarantor or other surety with respect to any lease,
whether an Operating Lease or a Capital Lease, of any property (whether real,
personal or mixed), whether then owned or thereafter acquired, (i) which such
Person has sold or transferred or is to sell or transfer to any other Person or
(ii) which such Person intends to use for substantially the same purposes as any
other property which has been or is to be sold or transferred by such Person to
any other Person in connection with such lease.
"Securities" means any stock, shares, partnership interests, limited
----------
liability company interests, voting trust certificates, certificates of interest
or participation in any profit-sharing agreement or arrangement, options,
warrants, bonds, debentures, notes, or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"Stock and Note Purchase Agreement" means the Stock and Note Purchase
---------------------------------
Agreement dated September 19, 1997 among Phoenix Acquisition Company II, L.L.C.,
Merisel Parent and Merisel Americas relating to this Note.
"Subordinated Debt" means all Debt of Merisel Parent or any of its
-----------------
Subsidiaries that is subordinated in right of payment to this Note pursuant to
documents containing maturities, amortization schedules, covenants, defaults,
remedies, subordination provisions and other material terms in form and
substance satisfactory to the Majority Holders.
"Subsidiary" means, as applied to any Person, any corporation of which
----------
50% or more of the outstanding voting securities of such corporation shall at
the time be owned or controlled, directly or indirectly, by such Person or by
one or more Subsidiaries of such Person or by such Person and one or more of its
Subsidiaries, or any similar business organization which is so owned or
controlled.
"Termination Event" means (i) a "Reportable Event" described in
-----------------
Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of
Merisel Parent or any of its ERISA Affiliates from a Pension Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001(a)(2)
or 4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a
<PAGE>
11
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA or (iv) the institution of proceedings to terminate a
Pension Plan by the Pension Benefit Guaranty Corporation or (v) any other event
or condition which might constitute grounds under ERISA for the termination of,
or the appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a Lien pursuant to Section 412(n) of the Revenue Code.
"Trading Day" means a day on when the NASDAQ National Market System is
-----------
open for the transaction of business.
"12 1/2% Senior Notes" means the 12 1/2% Senior Notes due December 31,
--------------------
2004 of Merisel Parent issued pursuant to the Indenture.
Terms not defined herein shall have the meanings set forth in the
Stock and Note Purchase Agreement.
ARTICLE II
TERMS OF PAYMENT
SECTION 2.01. No Prepayment. Except as expressly provided herein,
-------------
this Note may not be prepaid in whole or in part. No such prepayment which is
not expressly permitted hereby shall affect the right to the extent set forth
herein of the Holders to receive the shares of Common Stock issuable upon
conversion of the Notes.
SECTION 2.02. Interest. (a) Subject to the provisions of Section
--------
2.02(b) below, Merisel Parent and Merisel Americas, jointly and severally,
promise to pay to the Holders interest on all unpaid principal amounts hereunder
from the respective dates of issuance of such principal amounts until the
earlier to occur of (i) the payment in full of such principal amounts on the
respective due dates for payment thereof or (ii) with respect to any portion
hereof that is converted as provided herein, the Conversion Date, payable
quarterly on each August 1, November 1, February 1 and May 1 during the term
hereof and on the final day when each such principal amount is paid in full, at
an interest rate per annum equal at all times to 11.5% per annum, increasing by
an additional 1% at the end of each month commencing at the end of the second
month after the date hereof for as long as any portion of this Note remains
outstanding; provided, however, that the maximum interest rate payable hereunder
-------- -------
shall be 18.0% per annum.
(b) Merisel Parent and Merisel Americas may, at their option by
notice delivered to each Holder at least seven days prior to any interest
payment date specified in Section 2.01(a) above, elect to defer payment of any
interest on the Notes due on such
<PAGE>
12
interest payment date. Such notice shall specify the principal amount and
maturity date or maturity dates to which such election relates. If such election
is made, interest shall accrue on the amount of such deferred interest at the
applicable interest rate determined in accordance with Section 2.01(a) until
payment in full of such deferred interest. Deferred interest, together with
accrued interest thereon, shall become payable in full in cash upon the due date
for payment or earlier redemption or repayment of the principal amount to which
such interest relates.
(c) Notwithstanding the provisions of Section 2.02(b) above, if
Merisel Parent or Merisel Americas defaults in the payment of any principal on
the Notes when due, interest, including accrued interest, deferred interest and
interest on deferred interest, if any, on the Notes shall thereafter become due
and payable in cash.
SECTION 2.03. Payments and Computations. (a) The Co-Issuers shall
-------------------------
make each payment hereunder prior to 1:00 p.m., New York time, on the day when
due in U.S. dollars to the Holders by wire transfer in immediately available
funds to a bank account in the United States designated by each Holder no later
than three Business Days prior to the date of payment.
(b) All computations of interest (including interest on deferred
interest, if any) shall be made by the Holder on the basis of a year of 365 or
366, as applicable, days for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest is
payable.
(c) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest (including interest on deferred interest, if
any).
ARTICLE III
REDEMPTION; REPAYMENT UPON CHANGE OF CONTROL
SECTION 3.01. Optional Redemption. The Notes may be redeemed, at the
-------------------
option of the Co-Issuers, in whole only, at any time prior to maturity upon not
less than 20 nor more than 40 days' notice mailed to each Holder, at a
redemption price equal to 108% of the principal amount of Notes to be redeemed
plus accrued interest, deferred interest and interest on deferred interest, if
any, to the due date for redemption specified in such notice; provided that such
--------
redemption price will be reduced by the aggregate amount of the Transaction Fee,
the Termination Fee and Expenses (payable pursuant to, and as defined in, the
Stock and Note Purchase Agreement) paid to Stonington Partners, Inc. on behalf
of
<PAGE>
13
Phoenix Acquisition Company II, L.L.C., as the initial Holder of this Note;
and provided further that the Notes may not be redeemed prior to termination of
-------- -------
the Stock and Note Purchase Agreement pursuant to Section 8.01 thereof.
SECTION 3.02. Repayment upon Change of Control. Within 15 days of a
--------------------------------
Change of Control or upon the occurrence of an event that will result in the
Termination Fee being payable pursuant to Section 6.05 of the Stock and Note
Purchase Agreement, each Holder has the right to notify the Co-Issuers requiring
the repayment of all or, at the option of such Holder, a portion of the
aggregate principal amount of the Notes held by such Holder as of a date
occurring not more than seven days following such notice, in the case of a
Change of Control, or one day following such notice in the case of the
occurrence an event resulting in the payment of the Termination Fee at a price
equal to 100% of the principal amount thereof, and the Co-Issuers shall pay on
such date such amounts plus accrued interest, deferred interest and interest on
deferred interest, if any, on the principal amount to be repaid to the due date
for payment specified in such notice. In the case of repayment of a portion
only of the aggregate principal amount of the Notes held by a Holder, such
Holder shall determine in the notice referred to above the maturity dates of the
Notes to be repaid.
ARTICLE IV
CONVERSION
SECTION 4.01. Conversion Rights. (a) Upon the satisfaction or
-----------------
waiver of the conditions contained in Sections 4.01(c) and 4.01(d) below, the
full unpaid principal amount of the Notes and the Related Accrued Interest
Rights shall be converted into fully paid and nonassessable shares of Common
Stock in accordance with the following provisions of this Article IV, which
conversion shall occur automatically upon the satisfaction or waiver of such
conditions, without any further action on the part of the Holders. Upon the
occurrence of such conversion, the Notes shall cease to represent Debt and shall
instead be deemed to represent rights to receive the Common Stock issuable upon
conversion of the Notes.
(b) In addition, any Holder may at any time, at its option upon the
satisfaction or waiver of the conditions contained in Section 4.01(c) below,
convert a portion of its Notes and the Related Accrued Interest Rights into
fully paid and nonassessable shares of Common Stock by delivery to Merisel
Parent of a conversion notice in accordance with Section 4.02. The maximum
aggregate principal amount of Notes and Related Accrued Interest Rights that may
be converted by all Holders pursuant to this Section 4.01(b) shall be limited to
such amount as shall be convertible into 19.9% of the Common Stock issued and
outstanding immediately prior to any such proposed conversion, reduced by the
number of shares of Common Stock previously purchased by any of the Holders
pursuant to the Stock
<PAGE>
14
and Note Purchase Agreement. A partial conversion pursuant to this Section
4.01(b) shall be effected in accordance with the following provisions of this
Article IV.
(c) The conversion of the Notes and Related Accrued Interest Rights
pursuant to Sections 4.01(a) and 4.01(b) above shall be subject to the
satisfaction or, to the extent permissible, to the waiver by (a) in the case of
a conversion under Section 4.01(a), all Holders or (b) in the case of a
conversion under Section 4.01(b), Holders that wish to convert their Notes, of
the following conditions:
(i) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order
issued by any Governmental Entity or other legal restraint or prohibition
preventing the conversion of the Notes and the Related Accrued Interest
Rights shall be in effect; provided, however, that, in the case of a
-------- -------
decree, injunction or order, each of Merisel Parent, Merisel Americas and
each Holder shall have used its best efforts to prevent the entry of any
such decree, injunction or order and to appeal as promptly as possible any
decree, injunction or order that may be entered.
(ii) All consents, approvals and authorizations from any third party
in connection with the conversion of the Notes and the Related Accrued
Interest Rights shall have been obtained, except where the failure to
obtain same would not have a Material Adverse Effect.
(iii) The waiting period (and any extension thereof) applicable to
the conversion of the Notes and the Related Accrued Interest Rights under
the Hart-Scott-Rodino Antitrust Improvements Act of 1996, to the extent
required, shall have expired or been terminated.
(iv) Merisel Parent shall have a sufficient number of shares of
Common Stock to effect such conversion.
(v) The shares of Common Stock to be issued pursuant to Sections
4.01(a) or (b), as the case may be, shall have been authorized for listing
on the NASDAQ National Market System, subject to official notice of
issuance.
(d) The conversion of the Notes and the Related Accrued Interest
Rights pursuant to Section 4.01(a) above shall be subject to the satisfaction or
waiver by all the Holders of the following additional conditions:
(i) Each of the representations and warranties of Merisel Parent and
Merisel Americas contained in the Stock and Note Purchase Agreement (i)
that is qualified as to materiality shall be true and correct and (ii) that
is not so qualified
<PAGE>
15
shall be true and correct in all material respects, in each case as of the
Conversion Date as though made as of the Conversion Date (except that the
accuracy of representations and warranties that by their terms speak only
as to an earlier date will be determined as of such earlier date), and the
Holders shall have received a certificate of the Chief Executive Officer of
each of Merisel Parent and Merisel Americas dated the Conversion Date to
that effect.
(ii) No Event of Default or Incipient Default under the Notes shall
have occurred or be in effect, and the Holders shall have received a
certificate of the Chief Executive Officer of each of Merisel Parent and
Merisel Americas dated the Conversion Date to that effect.
(iii) There shall have been no Material Adverse Effect.
(iv) The Company Stockholder Approvals, to the extent required, shall
have been obtained.
(v) There shall be no (A) injunction, order or similar restraint
issued by any Governmental Entity that imposes limitations on any Holder's
ability to exercise full rights of ownership with respect to the shares of
Common Stock to be issued pursuant to Section 4.01(a) or (B) finding that
Merisel Parent has breached or is in breach of any material obligation
under either the Limited Waiver and Agreement to Amend or the Limited
Waiver and Voting Agreement, whether preliminary, interlocutory or final,
by a Governmental Entity.
(e) The conversion of the Notes and Related Accrued Interest Rights
pursuant to Section 4.01(a) above shall be subject to the satisfaction or, to
the extent permissible, to the waiver by Merisel Parent and all Holders of the
condition that Phoenix Acquisition Company II, L.L.C., as initial Holder of this
Note, shall have delivered to Merisel Parent in accordance with Section 5.03(b)
of the Stock and Note Purchase Agreement an executed commitment letter from one
or more financial institutions for a stand-by credit or remarketing facility
having commercially reasonable terms and conditions for the repurchase or
remarketing, as the case may be, of any 12 1/2% Senior Notes put to Merisel
Parent pursuant to Section 4.15 of the Indenture following such conversion.
(f) The conversion of the Notes and the Related Accrued Interest
Rights pursuant to Section 4.01(a) above shall be subject to the satisfaction or
waiver by Merisel Parent of the condition that Phoenix Acquisition Company II,
L.L.C., as initial Holder of this Note, shall have delivered to Merisel Parent
in accordance with Section 5.03(a) of the Stock and Note Purchase Agreement
either (A) an executed commitment letter from one or more financial institutions
reasonably satisfactory to Merisel Parent for a revolving credit facility to
provide working capital for the operating Subsidiaries of Merisel Parent
following
<PAGE>
16
the Conversion Date in the aggregate amount of $50,000,000 and otherwise having
terms and conditions which are commercially reasonable and reasonably
satisfactory to Merisel Parent and such initial Holder or (B) a revolving credit
facility to provide working capital for the operating Subsidiaries of Merisel
Parent following the Conversion Date in the aggregate amount of $50,000,000 and
otherwise having terms and conditions substantially similar to those set forth
on Exhibit B to the Stock and Note Purchase Agreement.
(g) Each of Merisel Parent and Merisel Americas shall give prompt
notice to the Holders of the occurrence of any event that could cause the
conditions contained in Section 4.01(c) or 4.01(d) not to be satisfied;
provided, however, that no such notification shall affect the conditions to the
- -------- -------
obligations of Merisel Parent, Merisel Americas or the Holders under such
Sections.
SECTION 4.02. Conversion Procedure. (a) To convert any portion of
--------------------
the Notes and the Related Accrued Interest Rights pursuant to Section 4.01(b), a
Holder must (i) complete and sign the conversion notice attached to the Notes to
be converted (which, in the case of conversion of a portion only of such
Holder's Notes and Related Accrued Interest Rights, shall be determined in
accordance with Section 4.07 hereof), (ii) surrender such Notes to Merisel
Parent, (iii) if the Common Stock issuable upon conversion is to be issued to a
Person other than the converting Holder, furnish appropriate endorsements and
transfer documents reasonably requested by Merisel Parent and (iv) pay any
transfer or similar tax required pursuant to Section 4.04.
(b) As soon as practical after the relevant Conversion Date, Merisel
Parent shall deliver a certificate for the number of full shares of Common Stock
issuable upon conversion. Delivery of the Common Stock shall be made only
against a tender of the Notes, or portion thereof, so converted. The Person in
whose name the certificate is registered shall be treated as a stockholder of
record on and after the Conversion Date. No certificates representing
fractional shares of Common Stock shall be issued and, in lieu of any such
fractional shares, Merisel Parent shall, as soon as practicable after the
relevant Conversion Date, aggregate all such fractional interests and either
purchase such interests or sell such interests on the NASDAQ National Market
System. Following such purchase or sale, Merisel Parent shall determine the
portion of the proceeds therefrom to which each Holder is entitled and promptly
remit such amount to each such Holder by check.
(c) Upon partial conversion of a Note together with Related Accrued
Interest Rights thereon, the Co-Issuers shall issue to the Holder of such Note a
new Note equal in principal amount to the unconverted portion of the Note
surrendered. Interest on such unconverted portion shall continue to accrue.
SECTION 4.03. Conversion Rate. (a) The initial conversion rate is
---------------
328.9473684211 shares of Common Stock for each $1,000 principal amount of Notes,
<PAGE>
17
together with any and all Related Accrued Interest Rights. The conversion rate
is subject to adjustment as provided in Section 4.06. Each of Merisel Parent
and the Holders hereby agrees and acknowledges that such conversion rate (as
adjusted, as the case may be) represents a fair value as between such parties of
any shares of Common Stock to be issued by Merisel Parent pursuant to Section
4.01 of this Note.
(b) The number of shares of Common Stock issuable upon conversion of a
Note and Related Accrued Interest Rights is determined by (i) dividing the
principal amount of the Note or portion thereof to be converted by $1,000, (ii)
multiplying the result by the conversion rate in effect on the Conversion Date
and (iii) rounding the result to the nearest 1/1000 of a share.
SECTION 4.04. Taxes on Conversion. Merisel Parent shall pay any
-------------------
documentary, stamp or similar issue or transfer tax due on the issuance of
shares of Common Stock upon any conversion hereunder. However, the Holder shall
pay any such tax that is due as a result of such Holder's request to have the
shares of Common Stock issuable upon such conversion issued in a name other than
such converting Holder's name.
SECTION 4.05. Merisel Parent to Provide Stock. From and after the
-------------------------------
date upon which the Reverse Stock Split becomes effective, Merisel Parent shall
at all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of the Notes and Related Accrued Interest Rights, the full number of
shares of Common Stock then deliverable upon the conversion of all Notes then
outstanding together with Related Accrued Interest Rights.
SECTION 4.06. Adjustments to Conversion Rate. (a) Subdivisions,
------------------------------ -------------
Combinations, Reclassifications, Issuances. In the event of (i) the
- ------------------------------------------
subdivision, combination or reclassification of the outstanding shares of Common
Stock (including, without limitation, pursuant to the Reverse Stock Split) or
(ii) the issuance by Merisel Parent of shares of Common Stock as a dividend or
distribution on the Common Stock, the conversion rate in effect immediately
prior to such event shall be adjusted by Merisel Parent so that the Holder of a
Note and Related Accrued Interest Rights thereafter converted shall receive the
number of shares of Common Stock that such Holder would have owned immediately
following such action if such Note and Related Accrued Interest Rights had been
converted immediately prior to the effective date of such subdivision,
combination or reclassification or immediately prior to the record date of such
dividend or distribution.
The foregoing adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
<PAGE>
18
If, after an adjustment pursuant to this Section 4.06(a), a Holder
would receive, upon conversion of a Note and Related Accrued Interest Rights,
shares of two or more classes of capital stock of the Company, the Company shall
determine the allocation of the adjusted conversion rate between the classes of
capital stock. After such allocation, the conversion rate of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Article IV.
(b) Rights, Warrants and Other Issuances. In the event of (i) the
------------------------------------
offering of any shares of Common Stock at a price per share less than the
Current Market Price of the Common Stock on the date of such offering or (ii)
the issuance of rights or warrants to all holders of Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share) less than the Current Market Price of
the Common Stock on the date of such issuance (other than, in the case of (i) or
(ii) above, any conversion pursuant to Section 4.01 hereof), the conversion rate
shall be adjusted in accordance with the formula:
C' = C x O + N
-----------
N x P
-----
O + M
where:
C' = the adjusted conversion rate.
C = the current conversion rate.
O = the number of shares of Common Stock
outstanding on the offering date or issuance
date, as applicable.
N = the number of additional shares of Common
Stock offered or issuable upon conversion or
exchange.
P = the offering, conversion or exchange price
per share of the additional shares.
M = the Current Market Price per share of Common
Stock on the offering date or issuance date,
as applicable.
Upon the occurrence of any event specified in this Section 4.06(b),
the adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such shares, rights or
warrants, as applicable; provided, however, that, in the event that all the
-------- -------
shares of Common Stock offered for purchase are not delivered upon the exercise
of such rights or warrants, upon the expiration of such rights or
<PAGE>
19
warrants the conversion rate shall be immediately readjusted to be what it would
have been if "N" in the above formula had been the number of shares actually
issued.
(c) Other Distributions. In the event of the distribution by Merisel
-------------------
Parent to all holders of Common Stock of shares of capital stock (other than
Common Stock), debt securities, assets or rights or warrants to purchase assets
or securities of Merisel Parent or its Subsidiaries (excluding the rights and
warrants referred to in Section 4.06(b)), the conversion rate shall be adjusted
in accordance with the formula:
C' = C x M
------
M - F
where:
C' = the adjusted conversion rate.
C = the current conversion rate.
M = the Current Market Price per share of Common
Stock on the record date of the assets,
securities, rights or warrants to be
distributed;
F = the fair market value (as determined by
Merisel Parent) on the record date of the
assets, securities, rights or warrants to be
distributed attributable to one share of
Common Stock;
provided that in the event that the difference "M-F" as defined in the above
- --------
formula is less than $0.01 or "F" above is equal to or greater than the Current
Market Price of the Common Stock on the record date mentioned above, in lieu of
the foregoing adjustment, adequate provision shall be made so that each Holder
shall thereafter have the right to receive upon conversion the amount of
securities or assets such Holder would have received had such Holder converted
its Notes and Related Accrued Interest Rights on such record date. In the event
that such dividend or distribution is not so paid or made, the conversion rate
shall again be adjusted to be the conversion rate that would then be in effect
if such dividend or distribution had not been declared. If Merisel Parent
determines the fair market value of any distribution for purposes of this
Section 4.06(c) by reference to the actual or when issued trading market for any
such assets, securities, rights or warrants, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.
The adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
<PAGE>
20
(d) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to Section 4.06(b), the following
shall apply:
(i) in the case of issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
--------
shall any deduction be made for commissions, discounts or other expenses
incurred by Merisel Parent for any underwriting of the issue or otherwise
in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors (irrespective of the accounting
treatment thereof), whose determination shall be conclusive, and described
in a resolution of the Board of Directors; and
(iii) in the case of the issuance of securities convertible into or
exchangeable or exercisable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration received by
Merisel Parent for the issuance of such securities plus the additional
minimum consideration, if any, to be received by Merisel Parent upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (i) and (ii) of this
Section 4.06(d)).
(e) When Adjustment May Be Deferred. No adjustment in the
-------------------------------
conversion rate need be made unless the cumulative adjustments would require a
decrease or an increase (subject to the provisions of Section 4.06(f)) of at
least 1% in the conversion rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
(f) When No Adjustment Required. No adjustment need be made for a
---------------------------
change in the par value or no par value of the Common Stock. No downward
adjustment in the conversion rate shall be made except in the event of a reverse
split.
(g) Notice of Adjustment. Whenever the conversion rate is adjusted,
--------------------
Merisel Parent shall promptly mail to all Holders a notice of the adjustment,
together with a certificate from Merisel Parent's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it. The certificate shall be conclusive evidence that the adjustment is
correct.
(h) Voluntary Increase. Merisel Parent from time to time may
------------------
increase the conversion rate by any amount for any period of time if the period
is at least twenty days and if the increase is irrevocable during such period.
<PAGE>
21
Whenever the conversion rate is increased pursuant to this Section
4.06(h), Merisel Parent shall mail to all Holders a notice of the increase. The
notice shall state the increased conversion rate and the period it will be in
effect.
An increase of the conversion rate does not change or adjust the
conversion rate otherwise in effect for purposes of calculating the adjustments
required by this Section 4.06.
(i) Reorganization of Merisel Parent. If Merisel Parent is party
--------------------------------
to a merger, consolidation or other transaction or subject to another event that
reclassifies or changes its outstanding Common Stock, the Person assuming the
obligations of Merisel Parent shall irrevocably agree and undertake for the
benefit of each Holder of outstanding Notes that each such Holder shall have the
right to convert such Notes into the kind and amount of shares of stock and
other securities and property (including cash) received in such transaction by a
holder of the number of shares of Common Stock into which each such Note was
convertible immediately prior to the effective date of such transaction or
event. Such irrevocable agreement and undertaking shall provide for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Section 4.06. The Person assuming the obligations of
Merisel Parent shall mail to all Holders a notice briefly describing such
irrevocable agreement and undertaking.
If this Section 4.06(i) applies to a transaction or event described
above, the provisions for adjustment of the conversion rate set forth in Section
4.06(a) shall not apply to the same transaction or event. The provisions of
this Section 4.06(i) shall in no way limit a Holder's rights to require Merisel
Parent to repay the Notes of such Holder pursuant to Section 3.02.
(j) Notice of Certain Transactions. If:
------------------------------
(i) Merisel Parent takes any action that would require an adjustment
in the conversion rate pursuant to this Section 4.06; or
(ii) there is a liquidation or dissolution of Merisel Parent;
Merisel Parent shall mail to all Holders a notice describing the proposed action
and the proposed record date, if applicable, or effective date of such action.
Merisel Parent shall mail such notice at least 30 days before such date,
provided that failure to give such notice shall not affect the validity of the
- --------
action taken or proposed to be taken.
(k) Determination Final. Any determination that Merisel Parent or
-------------------
the Board of Directors must make pursuant to this Article IV or with respect to
the Current Market Price of Common Stock shall be conclusive.
<PAGE>
22
SECTION 4.07. Order of Conversion. In the case of conversion of a
-------------------
portion only of a Holder's Notes, such Notes shall be converted in reverse
maturity date order, commencing with the Notes with the latest maturity dates
(together with the Related Accrued Interest Rights).
ARTICLE V
COVENANTS OF THE CO-ISSUERS
SECTION 5.01. Affirmative Covenants. So long as any amount shall
---------------------
remain unpaid hereunder, Merisel Parent shall, unless the Majority Holders shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
-------------------------
Subsidiaries to comply with all applicable laws, rules, regulations and orders
(including, without limitation, any Hazardous Materials Laws) noncompliance with
which could materially adversely affect the business or credit of Merisel
Americas or Merisel Parent or ability of either of them to perform under any
Loan Document or the ability of any of such Subsidiaries to perform its
obligations under any Loan Document to which it is a party.
(b) Corporate Existence. Take and fulfill, and cause each of its
-------------------
Subsidiaries to take and fulfill, all actions and conditions necessary to
preserve and keep in full force and effect its existence, rights and privileges
as a corporation and will not liquidate or dissolve (except as permitted in
Section 5.02(e)), and shall take and fulfill, and cause each of its Subsidiaries
to take and fulfill, all actions and conditions necessary to qualify to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business or the ownership or leasing of its properties requires such
qualification except where failure to do so could not have a material adverse
effect on Merisel Parent or any such Subsidiary or on Merisel Parent's or any
such Subsidiary's ability to perform its obligations under any Loan Document to
which it is a party.
(c) General Maintenance of Properties and Business, Etc. Maintain
---------------------------------------------------
and cause each of its Subsidiaries to maintain its property in good condition
(ordinary wear and tear excepted) and make all reasonable and necessary
renewals, replacements, additions and improvements thereof and thereto, so that
the business carried on in connection therewith may be conducted properly at all
times; and maintain and cause each of its Subsidiaries to maintain, with
financially sound insurers of nationally recognized stature and responsibility,
insurance with respect to its property and business of such a nature, with such
terms and in such amounts, as is customary in the case of corporations engaged
in the same or similar businesses similarly situated against loss or damage of
the kinds and in the amounts customarily insured against and for by such
corporations, and carry or cause to be carried,
<PAGE>
23
with such insurers in customary amounts, such other insurance, including public
liability insurance, as is usually carried by such corporations.
(d) Inspection. Permit any Holder, by its representatives, agents or
----------
attorneys, (i) to examine books of account, records, reports or other papers of
Merisel Parent or any of its Subsidiaries, to make copies and take extracts from
any thereof, (ii) with the consent of Merisel Parent, such consent not to be
unreasonably withheld, to discuss the affairs, finances and accounts of Merisel
Parent and/or any of its Subsidiaries with the independent certified public
accountants thereof (and by this provision Merisel Parent hereby authorizes said
accountants to discuss with any such Holder the finances and accounts of Merisel
Parent and its Subsidiaries) and (iii) to visit and inspect, all upon reasonable
notice, at reasonable times during normal business hours the properties of
Merisel Parent or any of its Subsidiaries. Each such inspection shall be at the
expense of the Person making the inspection, unless such inspection shall be
made during the continuance of an Event of Default (in which event, the expense
of such inspection shall be borne by the Co-Issuers). Notwithstanding the
foregoing sentence, it is understood and agreed by the Co-Issuers that all
expenses incurred by Merisel Parent or any of its Subsidiaries, any officers and
employees thereof and the independent certified public accountants thereof in
connection with any such inspection shall be expenses payable by the Co-Issuers
or such Subsidiary and shall not be expenses of the Person making the
inspection.
(e) Keeping of Books, Separate Records, Etc. (i) Keep, and cause
---------------------------------------
each of its Subsidiaries to keep, proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of Merisel Parent and each of its Subsidiaries in accordance
with GAAP and consistent with prudent business practices provided, however, that
-------- -------
(y) Merisel Americas and its respective Subsidiaries shall maintain its assets
and transactions separately from those of both Merisel Parent and its other
Subsidiaries (collectively, the "Other Corporations") and shall reflect such
------------------
assets and transactions in financial statements separate and distinct from those
of the Other Corporations and shall evidence such assets and transactions by
appropriate entries in books and records separate and distinct from those of the
Other Corporations; and (z) except as otherwise expressly permitted herein,
Merisel Americas and its Subsidiaries shall at all times provide for their own
operating expenses and liabilities from their own funds other than certain
expenses and liabilities relating to basic corporate overhead which may be
allocated between Merisel Americas and its Subsidiaries and the Other
Corporations; and (ii) except as permitted by Section 5.02(j), collect its
accounts receivable and sell its inventory only in the ordinary course of its
business.
(f) Maintenance of Merisel Parent's Consolidated Adjusted Tangible
--------------------------------------------------------------
Net Worth. Maintain its Consolidated Adjusted Tangible Net Worth as of the
- ---------
end of the periods indicated below at a level not less than the correlative
amount indicated below:
<PAGE>
24
<TABLE>
<CAPTION>
Consolidated Adjusted
Period Tangible Net Worth
------ ---------------------
<S> <C>
3rd Quarter of 1997 $(9,549,000)
4th Quarter of 1997 $(8,269,000)
1st Quarter of 1998 $(7,134,000)
2nd Quarter of 1998 $(6,092,000)
3rd Quarter of 1998 $(4,991,000)
4th Quarter of 1998 $(3,876,000)
1st Quarter of 1999 $(3,399,000)
2nd Quarter of 1999 $(3,399,000)
3rd Quarter of 1999 $(3,399,000)
4th Quarter of 1999 $(3,399,000)
</TABLE>
(g) Minimum Consolidated EBITSDA of Merisel Parent. Maintain its
----------------------------------------------
aggregate Consolidated EBITSDA for the periods indicated below at a level not
less than the correlative amount indicated below:
<TABLE>
<CAPTION>
Period Consolidated EBITSDA
------ --------------------
<S> <C>
Three Quarters ended
3rd Quarter of 1997 $33,000,000
Four Quarters ended
4th Quarter of 1997 $50,000,000
Four Quarters ended
1st Quarter of 1998 $56,000,000
Four Quarters ended
2nd Quarter of 1998 $60,000,000
Four Quarters ended
3rd Quarter of 1998 $64,000,000
Four Quarters ended
4th Quarter of 1998 $68,000,000
Four Quarters ended
1st Quarter of 1999 $68,000,000
</TABLE>
<PAGE>
25
<TABLE>
<S> <C>
Four Quarters ended
2nd Quarter of 1999 $68,000,000
Four Quarters ended
3rd Quarter of 1999 $68,000,000
Four Quarters ended
4th Quarter of 1999 $68,000,000
</TABLE>
(h) Maintenance of Merisel Parent's Fixed Charge Coverage Ratio.
-----------------------------------------------------------
Maintain, for each period indicated below, a ratio of (i) Consolidated EBITSDA
to (ii) Consolidated Interest Charges of not less than the correlative amount
indicated below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3rd Quarter of 1997 1.10:1.00
4th Quarter of 1997 1.10:1.00
1st Quarter of 1998 1.10:1.00
2nd Quarter of 1998 1.10:1.00
3rd Quarter of 1998 1.10:1.00
4th Quarter of 1998 1.10:1.00
1st Quarter of 1999 1.10:1.00
2nd Quarter of 1999 1.10:1.00
3rd Quarter of 1999 1.10:1.00
4th Quarter of 1999 1.10:1.00
</TABLE>
(i) Maintenance of Inventory Turnover Ratio. Maintain (i) at the end
---------------------------------------
of each quarter ending prior to repayment in full of the principal amount of the
Notes, a ratio of (x) consolidated aggregate cost of sales of Merisel Parent for
such quarter multiplied by four to (y) Average Consolidated Net Inventory of not
less than 8.00:1.00.
(j) Minimum Ratio of Accounts Payable to Inventory. Maintain a ratio
----------------------------------------------
of consolidated amount of accounts payable ("Consolidated Payables") to
---------------------
consolidated amount of inventory of 0.90:1.00 on the last day of each quarter
ending prior to repayment in full of the principal amount of the Notes.
<PAGE>
26
(k) Reporting Requirements. Furnish to each Holder the following:
----------------------
(i) promptly after (y) the occurrence of each Event of Default or
Incipient Default or any development (an "Adverse Development"), financial
-------------------
or otherwise, including, without limitation, litigation, arbitration
proceedings and regulatory proceedings, which could reasonably be expected
to materially adversely affect the business, properties or affairs of
Merisel Parent or Merisel Americas or the ability of Merisel Parent or
Merisel Americas to make payment of or perform their respective obligations
under the Loan Documents, or (z) any change by any rating agency (including
any insurance rating agency) in the rating of any publicly-held long-term
Debt of Merisel Parent or Merisel Americas, a statement of the Treasurer(s)
of Merisel Parent and Merisel Americas setting forth details of such Event
of Default or Incipient Default or Adverse Development and, in the case of
clause (y), the action which Merisel Parent or Merisel Americas proposes to
take with respect thereto;
(ii) within the earlier of (x) five Business Days of completion
thereof or (y) 30 days following the end of the applicable month (or, in
the case of the end of a fiscal quarter, 45 days after the end of the
applicable month), the Company's standard internal monthly report in
substantially the form set forth in Exhibit A hereto. The Holders
acknowledge that the information described in this Section 5.01(k)(ii)
shall be preliminary information subject to adjustment and may be
materially different from the information contained in the reports and
statements to be provided under Section 5.01(k)(iii) and 5.01(k)(iv)
hereof;
(iii) as soon as available and in any event within 50 days after the
end of each of the first three fiscal quarters in each fiscal year, (a)
consolidated and consolidating balance sheets of Merisel Parent and its
Subsidiaries as of the end of such fiscal quarter and consolidated and
consolidating statements of income and retained earnings of Merisel Parent
and its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter, and (b)
consolidated balance sheets of Merisel Americas and its Subsidiaries as of
the end of such fiscal quarter and consolidated statements of income and
retained earnings of Merisel Americas and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end
of such fiscal quarter, in the case of clauses (a) and (b), all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by the Treasurer(s) of Merisel Parent and Merisel Americas as
having been prepared in accordance with GAAP (other than the absence of
footnotes), together with (x) a certificate of each such officer stating
that no Event of Default or Incipient Default or Adverse Development has
occurred and is continuing or, if an Event of Default or Incipient Default
or Adverse Development has occurred and is continuing, a statement as to
the nature thereof and the action which Merisel Parent or Merisel Americas
proposes to take with respect thereto; and (y) a schedule in form
<PAGE>
27
and substance satisfactory to the Holders, substantially in the form of
Exhibit B hereto, of the computations used in determining, as of the end of
such fiscal quarter, compliance with the covenants contained in Sections
5.01(f), (g), (h), (i) and (j) and Sections 5.02(d), (f)(iii), (h) and (i)
of this Note;
(iv) as soon as available and in any event within 95 days after the
end of each fiscal year of Merisel Parent, a copy of the annual audit
report for such year for Merisel Parent and its consolidated Subsidiaries,
including therein consolidated balance sheets of Merisel Parent and its
consolidated Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of source and
application of funds of Merisel Parent and its consolidated Subsidiaries
for such fiscal year, together with a consolidating balance sheet of
Merisel Parent and its Subsidiaries as of the end of such fiscal year and
consolidating statements of income and retained earnings and of source and
application of funds of Merisel Parent and its Subsidiaries for such fiscal
year, which consolidated balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by independent
public accountants of recognized standing acceptable to the Majority
Holders and which consolidating balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by the Treasurer
of Merisel Parent, together with (a) a statement in the notes to such
financial statements if any default exists under the terms of this Note;
and (b) a schedule in form and substance satisfactory to the Majority
Holders substantially in the form of Exhibit B hereto, of the computations
used in determining, as of the end of such fiscal year, compliance with the
covenants contained in Sections 5.01(f), (g), (h), (i) and (j) and Sections
5.02(d), (f)(iii), (h) and (i) of this Note;
(v) as soon as available and in any event within 95 days after the
end of each fiscal year of Merisel Americas, consolidated balance sheets of
Merisel Americas and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of source and
application of funds of Merisel Americas and its Subsidiaries for such
fiscal year, which consolidated balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by the Treasurer
of Merisel Americas; provided, however, that if any of the foregoing have
-------- -------
been the subject of an audit separate to the audit described in Section
5.01(k)(iv) by independent public accountants (provided that such
--------
accountants shall be the same accounting firm as referred to in Section
5.01(k)(iv), unless otherwise agreed by the Majority Holders), then the
same shall be delivered with a certification of such accountants in a
manner acceptable to the Majority Holders;
(vi) within 180 days after the close of each fiscal year, a
statement of the unfunded liabilities of each Pension Plan, if any,
certified as correct by an actuary enrolled under ERISA;
<PAGE>
28
(vii) promptly after the filing or receiving thereof, copies of all
reports and notices with respect to any "Reportable Event" as defined in
Title IV of ERISA which Merisel Parent or any of its Subsidiaries files
under ERISA with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation or the U.S. Department of Labor or which Merisel
Parent or any of its Subsidiaries receives from such Corporation;
(viii) as soon as practicable, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by
Merisel Parent or Merisel Americas to its public security holders or by any
Subsidiary of Merisel Parent or Merisel Americas to its public security
holders, of all regular and periodic reports and all registration
statements, proxy statements and prospectuses, if any, filed by Merisel
Parent or Merisel Americas or any of their respective Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions; and of all press
releases and other statements made available generally by Merisel Parent or
Merisel Americas or any such Subsidiary to the public concerning material
developments in the business of Merisel Parent or Merisel Americas or any
such Subsidiary;
(ix) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any (a) Termination Event, or (b) "prohibited
transaction," as such term is defined in Section 4975 of the Internal
Revenue Code or Section 406 of ERISA, in connection with any Employee
Benefit Plan or any trust created thereunder, a written notice specifying
the nature thereof, what action Merisel Parent or Merisel Americas has
taken, is taking or proposes to take with respect thereto, and, when known,
any action taken or threatened by the Internal Revenue Service, the
Department of Labor, or the Pension Benefit Guaranty Corporation with
respect thereto;
(x) with reasonable promptness copies of (a) all notices received
by Merisel Parent or any of its ERISA Affiliates of the Pension Benefit
Guaranty Corporation's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan; (b) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by
Merisel Parent or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan; and (c) all notices received by
Merisel Parent or any of its ERISA Affiliates from a Multiemployer Plan
sponsor concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA;
(xi) with reasonable promptness, notice to the Holders in writing of
(a) any release, spill, discharge or emission by Merisel Parent or any of
its Subsidiaries or on or from its properties of any Hazardous Materials
into the environment that must be
<PAGE>
29
reported to any federal, state, provincial or local government or
regulatory agency under any applicable Hazardous Materials Laws, (b) any
remedial action taken by Merisel Parent or any of its Subsidiaries in
response to (x) the presence of Hazardous Materials on, under or about any
of its properties that could be reasonably likely to materially adversely
affect the business or credit of Merisel Parent or Merisel Americas or the
ability of either Merisel Parent or Merisel Americas or any of their
respective Subsidiaries to perform under the Loan Documents or (y)
Hazardous Materials Claims, and (c) the discovery by Merisel Parent or any
of its Subsidiaries of any occurrence or condition on any real property
adjoining or in the vicinity of property owned or leased by Merisel Parent
or such Subsidiary that could reasonably be expected to cause such property
or any part thereof to be classified as "border zone property", or to
otherwise be subject to any restrictions on the ownership, occupancy,
transferability or use thereof under any Hazardous Materials Laws;
(xii) with reasonable promptness, copies of all material
communications to or from Merisel Parent or any of its Subsidiaries with
federal, state and local governments or agencies relating to Hazardous
Materials Laws and all communications to or from Merisel Parent or any of
its Subsidiaries relating to Hazardous Materials Claims;
(xiii) within 60 days after the beginning of each fiscal year,
projected consolidated balance sheets, consolidated statements of income
and consolidated cash flows from operations for Merisel Parent and its
Subsidiaries for such fiscal year on a fiscal year or a fiscal quarter by
fiscal quarter basis;
(xiv) promptly upon any officer of Merisel Parent or Merisel Americas
obtaining knowledge that any Person has given any notice to Merisel Parent
or any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section
6.01(e), a written notice specifying the notice given or action taken by
such Person and the nature and period of existence of such claimed default,
event or condition, and what action Merisel Parent or Merisel Americas has
taken, is taking and proposes to take with respect thereto;
(xv) immediately upon receipt by Merisel Parent or any of its
Subsidiaries of any notice or communication relating to a default or
termination of any material real property lease with respect to which the
landlord has not agreed in writing to provide the Holders with notice of
any such default or termination, copies of such communication, or if such
notice or communication was made orally, a written notice describing such
oral notice or communication;
(xvi) within 5 Business Days of completion of the response of Merisel
Parent or any of its Subsidiaries to any comment letter submitted by
independent certified
<PAGE>
30
public accountants to Merisel Parent, Merisel Americas or the management
thereof in connection with their annual audit of the financial statements
of Merisel Parent and its Subsidiaries or Merisel Americas and its
Subsidiaries, a copy of such comment letter together with copies of all
responses of Merisel Parent and Merisel Americas to such comment letter;
and
(xvii) such other information respecting the business, properties or
the condition or operations, financial or otherwise, of Merisel Parent or
any of its Subsidiaries as any Holder (or counsel for any Holder) may from
time to time reasonably request.
(l) Payment of Taxes. Pay and discharge, and cause its respective
----------------
Subsidiaries to pay and discharge, promptly when due all taxes, assessments and
governmental charges and levies payable by it which are imposed upon it, its
income or profits or any of its properties, before the same shall become
delinquent; provided, however, that none of the foregoing need be paid while the
-------- -------
same is being contested in good faith by appropriate proceedings diligently
conducted so long as adequate reserves shall have been established in accordance
with GAAP with respect thereto, title of Merisel Parent or such Subsidiary to
the particular property shall not be divested thereby and its right to use the
particular property shall not be materially adversely affected thereby.
(m) Maintain Cash in Name of Merisel Parent. Deposit and maintain,
---------------------------------------
and cause its respective Subsidiaries to deposit and maintain, all Excess Cash
and Excess Cash Equivalents in the name of Merisel Parent or its Subsidiaries.
(n) Further Assurances. At any time or from time to time upon the
------------------
request of the Majority Holders, execute and deliver such further documents and
do such other acts and things as the Majority Holders may reasonably request in
order to effect fully the purposes of this Note and the other Loan Documents.
SECTION 5.02. Negative Covenants. So long as any amount shall remain
------------------
unpaid hereunder, Merisel Parent shall not, unless the Majority Holders shall
otherwise consent in writing:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
----------
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien (including the Lien of a conditional vendor) of any kind upon or with
respect to any of its properties of any character whether now owned or hereafter
acquired, or sign or file, or permit any of its Subsidiaries to sign or file,
under the Uniform Commercial Code or similar law of any jurisdiction a financing
statement or other registration (other than a precautionary filing of a
financing statement solely for notice purposes) which names Merisel Parent or
any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to
sign, any security agreement
<PAGE>
31
authorizing any secured party thereunder to file such financing statement or
other registration, or assign, or permit any of its Subsidiaries to assign, any
accounts receivable, or enter into or permit any of its Subsidiaries to enter
into, any agreement prohibiting the creation or assumption of any Lien upon its
respective properties or assets, whether now owned or hereafter acquired,
excluding, however, from the operation of the foregoing restrictions the
- --------- -------
following:
(i) Liens for taxes, assessments or governmental charges or levies
to the extent not required to be paid by Section 5.01(l);
(ii) Liens imposed by law such as a materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising
in the ordinary course of business securing obligations which are not
overdue for a period of more than 60 days;
(iii) pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation or to secure public or statutory
obligations of Merisel Parent or any of its Subsidiaries;
(iv) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of Merisel Parent or any of its
Subsidiaries;
(v) Liens caused by any judgment if such judgment has not resulted
in an Event of Default pursuant to Section 6.01(g);
(vi) Liens in favor of the Holders, in connection with Debt of
Merisel Americas and Merisel Parent incurred hereunder and Liens consisting
of security interests in accounts receivable (and in property securing or
otherwise supporting accounts receivable) in connection with agreements for
sales, transfers or securitization of accounts receivable (or interests
therein) referred to in Section 5.02(j);
(vii) Liens in favor of Merisel Parent or Merisel Americas on the
assets of any of their respective Subsidiaries;
(viii) Liens in favor of customs and revenue authorities arising by
operation of law to secure payment of customs duties in connection with the
importation of goods which are not overdue for a period of more than 60
days;
<PAGE>
32
(ix) Liens not otherwise permitted under the other clauses of this
Section 5.02(a) that are in existence on the date of issuance of this Note,
(all of which such Liens known to Merisel Parent or Merisel Americas are
set forth on Schedule I hereto, which Schedule shall be updated if Merisel
Parent or Merisel Americas obtains knowledge of any other Liens);
(x) Liens in connection with Sale and Leaseback Transactions
permitted under Section 5.02(f);
(xi) Liens securing obligations of Merisel Parent and its
Subsidiaries under foreign exchange hedging arrangements or other similar
contracts and agreements entered into for non-speculative purposes to
protect Merisel Parent and its Subsidiaries against fluctuations in
currency exchange rates; provided, however, that the maximum aggregate
-------- -------
amount of assets subject to such Liens shall not exceed $10,000,000;
(xii) Liens permitted under that certain letter dated as of September
19, 1997 between Merisel Parent and Merisel Americas and Phoenix
Acquisition Company II, L.L.C., as amended from time to time;
(xiii) Liens on inventory purchased from vendors pursuant to the
specific vendor inventory financing and purchase programs; and
(xiv) Liens incurred in connection with Capital Leases to the extent
permitted by the terms hereof.
(b) Debt. Create or suffer to exist, or permit any of its
----
Subsidiaries to create or suffer to exist, any Debt not in existence on the date
of initial issuance of the Notes as set forth on Schedule I except (i) a
------
revolving credit facility in a maximum amount of $50,000,000; (ii) refinancings
of Debt (other then the revolving credit facility referred to in (i)) otherwise
permitted under this Section 5.02(b); provided that (x) the terms of such
--------
refinanced Debt shall not either (1) increase materially the obligations of the
obligor or (2) confer additional rights on the holder of such Debt which in the
aggregate could be materially adverse to Merisel Parent, Merisel Americas or the
Holders and (y) after giving effect to such refinancing, there would not result
an Incipient Default or Event of Default; (iii) Debt otherwise permitted under
Section 5.02(g), Section 5.02(j) and Section 5.02(c) (to the extent such
permitted Contingent Obligations constitute Debt); (iv) Debt incurred to vendors
pursuant to the specific vendor inventory financing and purchase programs; and
(v) Capital Leases in an aggregate amount of $5,000,000 at any time outstanding
in addition to those in existence of the date of initial issuance of the Notes.
<PAGE>
33
(c) Contingent Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Contingent Obligations, except:
(i) by reason of indorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;
(ii) guaranties by Merisel Parent or Merisel Americas in existence
on the date of issuance of this Note (all of which such guaranties known to
Merisel Parent or Merisel Americas are set forth on Schedule II hereto,
which Schedule shall be updated if Merisel Parent or Merisel Americas
obtains knowledge of any such other guaranties) in connection with credit
extended to Merisel Parent's or Merisel Americas' respective wholly-owned
Subsidiaries;
(iii) guaranties by Merisel Parent or Merisel Americas of accounts
payable incurred in the ordinary course of business of any of their
respective wholly-owned Subsidiaries or of leases entered into by such
wholly-owned Subsidiaries in each case in the ordinary course of business,
in each case consistent with Merisel Parent's and Merisel Americas' past
practice;
(iv) guaranties by Merisel Parent or Merisel Americas in connection
with obligations of their respective Subsidiaries;
(v) obligations of Merisel Parent or its wholly-owned Subsidiaries
under flooring arrangements, under their return policies, or under
arrangements providing for rebates to purchasers of inventory or other
arrangements of a similar nature, in each case in the ordinary course of
business and consistent with Merisel Parent's or Merisel Americas' past
practice;
(vi) Contingent Obligations relating to letters of credit issued for
the account of Merisel Parent or its wholly-owned Subsidiaries;
(vii) Contingent Obligations relating to transactions permitted under
Section 5.02(j); and
(viii) Contingent Obligations in respect of foreign exchange hedging
arrangements or other similar contracts and agreements entered into for
non-speculative purposes to protect Merisel Parent and its Subsidiaries
against fluctuations in currency exchange rates.
(d) Dividends, Etc. Declare or pay any dividends, purchase, redeem,
--------------
retire, or otherwise acquire for value any of its capital stock now or hereafter
outstanding,
<PAGE>
34
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any of its Subsidiaries to
purchase, redeem, retire or otherwise acquire for value any stock of Merisel
Parent, except that:
------
(i) Merisel Parent may declare and deliver dividends and
distributions payable only in common stock of Merisel Parent; and
(ii) any direct or indirect wholly-owned Subsidiary of Merisel
Parent may declare and deliver dividends and distributions payable in cash,
common stock or other assets to its respective parent.
(e) Mergers, Etc. Merge with or into or consolidate with or into,
------------
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, any Person, or permit any Subsidiary to do so, except that (i) any
------
wholly-owned Subsidiary of Merisel Parent or its Subsidiaries may merge or
amalgamate or consolidate with, or transfer all or substantially all of its
assets to, Merisel Parent or any other wholly-owned Subsidiary of Merisel Parent
and (ii) any Subsidiary of Merisel Parent may merge into, amalgamate with or
transfer all or substantially all of its assets to Merisel Parent (so long as
Merisel Parent is the surviving entity); provided in any case in this Section
--------
5.02(e) that, immediately after giving effect thereto, no event shall occur and
be continuing which constitutes an Event of Default or an Incipient Default.
(f) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
---------------------
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any of its assets (whether tangible or intangible, and
including, without limitation, any stock of any Subsidiary), or enter into any
Sale and Leaseback Transaction, or permit any of its Subsidiaries to enter into
any Sale and Leaseback Transaction, except for:
------
(i) sales of inventory sold in the ordinary course of business
(including intercompany sales other than sales to Merisel Properties,
Inc.); provided that the consideration therefor adequately reflects the
--------
fair value of the property disposed of;
(ii) sales of assets (whether tangible or intangible); provided that
--------
the aggregate value of such assets sold in any single transaction or
related series of transactions is equal to or less than $100,000;
(iii) sales or transfers of inventory or fixed assets by Merisel
Americas or any of its wholly-owned Subsidiaries to Merisel Americas or any
of its wholly-owned Subsidiaries and Sale and Leaseback Transactions among
Merisel Americas and any of its wholly-owned Subsidiaries; provided that
--------
(i) the aggregate value of such assets sold or transferred and such Sale
and Leaseback Transactions entered into by Merisel
<PAGE>
35
Americas and its wholly-owned Subsidiaries to or with Persons other than
Merisel Americas and its wholly-owned Subsidiaries shall not exceed
$10,000,000, (ii) the aggregate value of inventory sold or transferred by
Merisel Americas and any of its wholly-owned Subsidiaries to Merisel Parent
shall not exceed $1,000,000 in any calendar year and (iii) the aggregate
value of fixed assets sold or transferred by Merisel Americas and any of
its wholly-owned Subsidiaries to Merisel Parent shall not exceed $1,000,000
in any calendar year;
(iv) dispositions of obsolete assets in the ordinary course of
business for nominal consideration;
(v) transfers of assets permitted under Section 5.02(e) and Section
5.02(j); and
(vi) any other sale, transfer or disposition of assets or Sale and
Leaseback Transaction occurring after January 31, 1998; provided that (x)
--------
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof, (y) the sale consideration received
in excess of liabilities assumed shall be (I) in cash or (II) in a
combination of cash for at least 90% of the sale consideration and notes
payable within 12 months for the balance, and (z) at least 60% of the Net
Asset Sale Proceeds of such sale, transfer, disposition or Sale and
Leaseback Transaction shall be applied to repay any unconverted principal
amount of the Notes.
(g) Investments in Other Persons. Make, or permit any of its
----------------------------
Subsidiaries to make, any loan or advance to any Person, or purchase or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any capital stock, obligations or other securities of, make any capital
contribution to, or otherwise invest in, any Person, except:
------
(i) Cash Equivalents;
(ii) loans and advances by Merisel Americas to wholly-owned
Subsidiaries of Merisel Americas; provided that such loans and advances by
--------
Merisel Americas to its wholly-owned Subsidiaries may be converted to
equity Securities of such Subsidiaries if required to satisfy local legal
or regulatory requirements relating to the capitalization of such
Subsidiary;
(iii) loans, advances and investments by any Subsidiary of Merisel
Parent to Merisel Parent and its Subsidiaries; provided that any loan or
--------
advance by any Subsidiary of Merisel Parent (other than Merisel Americas)
to Merisel Parent shall be subordinated (both as to payment and remedies)
to this Note;
<PAGE>
36
(iv) investments consisting of mergers, consolidations and
acquisitions permitted by Section 5.02(e);
(v) loans and advances by Merisel Parent to any of its direct and
indirect Subsidiaries;
(vi) loans, advances and investments to or in a Subsidiary in
connection with a sale, transfer or securitization of accounts receivable
permitted by Section 5.02(j);
(vii) loans, advances and investments permitted by Section 5.02(b)
and Section 5.02(e); and
(viii) investments in customers that result from the conversion or
exchange of accounts receivable for securities pursuant to a bankruptcy
plan of reorganization or pursuant to a general arrangement with creditors
of such customer.
The amount of any loan, advance or investment shall be determined in
accordance with GAAP.
(h) Consolidated Capital Expenditures. Make or incur or permit any
---------------------------------
of its Subsidiaries to make or incur Consolidated Capital Expenditures in an
amount exceeding $18,000,000 in fiscal 1997, $35,000,000 in fiscal 1998 and
$35,000,000 in fiscal 1999; provided that up to 50% of such maximum amount for
--------
any year, if unused in such year, may be used to increase the maximum amount
available for the next following year.
(i) Operating Leases. Become liable, or permit any of its
----------------
Subsidiaries to become liable, in any way, whether directly or by assignment or
as a guarantor or other surety, for the obligations of the lessee under any
Operating Lease, unless, immediately after giving effect to the incurrence of
liability with respect to such lease, the Consolidated Rental Payments for
Merisel Parent and its Subsidiaries at any time in effect during the then
current fiscal year shall not exceed $35,000,000.
(j) Sales of Accounts Receivable. Sell, transfer or dispose of
----------------------------
(with or without recourse) or otherwise finance, or permit any of its
Subsidiaries to sell, transfer or dispose of (with or without recourse) or
otherwise finance, accounts receivable except (i) Merisel Canada or Merisel
------
Americas may sell accounts receivable pursuant to the securitization programs
identified on Schedule III hereto (the "Existing Receivables Programs");
-----------------------------
provided that any renewal, amendment, replacement or refinancing of any Existing
- --------
Receivables Program shall not be on terms more adverse to Merisel Canada or
Merisel Americas, as the case may be, than the terms of the Existing Receivables
Program being so renewed, amended, replaced or refinanced (it being agreed that
an increase in the
<PAGE>
37
interest rate is not an adverse change); (ii) Merisel Americas and its wholly-
owned Subsidiaries may sell or transfer accounts receivable to Merisel Americas
and its wholly-owned Subsidiaries; provided that the aggregate value of such
--------
accounts receivable sold or transferred by Merisel Americas and its wholly-owned
Subsidiaries under this Section 5.02(j)(ii) to Persons other than Merisel
Americas and its wholly-owned Subsidiaries shall not exceed $0; and (iii)
Merisel Parent may, and may permit its Subsidiaries to, enter into one or more
transactions occurring after January 31, 1998 (other than those referred to in
clause (ii) above, each such transaction being referred to herein as a
"Receivables Program") involving the sale or other financing by Merisel Parent
-------------------
or its Subsidiaries of accounts receivable arising in the ordinary course of
business of Merisel Parent or its Subsidiaries; and provided further that 60% of
-------- -------
the proceeds of all such Receivables Programs shall be applied to repay any
outstanding amount under any revolving credit facility permitted under Section
5.02(b)(i).
(k) Subordinated Note Payments. Order, pay, make or set apart, or
--------------------------
permit any Subsidiary to, directly or indirectly, order, pay, make or set apart,
any sum for any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance, sinking fund or
similar payment with respect to any Subordinated Debt.
(l) Amendments or Waivers of Certain Documents; Prepayments of
----------------------------------------------------------
Certain Debt. (i) Amend, waive or otherwise change the terms of, or permit any
- ------------
Subsidiary to amend, waive or otherwise change the terms of any Debt or make any
payment consistent with an amendment or change thereto, if the effect of such
amendment or change is to increase the interest rate on such Debt, change the
dates upon which payments of principal or interest are due thereon, change any
event of default or condition to an event of default with respect to such Debt,
change the redemption provisions thereof or change the subordination provisions
thereof (or any guaranty thereof) or which, together with all other amendments
or changes made, increase materially the obligations of the obligor or confers
additional rights on the holder of such Debt which could be adverse to Merisel
Parent, Merisel Americas or the Holders; or (ii) defease, or make any payments
the effect of which is to defease, or permit any Subsidiary to, directly or
indirectly, defease, or make any payments the effect of which is to defease any
Debt in whole or in part, or otherwise make, or permit any Subsidiary, directly
or indirectly, to make any payments with respect to any Debt prior to any
scheduled maturity or scheduled repayment, except for payments pursuant to
Section 4.13(c) of the Indenture and Section 4.15 of the Indenture.
(m) Compliance with Law, Etc. (i) Violate any laws, ordinances,
------------------------
governmental rules or regulations to which it is or may become subject or (ii)
fail to obtain or maintain any patents, trademarks, service marks, trade names,
copyrights, design patents, licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or the conduct of its
business, in either case where such failure would have a
<PAGE>
38
Material Adverse Effect or affect the ability of Merisel Parent or Merisel
Americas to perform its obligations under any of the Loan Documents.
(n) Transactions with Shareholders and Affiliates. Enter into or
---------------------------------------------
permit to exist, or permit any direct or indirect Subsidiary of Merisel Parent
to enter into or permit to exist, any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any holder of 5% or more of any class of equity
securities of Merisel Parent, or with any Affiliate of Merisel Parent (excluding
any Subsidiaries of Merisel Parent and excluding Phoenix Acquisition Company II,
L.L.C.) or any such holder, on terms that are not fair and reasonable in the
circumstances or that are less favorable to Merisel Parent than those which
might be obtained at the time from Persons who are not such a holder or
Affiliate.
(o) Material Agreements. Permit any Subsidiary to enter into any
-------------------
material contractual obligation without the consent of Merisel Parent.
(p) Interest Rate Agreements. Enter into or permit any of its
------------------------
Subsidiaries to enter into any Interest Rate Agreements except those entered
into for non-speculative purposes to protect Merisel Parent or any of its
Subsidiaries against fluctuations in interest rates.
(q) Change in Business. Engage, or permit any Subsidiary to engage,
------------------
in any business other than the business engaged in by each such particular
Person at the date of initial issuance of the Notes or other businesses directly
related to the distribution or marketing of computer products, services and
information (it being acknowledged that, in case of Merisel Parent, such
business is limited to the owning of stock in its Subsidiaries and activities
necessarily incidental thereto).
(r) Fiscal Year. Change its fiscal year end from the Saturday
-----------
closest to December 31 and, unless otherwise agreed by the Majority Holders, the
fiscal year end date shall be the same for each of Merisel Parent and Merisel
Americas.
(s) Merisel Parent Debt Restructuring. Issue, or cause or permit to
---------------------------------
be issued, Securities of Merisel Parent, or make, or cause or permit to be made,
any payment, to or for the benefit of the holders of Debt of Merisel Parent,
except for the issuance of common equity Securities of Merisel Parent to the
Holders upon conversion of the Notes and Related Accrued Interest Rights in
whole or in part.
<PAGE>
39
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
-----------------
(a) Merisel Parent or Merisel Americas shall fail to pay any
installment of principal when due hereunder or (subject to the provisions of
Section 2.02(b) hereof) to pay any interest due hereunder within three days
after such interest shall become due; or
(b) Any representation or warranty or certification made by either
Co-Issuer (or any of their respective officers) under or in connection with any
Loan Document shall prove to have been incorrect in any material respect when
made; or
(c) Merisel Parent or Merisel Americas shall fail to perform or
observe any of the covenants found in Section 5.01(b), (f), (g), (h), (i), (j),
(k) or (m) or Section 5.02 applicable to it; or
(d) Merisel Parent or Merisel Americas shall fail to perform or
observe any other term, covenant or agreement contained in any Loan Document on
its part to be performed or observed and such default shall not have been
remedied within 10 days of notice from any Holder of any such default; or
(e) Merisel Parent or any of its Subsidiaries shall fail to pay any
Debt outstanding (excluding Debt incurred hereunder) of Merisel Parent or such
Subsidiary (as the case may be) exceeding in the aggregate $5,000,000, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other default under any agreement or
instrument relating to such Debt, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
or any default under any agreement or instrument relating to the Existing
Receivables Programs or any Receivables Program, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to terminate,
or unwind such Existing Receivables Program or Receivables Program or related
document or instrument or substantially reduce the advance rate provided for
therein; or
<PAGE>
40
(f) Merisel Parent or any of its Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against Merisel Parent
or any of its Subsidiaries seeking to adjudicate it a 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 or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 30
days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or any substantial
part of its property) shall occur; or Merisel Parent or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth above
in this Section 6.01(f); or
(g) Any judgment or judgments or orders or order of money
aggregating in excess of $5,000,000 shall be rendered against Merisel Parent or
any of its Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order in excess of $5,000,000 or
judgments or orders aggregating in excess of $5,000,000 and shall not have been
stayed or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order in excess of $5,000,000 or
judgments or orders aggregating in excess of $5,000,000, by reason of a pending
appeal or otherwise, shall not be in effect; or
(h) (A) Merisel Parent or any of its ERISA Affiliates fails to make
full payment when due of all amounts which, under the provisions of any Pension
Plan or Section 412 of the Internal Revenue Code, Merisel Parent or any of its
ERISA Affiliates is required to pay as contributions thereto;
(B) Any accumulated funding deficiency occurs or exists, whether or
not waived, with respect to any Pension Plan;
(C) The excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets of
such Pension Plans (excluding in such computation Pension Plans with assets
greater than benefit liabilities) allocable to such benefit liabilities are
greater than $250,000;
(D) Merisel Parent or any of its ERISA Affiliates enters into any
transaction which has as its principal purpose the evasion of liability under
Subtitle D of Title IV of ERISA;
<PAGE>
41
(E) (i) Any Pension Plan shall be terminated within the meaning of
Title IV of ERISA, or (ii) a trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan, or (iii) the Pension
Benefit Guaranty Corporation (or any successor thereto) shall institute
proceedings to terminate any Pension Plan or to appoint a trustee to administer
any Pension Plan, or (iv) Merisel Parent or any of its ERISA Affiliates shall
withdraw (under Section 4063 of ERISA) from a Pension Plan, if as of the date of
the event listed in subclauses (i)-(iv) above or any subsequent date, either
Merisel Parent or its ERISA Affiliates has any liability (such liability to
include, without limitation, any liability to the Pension Benefit Guaranty
Corporation, or any successor thereto, or to any other party under Section 4062,
4063 or 4064 of ERISA or any other provision of law) resulting from or otherwise
associated with the events listed in subclauses (i)-(iv) above;
As used in this Section 6.01(h) the term "accumulated funding
deficiency" has the meaning specified in Section 412 of the Internal Revenue
Code, and the terms "actuarial present value" and "benefit liabilities" have the
meanings specified in Section 4001 of ERISA; or
(i) The emission, discharge, release or threatened release,
generation, storage, transportation, disposal or presence of Hazardous Materials
on any property owned or leased by Merisel Parent or any of its Subsidiaries
which is reasonably likely to materially adversely affect the business or credit
of Merisel Parent or Merisel Americas or the ability of either of them, or the
ability of any other Subsidiary of Merisel Parent, to perform under the Loan
Documents; or
(j) A material adverse change in the business, earnings,
properties, condition (financial or otherwise) or operations of Merisel Parent
or Merisel Americas shall have occurred since the date of initial issuance of
the Notes;
THEN, and in any such event, the Majority Holders may, by notice to Merisel
Parent and Merisel Americas, declare the unpaid principal amount of and accrued
interest (including deferred interest and interest on deferred interest, if any)
on the Notes to be forthwith due and payable, whereupon the Notes and all
accrued interest (including deferred interest and interest on deferred interest,
if any) shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by Merisel Parent and Merisel Americas; provided, however, that in the
-------- -------
event of an actual or deemed entry of an order for relief with respect to
Merisel Parent or Merisel Americas or any of their Subsidiaries under the
Federal Bankruptcy Code or similar applicable laws in other jurisdictions, the
Notes shall automatically become and be due and payable, together with accrued
interest thereon (including deferred interest and interest on deferred interest,
if any), without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by Merisel Parent and Merisel Americas.
<PAGE>
42
Notwithstanding anything contained in the foregoing paragraph, if at
any time within 15 days after acceleration of the maturity of the Notes, Merisel
Parent and Merisel Americas shall pay all arrears of interest (including
deferred interest and interest on deferred interest, if any) and all payments on
account of the principal which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified herein) and all Events of Default and
Incipient Defaults (other than nonpayment of principal of and interest on that
amounts that have become due and payable solely by virtue of acceleration) shall
be remedied or shall be waived by the Majority Holders, then the Majority
Holders, by written notice to Merisel Parent and Merisel Americas, may at their
option rescind and annul the acceleration and its consequences; but such action
shall not affect any subsequent Event of Default or Incipient Default or impair
any right consequent thereon.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Note, nor consent to any departure by Merisel Parent or
Merisel Americas herefrom, shall in any event be effective unless the same shall
be in writing and signed by all Holders and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 7.02. Notices. All notices, requests and other
-------
communications hereunder shall be in writing (including telex, telecopy or
similar writing) and shall be given, if to Merisel Parent or Merisel Americas:
to:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 70245
Attention: Timothy N. Jenson
Telecopy: (310) 615-6882
<PAGE>
43
with a copy to:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 70245
Attention: Karen A. Tallman
Telecopy: (310) 615-6819
if to Phoenix Acquisition Company II, L.L.C.,
as initial Holder of this Note, to:
Stonington Partners, Inc.
767 Fifth Avenue
48th Floor
New York, New York 10153
Attention: Albert J. Fitzgibbons III
Telecopy: (212) 339-8585
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Rohan S. Weerasinghe, Esq.
Telecopy: (212) 848-7179
or to such other address or telecopy number and with such other copies, as
Merisel Parent, Merisel Americas or Phoenix Acquisition Company II, L.L.C. may
hereafter specify for the purpose by notice to the other, and if to subsequent
Holders, to the address, telecopy number, marked for the attention and with such
other copies as communicated in writing by each such Holder from time to time to
Merisel Parent and Merisel Americas. Each such notice, request or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section 7.02 and evidence
of receipt is received or (ii) if given by any other means, upon delivery or
refusal of delivery at the address specified in this Section 7.02.
SECTION 7.03. No Waiver; Remedies. No failure on the part of any
-------------------
Holder to exercise, and no delay in exercising, any right hereunder prior to the
Conversion Date 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.
<PAGE>
44
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 7.04. Transfers. Each Holder may by notice to Merisel Parent
---------
and Merisel Americas assign to one or more banks or other entities all or a
portion of its rights under this Note; provided that any such assignment shall
--------
be in accordance with the Securities Act of 1933, as amended and all applicable
rules and regulations thereunder; provided further that no such transfers may
-------- -------
take place without the consent of Merisel Parent prior to the earlier of January
31, 1998 or the occurrence of an event resulting in the Termination Fee becoming
payable under Section 6.05 of the Stock and Note Purchase Agreement. Upon
receipt of such notice together with the Note to be so transferred, Merisel
Parent and Merisel Americas shall issue a new Note to such assignee in the
principal amount so assigned and, in the case of a partial assignment, shall
issue a new Note to the assignor in the principal amount not assigned in
exchange for such Holder's existing Note. Merisel Parent and Merisel Americas
may treat the Holders from time to time as the owner of Notes for all purposes,
and Merisel Parent and Merisel Americas shall not be affected by any notice to
the contrary. Neither Merisel Parent nor Merisel Americas may assign or
transfer any of its rights or obligations under the Notes.
SECTION 7.05. Mutilated, Destroyed, Lost and Stolen Notes. If (i)
-------------------------------------------
any mutilated Note is surrendered to the Co-Issuers or (ii) the Co-Issuers
receive evidence to their satisfaction of the destruction, loss or theft of any
Note, and there is delivered to the Co-Issuers such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice to the Co-Issuers that such Note has been acquired by a bona fide
purchaser, the Co-Issuers shall execute and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Co-Issuers in their discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 7.05, the Co-
Issuers may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Note issued pursuant to this Section 7.05 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional joint and several contractual obligation of the Co-Issuers, whether
or not the mutilated, destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all benefits to which the
Holders are entitled, equally and proportionately with the Holders of any and
all other Notes duly issued and outstanding.
<PAGE>
45
The provisions of this Section 7.05 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 7.06. Binding Effect. This Note shall be binding upon and
--------------
inure to the benefit of Merisel Parent and Merisel Americas and the Holders and
their respective successors and permitted assignees and transferees.
SECTION 7.07. Severability. Any provision of this Note which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 7.08. Payment of Costs and Expenses. Merisel Parent and
-----------------------------
Merisel Americas hereby agree, jointly and severally, to reimburse the Holders
upon demand for all reasonable out-of-pocket expenses (including attorneys' fees
and legal expenses) incurred by the Holders in connection with the enforcement
of any rights of the Holders or obligations of Merisel Parent or Merisel
Americas hereunder.
SECTION 7.09. Headings. The various headings of this Note are
--------
inserted for convenience only and shall not affect the meaning or interpretation
of this Note or any provisions hereof.
SECTION 7.10. Governing Law. This Note shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York, without giving
effect to such laws relating to conflicts of laws.
<PAGE>
46
IN WITNESS WHEREOF, Merisel Parent and Merisel Americas caused this
Note to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
MERISEL, INC.
By /s/ DWIGHT A. STEFFENSEN
-------------------------------
Title: Chief Executive Officer
MERISEL AMERICAS, INC.
By /s/ DWIGHT A. STEFFENSEN
-------------------------------
Title: Chief Executive Officer
<PAGE>
EXHIBIT 99.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
---------
into the 19th day of September, 1997, by and among Merisel, Inc., a Delaware
corporation (the "Company"), Merisel Americas, Inc., a Delaware corporation and
-------
wholly owned subsidiary of the Company (the "Subsidiary") and Phoenix
----------
Acquisition Company II, L.L.C., a Delaware limited liability company ("Lender").
------
WHEREAS, the Company and Subsidiary have agreed to enter into a Stock and
Note Purchase Agreement (the "Stock and Note Purchase Agreement") with Lender
---------------------------------
pursuant to which Lender is to purchase (the "Purchase") from the Company
--------
4,901,316 shares of the Company's Common Stock (as defined herein) and purchase
from the Company and the Subsidiary a convertible promissory note (the "Note")
----
which is convertible into shares of Common Stock.
WHEREAS, it is a condition to the obligations of the parties under the
Stock and Note Purchase Agreement that the parties hereto enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Lender and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
SECTION 1.01 As used in this Agreement the following terms shall have
the following respective meanings:
"Affiliate" with respect to any person, shall mean any other person
---------
who, directly or indirectly, controls, is controlled by or is under common
control with such first person.
"Commission" shall mean the United States Securities and Exchange
----------
Commission, or any other United States federal agency at the time
administering the Securities Act or the Exchange Act, as applicable.
"Common Stock" shall mean, (i) prior to the Reverse Stock Split,
------------
common stock, par value $.01 per share, of the Company and (ii) from and
after the Reverse Stock Split, common stock, par value $.05 per share, of
the Company.
<PAGE>
2
"control" when used with respect to any person, shall mean the power
-------
to direct management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Conversion Common Stock" shall mean the shares of Common Stock
-----------------------
received by Lender upon the conversion of the Note.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of
the Commission promulgated thereunder, all as the same shall be in effect
at the time.
"Holder" shall mean Lender or any transferee or assignee to which the
------
rights under this Agreement are assigned in accordance with the provisions
of Section 6.03 hereof.
"person" shall mean a corporation, association, partnership,
------
organization, group (as such term is used in Rule 13d-5 under the Exchange
Act), individual, governmental agency or other entity.
"Purchased Common Stock" shall mean the shares of Common Stock
----------------------
purchased by Lender pursuant to the Stock and Note Purchase Agreement.
"Registrant" shall mean the Company and/or the Subsidiary, as
----------
applicable.
"Register," "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration
or ordering of effectiveness of such registration statement or document.
"Registrable Debt Securities" shall mean the debt securities on terms
---------------------------
and conditions substantially identical to those of the Note except to the
extent that transfer and other provisions of the Note may be amended for
purposes of the registration of such debt security in accordance herewith.
"Registrable Securities" shall mean collectively, the Registrable Debt
----------------------
Securities and the Registrable Shares.
"Registrable Shares" shall mean (i) the shares of Purchased Common
------------------
Stock and shares of Conversion Common Stock, together with any shares of
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right, option or other convertible security which is issued as a
dividend or other distribution with
<PAGE>
3
respect to, or in exchange for, or in replacement of, the Purchased Common
Stock or the Conversion Common Stock, as the case may be) and (ii) any
shares of Common Stock issued by way of a stock split of the Purchased
Common Stock, the Conversion Common Stock or the Common Stock referred to
in clause (i) of this paragraph. For purposes of this Agreement, any
Registrable Shares shall cease to be Registrable Shares when (v) a
registration statement covering such Registrable Shares shall have been
declared effective and such Registrable Shares have been disposed of
pursuant to such effective registration statement, (w) such Registrable
Shares are sold by a person in a transaction in which the rights under the
provisions of this Agreement are not assigned, (x) such Registrable Shares
are sold pursuant to Rule 144 under the Securities Act, (y) such securities
are distributable under Rule 144(k) under the Securities Act or (z) such
Registrable Shares cease to be outstanding.
"Reverse Stock Split" shall mean the one-for-five stock split of the
-------------------
Company's common stock, par value $.01 per share.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at
the time.
SECTION 1.02 Headings. The descriptive headings of the Sections and
--------
paragraphs of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 Representations and Warranties of Lender. Lender hereby
----------------------------------------
represents and warrants to each Registrant that Lender has all requisite limited
liability company power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
by Lender have been duly authorized by Lender and no other proceedings on the
part of Lender are necessary to authorize this Agreement and the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by Lender and, assuming the due execution hereof by each
Registrant, constitutes the legal, valid and binding obligation of Lender,
enforceable against Lender in accordance with its terms.
<PAGE>
4
SECTION 2.02 Representations and Warranties of each Registrant. Each
-------------------------------------------------
Registrant hereby represents and warrants to Lender that it has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by each Registrant and the consummation by the Registrant of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of such Registrant, no other corporate proceedings on the part of such
Registrant are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each Registrant and, assuming the due execution hereof by Lender,
constitutes the valid and binding obligation of each Registrant, enforceable
against each Registrant in accordance with its terms.
ARTICLE III
NOTICE OF TRANSFER
SECTION 3.01 Notice of Proposed Transfer. Prior to any proposed
---------------------------
transfer of any Registrable Securities (other than under the circumstances
described in Sections 4.01, 4.02 or 4.03), the Holder thereof shall give written
notice to the Registrant of its intention to effect such transfer. Each such
notice shall describe the manner of the proposed transfer and, if requested by
the Registrant, shall be accompanied by an opinion of counsel reasonably
satisfactory to the Registrant to the effect that the proposed transfer may be
effected without registration under the Securities Act, whereupon the Holder of
such stock shall be entitled to transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
-------- -------
required for a transfer to an Affiliate of a transferor. Each certificate or
other instrument evidencing shares of Registrable Securities transferred as
above provided shall bear a legend setting forth that the security has not been
registered under the Securities Act and may not be transferred unless it has
been registered under the Securities Act or an exemption from registration is
available, except that such certificate or other instrument shall not bear such
legend if (i) such transfer is in accordance with the provisions of Rule 144 (or
any other rule permitting public sale without registration under the Securities
Act) or (ii) the opinion of counsel referred to above is to the further effect
that the transferee and any subsequent transferee (other than an Affiliate of
the Registrant) would be entitled to transfer such securities in a public sale
without registration under the Securities Act.
<PAGE>
5
ARTICLE IV
REGISTRATION PROVISIONS
SECTION 4.01 Demand Registration of Registrable Debt Securities. (a)
--------------------------------------------------
Except as provided for in Section 6.03, at any time, and from time to time,
after the earlier of (i) the occurrence of an event that will result in the
Termination Fee (as defined in the Stock and Note Purchase Agreement) being
payable pursuant to Section 6.05 of the Stock and Note Purchase Agreement and
(ii) January 31, 1998, but not more than three times, the Holders of at least
10% of the Registrable Debt Securities issued (the "Securities Initiating
---------------------
Holders") may request in a written notice that the Registrant file a
- -------
registration statement under the Securities Act (or a similar document pursuant
to any other statute then in effect corresponding to the Securities Act)
covering the registration of any or all Registrable Debt Securities held by such
Securities Initiating Holders in the manner specified in such notice, provided
that there must be included in such registration at least 10% of the Registrable
Debt Securities issued (or any lesser percentage if the anticipated aggregate
offering price would exceed $5 million). Following receipt of any notice under
this Section 4.01, the Registrant shall (x) within ten days notify any other
Holders of such request in writing and (y) use its best efforts to cause to be
registered under the Securities Act all Registrable Debt Securities that the
Securities Initiating Holders and any such other Holders have, within ten (10)
days after the Registrant has given such notice, requested be registered in
accordance with the manner of disposition specified in such notice by the
Securities Initiating Holders.
(b) If the Securities Initiating Holders intend to have the
Registrable Debt Securities distributed by means of an underwritten offering and
notify the Registrant of such intent the Registrant shall include such
information in the written notice referred to in clause (x) of Section 4.01(a).
In such event, the right of any Holder to include its Registrable Debt
Securities in such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion of such Holder's
Registrable Debt Securities in the underwritten offering (unless otherwise
mutually agreed by a majority in interest of the Securities Initiating Holders
and such Holder) to the extent provided below. All Holders proposing to
distribute Registrable Debt Securities through such underwritten offering shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be selected by a majority
in interest of the Securities Initiating Holders and shall be approved by the
Registrant, which approval shall not be unreasonably withheld, provided, (i)
--------
that all of the representations and warranties by, and the other agreements on
the part of, the Registrant to and for the benefit of such underwriters shall
also be made to and for the benefit of the Securities Initiating Holders and
such Holders of Registrable Debt Securities, (ii) that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of the
Securities Initiating Holders and such Holders of Registrable Debt Securities,
and (iii) that no Securities Initiating Holder or any such Holder
<PAGE>
6
shall be required to make any representations or warranties to or agreements
with the Registrant or the underwriters other than representations, warranties
or agreements regarding such Holder, the Registrable Debt Securities of such
Holder and such Holder's intended method of distribution and any other
representations required by law or reasonably required by the underwriter. If
any Holder of Registrable Debt Securities disapproves of the terms of the
underwriting, such Holder may elect to withdraw all its Registrable Debt
Securities by written notice to the Registrant, the managing underwriter and the
Securities Initiating Holders. The securities so withdrawn shall also be
withdrawn from registration.
(c) Notwithstanding any provision of this Agreement to the contrary:
(i) the Registrant shall not be required to effect a registration
pursuant to this Section 4.01 during the period starting with the date of
filing by the Registrant of, and ending on a date one hundred twenty (120)
days following the effective date of, a registration statement pertaining
to a public offering of securities for the account of the Registrant;
provided, that the Registrant shall actively employ in good faith all
--------
reasonable efforts to cause such registration statement to become effective
as soon as possible; and
(ii) if the Registrant shall furnish to such Holders a certificate
signed by the president of the Registrant stating that in the good faith
opinion of the board of directors of the Registrant such registration would
interfere with any material transaction then being pursued by the
Registrant (a "Delay Notice"), then the Registrant's obligation to use its
------------
best efforts to file such registration statement shall be deferred for a
period not to exceed ninety (90) days (the "Delay Period"); provided, that
------------ --------
(i) any Delay Period shall earlier terminate upon public disclosure of any
such material transaction and (ii) in no event may the Registrant furnish
more than one Delay Notice to the Holders during any twelve (12) month
period.
SECTION 4.02 Demand Registration of Registrable Shares. (a) Except
-----------------------------------------
as provided for in Section 6.03, at any time following the earlier of (i)
January 31, 1998, (ii) the occurrence of an event that will result in the
Termination Fee being payable pursuant to Section 6.05 of the Stock and Note
Purchase Agreement and (iii) the Conversion Date and from time to time, but not
more than twice within any twelve month period, the Holders of at least 10% of
the Registrable Shares issued (the "Initiating Holders") may request in a
------------------
written notice that the Registrant file a registration statement under the
Securities Act (or a similar document pursuant to any other statute then in
effect corresponding to the Securities Act) covering the registration of any or
all Registrable Shares held by such Initiating Holders in the manner specified
in such notice, provided that there must be included in such registration at
least 10% of the Registrable Shares issued (or any lesser percentage if the
anticipated aggregate offering price would exceed $5 million). Following
receipt of any notice under this Section 4.02, the Registrant shall (x) within
ten days notify any other
<PAGE>
7
Holders of Registrable Shares of such request in writing and (y) use its best
efforts to cause to be registered under the Securities Act all Registrable
Shares that the Initiating Holders and any such other Holders have, within ten
(10) days after the Registrant has given such notice, requested be registered in
accordance with the manner of disposition specified in such notice by the
Initiating Holders.
(b) If the Initiating Holders intend to have the Registrable Shares
distributed by means of an underwritten offering and notify the Registrant of
such intent the Registrant shall include such information in the written notice
referred to in clause (x) of Section 4.02(a). In such event, the right of any
Holder to include its Registrable Shares in such registration shall be
conditioned upon such Holder's participation in such underwritten offering and
the inclusion of such Holder's Registrable Shares in the underwritten offering
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided below. All Holders proposing to
distribute Registrable Shares through such underwritten offering shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be selected by the Holders
of a majority of the Registrable Shares to be included in such registration
statement and shall be approved by the Registrant, which approval shall not be
unreasonably withheld, provided, (i) that all of the representations and
--------
warranties by, and the other agreements on the part of, the Registrant to and
for the benefit of such underwriters shall also be made to and for the benefit
of the Holders of such Registrable Shares, (ii) that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of the
Holders of such Registrable Shares, and (iii) that no Initiating Holder or any
such Holder shall be required to make any representations or warranties to or
agreements with the Registrant or the underwriters other than representations,
warranties or agreements regarding such Holder, the Registrable Shares of such
Holder and such Holder's intended method of distribution and any other
representations required by law or reasonably required by the underwriter. If
any Holder of Registrable Shares disapproves of the terms of the underwriting,
such Holder may elect to withdraw all its Registrable Shares by written notice
to the Registrant, the managing underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration.
(c) Notwithstanding any provision of this Agreement to the contrary:
(i) the Registrant shall not be required to effect a registration
pursuant to this Section 4.02 during the period starting with the date of
filing by the Registrant of, and ending on a date one hundred twenty (120)
days following the effective date of, a registration statement pertaining
to a public offering of securities for the account of the Registrant or on
behalf of the selling stockholders under any other registration statement
which the Holders have been entitled to join pursuant to Section 4.03;
<PAGE>
8
provided, that the Registrant shall actively employ in good faith all
--------
reasonable efforts to cause such registration statement to become effective
as soon as possible; and
(ii) if the Registrant shall furnish to such Holders a Delay Notice,
then the Registrant's obligation to use its best efforts to file such
registration statement shall be deferred for the Delay Period; provided,
--------
that (A) any Delay Period shall earlier terminate upon public disclosure of
any such material transaction and (B) in no event may the Registrant
furnish more than one Delay Notice to the Holders during any twelve (12)
month period.
SECTION 4.03 Incidental Registration. Subject to Section 4.08, if at
-----------------------
any time the Registrant determines that it shall file a registration statement
under the Securities Act (other than a registration statement on a Form S-4 or
S-8 or filed in connection with an exchange offer or an offering of securities
solely to the Registrant's existing stockholders) on any form that would also
permit the registration of the Registrable Shares and such filing is to be on
its behalf and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, the Registrant shall each
such time promptly give each Holder written notice of such determination setting
forth the date on which the Registrant proposes to file such registration
statement, which date shall be no earlier than thirty (30) days from the date of
such notice, and advising each Holder of its right to have Registrable Shares
included in such registration. Upon the written request of any Holder received
by the Registrant no later than fifteen (15) days after the date of the
Registrant's notice, the Registrant shall use its best efforts to cause to be
registered under the Securities Act all of the Registrable Shares that each such
Holder has so requested to be registered. If, in the written opinion of the
managing underwriter (or, in the case of a non-underwritten offering, in the
written opinion of the Registrant), the total amount of such securities to be so
registered, including such Registrable Shares, will exceed the maximum amount of
the Registrant's securities which can be marketed (i) at a price reasonably
related to the then current market value of such securities, or (ii) without
otherwise materially and adversely affecting the entire offering, then the
Registrant shall be entitled to reduce the number of Registrable Shares to not
less than one-third of the total number of shares in such offering; provided
--------
that in the case of an offering of Registrant securities on the Registrant's
behalf the Registrant shall be entitled to reduce the number of Registerable
Shares to that number which in the written opinion of the managing underwriter
would permit all such Registrant securities to be so marketed. Such reduction
shall be allocated among all such Holders in proportion (as nearly as
practicable) to the amount of Registrable Shares owed by each Holder at the time
of filing the registration statement.
SECTION 4.04 Registration on Form S-3. If at any time (i) any Holder
------------------------
of Registrable Shares requests in writing that the Registrant file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the Registrable Shares held by such requesting
Holder, the reasonably anticipated aggregate price
<PAGE>
9
to the public of which would exceed $1,000,000, and (ii) the Registrant is a
registrant entitled to use Form S-3 or any successor thereto to register such
shares, then the Registrant shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with the method of disposition specified in such request, the number
of Registrable Shares specified in such request. Whenever the Registrant is
required by this Section 4.04 to use its best efforts to effect the registration
of Registrable Shares, each of the procedures and requirements of Section
4.02(b) and (c) (including but not limited to the requirement that the
Registrant notify all Holders of Registrable Shares from whom a request has not
been received and provide them with the opportunity to participate in the
offering), shall apply to such registration.
SECTION 4.05 Obligations of the Registrant. Whenever required under
-----------------------------
Section 4.01, 4.02 or 4.04 to use its best efforts to effect the registration
of any Registrable Securities, the Registrant shall, as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby determined as provided
hereafter;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement;
(c) furnish to the Holders such numbers of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus and any amendments or supplements thereto in conformity with the
requirements of the Securities Act) and such other documents and
information as they may reasonably request;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdiction within the United States
and Puerto Rico as shall be reasonably appropriate for the distribution of
the Registrable Securities covered by the registration statement; provided,
--------
however, that the Registrant shall not be required in connection therewith
-------
or as a condition thereto to qualify to do business in or to file a general
consent to service of process in any jurisdiction wherein it would not but
for the requirements of this paragraph (d) be obligated to do so; and
provided further, that the Registrant shall not be required to qualify such
-------- -------
Registrable Securities in any jurisdiction in which the securities
regulatory authority requires that any Holder
<PAGE>
10
submit any of its Registrable Securities to the terms, provisions and
restrictions of any escrow, lockup or similar agreement(s) for consent to
sell Registrable Securities in such jurisdiction unless such Holder agrees
to do so;
(e) promptly notify each Holder for whom such Registrable Securities
are covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made, and at
the request of any such Holder promptly prepare and furnish to such Holder
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made;
(f) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to Section 4.01, 4.02, 4.03 or 4.04, if the
method of distribution is by means of an underwriting, on the date that the
Registrable Securities are delivered to the underwriters for sale pursuant
to such registration, or if such Registrable Securities are not being sold
through underwriters, on the date that the registration statement with
respect to such Registrable Securities becomes effective, (1) a signed
opinion, dated such date, of the independent legal counsel representing the
Registrant for the purpose of such registration, addressed to the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holders making such request, as to such
matters as such underwriters or the Holders holding a majority of the
Registrable Securities included in such registration may reasonably request
and as would be customary in such a transaction; and (2) letters dated such
date and the date the offering is priced from the independent certified
public accountants of the Registrant, addressed to the underwriters, if
any, and if such Registrable Securities are not being sold through
underwriters, then to the Holders making such request and, if such
accountants refuse to deliver such letters to such Holders, then to the
Registrant (i) stating that they are independent certified public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements and other financial
data of the Registrant included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and (ii) covering such other financial matters (including
information as to the period ending not more than five (5) business days
prior to the date of such letters) with respect to the registration in
respect of
<PAGE>
11
which such letter is being given as such underwriters or the Holders
holding a majority of the Registrable Securities included in such
registration, as the case may be, may reasonably request and as would be
customary in such a transaction;
(g) provide reasonable cooperation to the selling Holders of
Registrable Securities and the managing or sole underwriter, if any, to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with The
Depository Trust Registrant; and enable such Registrable Securities to be
in such denominations and registered in such names as the managing or sole
underwriter, if any, or Holders may reasonably request in writing at least
two business days prior to any sale of Registrable Securities in a firm
commitment underwritten public offering, or at least ten business days
prior to any other such sale;
(h) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities to be so included in the registration statement;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, but not later than eighteen
(18) months after the effective date of the registration statement, an
earnings statement covering the period of at least twelve (12) months
beginning with the first full month after the effective date of such
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(j) use its best efforts to list the Restricted Securities covered by
such registration statement with any securities exchange on which the
Common Stock of the Registrant is then listed.
For purposes of Sections 4.05(a) and 4.05(b), the period of distribution of
Registrable Securities in a firm commitment underwritten public offering shall
be deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable
Securities in any other registration shall be deemed to extend until the earlier
of the sale of all Registrable Securities covered thereby and six (6) months
after the effective date thereof.
SECTION 4.06 Furnish Information. It shall be a condition precedent
-------------------
to the obligations of the Registrant to take any action pursuant to this
Agreement that the Holders shall furnish to the Registrant such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as the
<PAGE>
12
Registrant shall reasonably request and as shall be required in connection with
the action to be taken by the Registrant.
SECTION 4.07 Expenses of Registration. All expenses incurred in
------------------------
connection with each registration pursuant to Sections 4.01, 4.02, 4.03 and 4.04
of this Agreement, excluding underwriters' discounts and commissions, but
including without limitation all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), fees of the National Association of
Securities Dealers, Inc. or listing fees, messenger and delivery expenses, all
fees and expenses of complying with state securities or blue sky laws, fees and
disbursements of counsel for the Registrant, and the fees and disbursements of
one counsel for the selling Holders (which counsel shall be selected by the
Holders holding a majority in interest of the Registrable Securities being
registered), shall be paid by the Registrant; provided, however, that if a
-------- -------
registration request pursuant to Section 4.01, 4.02, 4.03 or 4.04 of this
Agreement is subsequently withdrawn at the request of the Holders of a number of
Registrable Securities such that the remaining Holders requesting registration
would not have been able to request registration under the provisions of such
Section such withdrawing Holders shall bear such expenses. The Holders shall
bear and pay the underwriting commissions and discounts applicable to securities
offered for their account in connection with any registrations, filings and
qualifications made pursuant to this Agreement.
SECTION 4.08 Underwriting Requirements. In connection with any
-------------------------
underwritten offering, the Registrant shall not be required under Section 4.03
to include Registrable Shares in such underwritten offering unless the Holders
of such Registrable Shares accept the terms of the underwriting of such offering
that have been reasonably agreed upon between the Registrant and the
underwriters selected by the Registrant.
SECTION 4.09 Rule 144 Information. With a view to making available
--------------------
the benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, at all times after ninety (90) days after any registration
statement covering a public offering of securities of the Registrant under the
Securities Act shall have become effective, the Registrant agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Registrant under the
Securities Act and the Exchange Act; and
<PAGE>
13
(iii) furnish to each Holder of Registrable Securities forthwith upon
request a written statement by the Registrant as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Registrant, and such other reports and documents so filed by the Registrant
as such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any Registrable
Shares without registration.
ARTICLE V
INDEMNIFICATION
SECTION 5.01 Indemnification. In the event any Registrable
---------------
Securities are included in a registration statement under this Agreement:
(a) The Registrant shall indemnify and hold harmless each Holder,
such Holder's directors and officers, each person who participates in the
offering of such Registrable Securities, including underwriters (as defined
in the Securities Act), and each person, if any, who controls such Holder
or participating person within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which they
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of any
material fact contained in such registration statement on the effective
date thereof (including any prospectus filed under Rule 424 under the
Securities Act or any amendments or supplements thereto) or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse each such Holder, such Holder's
directors and officers, such participating person or controlling person for
any legal or other expenses reasonably incurred by them (but not in excess
of expenses incurred in respect of one counsel for all of them unless there
is an actual conflict of interest between any indemnified parties, which
indemnified parties may be represented by separate counsel) in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
-------- -------
Section 5.01(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Registrant (which consent shall not be
unreasonably withheld); provided, further, that the Registrant shall not be
-------- -------
liable to any Holder, such Holder's directors and officers, participating
person or controlling person in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based
upon an untrue
<PAGE>
14
statement or alleged untrue statement or omission or alleged omission made
in connection with such registration statement, preliminary prospectus,
final prospectus or amendments or supplements thereto, in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, such Holder's
directors and officers, participating person or controlling person; and
provided, further, that the indemnity agreement contained in this Section
-------- -------
5.01(a) shall not apply to any such loss, claim, damage, liability or
action arising from the use by such Holder of any prospectus during any
period when the Registrant has given notice to such Holder pursuant to
Section 4.05(e) that the use of such prospectus must be suspended. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such Holder, such Holder's
directors and officers, participating person or controlling person, and
shall survive the transfer of such securities by such Holder.
(b) Each Holder requesting or joining in a registration severally and
not jointly shall indemnify and hold harmless the Registrant, each of its
directors and officers, each person, if any, who controls the Registrant
within the meaning of the Securities Act, and each agent and any
underwriter for the Registrant (within the meaning of the Securities Act)
against any losses, claims, damages or liabilities, joint or several, to
which the Registrant or any such director, officer, controlling person,
agent or underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any amendments
or supplements thereto) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished by or on behalf of such Holder expressly for use in
connection with such registration; and each such Holder shall reimburse any
legal or other expenses reasonably incurred by the Registrant or any such
director, officer, controlling person, agent or underwriter (but not in
excess of expenses incurred in respect of one counsel for all of them
unless there is an actual conflict of interest between any indemnified
parties, which indemnified parties may be represented by separate counsel)
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
-------- -------
contained in this Section 5.01(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent
shall not be unreasonably
<PAGE>
15
withheld), and provided, further, that the liability of each Holder
-------- -------
hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the net
proceeds from the sale of the shares sold by such Holder under such
registration statement bears to the total net proceeds from the sale of all
securities sold thereunder, but not in any event to exceed the net proceeds
received by such Holder from the sale of Registrable Securities covered by
such registration statement.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against any indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in and assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party;
provided, however, that an indemnified party shall have the right to retain
-------- -------
its own counsel, with all fees and expenses thereof to be paid by such
indemnified party, and to be apprised of all progress in any proceeding the
defense of which has been assumed by the indemnifying party. The failure
to notify an indemnifying party promptly of the commencement of any such
action, if and to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5.01, but the omission so to notify
the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified party in
connection with the actions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of material fact
or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
<PAGE>
16
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5.01(d) were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Limitation on Registration Rights. Notwithstanding any
---------------------------------
other provisions of this Agreement to the contrary, the Registrant shall not be
required to register any Registrable Securities under this Agreement with
respect to any request or requests made by any Holder after the tenth
anniversary of the date hereof.
SECTION 6.02 Lockup. Each Holder shall, in connection with any
------
registration of the Registrant's securities, upon the request of the Registrant
or the underwriters managing any underwritten offering of the Registrant's
securities, agree in writing not to effect any sale, disposition or distribution
of any Registrable Securities (other than that included in the registration)
without the prior written consent of the Registrant or such underwriters, as the
case may be, for such period of time not to exceed ninety (90) days from the
effective date of such registration as the Registrant or the underwriters may
specify; provided, however, that all executive officers and directors of the
-------- -------
Registrant shall also have agreed not to effect any sale, disposition or
distribution of any Registrable Securities under the circumstances and pursuant
to the terms set forth in this Section 6.02.
SECTION 6.03 Transfer of Registration Rights. The registration
-------------------------------
rights of any Holder under this Agreement with respect to any Registrable
Securities may be transferred to (a) any transferee of such Registrable
Securities who acquires at least ten per cent (10%) of the Registrable
Securities (adjusted in the case of Registrable Shares for stock splits and
stock consolidations after the date of this Agreement) or any lesser percentage
if the anticipated aggregate offering price would exceed $5 million or (b) an
Affiliate of such Holder; provided, however, that (i) the transferring Holder
-------- -------
shall give the Registrant written notice at or prior to the time of such
transfer stating the name and address of the transferee and identifying the
securities with respect to which the rights under this Agreement are being
transferred; (ii) such transferee shall agree in writing, in form and substance
reasonably satisfactory to the Registrant, to be bound as a Holder by the
provisions of this Agreement; (iii) immediately following such transfer the
further disposition of such securities by such transferee is restricted under
the Securities Act; and (iv) the transferees of Registrable Shares
<PAGE>
17
of Lender (other than Affiliates of Lender) may exercise their rights under
Section 4.02 not more than ten (10) times in the aggregate during the term of
this Agreement. Except as set forth in this Section 6.03, no transfer of
Registrable Securities shall cause such Registrable Securities to lose such
status.
SECTION 6.04 Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto. Except as expressly provided in this Agreement, nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
SECTION 6.05 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the state of New York.
SECTION 6.06 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.07 Titles. The titles of the Sections of this Agreement
------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
SECTION 6.08 Notices. Any notice required or permitted under this
-------
Agreement shall be in writing and shall be delivered in person or mailed by
certified or registered mail, return receipt requested, directed to (a) the
Registrant at the address set forth below its signature hereof or (b) to a
Holder at the address therefor as set forth in the Registrant's records or, in
any such case, at such other address or addresses as shall have been furnished
in writing by such party to the others. The giving of any notice required
hereunder may be waived in writing by the parties hereto. Every notice or other
communication hereunder shall be deemed to have been duly given or served on the
date on which personally delivered, or on the date actually received, if sent by
mail or telex, with receipt acknowledged.
SECTION 6.09 Amendments and Waivers. Any provision of this
----------------------
Agreement may be amended and the observance of any provision of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Registrant
and the Holders of at least a majority of the Registrable Securities issued. Any
amendment or waiver effected in accordance with this Section 6.09 shall be
binding upon each Holder of any securities subject to this Agreement at
<PAGE>
18
the time outstanding (including securities into which such securities are
convertible), each future Holder and all such securities, and the Registrant.
SECTION 6.10 Severability. If one or more provisions of this
------------
Agreement are held to be unenforceable under applicable law, such provisions
shall be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provisions were so excluded and shall be enforceable in
accordance with its terms.
SECTION 6.11 Entire Agreement. All prior agreements of the parties
----------------
concerning the subject matter of this Agreement are expressly superseded by this
Agreement. This Agreement contains the entire Agreement of the parties
concerning the subject matter hereof. Any oral representations or modifications
of this Agreement shall be of no effect.
<PAGE>
19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MERISEL, INC.
By: /s/ DWIGHT A. STEFFENSEN
-------------------------------------
Name: Dwight A. Steffensen
Title:Chief Executive Officer
Address: 200 Continental Boulevard
El Segundo, CA 90245
Attention: Dwight A. Steffensen
------------------------------
Telecopier:(310) 615-1234
------------------------------
MERISEL AMERICAS, INC.
By: /s/ DWIGHT A. STEFFENSEN
-------------------------------------
Name: Dwight A. Steffensen
Title:Chief Executive Officer
Address: 200 Continental Boulevard
El Segundo, CA 90245
Attention: Dwight A. Steffensen
------------------------------
Telecopier:(310) 615-1234
------------------------------
PHOENIX ACQUISITION
COMPANY II, L.L.C.
by: Stonington Capital Appreciation 1994
Fund, L.P., as a member,
by: Stonington Partners, L.P., its
general partner,
by: Stonington Partners, Inc. II, its
general partner
By: /s/ ALBERT J. FITZGIBBONS III
-------------------------------------
Name: Albert J. Fitzgibbons III
Title:Partner
Address: 767 Fifth Avenue, 48th Fl.
New York, NY 10153
Attention: Albert J. Fitzgibbons III
------------------------------
Telecopier:(213) 339-8585
------------------------------
