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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1997 Commission File Number 0-14371
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COMPUCOM SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 38-2363156
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7171 FOREST LANE, DALLAS, TX 75230
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 856-3600
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_____]
The aggregate market value of the Common Stock, $.01 par value, held by non-
affiliates (based on the closing price on NASDAQ) on March 16, 1998 was
approximately $192.8 million. For purposes of determining this amount only,
Registrant has defined affiliates as including (a) the executive officers named
in Part III of this 10-K report, (b) all directors of Registrant, and (c) each
stockholder that has informed Registrant by March 16, 1998 that it is the
beneficial owner of 10% or more of the outstanding common stock of Registrant.
The number of shares of the Registrant's Common Stock outstanding as of March
16, 1998 was 46,144,320 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relative to the May 14, 1998 annual
meeting of stockholders of registrant, to be filed within 120 days after the end
of the year covered by this report on Form 10-K, are incorporated by reference
into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy Statement,
except for the parts therein which have been specifically incorporated by
reference, shall not be deemed "filed" for the purposes of this report on Form
10-K.
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PART I
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ITEM 1 BUSINESS
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INTRODUCTION
Founded in 1987, CompuCom Systems, Inc., together with its subsidiaries
("CompuCom" or "the Company"), is a leading provider of network integration
services to large- and medium-sized businesses throughout the United States.
CompuCom helps Fortune 1000 companies manage information technology to achieve
their business goals by providing a wide range of services in provisioning,
support and technology management. Product and services are sold by a direct
sales force to over 3,500 business customers through 41 sales and service
centers located in and serving large metropolitan areas nationwide. Through its
majority-owned subsidiary, ClientLink, Inc. ("ClientLink"), the Company offers
software application development services. ClientLink designs, develops and
implements customized information technology solutions for organizations with
mission-critical business processing needs.
The Company is an authorized dealer of major distributed desktop computer
products, networking and related products, computer-related peripheral equipment
and software for a number of manufacturers, including Compaq Computer
Corporation ("Compaq"), International Business Machines Corporation ("IBM"),
Hewlett-Packard Company ("HP"), Toshiba America Information Systems ("Toshiba"),
Intel Corporation ("Intel"), and Microsoft Corporation ("Microsoft"). To
further meet the needs of its customers, CompuCom provides a variety of services
including LAN/WAN project services, consulting, asset tracking, network
management, help desk, field engineering, configuration, software management,
distribution, and procurement utilizing network applications such as Novell
Netware, Windows NT, Windows and Windows 95, and IBM OS/2 Warp.
Net revenues for the Company have grown at a compounded rate of 22% over
the past five years, while net earnings have grown by 37% compounded annually
over the same period. Excluding an after-tax nonrecurring gain of $3.4 million
in 1997, net earnings over that period have grown at a compounded rate of 34%.
The Company believes its revenue and net earnings performance is a result of the
Company's continued focus on customer satisfaction, along with the enhancement
and growth of its services capabilities created by a strategy of growth through
existing operations and strategic acquisitions. The Company's target customers
are becoming increasingly dependent on information technology to compete
effectively in today's markets. As a result, the decision-making process that
organizations face when planning, selecting and implementing technology
solutions is becoming more complex and requires many of these organizations to
outsource the management and support of their technology needs.
The Company operates primarily in one industry segment -- sales and
services of distributed desktop computer products, configuration, network
integration and technology support services to businesses nationwide -- and no
separate industry segment information is presented.
RECENT DEVELOPMENTS
Recently, the Company's industry has been undergoing a significant
consolidation and transformation. The Company believes this is due mainly to the
gain in market share of direct marketers and currently anticipates that this
trend will accelerate in 1998.
On March 19, 1998, the Company announced it had signed a nonbinding letter
of intent with Computer Integration Corporation ("CIC") relating to a potential
all-cash acquisition of CIC. Under the proposed terms of the letter of intent,
CompuCom would pay CIC a total of $17.25 million which would be used to pay
certain obligations of CIC and purchase all of CIC's outstanding preferred stock
and common stock.
This document contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 regarding revenues,
margins, operating expenses, earnings, growth rates and certain business trends
that are subject to risks and uncertainties that could cause actual results to
differ materially from the results described herein. Recipients of this
document are cautioned to consider these risks and uncertainties and to not
place undue reliance on these forward-looking statements. See "Operations",
"Products", "Network and Technology Services", "Principal Suppliers",
"Dependence Upon Major Vendors and Other Suppliers" and "Competition" in this
Item and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7 of this report for a discussion of
important factors that could affect the validity of any such forward-looking
statement.
2
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Sales and Marketing
The Company markets its product procurement, configuration, field
engineering, network management, help desk services and technology management
services primarily through its direct sales force and service personnel,
operating through 41 sales and service centers. The Company focuses on meeting
the business objectives of large corporate businesses, which accounted for the
majority of the Company's net revenue in 1997. However, no one customer
accounted for in excess of 10% of such revenues. Order backlog is not considered
to be a meaningful indicator of the Company's future business prospects due to
the short order fulfillment cycle.
The Company is generally authorized by various vendors to sell desktop
computer products through its sales centers, which are located in major
metropolitan areas in order to provide convenient access for sales and service
personnel to a significant customer base. Each location typically is staffed by
direct sales representatives, support personnel, system engineers and
technicians who are authorized to repair and maintain Compaq, IBM, HP and
certain other manufacturers' products. As of December 31, 1997, the Company
employed approximately 335 full-time direct sales representatives. The sales
force is compensated with a base salary and commissions based on gross margin.
The Company provides support to its customers primarily through the
CompuCom Customer Center ("customer center") located in Dallas, Texas. Customer
center personnel, called inside sales representatives ("ISRs"), may be assigned
to specific customer accounts or to customers in a certain geographical area and
are knowledgeable about computer technology. Each ISR works closely with the
customer and the CompuCom sales representative to keep up-to-date on the
business needs of that customer, and to provide the customer with information
about product availability, services, pricing, shipping and invoicing via a
toll-free telephone number. The primary goal of the customer center is to
provide greater support to the Company's customers while allowing the Company's
direct sales force to focus on soliciting new business and providing the
necessary support for the customer's more complex service needs. At the end of
1997, the Company employed approximately 423 customer center personnel, of whom
approximately 308 worked at the customer center in Dallas, and approximately 115
worked on-site at certain customer locations.
During 1997, net service revenue increased 39% from 1996 levels due to the
Company's continued efforts to increase sales of services to meet customer needs
and to improve profitability. Service revenues for the Company have grown at a
compounded annual rate of 62% over the past three years due to the Company's
strategic efforts. These on-going efforts included: the development of
additional service offerings; additional training was provided for system
engineers; management provided greater support to the services group; additional
corporate resources were allocated to support the services group; and the
compensation plan of sales representatives placed greater emphasis on sales of
services. In addition, the Company emphasized the hiring of quality service
personnel, increasing the number of its service employees from approximately 800
at the beginning of 1995 to over 2,000 by year-end 1997. To further enhance its
service growth, the Company employs an ongoing program in which college
graduates are hired and placed in various engineering training and certification
programs. At the completion of these programs, they are added to the Company's
billable workforce. Through the Company's various efforts, revenues from its
services business have grown to currently represent 12% of its total revenues,
up from 9% in 1996, and 7% in 1995. The Company's services business is an
integral part of the Company's strategy to provide customers with the value-
added service solutions to meet their technology needs.
During 1996, in order to meet customers' global business needs, the Company
helped to create GlobalServe, an alliance of international computer service
suppliers. The objective of the GlobalServe alliance is to provide customers a
single point of contact for accessing the distributed desktop computer products
and services they need worldwide.
3
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OPERATIONS
The Company's corporate headquarters and operations campus is located in
Dallas, Texas. As of the fourth quarter of 1997 almost all the Company's
financial and administrative functions, including the customer center,
information services, service support, marketing, human resources, product
services and finance, were located in the two buildings that comprise this
facility.
The Company's integrated information systems ("IS") utilize client/server
distributed relational database technology running on a proactively managed wide
area network based on frame relay technology. The system contains five major
components: the Distribution Information Management System, the Service
Information Management System, the Customer Center System, the Warehouse
Information Management System, and the Financial Information Management System.
Four of these five IS systems operate on mini-computer platforms which afford
the Company maximum system reliability, availability, and growth capacity.
To further enhance the quality and efficiency of its information systems,
the Company has developed a state-of-the-art data warehouse, which increases the
ease with which Company personnel can access historic information and create
customized customer and vendor reports. During 1997, the Company continued to
make significant enhancements to its data warehouse by implementing additional
Internet-based capabilities. Customers are now provided the ability to create
custom-priced quotations for new orders from an Internet-based catalog of
products and place orders over the Internet. Customers may also look up
previously purchased items using either the product serial number or the
customer's "asset tag", which the Company places on products at the customer's
request. Customers may also directly access order status and shipment history
over the Internet. Other improvements include enhanced product sales
information, reporting for principal vendors and real time open call status
reporting for service customers. In 1997, "datamarts", which allow the
definition and creation of download-able data files over the Internet, were made
available to both customers and Company personnel. The Company's comprehensive
Intranet application was significantly enhanced during 1997. Accessible only to
Company personnel, the Intranet provides rapid access to Company organization
charts, policies, procedures and other corporate information and has a user-
friendly query interface to locate answers to frequently asked questions.
During 1997 the Company implemented the first portions of a comprehensive
customer management and event tracking system to be used by Company personnel.
This new system is active in the customer center and is being expanded during
1998 into the product services, credit and collections, remote help desk and
service dispatch areas. This new system also provides the Company with a
unified customer issue and activity tracking capability and improved
interdepartmental communications regarding customer support.
The Company continues to expand its new Sales Force Automation ("SFA")
package, which provides Company sales representatives access to e-mail and key
Company applications from remote locations, allowing them to spend more time
with customers and improve productivity. During 1998, all service engineers
will gain access to the SFA tools which have proven very valuable to the sales
force over the last year. Service engineers will also be able to directly
report time and activities from remote locations using special wireless
communications features expected to be added in 1998. The Company expects these
new capabilities will significantly improve engineer productivity and enhance
customer service levels.
The Company's two distribution centers are highly automated and employ
advanced inventory management and order processing technologies that allow the
Company to configure desktop products and receive, process and ship customer
orders accurately and efficiently. The Company operates a 300,000 square foot
facility in Paulsboro, New Jersey, and a 104,000 square foot facility in
Stockton, California. Each of these facilities contains configuration centers
which the Company expects to be sufficient for the implementation of its
vendors' channel assembly programs. Channel assembly refers to manufacturing
programs that are designed to empower resellers to provide custom-built brand-
name desktop components at competitive prices. The Company has been selected by
Compaq, HP and IBM to be a participant in the development and implementation of
each of their final assembly programs. The distribution centers also utilize
hand-held, radio frequency devices to stock, pick and update the status and
location of inventory. These devices play a key role in enabling the Company to
efficiently handle increasing volume and are used in the daily cycle counting
process, which the Company believes has resulted in improved overall inventory
integrity and bin accuracy.
The Company's distribution, configuration, return merchandise and product
services departments are ISO 9002 certified. ISO 9002 is part of the ISO 9000
set of standards developed by the International Organization of Standardization
("ISO"), which represent common international business quality standards
designed to help demonstrate the capability of a supplier to control the
processes that determine the acceptability of the product being delivered.
4
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PRODUCTS
The Company provides procurement services for sophisticated technologies
consisting of distributed desktop computer products, peripherals, software and
services to its customers. It is an authorized dealer of Compaq, HP, IBM,
Intel, Microsoft and Toshiba as well as other major manufacturers and software
suppliers. The Company sources over 5,000 different desktop products,
components and accessories, consisting of leading as well as alternative brands.
CompuCom provides the integration of a variety of manufacturers' products
into various desktop system configurations to meet customers' individual needs.
The Company provides value to its customers by allowing them to choose products
or components from various manufacturers that best suit their desktop and
network needs as opposed to manufacturers' direct sales organizations which
typically configure or market desktop systems that include products only from
that particular manufacturer.
NETWORK AND TECHNOLOGY SERVICES
The Company continues to focus on expanding its presence in the service
market. This commitment is reflected in the increase in its service personnel.
As of December 31, 1997, the Company employed over 2,000 service personnel,
including system engineers, network engineers, and field engineers, compared to
approximately 800 as of the beginning of 1995. These service personnel provide
configuration, field engineering, network management, help desk services and
technology management to the Company's customers.
CompuCom maintains two configuration centers, one in each of the Company's
distribution centers. These centers contain configuration systems that have
the ability to set up and configure product that includes both standard and
nonstandard components or software to enable the Company to meet increasing
customer demand for advanced system and network configuration technologies.
The Company's configuration centers also have the capability to perform its
vendors' channel assembly programs.
Through its field engineering group, the Company provides hardware
maintenance services ranging from simple desktop repairs, installations, moves,
adds, and changes to complex network repairs, application setups and software
upgrades. These services are provided through the Company's sales and service
centers and are performed based upon the specific customer needs, such as on-
site support, warranty support, change and upgrade management, contracted
response or time and material.
CompuCom's Systems Management Group focuses on the development, testing
and implementation of enterprise management systems. The systems management
service offerings include: network audits, which consist of an on-site detailed
analysis of the current configuration and health of the customer's network
environment; network control center design, which includes building a network
control center at the customer's location; and remote network monitoring of the
customer's network performed by CompuCom's network control center located at
the Company's headquarters in Dallas, Texas.
CompuCom offers help desk support through its Remote Help Desk Services
located at the Company's headquarters in Dallas, Texas and at customer
locations. These help desk services offer information systems departments the
skills and resources needed to design, implement and operate a consolidated,
resolution-oriented help desk to support a customer's information technology
investments. CompuCom's help desk services include call management, problem
management and event tracking. The Company's help desk support group consists
of personnel with expertise in software applications, network operating systems
and hardware, who provide technical support to end-users and system
administrators. The help desk support group also has access to a "solutions
database" to help solve common problems.
The Company has reorganized its consulting and system engineering groups
and has formed a National Consulting Group that is intended to create a
nationwide consistency of service offerings. The newly formed group offers
technology management services by providing LAN/WAN project and consulting
services that focus on the integration of new and existing computing
technologies into existing corporate computing environments. These services
include strategic planning, technology briefings, systems analysis, system
design services, technology selection and design of support infrastructures. By
combining the expertise of its consultant personnel with strategic manufacturer
partnerships, the Company will be able to provide solutions for complex network
integration projects. The National Consulting Group also will provide an
improved career path for the Company's service engineers, conduct sales
training to help identify customer opportunities for consulting, and provide a
way for the Company to architect solutions for customers in migration planning,
project management, help desk and overall enterprise systems management.
5
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PRINCIPAL SUPPLIERS
A major portion of the Company's revenues are derived from sales of
distributed desktop computer products including Compaq, IBM and HP products.
The Company's agreements with these vendors contain provisions providing for
periodic renewals and permitting termination by the vendor without cause,
generally upon 30 to 90 days written notice, depending upon the vendor. Since
1987, Compaq, IBM and HP have regularly renewed their respective dealer
agreements with the Company, although there can be no assurance that the
regular renewals of the Company's dealer agreements will continue. The
termination, or nonrenewal, of the Company's Compaq, IBM or HP dealer
agreements, could materially adversely affect the Company's business. The
Company, however, is not aware of any reason for the termination, or
nonrenewal, of any of those dealer agreements and believes that its
relationships with Compaq, IBM and HP are satisfactory.
The Company purchases products from Compaq, IBM and HP at pricing levels
that the Company believes are the lowest prices available to those vendors'
respective dealers, with the exception of special bid pricing for specific
large customer accounts. All of the Company's principal suppliers require that
the Company purchase certain minimum volumes of products in a specified period
to maintain favorable pricing levels. The Company also obtains favorable terms
and incentives from Compaq, IBM and HP by participating in certain vendor
programs offered by those suppliers. The Company has certain selling,
promotional and related expenses reimbursed by vendors under dealer programs
offered by those and other suppliers. However, there can be no assurance that
any of these programs will continue in 1998 or that the Company will continue
to participate in any of these programs at the same level as in 1997.
Sales of Compaq, IBM and HP products accounted for approximately 32%, 19%
and 14%, respectively, of the Company's 1997 net revenues compared to 31%, 15%
and 12%, respectively, in 1996 and 28%, 16% and 11%, respectively, in 1995.
The Company has been selected as a participant in the Compaq, IBM, and HP
channel assembly programs. To date, these programs have not been utilized in a
significant portion of the Company's shipments, but the Company expects these
programs to be utilized in a larger proportion of its shipments during 1998.
The objective of channel assembly programs is to achieve cost savings through
lower finished goods inventory, higher inventory turns and lower price
protection requirements and passing such cost savings on to the customer,
minizing the direct marketers' pricing advantage. The Company believes that
being able to effectively utilize its vendors' channel assembly programs will
play an important role in its competitiveness and future financial performance.
Due to the rapid delivery requirements of its customers and to assure
itself of a continuous allotment of products from suppliers, the Company
maintains adequate levels of inventory funded through its credit facilities and
vendor credit. The Company's major suppliers at times provide price protection
programs to the Company that are intended to reduce the risk of inventory
devaluation by absorbing temporary price reductions and long-term price
declines associated with aging product life cycles. The Company also has the
option of returning a certain percentage of its current product inventories
each quarter to these principal suppliers as it assesses each product's current
and forecasted demand schedule. If such returns exceed certain specified
levels, the Company may be charged restocking fees ranging up to 5%. The
Company did not incur any significant restocking fees in 1997 and expects
returns to decrease upon implementation of its vendors' channel assembly
programs.
DEPENDENCE UPON MAJOR VENDORS AND OTHER SUPPLIERS
The Company is dependent upon the continued supply of products and
components from its suppliers, particularly Compaq, IBM and HP. Historically,
certain suppliers occasionally experience shortages of select product that
render components unavailable or necessitate product allocations among
resellers. While certain shortages existed throughout 1997, the Company
believes the product availability issues are a result of the present dynamics
of the desktop computer industry as a whole, which include shortened product
life cycles and increased frequency of new product introductions into the
marketplace. While there can be no assurance that product unavailability or
product allocations, or both, will not increase in 1998, the impact of such an
interruption is not expected to be unduly troublesome due to the breadth of
alternative product lines available to the Company.
6
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COMPETITION
The Company's industry is characterized by intense competition, primarily
in the areas of price, product availability and breadth of product line. Many
established desktop computer manufacturers (including some of the Company's own
vendors), direct marketers, systems integrators and other resellers of
distributed desktop or networking products including Entex Information Services,
Inc., InaCom Corp., Microage, Inc., and Vanstar Corporation, compete with the
Company in the configuration and distribution of computer systems and equipment.
In the past, direct marketers have had a distinct pricing advantage over
resellers such as CompuCom. In response to the increased competition,
particularly from direct marketers, a number of the Company's competitors have
sought to increase their market share through acquisitions. The Company expects
that the pace of consolidation in the industry will accelerate in 1998. In order
to keep pace with its primary competitors and to leverage its channel assembly
capabilities, the Company expects to pursue additional acquisitions. In order to
help combat the direct marketers' pricing advantage, the Company and its major
vendors are in the process of developing and implementing channel assembly
programs. The Company believes that being a participant in its vendors' channel
assembly programs will give it both a marketing and pricing advantage over its
reseller competitors who have not been chosen to participate. In the highly
fragmented computer services area, the Company competes with several larger
competitors, other corporate resellers pursuing high-end services opportunities,
as well as smaller computer services companies. Some of these competitors have
financial, technical, manufacturing, sales, marketing and other resources that
are substantially greater than those of the Company. Although the Company
believes it currently competes favorably within the desktop computer industry,
there can be no assurance that the Company will be able to continue to compete
successfully with new or existing competition.
The Company's product margins increased in 1997 as compared to 1996, due in
part to the Company's effort to reduce low-margin product business. The Company
believes that gross margins will continue to be reactive to industry-wide
changes and pricing strategies. Future profitability will depend on the
Company's ability to retain and hire quality service personnel while effectively
managing the utilization of such personnel. It will also depend on increased
focus on providing technical service and support to customers, product demand,
competition, manufacturer product availability and pricing strategies, effective
utilization of vendor programs, the Company's ability to successfully manage the
channel assembly programs of its major vendors, as well as the Company's control
of operating expenses.
THE COMPANY'S EMPLOYEES
The Company employed approximately 4,300 full-time employees as of December
31, 1997. The Company offers its full-time employees health, long-term
disability, dental and life insurance benefits and has a 401(k) plan for
eligible employees. None of the Company's employees are represented by a union,
and the Company considers its employee relations to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
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The Company does not have any foreign operations nor does it engage in any
material export sales.
EXECUTIVE OFFICERS
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Information about the Company's executive officers can be found in Part III
of this report under "Item 10 Directors and Executive Officers of the
Registrant."
7
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Item 2 PROPERTIES
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The Company's principal executive and administrative offices are located on
a 20 acre campus-type setting consisting of two buildings containing
approximately 250,000 square feet of office space in Dallas, Texas. The Company
purchased this facility during 1996, refurbished it, and fully occupied the
facility by the end of 1997. One of the buildings is an eight-story structure
and contains executive offices, marketing, customer center, finance, purchasing,
human resources, and the Company's Dallas sales office. An adjoining three-story
building contains the Company's information systems group and its remote help
desk personnel. The Company completed the sale of its former headquarters
building during the fourth quarter of 1997.
In late 1994, the Company leased approximately 50,000 square feet of
additional office space in Dallas near its headquarters, for a term of 60 months
commencing March 1995. During 1997, the Company relocated the functions that
were in this leased facility to the Company's headquarters and operations
campus. Subsequently, the Company was able to sublet this office space to a
third party for a term coinciding with the Company's lease term, which expires
in February 2000.
The Company distributes products primarily from two leased warehouse
facilities. In August 1996, the Company entered into a lease for approximately
300,000 square feet of warehouse space located in Paulsboro, New Jersey, which
has a five-year term, with a cancellation option exercisable at any time after
August 1999. This new facility doubled warehouse space and contains a state-of-
the-art 90,000 square foot configuration center, which tripled the Company's
configuration capacity, allowing the Company to meet increasing customer demand
for advanced system and network technologies and provides adequate space for
channel assembly. Its western distribution center has approximately 104,000
square feet of leased warehouse space in Stockton, California, under a lease
that expires in May 1999, with a cancellation option exercisable in May of each
year.
The Company also has noncancelable operating leases for its sales and
service centers, expiring at various dates between 1998 and 2004. See Note 12
to the accompanying Notes to Consolidated Financial Statements for additional
information regarding lease costs. The Company believes there will be no
difficulty in negotiating the renewal of its real property leases as they expire
or in finding other satisfactory space. In the opinion of management, the
properties are in good condition and repair and are adequate for the particular
operations for which they are used.
Item 3 LEGAL PROCEEDINGS
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The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position and results of
operations, taken as a whole.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None have been submitted in the fourth quarter 1997.
8
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PART II
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Item 5 MARKET FOR REGISTRANT'S COMMON STOCK
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The Company's common stock is listed on the NASDAQ National Market (Symbol:
CMPC). As of December 31, 1997, there were approximately 10,000 beneficial
holders of the Company's common stock. The high and low sales prices reported
within each quarter for the years ended December 31, 1997 and 1996 are as
follows:
1997 1996
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High Low High Low
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First quarter $11.13 $4.00 $ 9.63 $6.25
Second quarter 7.88 5.75 13.88 8.13
Third quarter 11.00 6.25 12.25 7.13
Fourth quarter 10.88 8.25 12.38 8.00
The last sale price reported for the Company's common stock on March 16,
1998 was $8.81.
The Company has historically reinvested earnings in the growth of its
business and has not paid cash dividends on its common stock. In addition, the
Company's current credit facilities restrict the amount of dividends the Company
may pay on its common stock.
9
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Item 6 SELECTED FINANCIAL DATA
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Selected financial data for the Company is presented below:
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------------
Operating Results 1997 1996 1995 1994 1993
- ----------------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues $1,949,802 $1,995,191 $1,441,597 $1,255,813 $1,015,482
Gross margin 267,545 240,963 174,908 141,693 127,875
Earnings before income taxes 58,658 * 50,616 ** 34,335 24,432 18,908
Net earnings 35,194 * 30,471 ** 20,670 14,659 11,439
Earnings per common share:
Basic .75 * .66 ** .54 .43 .37
Diluted .71 * .61 ** .45 .34 .29
Balance Sheet Data
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Total assets $ 462,590 $ 692,985 $ 508,704 $ 429,531 $ 365,071
Long-term debt 97,400 236,450 120,364 118,974 107,316
Convertible subordinated notes 3,000 3,000 3,000 18,214 17,880
Stockholders' equity 210,200 171,098 138,341 94,368 55,730
</TABLE>
* Includes nonrecurring gains on prepayment of secured note related to sale
of subsidiary in 1994 of $1.0 million and gain on sale of Company's
former headquarters of $2.4 million or $.07 per share (Basic and Diluted)
** Includes nonrecurring gain on sale of securities of $5.2 million (Basic -
$.12 per share, Diluted - $.10 per share)
10
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
RESULTS OF OPERATIONS
The following table presents the Company's total revenue, gross margin and
gross margin percentage by revenue source. Operating expenses, financing
expenses, nonrecurring gains, income taxes and net earnings are shown as a
percentage of total net revenue for the three years ended December 31:
1997 1996 1995
-----------------------------------
($ in millions)
Revenue:
Product $1,700 $1,817 $1,334
Service 236 169 101
Other 14 9 6
===================================
Total revenue $1,950 $1,995 $1,441
===================================
Gross margin:
Product $ 176 $ 181 $ 141
Service 84 56 31
Other 7 4 3
===================================
Total gross margin $ 267 $ 241 $ 175
===================================
Gross margin percentage:
Product 10.4% 10.0% 10.6%
Service 35.7% 33.3% 30.5%
Other 48.8% 39.2% 51.2%
-----------------------------------
Total gross margin percentage 13.7% 12.1% 12.1%
-----------------------------------
Operating expenses:
Selling 4.0% 4.0% 4.3%
Service 2.5% 2.0% 1.5%
General and administrative 3.1% 2.8% 2.6%
Depreciation and amortization 0.6% 0.5% 0.4%
-----------------------------------
Total operating expenses 10.2% 9.3% 8.8%
-----------------------------------
Earnings from operations 3.5% 2.8% 3.3%
Financing expenses (0.8%) (0.7%) (0.9%)
Nonrecurring gains 0.3% 0.4%
-----------------------------------
Earnings before income taxes 3.0% 2.5% 2.4%
Income taxes 1.2% 1.0% 1.0%
-----------------------------------
Net earnings 1.8% 1.5% 1.4%
===================================
11
<PAGE>
1997 COMPARED TO 1996
---------------------
Product revenue, which is primarily derived from the sale of distributed
desktop computer products to corporate customers, declined 7% to $1.70 billion
in 1997 from $1.82 billion in 1996. Although the Company shipped more desktop,
laptop and server units in 1997 compared to 1996, the units were sold at a lower
average sales price primarily due to manufacturer price reductions, which
contributed to the overall decrease in product revenue. In addition, the Company
believes the product revenue decline is attributable to an increase in direct
marketers' market share and the Company's effort during much of 1997 to improve
product margins by reducing its low-margin product business. The Company
currently plans to grow revenue in 1998 through an acquisition strategy designed
to increase its presence in certain geographical markets and through the hiring
of additional sales representatives.
Product gross margin as a percentage of product net revenue increased to
10.4% in 1997 from 10.0% in 1996. This increase is primarily due to the
Company's effort to reduce its low-margin product business, and an increase in
the amount of manufacturer-sponsored incentives in 1997 compared to 1996. Future
product margins will be influenced by competitive pressures from other resellers
in the industry and direct marketers, manufacturers' pricing strategies, the
Company's ability to successfully manage the channel assembly programs of its
major vendors, and the level of low-margin sales. The Company participates in
certain manufacturer-sponsored programs designed to increase sales of specific
products. These programs, excluding volume incentive programs and specific
product rebates offered by certain manufacturers, are not material when compared
to the Company's overall financial results. Due to the short order fulfillment
cycle, the Company's backlog is not considered to be a meaningful indicator of
future business prospects.
Service revenue increased 39% to $236 million in 1997 from $169 million in
1996. Service revenue is primarily derived from LAN/WAN projects, consulting,
asset tracking, network management, help desk, field engineering, procurement,
configuration, distribution and software management. Service revenue reflects
revenue generated by the actual performance of specific services and does not
include product sales associated with service projects. The increase in service
revenue reflects the Company's continued focus on growing the service business.
Also contributing to the revenue growth in service was the increase in the
number of units sold during 1997 as compared to 1996, which increased demand for
services such as configuration and installation. Service gross margin as a
percentage of service net revenue increased to 35.7% in 1997 from 33.3% in 1996,
primarily due to improved utilization of the Company's service personnel and
growth in the Company's higher-end service offerings, such as systems
engineering and consulting, which typically have higher margins than some of the
Company's other services.
As a percentage of net revenue, operating expenses for 1997 increased to
10.2% compared to 9.3% in 1996. On an absolute dollar basis, operating expenses
for 1997 increased approximately $15 million compared to 1996. These increases
are attributed to increases in service operating expenses, general and
administrative expenses and depreciation expense. Selling expenses decreased
due to the decline in product sales, but remained flat as a percentage of net
revenue when compared to 1996. Service expenses increased both as a percentage
of net revenue and in absolute dollars as a result of the growth in the
Company's service business. Service revenue represented 12% of total revenue in
1997 as compared to 8% in 1996. However, the Company's efforts to control
expenses resulted in a decrease in service expense as a percentage of service
revenue to 21.0% in 1997 as compared to 23.5% in 1996. General and
administrative expenses increased both in dollars and as a percentage of net
revenues. These increases are mainly due to the continued investment in the
Company's information system resources required to broaden the Company's
electronic commerce capabilities and improve efficiency within the Company's
customer center. The Company's operating expenses are reported net of
reimbursements by certain manufacturers for specific training, promotional and
marketing programs. These reimbursements offset the expenses incurred by the
Company.
Depreciation and amortization expense increased in absolute dollars and as
a percentage of net revenue for 1997. These increases primarily reflect
depreciation of enhancements to the Company's information systems, facility
improvements associated with the Company's new headquarters and operations
campus and furniture and fixtures required to support business activity.
Financing expenses remained relatively flat in dollars when 1997 is
compared to 1996, but increased slightly as a percentage of revenue due to the
decrease in revenues. The Company's borrowing levels were slightly higher in
1997 as compared to 1996; however, these higher levels were offset by a lower
effective interest rate for 1997 due to changes the Company made in its
financing arrangements. The Company's effective interest rate for 1997 was 6.7%
as compared to 7.1% for 1996.
(continued)
12
<PAGE>
During the third quarter of 1997, the Company recognized a previously
deferred nonrecurring after-tax gain of $1.0 million. Recognition of the gain
was due to the prepayment of a secured note related to the 1994 sale of the
Company's former subsidiary, PC Parts Express, Inc. (now known as PC Service
Source, Inc.).
During the fourth quarter of 1997, the Company recognized a nonrecurring
after-tax gain of $2.4 million on the sale of the Company's former headquarters.
During the second quarter of 1996, the Company participated in the
secondary stock offering of PC Service Source, Inc. resulting in an after-tax,
nonrecurring gain on the sale of securities of $5.2 million.
As a result of the factors discussed above, net earnings, excluding the
nonrecurring gains in 1997 and 1996, increased 26% to $31.8 million in 1997
from $25.2 million in 1996. The earnings per share impact of the 1997
nonrecurring gains was $.07 on a diluted basis, while in 1996, the earnings per
share impact of the nonrecurring gain was $.10 on a diluted basis. Future
profitability will depend on the Company's ability to retain and hire quality
service personnel while effectively managing the utilization of such personnel.
It will also depend on increased focus on providing technical service and
support to customers, demand for product, competition, manufacturer product
availability and pricing changes, effective utilization of vendor programs, the
Company's ability to successfully manage the implementation and operation of the
channel assembly programs of its major vendors, as well as the Company's control
of operating expenses.
1996 COMPARED TO 1995
---------------------
Product revenue increased 36% to $1.82 billion in 1996 compared to $1.33
billion in 1995. The increase in product revenue reflected the Company's
efforts in establishing new relationships with several large customers during
the year, as well as higher demand for distributed computing technologies. The
strong product results also reflect the advancements the Company made in
customer procurement systems, data warehouse queries and Web-based order
statusing, which reduced customers' overall procurement costs.
Product gross margin as a percentage of product net revenue decreased to
10.0% in 1996 from 10.6% in 1995. The Company experienced lower product margins
principally due to pricing to win new business and increased pricing pressures
from competition.
Service revenue increased 68% to $169 million in 1996 from $101 million in
1995. The increase in service revenue reflected the Company's continued focus
on expanding its network and technology services at competitive prices to meet
increased customer demand for the Company's value-added desktop network
services, as well as the full year impact of various small service acquisitions
which occurred during 1995. Service gross margin as a percentage of service net
revenue increased to 33.3% in 1996 from 30.5% in 1995, primarily due to
increased productivity of the Company's service engineers and improved
management of spare parts inventory.
As a percentage of net revenue, operating expenses for 1996 increased to
9.3% compared to 8.8% in 1995, to support the continued revenue growth and
expansion of the service business. On an absolute dollar basis, operating
expenses increased approximately $56 million, primarily due to the continued
investment in the Company's service business and information systems
enhancements. Selling expenses, as a percentage of net revenue, decreased when
compared to 1995 primarily due to the fixed component of expense being spread
over higher volume and increased sales productivity. Service expenses, which
increased both as a percentage of net revenue and in absolute dollars, primarily
reflect costs related to the infrastructure, established starting in 1995,
necessary to manage and expand the service business. General and administrative
expenses increased due to the continued investment in the Company's information
system resources required to enhance customer satisfaction particularly through
data warehousing, improved customer procurement systems, enhanced reporting for
the service business, and expenses related to its campus recruiting program.
Depreciation and amortization expense increased in absolute dollars and as
a percentage of net revenue for 1996 as compared to 1995. The dollar increase
is primarily related to facility improvements and warehouse equipment for the
Company's eastern distribution facility opened during the third quarter of 1996,
enhancements to the Company's information systems, and furniture and fixtures
required to support business activity.
(continued)
13
<PAGE>
Financing expenses decreased as a percentage of net revenue for 1996 as
compared to 1995, but increased in absolute dollars by $2.5 million, primarily
due to increased borrowing to support the significant revenue growth, partially
offset by a lower effective interest rate resulting from new financing
arrangements, and redemption in October 1995 of the Company's $18.5 million 9%
Convertible Subordinated Notes ("Notes"). The Notes were converted into 8.4
million shares of the Company's common stock resulting in savings of
approximately $1.7 million annually.
During the second quarter of 1996, the Company participated in the
secondary stock offering of PC Service Source, Inc. resulting in an after-tax,
nonrecurring gain on the sale of securities of $5.2 million.
As a result of the factors discussed above, net earnings increased 47% to
$30.4 million in 1996 from $20.7 million in 1995. Excluding the nonrecurring
gain, net earnings increased 22% to $25.2 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997 was $235 million compared to $342
million at December 31, 1996. The decrease is primarily a result of
modifications to the Company's financing arrangements made during 1997. The
Company was required to account for $175 million of its financing as "off-
balance-sheet" financing in accordance with Statement of Financial Accounting
Standards No. 125; this had the effect of reducing A/R and long-term debt.
Although the Company's working capital decreased in dollar terms from December
31, 1996, the Company's working capital ratio increased to 2.6 in 1997 from 2.2
in 1996. This increase was primarily due to a significant reduction in accounts
payable, as the Company took advantage of early-pay discount programs offered by
certain of its vendors.
The Company's capital asset requirements are generally funded through
financing arrangements and internally generated funds. As of December 31, 1997,
the Company's financing arrangements consist of a $175 million Securitization
Facility, a $125 million working capital facility and a $25 million real estate
loan (collectively, the "Credit Agreements"). The term of the Credit
Agreements is five years. The $25 million real estate loan is payable as
follows: the first quarterly payment of $500,000 is due on April 1, 1999,
quarterly payments increase to $1,000,000 on January 1, 2000, and then increase
to $2,000,000 on January 1, 2001, with a final payment of $3,500,000 due on
November 2, 2002. The Company is currently evaluating other permanent financing
options for the real estate loan.
The Company's business is not capital asset intensive, and capital
expenditures in any year normally would not be significant in relation to the
overall financial position of the Company. Capital expenditures were
approximately $22 million in 1997 as compared to $42 million in 1996. The
majority of the 1997 expenditures were related to facility improvements to
prepare the Company's new headquarters and operations campus for occupancy, as
well as information systems enhancements. The majority of the $42 million in
1996 was for the purchase of the headquarters and operations campus and
improvements to the Company's eastern distribution center. The refurbishment of
the Company's new headquarters and operations campus was substantially completed
by December 31, 1997, and the Company expects capital expenditures to return to
more normal levels in 1998.
On March 19, 1998, the Company announced it had signed a nonbinding letter
of intent with Computer Integration Corporation ("CIC") relating to a potential
all-cash acquisition of CIC. Under the proposed terms of the letter of intent,
CompuCom would pay CIC a total of $17.25 million which would be used to pay
certain obligations of CIC and purchase all of CIC's outstanding preferred stock
and common stock. It is currently anticipated that, if the transaction is
consummated on the proposed terms, approximately $12.95 million would be paid to
common stockholders approximately $10.20 million (or $0.726 per share) in cash
at the closing of the transaction and the remaining $2.75 million (or $0.196 per
share) in an interest-bearing escrow fund. Any amount remaining in the escrow
fund after the payment of certain potential post-closing adjustments would be
paid to common stockholders approximately one year after closing.
(continued)
14
<PAGE>
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from the fact that many computer programs were
previously written using two digits rather than four to define the applicable
year. Programs written in this way may recognize a date ending in "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing business delays and disruptions of operations. At this
time, the Company has completed initial assessment of its implemented computer
systems, including its desktop computers, networks and servers, as well as its
core internal information systems. The Company's core information systems
include warehouse management, distribution, service dispatch, service parts,
engineer billing, and financial information systems. This assessment has
included the identification of each hardware, software, tool, and package that
comprise these systems to determine whether or not they support Year 2000 date
codes. The Company plans to complete remediation for those that are not
currently in compliance and to begin testing all of its systems in 1998. The
Company also reviews each of its new potential hardware and software purchases
to ensure they are Year 2000 compliant. The Company has developed a step-by-step
plan which details the tasks, deliverables, resources, and target dates
necessary to monitor the Company's information systems at the turn of the
century and beyond. This validation plan also includes the availability of a
test team that will test the Company's information systems on an on-going basis
to further validate that additions or modifications to any of the Company's
systems do not create Year 2000 compliance issues. As a reseller of computer
products, the Company only passes through to its customers the applicable
vendor's warranties; it makes no warranties regarding Year 2000 compliance on
any of the products it resells. At present, the Company does not anticipate that
its business will be adversely affected by Year 2000 compliance issues. The
total cost and time which will be incurred by the Company associated with the
impact of Year 2000 compliance currently has not been determined with certainty,
but the Company believes that Year 2000 compliance will not result in a material
adverse effect on its financial condition or results of operations.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The consolidated financial statements and schedule filed with this report
appear on pages F-2 through F-19, and are listed on page F-1.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
15
<PAGE>
PART III
--------
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The executive officers of the Company as of March 16, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Edward Anderson /(1)/ 51 President and Chief Executive Officer
Daniel F. Brown /(2)/ 52 Executive Vice President, Sales
William D. Barry /(3)/ 39 Executive Vice President and Chief Operating Officer
M. Lazane Smith /(4)/ 43 Senior Vice President, Finance and Chief Financial Officer
</TABLE>
/(1)/ Mr. Anderson has served as President and Chief Executive Officer since
January 1994. Mr. Anderson joined the Company in August 1993 as Chief
Operating Officer and has been a Director of the Company since 1993.
Prior to joining the Company, he held the position of President and Chief
Operating Officer of Computerland Corporation from 1989 until 1993.
/(2)/ Mr. Brown has held the position of Executive Vice President, Sales since
February 1989, when he was promoted from Vice President, Sales, a
position he had held since joining the Company in 1987. Mr. Brown has
been a Director of the Company since 1990.
/(3)/ Mr. Barry has held the position of Executive Vice President and Chief
Operating Officer since February 1998, when he was promoted from Senior
Vice President of Operations. Mr. Barry joined CompuCom in 1987 as a
sales representative, and has held positions as a branch general manager
and then a regional vice president, until being named Senior Vice
President of Operations in August 1997.
/(4)/ Ms. Smith has held the position of Senior Vice President, Finance and
Chief Financial Officer since February 1997. Ms. Smith joined the Company
in 1993 as Corporate Controller and was promoted to Vice President
Finance and Corporate Controller in 1994. Prior to joining the Company,
she held the position of Vice President Finance of Score Group, Inc. from
1992 to 1993.
16
<PAGE>
Directors
The Company incorporates by reference the information contained under the
caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement relative to
its May 14, 1998 annual meeting of stockholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of l934, as amended.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K
The Company incorporates by reference the information contained under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" in its
definitive Proxy Statement relative to its May 14, 1998 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 11 EXECUTIVE COMPENSATION
- ------- ----------------------
The Company incorporates by reference the information contained under the
captions "Directors' Compensation" and "Executive Compensation" in its
definitive Proxy Statement relative to its May 14, 1998 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The Company incorporates by reference the information contained under the
caption "Securities Ownership of Certain Beneficial Owners and Management" in
its definitive Proxy Statement relative to its May 14, 1998 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Company incorporates by reference the information contained under the
caption "Certain Transactions" in its definitive Proxy Statement relative to its
May 14, 1998 annual meeting of stockholders, to be filed within 120 days after
the end of the year covered by this Form 10-K Report pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
17
<PAGE>
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a) Financial Statements and Schedules.
The financial statements and financial statement schedule filed with this
report are listed on page F-1.
(b) Reports on Form 8-K.
Company Press Release filed on December 8, 1997 as Current Report on Form
8-K announcing that ClientLink, Inc., a subsidiary of the Company, has filed a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock.
(c) Exhibits.
The following is a list of exhibits required by Item 601 of Regulation S-K
filed as part of this Report. Where so indicated by footnote, exhibits, which
were previously filed, are incorporated by reference. For exhibits incorporated
by reference, the location of the exhibit in the previous filing is indicated in
parentheses.
18
<PAGE>
Exhibit
No. Description
- ------- -----------
3(a) Certificate of Incorporation of CompuCom Systems, Inc. (1) (Exhibit B)
3(b) Certificate of Amendment of the Certificate of Incorporation of
CompuCom Systems, Inc. (4) (Exhibit 3(b))
3(c) Certificate of Amendment of the Certificate of Incorporation of
CompuCom Systems, Inc., filed November 30, 1992 (6) (Exhibit 4(c))
3(d) Certificate of Amendment of the Certificate of Incorporation of
CompuCom Systems, Inc., filed July 1, 1993 (6) (Exhibit 4(d))
3(e) Bylaws of CompuCom Systems, Inc., revised April 1, 1991 (4) (Exhibit
3(c))
4(a) Form of Stock Certificate evidencing Common Stock, $.01 par value, of
CompuCom Systems, Inc. (2) (Exhibit 4(b))
4(b)** CompuCom Systems, Inc. 1983 Stock Option Plan, as amended (5) (Exhibit
4(k))
4(c)** CompuCom Systems, Inc. 1993 Stock Option Plan, as amended (15) (Exhibit
A)
4(d)** CompuCom Systems, Inc. 1984 Non-Qualified Stock Option Plan, as amended
(3) (Exhibit 4(g))
4(e)** CompuCom Systems, Inc. Stock Option Plan for Directors (10) (Exhibit
4(g))
4(f)** Stock Option Agreement dated July 21, 1995 between CompuCom Systems,
Inc. and Delbert W. Johnson (10) (Exhibit 4(i))
4(g) Certificate of Designation dated March 31, 1994, establishing Series B
Cumulative Convertible Preferred Stock of CompuCom Systems, Inc. (8)
(Exhibit 4(i))
4(h) Form of Stock Certificate evidencing Series B Cumulative Convertible
Preferred Stock, $.01 par value, of CompuCom Systems, Inc. (9) (Exhibit
4(h))
4(i) $3 Million Subordinated Convertible Note dated October 31, 1995 from
CompuCom Systems, Inc. to Network Compatibility Group, Inc. (11)
(Exhibit 4(k))
10(a)** CompuCom Systems, Inc. 401(k) Matched Savings Plan, as amended and
restated effective January 1, 1989 (7) (Exhibit 10(a))
10(b)** Amendment 1996-1 to CompuCom Systems, Inc. 401(k) Matched Savings Plan,
effective May 1, 1996 (12) (Exhibit 10.9)
10(c) Amended and Restated Agreement for Inventory Financing, dated September
20, 1996, between CompuCom Systems, Inc. and IBM Credit Corporation
(14) (Exhibit 10(d))
10(d) IBM Credit Corporation agreement with CompuCom Systems, Inc. to extend
the terms of the Agreement for Inventory Financing to March 20, 1998. *
10(e) Security Agreement for Wholesale Financing, dated December 27, 1993,
between CompuCom Systems, Inc. and Compaq Computer Corporation (7)
(Exhibit 10(e))
10(f) Intercreditor Agreement, dated December 27, 1993, among NationsBank of
Texas, N.A., CompuCom Systems, Inc., and Compaq Computer Corporation
(7) (Exhibit 10(f))
19
<PAGE>
Exhibit
No. Description
- ------- -----------
10(g) Subordination Agreement, dated August 22, 1994, among Hewlett-Packard
Company, NationsBank of Texas, N.A., and IBM Credit Corporation,
pertaining to certain assets of CompuCom Systems, Inc. (9) (Exhibit
10(h))
10(h) Intercreditor Agreement, dated as of April 1, 1996, among NationsBank
of Texas, N.A., CompuCom Systems, Inc. and IBM Credit Corporation (12)
(Exhibit 10.4)
10(i) Credit Agreement, dated as of September 26, 1996, between NationsBank
of Texas, N.A. and CompuCom Systems, Inc. (exhibits and schedules
omitted) (13) (Exhibit 10.1)
10(j) Amended and Restated Master Security Agreement and Administration
Agreement, dated as of September 25, 1996, among CompuCom Systems,
Inc., NationsBank of Texas, N.A., CSI Funding, Inc. and Enterprise
Funding Corporation (exhibits omitted) (13) (Exhibit 10.2)
10(k) Amendment No. 1 to Amended and Restated Master Security Agreement and
Administration Agreement, dated as of December 5, 1996, among CompuCom
Systems, Inc., NationsBank of Texas, N.A.,CSI Funding, Inc. and
Enterprise Funding Corporation (exhibits omitted) (14) (Exhibit 10(k))
10(l) Receivables Purchase Agreement, dated as of April 1, 1996, between
CompuCom Systems, Inc. and CSI Funding, Inc. (exhibits omitted) (12)
(Exhibit 10.6)
10(m) First Amendment to Receivables Purchase Agreement, dated as of
September 25, 1996, between CompuCom Systems, Inc. and CSI Funding,
Inc. (exhibits omitted) (13) (Exhibit 10.3)
10(n) Amendment No. 2 to Receivables Purchase Agreement, dated as of April 1,
1997, between CompuCom Systems, Inc. and CSI Funding, Inc. (exhibits
omitted) (17) (Exhibit 10.2)
10(o) Transfer and Administration Agreement, dated as of April 1, 1996, among
CSI Funding, Inc., CompuCom Systems, Inc., Enterprise Funding
Corporation and NationsBank, N.A. (exhibits omitted) (12) (Exhibit
10.7)
10(p) First Amendment to Transfer and Administration Agreement, dated as of
September 25, 1996, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted)
(13) (Exhibit 10.4)
10(q) Amendment No. 2 to Transfer and Administration Agreement, dated as of
December 5, 1996, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted)
(14) (Exhibit 10(p))
10(r) Amendment No. 3 to Transfer and Administration Agreement, dated as of
February 1, 1997, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted)
(16) (Exhibit 10.1)
10(s) Amendment No. 4 to Transfer and Administration Agreement, dated as of
April 1, 1997, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted)
(17) (Exhibit 10.1)
10(t) Amended and Restated Credit Agreement, dated as of November 3, 1997,
among CompuCom Systems, Inc., certain lenders party hereto, and
NationsBank of Texas, N.A., as administrative lender (exhibits and
schedules omitted) *
10(u) Amended and Restated Receivables Purchase Agreement, dated as of
November 3, 1997, between CompuCom Systems, Inc. and CSI Funding, Inc.
(exhibits omitted) *
20
<PAGE>
Exhibit
No. Description
- ------- -----------
10(v) Amended and Restated Transfer and Administration Agreement, dated as of
November 3, 1997, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted)
*
10(w) Business Partner Agreement, dated September 15, 1994, between IBM
Corporation and CompuCom Systems, Inc., with Dealer Profile, Remarketer
General Terms, and attachments (9) (Exhibit 10(n))
10(x) IBM Corporation Remarketer Announcement, dated March 13, 1996,
modifying its Business Partner Agreement with CompuCom Systems, Inc. to
automatically extend its term for an additional 12 months upon its
expiration (14) (Exhibit 10(r))
10(y) Agreement for participation in the IBM Business Partner - PC,
Authorized Assembler Program, dated January 16, 1997 between IBM
Corporation and CompuCom Systems, Inc. *
10(z) Agreement to extend participation in the IBM Business Partner - PC,
Authorized Assembler Program, dated November 18, 1997 between IBM
Corporation and CompuCom Systems, Inc. to December 31, 1998 *
10(aa) U.S. Reseller Agreement, dated January 23, 1993, between Compaq
Computer Corporation and CompuCom Systems, Inc. (7) (Exhibit 10(l))
10(bb) Software License Agreement, dated January 15, 1998, between Compaq
Computer Corporation and CompuCom Systems, Inc. *
10(cc) Channel Installation Agreement for Microsoft Products, dated January
15, 1998, between Compaq Computer Corporation and CompuCom Systems,
Inc. *
10(dd) U.S. Reseller Agreement, dated March 1, 1996, between Hewlett-Packard
Company and CompuCom Systems, Inc. (12) (Exhibit 10.8)
10(ee) U.S. Agreement for Authorized Reseller Participation in Channel
Assembly Program, dated March 1, 1997, between Hewlett-Packard Company
and CompuCom Systems, Inc. *
10(ff) Administrative Services Agreement, dated January 1, 1988, between
CompuCom Systems, Inc. and Safeguard Scientifics, Inc., with Letter
Amendment dated as of April 1, 1991 (4) (Exhibit 10(z))
10(gg) Lease dated May 16, 1996, between CompuCom Systems, Inc. and The Riggs
National Bank of Washington, D.C. for premises at 1225 Forest Parkway,
Paulsboro, New Jersey (exhibits omitted) (13) (Exhibit 10.8)
10(hh) Ratification Agreement dated January 9, 1992 between CompuCom Systems,
Inc. and The Arch Street Group with respect to assignment of Lease
dated November 1, 1988 between The Arch Road Group and Photo & Sound
Company (attached) for premises at 4686 Frontier, Stockton, California
(4) (Exhibit 10(dd))
10(ii) Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Financing Statement, dated as of September 27, 1996, from CompuCom
Systems, Inc. to Nationsbank of Texas, N.A. (exhibits omitted) (13)
(Exhibit 10.7)
10(jj) Contract of Sale between CompuCom Systems, Inc., as seller, and
MacFarlan Realty Partners, L.L.C., as purchaser, for property located
at 10100 North Central Expressway, Dallas, Texas, dated effective
October 23, 1997 *
21
<PAGE>
Exhibit
No. Description
- ------- -----------
10(kk) First Amendment to Contract of Sale between CompuCom Systems, Inc., as
seller, and MacFarlan Realty Partners, L.L.C., as purchaser, for
property located at 10100 North Central Expressway, Dallas, Texas,
dated effective December 9, 1997 *
10(ll) $7,840,000 Secured Promissory Note, dated December 30, 1997, from
MacFarlan Realty Partners, L.L.C., to CompuCom Systems, Inc. *
10(mm) Lease dated December 2, 1994 between CompuCom Systems, Inc. and ZML -
Glen Lakes Tower Limited Partnership for premises at 9400 North Central
Expressway, Dallas Texas (9) (Exhibit 10(aa)
10(nn)** $1,181,250 Amended and Restated Secured Term Note, dated February 12,
1997, from Edward R. Anderson to CompuCom Systems, Inc. (14) (Exhibit
10(ff))
10(oo)** Pledge Agreement, dated August 31, 1994, between Edward R. Anderson and
CompuCom Systems, Inc. (9) (Exhibit 10(nn))
10(pp)** $661,251 Secured Term Note, dated June 16, 1997, from Daniel F. Brown
to CompuCom Systems, Inc. *
10(qq)** Pledge Agreement, dated June 16, 1997, from Daniel F. Brown and
CompuCom Systems, Inc. *
10(rr)** Executive Employment Agreement, dated October 24, 1997, between Edward
R. Anderson and CompuCom Systems, Inc. *
10(ss)** Executive Employment Agreement, dated October 24, 1997, between M.
Lazane Smith and CompuCom Systems, Inc. *
21 List of Subsidiaries *
23 Consent of KPMG Peat Marwick LLP *
27.1 Financial Data Schedule *
27.2 Restated Financial Data Schedules for 1995, 1996 *
27.3 Restated Financial Data Schedules for 1997 *
- ---------------
* Filed herewith
** These exhibits relate to management contracts or to compensatory plans,
contracts or arrangements in which directors and/or executive officers
of the registrant may participate, required to be filed as xhibits to
this Form 10-K.
(1) Filed on April 19, 1989 as an exhibit to the 1989 Annual Meeting Proxy
Statement and incorporated herein by reference.
(2) Filed on April 2, 1990 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(3) Filed on March 29, 1991 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(4) Filed on March 30, 1992 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(5) Filed on March 31, 1993 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(6) Filed on March 14, 1994 as an exhibit to the Registration Statement on
Form S-8 (No. 33-76382) and incorporated herein by reference.
(7) Filed on March 31, 1994 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(8) Filed on May 15, 1994 as an exhibit to the Quarterly Report on Form
10-Q (No. 0-14371) and incorporated herein by reference.
(9) Filed on March 31, 1995 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(10) Filed on October 10, 1995 as an exhibit to the Registration Statement
on Form S-8 (No. 33-63309) and incorporated herein by reference.
(11) Filed on March 29, 1996 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
22
<PAGE>
(12) Filed on May 13, 1996 as an exhibit to the Quarterly Report on Form
10-Q (No. 0-14371) and incorporated herein by reference.
(13) Filed on November 12, 1996 as an exhibit to the Quarterly Report on
Form 10-Q (No. 0-14371) and incorporated herein by reference.
(14) Filed on March 31, 1997 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(15) Filed on April 9, 1997 as an exhibit to the 1997 Annual Meeting Proxy
Statement and incorporated herein by reference.
(16) Filed on May 15, 1997 as an exhibit to the Quarterly Report on Form 10-
Q (No. 0-14371) and incorporated herein by reference.
(17) Filed on August 14, 1997 as an exhibit to the Quarterly Report on Form
10-Q (No. 0-14371) and incorporated herein by reference.
23
<PAGE>
Index to Consolidated Financial Statements
------------------------------------------
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts F-19
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors
CompuCom Systems, Inc.:
We have audited the accompanying consolidated balance sheets of
CompuCom Systems, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in the accompanying
index. The consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CompuCom
Systems, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
January 27, 1998
F-2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1997 1996
------ --------- ---------
<S> <C> <C>
Current assets:
Cash $ 4,456 $ 4,320
Receivables, less allowance for doubtful accounts
of $2,672 in 1997 and $2,274 in 1996 177,141 377,598
Inventories 197,958 233,464
Other 2,880 3,508
--------- ---------
Total current assets 382,435 618,890
Property and equipment:
Land, building and improvements 38,441 33,067
Furniture, fixtures and other equipment 41,338 31,556
Leasehold improvements 7,099 6,502
--------- ---------
86,878 71,125
Less accumulated depreciation and amortization (23,519) (16,817)
--------- ---------
Net property and equipment 63,359 54,308
Cost in excess of fair value of tangible net assets
purchased, less accumulated amortization 13,569 16,513
Other 3,227 3,274
--------- ---------
$ 462,590 $ 692,985
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 72,475 $ 217,424
Accrued liabilities 71,791 59,004
Convertible subordinated notes 3,000
--------- ---------
Total current liabilities 147,266 276,428
Long-term debt 97,400 236,450
Deferred income taxes 7,198 5,671
Other 526 338
Convertible subordinated notes 3,000
Stockholders' equity:
Series B preferred stock, $10 stated value. Authorized 3,000,000
shares; issued and outstanding 1,500,000 shares 15,000 15,000
Common stock, $.01 par value. Authorized 70,000,000 shares;
issued and outstanding 46,111,820 shares in 1997
and 44,927,571 shares in 1996 461 449
Additional paid-in capital 65,762 60,966
Retained earnings 128,977 94,683
--------- ---------
Total stockholders' equity 210,200 171,098
--------- ---------
$ 462,590 $ 692,985
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
1997 1996 1995
----------- ----------- -----------
Revenue:
Product $ 1,699,268 $ 1,816,504 $ 1,334,442
Service 236,221 169,600 100,868
Other 14,313 9,087 6,287
----------- ----------- -----------
Total revenue 1,949,802 1,995,191 1,441,597
----------- ----------- -----------
Cost of revenue:
Product 1,523,034 1,635,653 1,193,513
Service 151,894 113,046 70,107
Other 7,329 5,529 3,069
----------- ----------- -----------
Total cost of revenue 1,682,257 1,754,228 1,266,689
----------- ----------- -----------
Gross margin 267,545 240,963 174,908
Operating expenses:
Selling 79,188 80,105 62,066
Service 49,563 39,876 22,204
General and administrative 59,539 55,580 37,722
Depreciation and amortization 11,274 8,760 6,291
----------- ----------- -----------
Total operating expenses 199,564 184,321 128,283
----------- ----------- -----------
Earnings from operations 67,981 56,642 46,625
Financing expenses (14,947) (14,764) (12,290)
Nonrecurring gains 5,624 8,738
----------- ----------- -----------
Earnings before income taxes 58,658 50,616 34,335
Income taxes 23,464 20,145 13,665
----------- ----------- -----------
Net earnings $ 35,194 $ 30,471 $ 20,670
=========== =========== ===========
Earnings per common share:
Basic $.75 $.66 $.54
Diluted $.71 $.61 $.45
Average common shares outstanding:
Basic 45,686 44,616 35,857
Diluted 50,034 49,887 48,311
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
----------------------- ----------------------- Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 2,000,000 $ 20,000 33,694,764 $ 337 $ 28,164 $ 45,867 $ 94,368
Conversion of preferred stock (500,000) (5,000) 738,552 7 4,993 0
Conversion of convertible debt 8,409,087 84 18,366 18,450
Exercise of common stock warrants 53,331 1 79 80
Exercise of options 1,204,998 12 1,886 1,898
Pre-restructuring tax benefit 4,300 4,300
Preferred stock dividend (1,425) (1,425)
Net earnings 20,670 20,670
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 1,500,000 15,000 44,100,732 441 57,788 65,112 138,341
Exercise of common stock warrants 71,666 1 107 108
Exercise of options 755,173 7 3,071 3,078
Preferred stock dividend (900) (900)
Net earnings 30,471 30,471
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 1,500,000 15,000 44,927,571 449 60,966 94,683 171,098
Exercise of options 1,184,249 12 4,796 4,808
Preferred stock dividend (900) (900)
Net earnings 35,194 35,194
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1997 1,500,000 $ 15,000 46,111,820 $ 461 $ 65,762 $ 128,977 $ 210,200
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 35,194 $ 30,471 $ 20,670
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 11,274 8,760 6,291
Deferred income taxes 1,527 1,719 355
Nonrecurring gains (5,624) (8,738)
Changes in assets and liabilities:
Receivables 207,397 (111,936) (28,450)
Inventories 35,506 (36,933) (41,290)
Other current assets 628 (1,357) 20
Accounts payable (144,949) 28,244 35,111
Accrued liabilities and other 12,970 8,715 13,890
--------- --------- ---------
Net cash provided by (used in) operating activities 153,923 (81,055) 6,597
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures, net (22,418) (42,135) (5,999)
Business acquisitions, net of cash acquired (6,479) (2,310)
Proceeds from sale of building 1,960
Proceeds from sale of securities 2,724 11,368
--------- --------- ---------
Net cash (used in) investing activities (17,734) (37,246) (8,309)
--------- --------- ---------
Cash flows from financing activities:
Net bank credit facility and other borrowings (139,961) 116,086 1,332
Issuance of common stock 4,808 3,186 1,978
Preferred stock dividend (900) (900) (1,425)
--------- --------- ---------
Net cash provided by (used in) financing activities (136,053) 118,372 1,885
--------- --------- ---------
Net increase in cash 136 71 173
Cash at beginning of year 4,320 4,249 4,076
--------- --------- ---------
Cash at end of year $ 4,456 $ 4,320 $ 4,249
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
CompuCom Systems, Inc. and subsidiaries (the "Company") is a
leading provider of network integration services and distributed desktop
products for large corporate customers nationwide. The Company's
services include LAN/WAN projects, consulting and asset tracking,
network management, help desk, field engineering, procurement,
configuration, distribution and software management.
Principles of Consolidation
---------------------------
The consolidated financial statements include the financial
statements of CompuCom Systems, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Use of Estimates
----------------
The preparation of the consolidated financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Inventories
-----------
Inventories are stated at the lower of average cost or market. The
Company continually assesses the appropriateness of the inventory
valuations giving consideration to obsolete, slow-moving and nonsalable
inventory.
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated
depreciation and amortization. Provision for depreciation and
amortization is based on the estimated useful lives of the assets
(building and leasehold improvements, 3 to 30 years; furniture and
equipment, 5 years) and is computed primarily on the straight-line
method.
Cost in Excess of Fair Value of Tangible Net Assets Purchased
-------------------------------------------------------------
Cost in excess of fair value of tangible net assets purchased
represents goodwill and customer lists and is amortized using the
straight-line method over a 7 to 10 year period. Accumulated
amortization at December 31, 1997 and 1996 was $12,715,000 and
$9,846,000, respectively.
Revenue Recognition
-------------------
Product revenues are recognized upon shipment, with provisions
made for anticipated returns, which historically have been immaterial.
Service revenues are recognized when the service is rendered or ratably
if performed over a service contract period.
(continued)
F-7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Vendor Programs
---------------
The Company receives volume incentives and rebates from certain
manufacturers related to sales of certain products which are recorded as a
reduction of cost of goods sold when earned. The Company also receives
manufacturer reimbursement for certain training, promotional and marketing
activities that offset the expenses incurred by the Company.
Financing Expenses
------------------
Financing expenses consist of interest incurred on borrowings under
the Company's financing arrangements and discounts on the sale of
receivables.
Income Taxes
------------
The Company uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Earnings Per Common Share
-------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." The Company adopted this
standard, as required, for its December 31, 1997 financial statements.
Basic earnings per common share is based on net earnings after preferred
stock dividend requirements, if any, and the weighted-average number of
common shares outstanding during each year. Diluted earnings per common
share assumes conversion of dilutive convertible securities into common
stock at the later of the beginning of the year or date of issuance and
includes the add-back of related interest expense and/or dividends, as
required.
Financial Instruments
---------------------
The Company's financial instruments, principally cash, accounts
receivable, accounts payable and accrued liabilities, are carried at cost
which approximates fair value due to the short-term maturity of these
instruments. As amounts outstanding under the Company's credit agreements
bear interest approximating current market rates, their carrying amounts
approximate fair value. The fair value of the Company's Convertible
Subordinated Notes approximates cost based upon quoted market prices.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
-----------------------------------------------------------------------
The Company has adopted the provisions of Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(continued)
F-8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." This Statement
establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in
a full set of general-purpose financial statements. Such items may
include foreign currency translation adjustments, unrealized
gains/losses from investing and hedging activities, and other
transactions. This Statement is required to be adopted for fiscal
years beginning after December 15, 1997. The adoption of this
pronouncement will not have an impact on the Company's financial
position and results of operations but may change the presentation
of certain of the Company's financial statements and related notes.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131 "Disclosures about Segments of an Enterprise and
Related Information." This Statement establishes standards for the
way public business enterprises report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating segments
in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement is
required to be adopted for fiscal years beginning after December 15,
1997. The adoption of this pronouncement will not have an impact on
the Company's financial position and results of operations but may
change the presentation of certain of the Company's financial
statements and related notes.
Stock-Based Compensation
------------------------
The Company accounts for stock options and stock-based awards
using the intrinsic-value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations. In accordance
with Statement No. 123, "Accounting for Stock-Based Compensation,"
the Company has disclosed pro forma net earnings and net earnings
per share as if the fair-value method had been applied.
Reclassifications
-----------------
Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
(2) Inventories
-----------
Inventory is comprised of product inventory and spare parts. At
December 31, 1997 and 1996, total inventory was $198.0 million and $233.5
million, respectively, net of inventory reserves of $9.9 million and $8.9
million as of the same dates. Gross product inventory was $195.5 million
and $227.6 million at December 31, 1997 and 1996, respectively, and gross
spare parts inventory as of the same dates was $12.4 million and $14.8
million.
(3) Nonrecurring gain on sale of building
-------------------------------------
During the fourth quarter of 1997, the Company sold its former
headquarters building, recognizing a nonrecurring after-tax gain of
approximately $2.4 million. As part of the sale, the Company accepted cash
of $2.0 million and a note receivable in the amount of $7.8 million.
Interest accrues on the note at an annual rate of 6.8%. The note is
secured by the Company's former headquarters building and is due and
payable in full on October 31, 1998, with accrued interest. The note
receivable is included in Receivables on the Consolidated Balance Sheet as
of December 31, 1997.
(continued)
F-9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Financing Arrangements
----------------------
The Company has financing arrangements which total $325 million,
consisting of a $175 million receivable securitization ("Securitization"),
a $125 million working capital facility ("Revolver"), and a $25 million
real estate loan ("Term Loan").
Under the Securitization, the Company has an agreement with a
financial institution that allows the Company to sell, at a discount, an
interest in a portion of its trade accounts receivable ("receivables") to
a commercial paper conduit sponsored by that financial institution. As
collections reduce receivables balances sold to the conduit, the Company
may sell interests in new receivables to bring the amount available up to
the maximum allowed. In accordance with SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," the Company has recorded this transaction as a sale of
accounts receivable. This sale is reflected as a reduction of accounts
receivable on the Consolidated Balance Sheet as of December 31, 1997 and
is included in the net cash provided by operating activities in the
Consolidated Statements of Cash Flows. The proceeds from the sale of
receivables were used to pay down long-term debt. The Company is retained
as servicer of the receivables; however, the cost of servicing is not
material. Discounts associated with the sale of receivables are based on a
designated commercial paper rate plus an agreed upon spread and totaled
$4.7 million for 1997. The designated commercial paper rate at December
31, 1997 was 5.5%. The Securitization Facility expires November 2, 2002.
The Revolver bears interest at a rate of LIBOR plus 75 basis points,
subject to adjustment based on certain performance criteria, and is
secured by certain assets of the Company, as defined. The Revolver is
fully available subject to compliance with certain covenants related to,
among others, debt to capital, tangible net worth, asset and fixed charge
coverage ratios. Terms of the Revolver limit the amounts available for
capital expenditures and dividends. The amount outstanding under the
Revolver at December 31, 1997 was $72.4 million. As of December 31, 1997,
the effective interest rate on the Revolver was 6.7%. The Revolver matures
on November 2, 2002.
The Term Loan was used to finance the purchase of the Company's new
headquarters and operations campus. The amount outstanding under the Term
Loan at December 31, 1997 was $25.0 million. The Term Loan bears interest
at a rate of LIBOR plus 75 basis points, subject to adjustment based on
certain performance criteria, and matures on November 2, 2002. Principal
maturities of the Term Loan at December 31, 1997 for the succeeding 5
years are as follows: 1998 - 0; 1999 - $1,500,000; 2000 - $4,000,000; 2001
- $8,000,000; 2002 - $11,500,000.
The Company paid interest and financing costs of $14.9 million,
$15.3 million and $12.1 million, and the Company's weighted-average
interest rate on borrowings was approximately 6.4%, 6.7% and 7.9%, in
1997, 1996 and 1995, respectively.
The Company capitalized interest costs of $1.0 million and $0.5
million in 1997 and 1996, respectively, as part of the refurbishment of
its corporate headquarters and operations campus. Construction was
substantially completed in 1997.
(5) Convertible Subordinated Notes
------------------------------
In conjunction with an acquisition in 1995, the Company issued $3
million of 5% Convertible Subordinated Notes due October 31, 1998 and
convertible at any time into approximately 387,600 shares of the Company's
common stock at $7.74 per share.
(continued)
F-10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Accrued Liabilities
Accrued liabilities consist of the following as of December 31:
(Amounts in thousands)
1997 1996
------- -------
Accrued sales tax payable $ 8,448 $ 7,049
Accrued payroll and payroll taxes 22,848 18,171
Accrued cost of software and licenses 16,805 13,481
Other 23,690 20,303
------- -------
Total $71,791 $59,004
======= =======
(7) Income Taxes
The provision for income taxes is comprised of the following (in
thousands):
1997 1996 1995
------- ------- -------
Current:
Federal $19,422 $16,826 $11,991
State 2,515 1,600 1,319
Deferred 1,527 1,719 355
------- ------- -------
$23,464 $20,145 $13,665
======= ======= =======
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% in 1997, 1996 and 1995 to earnings
before income taxes as a result of the following (in percentages):
1997 1996 1995
------ ------ ------
Computed "expected" tax expense 35.0% 35.0% 35.0%
State taxes, net of U.S. Federal
income tax benefit 2.8% 2.1% 2.5%
Other, net 2.2% 2.7% 2.3%
------ ------ ------
40.0% 39.8% 39.8%
====== ====== ======
(continued)
F-11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below (in thousands).
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to reserves and additional
costs inventoried for tax purposes $ 746 $ 713
Accounts receivable, principally due to allowance for
doubtful accounts 935 796
Other 2,227 2,069
------- -------
Deferred tax assets 3,908 3,578
------- -------
Deferred tax liabilities:
Accelerated depreciation 3,949 3,104
Other 7,157 6,145
------- -------
Deferred tax liabilities 11,106 9,249
======= =======
Net deferred tax liability $ 7,198 $ 5,671
======= =======
</TABLE>
The Company paid $16.1 million, $19.4 million and $9.7 million of
income taxes in 1997, 1996 and 1995, respectively, net of refunds.
(8) Preferred Stock
The Company has authorized three million shares of Series B
Cumulative Convertible Preferred Stock ("Series B Shares"), stated value
$10. In 1994, Safeguard Scientifics, Inc. ("Safeguard"), purchased from
the Company $20 million (2,000,000 shares) of its Series B Shares. The
Series B Shares are convertible into shares of Common Stock based on a
conversion price of $6.77 per share subject to anti-dilutive adjustments.
The Series B Shares are entitled to a 6% per annum cumulative dividend
payable out of legally available funds. The Series B Shares are entitled
to one vote for each share of Common Stock into which such Series B Shares
may be converted, except that in the election of directors (as long as
Safeguard owns at least 40% of the Company's then outstanding voting
securities, excluding the Series B Shares), the Series B Shares will be
entitled to five votes for each share of Common Stock into which the
Series B Shares may be converted. Safeguard has up to a 60% voting
interest as a result of its ownership of the Series B Shares. On December
29, 1995, Safeguard converted 500,000 of its Series B Shares into 738,552
shares of the Company's Common Stock.
(9) Stock-Based Compensation
The Company maintains four stock option plans covering certain key
employees and outside directors. The 1983 Stock Option Plan ("1983 Plan")
and the 1984 Non-Qualified Stock Option Plan ("1984 Plan") expired by
their terms in May 1993 and January 1994, respectively, and therefore no
new grants can be awarded out of those plans. All eligible option grants
have been made from the Stock Option Plan for Directors ("Directors
Plan"), although not all options have been exercised. The Company adopted
a 1993 Stock Option Plan ("1993 Plan") under which the Company may grant
qualified or nonqualified stock options to eligible employees and outside
directors. The 1993 Plan was amended in 1995 and in 1997 to increase the
number of shares available. To the extent allowable, all grants are
incentive stock options. All options granted under the plans to date have
an exercise price equal to the market price of the Company's stock on the
date of grant. Generally, options vest 20% each year and expire after 10
years under the 1983 Plan, the 1984 Plan, and the 1993 Plan. Under the
Directors Plan, nonemployee directors were initially granted 10,000 shares
upon election to the Board, with subsequent service grants awarded in
accordance with formulas based upon years of service. Options under the
Directors Plan vest 25% each year and expire after 10 years. After May
1996, all options granted to nonemployee directors have been issued from
the 1993 Plan. At December 31, 1997, the Company has reserved
approximately 5.2 million shares of its common stock for issuance under
its stock option plans.
(continued)
F-12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB 25 and related interpretations in accounting
for its various stock option plans. Had compensation cost been recognized
consistent with SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings As reported $ 35,194 $ 30,471 $ 20,670
Pro forma $ 34,639 $ 29,409 $ 20,228
Basic earnings per share As reported $ .75 $ .66 $ .54
Pro forma $ .74 $ .65 $ .53
Diluted earnings per share As reported $ .71 $ .61 $ .45
Pro forma $ .69 $ .60 $ .44
</TABLE>
The per share weighted-average value of stock options issued by the
Company during 1997, 1996 and 1995 was $4.20, $4.91, and $2.43,
respectively, on the dates of grant using the Black Scholes option-pricing
model. The Company used the following weighted-average assumptions to
determine the fair value of stock options granted:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 63% 64% 62%
Average expected option life 5 years 5 years 5 years
Risk-free interest rate 5.9% to 6.8% 5.8% to 6.5% 5.4% to 7.1%
</TABLE>
Pro forma net earnings reflects only options granted in 1997, 1996,
and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected
over the options' vesting period and compensation cost for options granted
prior to January 1, 1995 is not considered.
Option activity under the Company's plans is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------- -------------------- -------------------
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,021 $ 3.96 4,278 $ 2.81 4,417 $ 2.07
Granted 1,642 7.07 845 8.28 1,407 4.10
Exercised (1,225) 2.39 (761) 1.90 (1,246) 1.64
Canceled (429) 5.82 (341) 5.82 (300) 2.81
-------- ------- -------
Outstanding at end of year 4,009 $ 5.51 4,021 $ 3.96 4,278 $ 2.81
======== ======= =======
Options exercisable at year-end 1,343 $ 3.40 1,970 $ 2.40 2,048 $ 1.80
Shares available for future grant 1,190 1,483 2,014
</TABLE>
(continued)
F-13
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following summarizes information about the Company's stock
options outstanding at December 31, 1997 :
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
-------------------- ---------------- ------------------ -------------- --------------- -------------
(In thousands) (years) (In thousands)
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 3.13 1,209 4.6 $ 2.60 1,027 $ 2.52
3.50 - 5.50 1,022 8.1 4.73 138 4.10
5.63 - 7.25 131 7.8 6.34 35 6.18
7.63 - 7.63 940 9.4 7.63 - -
8.00 - 12.50 707 8.3 8.66 143 8.36
---------------- ---------------
$ 1.00 - $ 12.50 4,009 7.4 $ 5.51 1,343 $ 3.40
================ ===============
</TABLE>
(10) Related Party Transactions
--------------------------
The Company founded PC Service Source, Inc. ("PCSS") in 1990, then
known as PC Parts Express, Inc. In January 1994, the Company sold the
majority of its interest in PCSS in exchange for cash, a secured note
receivable ("secured note"), and warrants to purchase additional PCSS
common stock. In April 1994, the Company participated in an initial public
offering of PCSS common stock. During the second quarter of 1996, the
Company participated in a secondary stock offering of PCSS resulting in a
nonrecurring after-tax gain on the sale of securities of $5.2 million.
Concurrent with the secondary offering, the Company exercised warrants for
250,000 shares of PCSS common stock at an exercise price of $2.25, selling
those shares in conjunction with the secondary offering. During the third
quarter of 1997, the Company received early payment of the secured note,
thus recognizing a previously deferred nonrecurring after-tax gain of $1.0
million.
In 1997, the Company loaned an officer and director of the Company
$661,251 evidenced by a term note receivable. Interest on the note accrues
at the rate of 6.25% per annum and is payable annually on June 17. A
portion of the loan proceeds was used to exercise stock options. This
portion of the loan was netted against the options exercised in
Stockholders' equity while the remainder of the loan is included in Other
Assets on the Consolidated Balance Sheets at December 31, 1997. Principal
on the note is due on June 17, 2000.
In 1994, the Company loaned an officer and director of the Company
$1,181,250 evidenced by a term note receivable. Interest on the note
accrues at the rate of 6% per annum and is payable annually on January 1.
Terms of the note were amended in February 1997 such that principal on the
note is due on February 15, 1999. The outstanding balance of the note at
December 31, 1997 was $900,000, which is included in Other Assets on the
Consolidated Balance Sheets.
Safeguard owns approximately 51% of the Company's outstanding common
stock as of December 31, 1997. The Company pays Safeguard a fee for
providing certain administrative, legal and financial services to the
Company. General and administrative expenses include fees paid to
Safeguard of $600,000 in 1997, 1996 and 1995.
(continued)
F-14
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Earnings Per Share
------------------
In 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
This statement supersedes APB Opinion No. 15, "Earnings Per Share" and
replaces the presentation of primary earnings per share ("EPS") and fully
diluted EPS with a presentation of basic EPS and diluted EPS. In
accordance with SFAS No. 128, the Company has restated earnings per share
for all prior periods presented. SFAS No. 128 also requires a
reconciliation of the numerators and denominators of the basic and diluted
per share computations as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year ended December 31, 1997
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- --------------- ----------
<S> <C> <C> <C>
Net earnings $ 35,194
Less: Preferred stock dividends (900)
Basic earnings per share
------------------------
Income available to common shareholders 34,294 45,686 $.75
Effect of dilutive securities
-----------------------------
Stock options 1,745
Convertible preferred stock 900 2,216
Convertible debt 92 387
-------- --------
Diluted earnings per share
--------------------------
Income available to common shareholders + assumed conversions 35,286 50,034 $.71
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- --------------- ----------
<S> <C> <C> <C>
Net earnings $ 30,471
Less: Preferred stock dividends (900)
Basic earnings per share
------------------------
Income available to common shareholders 29,571 44,616 $.66
Effect of dilutive securities
-----------------------------
Stock options 2,668
Convertible preferred stock 900 2,216
Convertible debt 92 387
-------- --------
Diluted earnings per share
--------------------------
Income available to common shareholders + assumed conversions 30,563 49,887 $.61
======== ======== ========
</TABLE>
(continued)
F-15
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year ended December 31, 1995
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- --------------- ----------
<S> <C> <C> <C>
Net earnings $ 20,670
Less: Preferred stock dividends (1,200)
Basic earnings per share
------------------------
Income available to common shareholders 19,470 35,857 $ .54
Effect of dilutive securities
-----------------------------
Stock options 2,515
Warrants 77
Convertible preferred stock 1,200 2,954
Convertible debt 846 6,908
-------------- ---------------
Diluted earnings per share
--------------------------
Income available to common shareholders + assumed conversions 21,516 48,311 $ .45
============== =============== ==========
</TABLE>
The Company has excluded 150,325, 35,281, and 57,701 shares from its
calculations of diluted earnings per share in 1997, 1996, and 1995,
respectively, as they are considered anti-dilutive.
(12) Leases
------
The Company has noncancelable operating leases for facilities and
equipment, which expire at various dates from 1998 to 2004. Total rental
expense for operating leases was $8.9 million, $10.4 million and $6.2
million in 1997, 1996 and 1995, respectively. Future minimum lease
payments under noncancelable operating leases as of December 31, 1997 are:
$7.4 million - 1998; $6.5 million - 1999; $4.6 million - 2000; $2.8
million - 2001; $1.1 million - 2002; and $1.4 million thereafter.
(13) Savings Plan
------------
The Company has a defined contribution plan (401(k) Matched Savings
Plan)("the Plan") covering substantially all employees who have completed
at least six months of qualifying service. Participants may contribute to
the Plan an amount between 1% and 10% of their eligible compensation. The
Company matches 50% of each participant's qualifying contribution up to
4%, and an additional 25% of the next 2% of the participant's qualifying
contributions. Amounts expensed relating to the Plan were $1.6 million,
$1.5 million and $1.0 million in 1997, 1996 and 1995, respectively.
(continued)
F-16
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1997
----
Revenue:
Product $375,605 $428,353 $437,089 $458,221
Service 53,728 59,715 60,513 62,265
Other 2,556 3,152 3,902 4,703
-------- -------- -------- --------
Net revenue 431,889 491,220 501,504 525,189
Gross margin:
Product $ 38,932 $ 41,099 $ 44,023 $ 52,180
Service 19,362 22,144 21,972 20,849
Other 1,184 1,719 2,129 1,952
-------- -------- -------- --------
Total gross margin 59,478 64,962 68,124 74,981
Net earnings $ 4,872 $ 7,980 $ 9,462 * $ 12,880 **
Earnings per common share:
Basic .10 .17 .20 * .28 **
Diluted .10 .16 .19 * .26 **
</TABLE>
* Includes nonrecurring gain on prepayment of secured note related to
1994 sale of subsidiary of $1.0 million or $.02 per share (Basic and
Diluted)
** Includes nonrecurring gain on sale of Company's former headquarters
of $2.4 million (Basic - $.06 per share, Diluted - $.05 per share)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
----
Revenue:
Product $377,983 $467,817 $449,950 $520,754
Service 32,937 38,760 46,570 51,333
Other 2,414 2,178 1,961 2,534
-------- -------- -------- --------
Net revenue 413,334 508,755 498,481 574,621
Gross margin:
Product $ 38,169 $ 47,073 $ 46,088 $ 49,521
Service 12,237 11,630 14,470 18,217
Other 845 588 748 1,377
-------- -------- -------- --------
Total gross margin 51,251 59,291 61,306 69,115
Net earnings $ 5,762 $ 12,334 * $ 4,945 $ 7,430
Earnings per common share:
Basic .13 .27 * .11 .16
Diluted .12 .25 * .10 .15
</TABLE>
* Includes nonrecurring gain on sale of securities of $5.2 million
(Basic - $.12 per share, Diluted - $.11 per share) Earnings per
common share calculations are based on the weighted-average number
of shares outstanding in each period. Therefore, the sum of the
quarters may not necessarily equal the year-to-date earnings per
common share.
(continued)
F-17
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Contingencies
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position and results of
operations, taken as a whole.
F-18
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- --------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Trade receivables-
Allowance for doubtful accounts
1995 $ 1,942 900 608 $ 2,234
1996 $ 2,234 900 860 $ 2,274
1997 $ 2,274 2,114 1,716 $ 2,672
Inventory reserves
1995 $ 9,772 13,333 13,581 $ 9,524
1996 $ 9,524 15,529 16,119 $ 8,934
1997 $ 8,934 14,844 13,854 $ 9,924
</TABLE>
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CompuCom Systems, Inc.
By:/s/ M. Lazane Smith
-----------------------
M. Lazane Smith
Senior Vice President, Finance and Chief Financial
Officer (Chief Accounting Officer)
Dated: March 26, 1998
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Dated: March 26, 1998
-----------------
/s/ Charles A. Root /s/ Delbert W. Johnson
- ----------------------------------- ---------------------------------
Charles A. Root Delbert W. Johnson
Chairman of the Board and Director Director
/s/ Edward R. Anderson /s/ John D. Loewenberg
- ----------------------------------- ---------------------------------
Edward R. Anderson John D. Loewenberg
President and Chief Executive Director
Officer and Director
/s/ Daniel F. Brown /s/ John C. Maxwell III
- ----------------------------------- ---------------------------------
Daniel F. Brown John C. Maxwell, III
Executive Vice President, Director
Sales and Director
/s/ Donald R. Caldwell /s/ Warren V. Musser
- ----------------------------------- ---------------------------------
Donald R. Caldwell Warren V. Musser
Director Director
/s/ Michael J. Emmi /s/ Edward N. Patrone
- ----------------------------------- ---------------------------------
Michael J. Emmi Edward N. Patrone
Director Director
/s/ Richard F. Ford
- ----------------------------------- ---------------------------------
Richard F. Ford
Director
<PAGE>
EXHIBIT 10(d)
[IBM CREDIT CORPORATION LETTERHEAD APPEARS HERE]
December 11, 1997
Compucom Systems, Inc.
Attn: Mr. Daniel Celoni
7171 Forest Lane
Dallas, TX 75230
Dear Mr. Celoni:
IBM Credit Corporation ("IBM Credit") is pleased to offer Compucom Systems, Inc.
("Compucom") an extension of the terms of the Agreement for the period specified
below.
Please indicate your acceptance of this extension of the Termination Date (as
defined in the Agreement) from December 21, 1997 to March 20, 1998 by signing a
copy of this letter, where indicated, and returning it to IBM Credit at the
above address.
Except as specifically modified by this letter, the terms and conditions of the
Agreement shall remain in full force and effect.
IBM Credit wants to provide you with quality financial services as an
enhancement to your business activities. We, therefore, appreciate this
opportunity to respond to your financing needs.
Sincerely,
IBM CREDIT CORPORATION
BY: /s/ EILEEN M. EARLEY
--------------------------------------
Title: Credit Account Operations Manager
Date: December 11, 1997
Acknowledged and Agreed:
COMPUCOM SYSTEMS. INC.
BY: /s/ DANIEL CELONI
--------------------------------------
Title: VP-Finance
Date: December 17, 1997
Please read in conjunction with
Amendment for Inventory
Financing made as of December
16, 1997 by and between CompuCom
Systems, Inc. and IBM Credit
Corporation.
DC
12/17/97
<PAGE>
AMENDMENT
TO
AGREEMENT FOR INVENTORY FINANCING
This Amendment ("Amendment") to the Agreement for Inventory Financing is
made as of December 16, 1997 by and between Compucom Systems, Inc., a Delaware
corporation ("Customer") and IBM Credit Credit Corporation, a Delaware
corporation ("IBM Credit").
RECITALS:
A. Customer and IBM Credit have entered into that certain Agreement for
Inventory Financing dated as of September 20, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Agreement").
B. The parties have agreed to modify the Agreement as more specifically
as set forth below, upon and subject to the terms and conditions set forth
herein.
C. IBM Credit is willing to accommodate Customer's request subject to the
conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Customer and IBM Credit hereby agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement.
Section 2. Amendment. The Agreement is hereby amended by deleting Section 8.13
in its entirety and replacing with the following:
"8.13 Restriction on Accounts. Customer will not, without IBM Credit's prior
written consent, cause the "Maximum Net Investment", as defined in that certain
Transfer and Administration Agreement dated April 1, 1996 (as amended,
supplemented or otherwise modified from time to time) to exceed One Hundred
Seventy Five Million Dollars ($175,000,000)."
Section 3. Representations and Warranties. Customer makes to IBM Credit the
following representations and warranties all of which are material and are made
to induce IBM Credit to enter into this Amendment.
Section 3.1 Accuracy and Completeness of Warranties and Representations. All
representations made by Customer in the Agreement were true and accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Customer in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make representations not
misleading.
COMPUCOM AIFSMD (10/97) Page 1 of 2
<PAGE>
Section 3.2 Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause Customer not to be in compliance
with the terms of any agreement to which Customer is a party.
Section 3.3 Litigation. Except as has been disclosed by Customer to IBM Credit
in writing, there is no litigation, proceeding, investigation or labor dispute
pending or threatened against Customer, which if adversely determined, would
materially adversely affect Customer's ability to perform Customer's obligations
under the Agreement and the other documents, instruments and agreements executed
in connection therewith or pursuant hereto.
Section 3.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms.
Section 4. Ratification of Agreement. Except as specifically amended hereby,
all of the provisions of the Agreement shall remain unamended and in full force
and effect. Customer hereby, ratifies, confirms and agrees that the Agreement,
as amended hereby, represents a valid and enforceable obligation of Customer,
and is not subject to any claims, offsets or defenses.
Section 5. Governing Law. This Amendment shall be governed by and interpreted
in accordance with the laws which govern the Agreement.
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
offices of the undersigned as of the day and year first above written.
COMPUCOM SYSTEMS, INC. IBM CREDIT CORPORATION
By: /s/ DANIEL CELONI By: /s/ EILEEN M. EARLEY
---------------------------------- -------------------------------------
Name: Daniel Celoni Name: Eileen M. Earley
Title: V.P. - Finance Title: Credit-Account Operations Mgr.
ATTEST: ATTEST:
/s/ M. LAZANE SMITH /s/ ORA ESTERS
- ------------------------------------- ----------------------------------------
Print Name: M. Lazane Smith Print Name: Ora Esters
SVP-CFO
COMPUCOM AIFSMD (10/97) Page 2 of 2
<PAGE>
EXHIBIT 10(t)
================================================================================
$150,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
COMPUCOM SYSTEMS, INC.
CERTAIN LENDERS PARTY HERETO
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
NOVEMBER 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms....................................... 1
-------------
Section 1.2 Amendments and Renewals............................. 22
-----------------------
Section 1.3 Construction........................................ 22
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances........................................ 23
------------
Section 2.2 Manner of Borrowing and Disbursement................ 24
------------------------------------
Section 2.3 Interest............................................ 26
--------
Section 2.4 Fees................................................ 28
----
Section 2.5 Prepayments......................................... 29
-----------
Section 2.6 Reduction of Commitments............................ 30
------------------------
Section 2.7 Non-Receipt of Funds by the Administrative Lender... 30
-------------------------------------------------
Section 2.8 Payment of Principal of Advances.................... 31
--------------------------------
Section 2.9 Reimbursement....................................... 32
-------------
Section 2.10 Manner of Payment................................... 33
-----------------
Section 2.11 LIBOR Lending Offices............................... 34
---------------------
Section 2.12 Sharing of Payments................................. 34
-------------------
Section 2.13 Calculation of LIBOR Rate........................... 35
-------------------------
Section 2.14 Taxes............................................... 35
-----
Section 2.15 Letters of Credit................................... 38
-----------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advance and the
---------------------------------------------------
Initial Issuance of Letters of Credit.............. 44
-------------------------------------
Section 3.2 Conditions Precedent to All Advances and Letters of
---------------------------------------------------
Credit............................................. 45
------
Section 3.3 Conditions Precedent to Conversions and
---------------------------------------
Continuations...................................... 47
-------------
ARTICLE 4
Representations and Warranties
------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.1 Representations and Warranties...................... 47
------------------------------
Section 4.2 Survival of Representations and Warranties, etc..... 54
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters....... 54
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law............ 55
----------------------------------------
Section 5.3 Maintenance of Properties........................... 55
-------------------------
Section 5.4 Accounting Methods and Financial Records............ 55
----------------------------------------
Section 5.5 Insurance........................................... 55
---------
Section 5.6 Payment of Taxes and Claims......................... 55
---------------------------
Section 5.7 Visits and Inspections.............................. 56
----------------------
Section 5.8 Use of Proceeds..................................... 56
---------------
SECTION 5.9 INDEMNITY........................................... 56
---------
Section 5.10 Environmental Law Compliance........................ 58
----------------------------
Section 5.11 Further Assurances.................................. 58
------------------
Section 5.12 Subsidiaries........................................ 59
------------
Section 5.13 Real Property....................................... 59
-------------
Section 5.14 Agreements in Respect of RPA and TAA................ 59
------------------------------------
ARTICLE 6
Information Covenants
---------------------
Section 6.2 Annual Financial Statements and Information;
--------------------------------------------
Certificate of No Default.......................... 60
-------------------------
Section 6.3 Compliance Certificate.............................. 60
----------------------
Section 6.4 Copies of Other Reports and Notices................. 61
-----------------------------------
Section 6.5 Notice of Litigation, Default and Other Matters..... 62
-----------------------------------------------
Section 6.6 ERISA Reporting Requirements........................ 62
----------------------------
Section 6.7 RPA and TAA Reporting Requirements.................. 63
----------------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness........................................ 64
------------
Section 7.2 Liens............................................... 65
-----
Section 7.3 Investments......................................... 65
-----------
Section 7.4 Liquidation, Merger................................. 66
-------------------
Section 7.5 Sales of Assets..................................... 66
---------------
Section 7.6 Acquisitions........................................ 66
------------
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Section 7.7 Capital Expenditures................................ 67
--------------------
Section 7.8 Restricted Payments................................. 67
-------------------
Section 7.9 Affiliate Transactions.............................. 67
----------------------
Section 7.10 Compliance with ERISA............................... 68
---------------------
Section 7.11 Maximum Leverage Ratio.............................. 68
----------------------
Section 7.12 Minimum Fixed Charge Coverage Ratio................. 68
-----------------------------------
Section 7.13 Minimum Tangible Net Worth.......................... 68
--------------------------
Section 7.14 Minimum Asset Coverage Ratio........................ 69
----------------------------
Section 7.15 Maximum Funded Debt to Capital...................... 69
------------------------------
Section 7.16 Sale and Leaseback.................................. 69
------------------
Section 7.17 Sale or Discount of Accounts........................ 69
----------------------------
Section 7.18 Capital Stock....................................... 69
-------------
Section 7.19 Business............................................ 69
--------
Section 7.20 Fiscal Year......................................... 69
-----------
Section 7.21 Amendment of Organizational Documents............... 69
-------------------------------------
Section 7.22 Amendments and Waivers of Subordinated Debt......... 70
-------------------------------------------
Section 7.23 Operating Leases.................................... 70
----------------
ARTICLE 8
Default
-------
Section 8.1 Events of Default................................... 70
-----------------
Section 8.2 Remedies............................................ 73
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate................ 74
------------------------------------
Section 9.2 Illegality.......................................... 74
----------
Section 9.3 Increased Costs..................................... 75
---------------
Section 9.4 Effect On Base Rate Advances........................ 76
----------------------------
Section 9.5 Capital Adequacy.................................... 76
----------------
Section 9.6 Replacement Lender.................................. 77
------------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders............................. 77
-----------------------
Section 10.2 Lender Credit Decision.............................. 80
----------------------
Section 10.3 Benefits of Article................................. 80
-------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices............................................. 81
-------
Section 11.2 Expenses............................................ 81
--------
Section 11.3 Waivers............................................. 82
-------
Section 11.4 Calculation by the Lenders Conclusive and Binding... 82
-------------------------------------------------
Section 11.5 Set-Off............................................. 82
-------
Section 11.6 Assignment.......................................... 83
----------
Section 11.7 Counterparts........................................ 85
------------
Section 11.8 Severability........................................ 85
------------
Section 11.9 Interest and Charges................................ 85
--------------------
Section 11.10 Headings............................................ 86
--------
Section 11.11 Amendment and Waiver................................ 86
--------------------
Section 11.12 Exception to Covenants.............................. 86
----------------------
Section 11.13 No Liability of Issuing Bank........................ 87
----------------------------
Section 11.14 Confidentiality..................................... 87
---------------
Section 11.15 Amendment, Restatement, Extension, Renewal and
----------------------------------------------
Increase........................................... 87
--------
SECTION 11.16 GOVERNING LAW....................................... 88
-------------
SECTION 11.17 WAIVER OF JURY TRIAL................................ 88
--------------------
SECTION 11.18 ENTIRE AGREEMENT.................................... 89
----------------
Section 11.19 Release of Certain Collateral....................... 89
-----------------------------
</TABLE>
-4-
<PAGE>
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Labor Relations
Exhibit A: Facility A Note
Exhibit B: Facility B Note
Exhibit C: Swing Line Note
Exhibit D: Security Agreement
Exhibit E: INTENTIONALLY OMITTED
Exhibit F: Pledge Agreement
Exhibit G: Compliance Certificate
Exhibit H: Assignment Agreement
Exhibit I: Subsidiary Guaranty
Exhibit J: Notice of Borrowing
-5-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of November 3, 1997,
among COMPUCOM SYSTEMS, INC., a Delaware corporation (the "Borrower"), the
--------
Lenders from time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a
national banking association, as administrative agent for the Lenders.
BACKGROUND
----------
The Lenders have been requested to provide the Borrower the funds required to
(i) refinance existing debt of the Borrower, including, inter alia, certain
existing purchase money debt in connection with certain real estate purchased by
the Borrower, outstanding to the Administrative Lender, the Lenders and certain
other lenders pursuant to the terms of that certain Credit Agreement, dated as
of September 26, 1996, as amended, modified, supplemented and restated from time
to time (the "Existing Credit Agreement"), (ii) finance acquisitions permitted
-------------------------
hereunder, and (iii) finance the ongoing working capital and general corporate
requirements of the Borrower and its Subsidiaries (as hereinafter defined). The
Lenders have agreed to provide such financing, subject to the terms and
conditions set forth below.
In consideration of the mutual covenants and agreements contained herein, and
other good and valuable consideration hereby acknowledged, the parties hereto
agree that the Existing Credit Agreement shall be amended, restated and
superseded as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms. For purposes of this Agreement:
-------------
"Account" has the meaning assigned to such term in the UCC.
-------
"Acquisition" means any transaction pursuant to which the Borrower or any of
-----------
its Subsidiaries, (i) whether by means of a capital contribution or purchase or
other acquisition of stock or other securities or other equity participation or
interest, (A) acquires more than 50% of the equity interest in any Person
pursuant to a solicitation by the Borrower or such Subsidiary of tenders of
equity securities of such Person, or through one or more negotiated block,
market, private or other transactions, or a combination of any of the foregoing,
or (B) makes any corporation a Subsidiary of the Borrower or such Subsidiary, or
causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to be
merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or such Subsidiary), or
(ii) purchases all or substantially all of the business or assets of any Person
or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas, N.A., a national banking
---------------------
<PAGE>
association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
---------------
"Administrative Lender Fee Letter" has the meaning specified in Section 2.4(c)
-------------------------------- --------------
hereof.
"Advance" means a Facility A Advance, a Facility B Advance or a Swing Line
-------
Advance and "Advances" means Facility A Advances, Facility B Advances and Swing
--------
Line Advances.
"Affiliate" means, as applied to any Person, any other Person that, directly
---------
or indirectly, through one or more Persons, Controls or is Controlled By or
Under Common Control with, that Person.
"Agreement" means this Amended and Restated Credit Agreement, as amended,
---------
modified, supplemented or restated from time to time.
"Agreement Date" means the date of this Agreement.
--------------
"Applicable Environmental Laws" means applicable laws pertaining to health or
-----------------------------
the environment, including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (as amended from time to time,
"CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the
- -------
Used Oil Recycling Act of 1980, the Solid Waste Disposal Act amendments of 1980,
and the Hazardous and Solid Waste Amendments of 1984 (as amended from time to
time, "RCRA").
----
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
--------------
the laws of the United States of America, including without limitation 12 USC ''
85 and 86, as amended from time to time, and any other statute of the United
States of America now or at any time hereafter prescribing the maximum rates of
interest on loans and extensions of credit, and the laws of the State of Texas,
including, without limitation, Article 5069-1.04, Title 79, Revised Civil
Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute of the
---------
State of Texas; provided that the parties hereto agree that the provisions of
Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as amended, shall
not apply to Advances, this Agreement, the Notes or any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum percentages,
----------------------------
applicable in the following situations:
-2-
<PAGE>
Applicability
-------------
(a) Initial Pricing Period 0.750%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Fixed Charge Coverage Ratio is greater 0.625%
than or equal to 2.50 to 1
(2) The Fixed Charge Coverage Ratio is less than 0.750%
2.50 to 1 but greater than or equal to 2.00 to 1
(3) The Fixed Charge Coverage Ratio is less than 0.875%
2.00 to 1 but greater than or equal to 1.50 to 1
(4) The Fixed Charge Coverage Ratio is less than 1.125%
1.50 to 1
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis shall be effective
--------
with respect to LIBOR Advances (i) made following receipt by the Administrative
Lender of the financial statements required to be delivered pursuant to Section
-------
6.1 or 6.2 hereof, as applicable, for each such fiscal quarter, and the
- --- ---
corresponding Compliance Certificate required pursuant to Section 6.3 hereof, on
-----------
the date of making such LIBOR Advance and (ii) outstanding on the date of
receipt of such financial statements and Compliance Certificate referred to in
clause (i) immediately preceding, on the date which is two Business Days
following the date of receipt of such financial statements and Compliance
Certificate. If such financial statements and Compliance Certificate are not
received by the Administrative Lender by the date required, effective as of the
first Business Day following notification thereof from the Administrative Lender
to the Borrower, the Applicable LIBOR Rate Margin shall be determined as if the
Fixed Charge Coverage Ratio is less than 1.50 to 1 until such time as such
financial statements and Compliance Certificate are received.
"Asset Coverage Ratio" means, for the Borrower and its Subsidiaries determined
--------------------
in accordance with GAAP on a consolidated basis, at the time in question, the
ratio of (a) the sum of (i) Cash and Cash Equivalents, plus (ii) Accounts, plus
(iii) Inventory to (b) the sum of (i) outstanding obligations in respect of
Facility A and Swing Line Advances, Reimbursement Obligations and other
Indebtedness, plus (ii) the Net Exposure Under Securitization, plus (iii)
accounts payable and accrued liabilities in the ordinary course of business.
"Assignees" means any assignee of a Lender pursuant to an Assignment Agreement
---------
and shall have the meaning ascribed thereto in Section 11.6 hereof.
------------
"Assignment Agreement" has the meaning specified in Section 11.6 hereof.
-------------------- ------------
-3-
<PAGE>
"Authorized Signatory" means such senior personnel of the Borrower as may be
--------------------
duly authorized and designated in writing by the Borrower to execute documents,
agreements and instruments on behalf of the Borrower, and to request Advances
and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base Rate Basis.
-----------------
"Base Rate Basis" means, for any day, a per annum interest rate equal to the
---------------
higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such day
or (b) the Prime Rate on such day. The Base Rate Basis shall be adjusted
automatically without notice as of the opening of business on the effective date
of each change in the Prime Rate to account for such change.
"Borrower" has the meaning specified in the introductory provision hereof.
--------
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Dallas, Texas, and, (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and its
-------
Subsidiaries, on a consolidated basis determined in accordance with GAAP, the
sum of (a) Funded Debt plus (b) Net Worth.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost of the item, but excluding capital expenditures made
with insurance proceeds to the extent used to replace or repair damaged fixed
assets, plant and equipment) computed in accordance with GAAP, consistently
applied.
"Capital Stock" means, as to any Person, the equity interests in such Person,
-------------
including, without limitation, the shares of each class of capital stock in any
Person that is a corporation, and each class of partnership interest (including,
without limitation, general, limited and preference units) in any Person that is
a partnership.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (i) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (ii) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
-4-
<PAGE>
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper issued by any Lender or the parent corporation of any Lender,
and commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equivalent thereof by Moody's Investors Service, Inc., and in each case
maturing within six months after the date of acquisition, and (vi) a readily
redeemable "money market mutual fund" advised by a bank described in clause
(iii) hereof, or an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (i) through (v) hereof and having on the date of such Investment total
assets of at least One Hundred Million Dollars ($100,000,000.00).
"CFI" means CSI Funding, Inc., a Delaware corporation and wholly-owned
---
Subsidiary of the Borrower, as purchaser under the RPA.
"CFI Note" means the "Subordinated Note" as defined by the RPA, and any and
--------
all renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Change of Control" means the occurrence of any of the following events after
-----------------
the Agreement Date: (a) any Person or any Persons acting together which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities
-----
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
------------
provision thereto, other than the Group whose nominees constituted a majority of
the board of directors of the Borrower as of the close of business on the
Agreement Date, together with any Affiliates or Related Persons thereof, shall
beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; or (b) any Person or Group, other than any Person or Group whose
nominees constituted a majority of the board of directors of the Borrower as of
the close of business on the Agreement Date, together with any Affiliates or
Related Persons thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of the Borrower, such that such
nominees, when added to any existing director remaining on the Board of
Directors of the Borrower after such election who is an Affiliate or Related
Person of such Group, shall constitute a majority of the Board of Directors of
the Borrower.
"ClientLink IPO" means the sale or issuance by the Borrower or by ClientLink,
--------------
Inc. to any Person other than the Borrower or any of the Borrower's Subsidiaries
of any Equity in ClientLink, Inc. as a part of the initial public offering of
such Equity in ClientLink, Inc. pursuant to the registration requirements of the
Securities Act of 1933, as amended.
-5-
<PAGE>
"ClientLink Note" means that certain promissory note, dated September 5, 1996,
---------------
in the original principal amount of $2,500,000 executed and delivered by
ClientLink, Inc. and payable to the order of the Borrower, and any and all
renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral subject to a Lien granted at any time by any
----------
Person to the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is granted and
-------------------
any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
-------------- --------------
"Commitments" means, collectively, the Facility A Commitment and the Facility
-----------
B Commitment, as reduced from time to time pursuant to Section 2.6 hereof.
-----------
"Compliance Certificate" means a certificate, signed by an Authorized
----------------------
Signatory, in substantially the form of Exhibit G, appropriately completed.
---------
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Creditor" means a creditor of the Borrower or any Subsidiary of the Borrower
--------
and shall not include any Affiliate of any such creditor.
"Current Maturities" means, with respect to any Person, the principal portion
------------------
payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the
-6-
<PAGE>
rights of creditors generally from time to time in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable, relating
-------------
to the real property of the Borrower purchased with the proceeds of the Facility
B Advances, in a form acceptable to the Administrative Lender, as amended,
modified, renewed, supplemented or restated from time to time.
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1, regardless of whether there shall have occurred any passage of time
- -----------
or giving of notice that would be necessary in order to constitute such event an
Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the lesser of
(i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess of the
Applicable Rate Margin then in effect.
"Determining Lenders" means, on any date of determination, any combination of
-------------------
the Lenders having in excess of 50.0% of the aggregate amount of the Advances
(which for purposes of the calculation shall include for each Lender an amount
equal to the product of such Lender's Specified Percentage multiplied by the
aggregate principal amount of Swing Line Advances outstanding) then outstanding;
provided, however, that if there are no Advances outstanding hereunder,
"Determining Lenders" shall mean any combination of Lenders whose Specified
-------------------
Percentages aggregate in excess of 50.0%.
"Dividend" means, as to any Person, (a) any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any shares of Capital Stock of, or other similar interest in, such
Person and (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of, or similar interest in, such Person.
"Dollar" or "$" means the lawful currency of the United States of America.
------ -
"Domestic Subsidiary" means any Subsidiary of the Borrower other than a
-------------------
Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense.
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated
-7-
<PAGE>
basis for the Borrower and its Subsidiaries, the sum of (a) EBIT plus (b)
depreciation, amortization and other non-cash charges (to the extent included in
determining EBIT).
"EFC" means Enterprise Funding Corporation, a Delaware corporation, as
---
purchaser of an undivided interest in a portion of the Receivables, as provided
by the TAA.
"Equipment" has the meaning assigned to such term in the UCC.
---------
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a) a
-----------
Reportable Event (other than a Reportable Event not subject to the provision for
30-day notice to the PBGC pursuant to regulations issued under Section 4043 of
ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1, provided
---------------- -----------
that any requirement for notice or lapse of time has been satisfied.
"Existing Credit Agreement" has the meaning specified in the Background
-------------------------
provision hereof.
"Facility A Advance" means an Advance made pursuant to Section 2.1(a) hereof.
------------------ --------------
"Facility A Commitment" means $125,000,000.00, as reduced pursuant to Section
--------------------- -------
2.6 hereof.
- ---
"Facility A Maturity Date" means November 2, 2002, or the earlier date of
------------------------
termination in whole of the Facility A Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof.
"Facility A Notes" means the promissory notes of Borrower evidencing Facility
----------------
A Advances hereunder, substantially in the form of Exhibit A hereto, together
---------
with any extension, renewal, or amendment thereof, or substitution therefor.
-8-
<PAGE>
"Facility B Advance" means an Advance made pursuant to Section 2.1(b) hereof
------------------ --------------
in order to refinance the outstanding Facility B Advances under the Existing
Credit Agreement as of the Agreement Date.
"Facility B Commitment" means $25,000,000.00, as reduced from time to time
---------------------
pursuant to Section 2.6 hereof.
-----------
"Facility B Maturity Date" means November 2, 2002, or the earlier date of
------------------------
termination in whole of the Facility B Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof.
"Facility B Notes" means the promissory notes of Borrower evidencing Facility
----------------
B Advances hereunder, substantially in the form of Exhibit B hereto, together
---------
with any extension, renewal, or amendment thereof, or substitution therefor.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
------------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Lender from three
Federal funds brokers of recognized standing selected by it.
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) the greater of (i) Current Maturities and (ii) 10% of Funded Debt, plus (b)
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges,
---------------------------
calculated for the four consecutive fiscal quarters immediately preceding the
date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America or the
District of Columbia.
"Funded Debt" means, as of any date of determination, determined for the
-----------
Borrower and its Subsidiaries on a consolidated basis, (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 other than trade payables incurred in the ordinary course
of business, (iv) Capitalized Lease Obligations and (v) Net Exposure Under
Securitization.
"GAAP" means generally accepted accounting principles applied on a consistent
----
basis, set forth in the Opinions of the Accounting Principles Board of the
American Institute of Certified
-9-
<PAGE>
Public Accountants, or their successors which are applicable in the
circumstances as of the date in question. The requirement that such principles
be applied on a consistent basis shall mean that the accounting principles
applied in a current period are comparable in all material respects to those
applied in a preceding period.
"Guaranties" means, collectively, the Parent Guaranty and the Subsidiary
----------
Guaranty.
"Guarantor" means each direct and indirect Subsidiary of the Borrower that
---------
executes and delivers a Subsidiary Guaranty hereunder.
"Guaranty" or "Guaranteed", as applied to an obligation of another Person,
-------- ----------
means (a) a guaranty, direct or indirect, in any manner, of any part or all of
such obligation, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit; provided, however, Guaranty does
not mean (i) the endorsement of instruments for collection or deposit in the
ordinary course of business and (ii) customary indemnities given in connection
with asset sales in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or arrangements
----------------
designed to protect at least one of the parties thereto from the fluctuations of
interest rates, exchange rates or forward rates applicable to such party's
assets, liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap, swap or collar protection
agreements, and forward rate currency or interest rate options, as the same may
be amended or modified and in effect from time to time, and any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
"Indebtedness" means, with respect to any Person, without duplication, (a) all
------------
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition the amount of such
-10-
<PAGE>
Indebtedness at any time shall be deemed to equal the fair market value of such
property or asset at such time), (f) to the extent not otherwise included, all
Capitalized Lease Obligations of such Person, all obligations in respect of
letters of credit, bankers' acceptances and similar instruments, and all
obligations under Hedge Agreements, (g) any Guaranty of such Person of any
obligation of another Person constituting obligations of a type set forth above
and (h) the Net Exposure Under Securitization.
"Indemnified Matters" has the meaning specified in Section 5.9(a) hereof.
------------------- --------------
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
----------- --------------
"Initial Pricing Period" means the period from and including the Agreement
----------------------
Date to and including the Rate Adjustment Date.
"Intangible Assets" means those assets which are treated as intangible
-----------------
pursuant to GAAP, and in any event including, without limitation: (i)
obligations, if any, owing by Affiliates to the Borrower or any Subsidiary of
the Borrower, (ii) the amount, if any, by which inventory exceeds the lower of
cost or market value thereof, (iii) the value of any inventory which is obsolete
or damaged or is otherwise deemed by the Administrative Lender not to be of a
marketable quality commensurate with the inventory of the Borrower and its
Subsidiaries as a whole; (iv) accounts receivable which are deemed by the
Borrower, any of its Subsidiaries or the Administrative Lender to be
uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or setoffs; (v) leases and
leasehold improvements; (vi) any asset which is intangible or lacks intrinsic
and marketable value or collectibility, including without limitation goodwill,
noncompetition agreements, patents, copyrights, trademarks, franchises or
organization or research and development costs; (vii) organizational and
experimental expense; and (viii) unamortized debt discount and expense.
"Intercreditor Agreements" collectively means the following certain
------------------------
agreements: (i) Amended and Restated Intercreditor Agreement dated effective as
of April 1, 1996 among NationsBank of Texas, N.A., in its capacity as a lender,
the Borrower, IBM Credit Corporation and NationsBank of Texas, N.A., (ii)
Subordination Agreement dated August 22, 1994 among NationsBank of Texas, N.A.,
in its capacity as a lender, the Borrower, IBM Credit Corporation and Hewlett-
Packard Company, (iii) Intercreditor Agreement dated December 27, 1993 among
NationsBank of Texas, N.A., in its capacity as a lender, the Borrower and Compaq
Computer Corporation, and (iv) any other intercreditor agreement hereafter
entered into among NationsBank of Texas, N.A., in its capacity as the
Administrative Lender, the Borrower and any Person that is a vendor to the
Borrower of Inventory, as any of the foregoing may be renewed, extended,
modified, amended, supplemented or restated from time to time.
"Interest Period" means the period beginning on the day any LIBOR Advance is
---------------
made and ending one, two, three or six months thereafter (as the Borrower shall
select); provided, however, that all of the foregoing provisions are subject to
-------- -------
the following:
-11-
<PAGE>
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless, with respect to a LIBOR Advance, the
result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of a calendar
month; and
(iii) the Borrower may not select any Interest Period which ends
after the date of a scheduled principal payment on the Advances unless,
after giving effect to such selection, the aggregate unpaid principal
amount of the LIBOR Advances for which Interest Periods end after such
scheduled principal payment shall be equal to or less than the principal
amount to which the Advances or Facility B Commitment are required to be
reduced after such scheduled principal payment is made.
"Inventory" has the meaning assigned to such term in the UCC.
---------
"Inventory Release Event" means the the occurrence of all of the following
-----------------------
events: (i) the release in writing (in form and substance acceptable to the
Administrative Lender) by all holders (other than the Administrative Lender) of
all Liens covering the Inventory, or any of same, of the Borower and/or any of
its Subsidiaries, (ii) the release or termination, as applicable, of any and all
UCC financing statements with respect to such Liens on such Inventory, (iii) the
delivery to the Administrative Lender of UCC searches, or other evidence
acceptable to the Administrative Lender, evidencing such releases, and (iv) the
delivery to the Administrative Lender of such other documents, agreements and
papers as the Administrative Lender shall reasonably request in order to
evidence that such Inventory is not subject to any Lien(s) in favor of any
Person (other than the Administrative Lender).
"Investment" means any acquisition of all or substantially all assets of
----------
any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
------------
association, in its capacity as issuer of the Letters of Credit.
"Landlord's Waiver" means an agreement in form and substance satisfactory
-----------------
to the Administrative Lender pursuant to which the landlord of any leased
location where any Collateral is
-12-
<PAGE>
located shall waive its rights, if any, to the Collateral and shall grant to the
Administrative Lender rights to enter upon the premises to inspect, remove or
dispose of the Collateral.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
------
hereof so long as such financial institution maintains a portion of the
Commitments or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
------------
forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
--------------------- ---------------
hereof.
"Letter of Credit" has the meaning specified in Section 2.15(a) hereof.
---------------- ---------------
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b)
-------------------------- ---------------
hereof.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a)
------------------------- ---------------
hereof.
"Leverage Ratio" means, for any date of calculation, the ratio of Funded
--------------
Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation.
"LIBOR Advance" means an Advance which the Borrower requests to be made as
-------------
a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with
the provisions of Section 2.2 hereof.
-----------
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
--------------------
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
----------
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
----------
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the
-13-
<PAGE>
term "LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period
----------
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is
-------- -------
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement or
other instrument.
"Loan Documents" means this Agreement, the Notes, the Security Agreement,
--------------
the Pledge Agreement, the Subsidiary Guaranty, any other Collateral Document,
the Administrative Lender Fee Letter, any Hedge Agreements entered into with any
Lender, and any other document or agreement executed or delivered from time to
time by the Borrower, any Subsidiary of the Borrower or any other Person in
connection herewith or as security for the Obligations.
"Long Term Debt" means any obligation which is due one year or more from
--------------
the date of creation thereof which under GAAP is shown as a liability, plus
(without duplication) amounts equal to the aggregate net rentals (after making
allowances for any interest, taxes or other expenses included therein) payable
more than one year from the date of creation thereof under Capitalized Lease
Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Subsidiaries taken as a whole, or (b) in any manner whatsoever
does or could reasonably be expected to materially and adversely affect the
validity or enforceability of any Loan Document.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender hereunder.
-14-
<PAGE>
"NCGI Note" means that certain subordinated convertible note, dated October
---------
31, 1995, in the original principal amount of $3,000,000, executed and delivered
by the Borrower and payable to the order of Network Compatibility Group, Inc.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties,
including the sale of any Inventory.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
-----------------
other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction or
to the asset that is the subject thereof: (i) reasonable brokerage commissions,
legal fees, finder's fees, financial advisory fees, accounting fees,
underwriting fees, investment banking fees and other similar commissions and
fees, in each case, to the extent paid or payable by such Person; (ii) filing,
recording or registration fees or charges or similar fees or charges paid by
such Person; (iii) taxes paid or payable by such Person or any shareholder,
partner or member of such Person to governmental taxing authorities as a result
of such sale or other disposition; and (iv) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness that is
secured by a Lien on the asset in question and that is required to be repaid
under the terms thereof as a result of such asset sale.
"Net Exposure Under Securitization" means, for any date of calculation, the
---------------------------------
sum of the following (without duplication): (i) the "Net Investment" (as such
term is defined in the TAA) as of such date of calculation and (ii) any and all
obligations and liabilities of the Borrower, CFI or any other Subsidiary of
Borrower under, or in connection with, the Securitization, as of such date of
calculation, to the extent that same constitute liabilities of the Borrower or
of any Subsidiary of the Borrower under GAAP or would, under GAAP, constitute
liabilities of the Borrower or of any Subsidiary of the Borrower if the
Securitization was treated as an on balance sheet transaction.
"Net Income" means, with respect to any Person for any period, the net
----------
income (loss) of such Person, after provisions for taxes and extraordinary
items, determined in accordance with GAAP.
"Net Worth" means, as of any date of calculation, for the Borrower and its
---------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, the
consolidated total stockholders' equity of the Borrower and its Subsidiaries.
"Notes" means, collectively, the Facility A Notes, the Facility B Notes and
-----
the Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a) hereof.
------------------- --------------
-15-
<PAGE>
"Notice of Issuance" has the meaning specified in Section 2.15(b) hereof.
------------------ ---------------
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any other Obligor to any Lender or the Administrative Lender under
any of the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Borrower or any other Obligor of any obligation, covenant or
undertaking with respect to any Loan Document payable by the Borrower or any
other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
-------
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) hereof.
----------- ---------------
"Participation" has the meaning specified in Section 11.6(c) hereof.
------------- ---------------
"Payment Date" means the last day of the Interest Period for any LIBOR
------------
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, and
(ii) Liens for taxes, assessments, governmental charges, levies or claims that
are not yet delinquent or that are being diligently contested in good faith by
appropriate proceedings in accordance with Section 5.6 hereof and for which
-----------
adequate reserves shall have been set aside on such Person's books, but only so
long as no foreclosure, restraint, sale or similar proceedings have been
commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
incurred in the ordinary course of business for sums not yet due or being
contested in good faith, if such reserve or appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
-16-
<PAGE>
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired (or
existing on property at the time such property is acquired) by such Person or
created to secure Indebtedness permitted by Section 7.1(c) or 7.1(d) hereof,
-------------- ------
which is incurred solely for the purpose of financing the acquisition of such
assets and incurred at the time of acquisition or which exists against such
assets at the time of acquisition thereof, so long as each such Lien shall at
all times be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains solely on
the asset or assets acquired and the amount of Indebtedness related thereto is
not increased; provided, however, that from and after the occurrence of the
Inventory Release Event, Liens covering Inventory of the Borrower or any of its
Subsidiaries shall not constitute Permitted Liens hereunder;
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured
(subject to customary deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Determining Lenders;
(h) Any Liens which are described on Schedule 2 hereto, and Liens resulting
----------
from the refinancing of the related Indebtedness, provided that the Indebtedness
secured thereby shall not be increased and the Liens shall not cover additional
assets of the Borrower; provided, however, that from and after the occurrence of
the Inventory Release Event, Liens covering Inventory of the Borrower or any of
its Subsidiaries shall not constitute Permitted Liens hereunder;
(i) Liens arising from filing Uniform Commercial Code financing statements
for precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;
(j) Any zoning or similar law or right reserved to or vested in any
Tribunal to control or regulate the use of any real property;
(k) Any other title exception with respect to real property assets
disclosed by any preliminary title report, title commitment report or other
search of title provided to the Administrative Lender in accordance with this
Agreement unless disapproved by the Administrative Lender prior to the Agreement
Date;
(l) Any Lien in favor of any Lender to secure any obligations owed to such
Lender in respect of any Hedge Agreement;
-17-
<PAGE>
(m) Liens incurred or deposits made to secure the performance of bids,
trade contracts (other than for Indebtedness), statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(n) Liens securing Indebtedness or other obligations of the Borrower or a
Subsidiary of the Borrower owing to the Borrower or a Subsidiary;
(o) Liens to the extent allowed under the Intercreditor Agreements;
provided, however, that from and after the occurrence of the Inventory Release
Event, Liens covering Inventory of the Borrower or any of its Subsidiaries shall
not constitute Permitted Liens hereunder;
(p) Liens in favor of EFC under, or in connection with, the TAA and/or the
RPA;
(q) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (h), (i), (j), (m), (o)
and (p) hereof; and
(r) Liens securing Indebtedness permitted by Section 7.1(k) hereof, to the
--------------
extent only that such Liens cover Inventory manufactured by, purchased from or
acquired from the holder of such Indebtedness and any renewals thereof;
provided, however, that from and after the occurrence of the Inventory Release
Event, Liens covering Inventory of the Borrower or any of its Subsidiaries shall
not constitute Permitted Liens hereunder.
"Person" means an individual, corporation, partnership, trust or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledge Agreement" means the pledge agreement, substantially in the form of
----------------
Exhibit F hereto, as amended, modified, renewed, supplemented or restated from
- ---------
time to time, executed by the Borrower.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
--------------
December,
-18-
<PAGE>
beginning December 31, 1997.
"Rate Adjustment Date" means the date which is two Business Days following
--------------------
the date that the Lenders receive the financial statements for the fiscal
quarter ending September 30, 1997, required to be delivered pursuant to Section
-------
6.1 hereof.
- ---
"Receivables" means all of the Obligors' present and future accounts,
-----------
contract rights and accounts receivable, whether now or hereafter owned, held,
or acquired by any Obligor and includes, without limitation, all of the
following insofar as same constitute, result from or are attributable to any of
the foregoing: all of the Obligors' chattel paper, documents, instruments,
deposit accounts, general intangibles and accounts receivable, including all
rights to payment for goods sold or leased or for services rendered, whether or
not earned by performance (and in any case where an account arises from the sale
of goods, the interest of the Obligor(s) in such goods); lease receivables;
license receivables; notes receivable; all other rights to receive payments of
money from any Person; the Obligors' right, title and interest under equipment
leases; the Obligors' rights under any service, lease rental, consulting or
similar agreements; rights or claims under contracts; books of account, customer
lists and other records relating in any way to any of the foregoing.
"Reference Lender" means NationsBank; provided that if the NationsBank
----------------
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank shall cease to be the Reference Lender, and
Administrative Lender (after consultation with Borrower) shall, with notice to
Borrower and Lenders, designate another Lender as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any
--------------
individual or entity who directly or indirectly holds 10% or more of any class
of Capital Stock of the Borrower, (c) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and (d) any officer or
director of the Borrower.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of ERISA.
----------------
"Restricted Payments" means, collectively, (i) Dividends and (ii) any (A)
-------------------
payment or prepayment of principal, premium or penalty on any Subordinated Debt
of the Borrower or any Subsidiary of the Borrower or any defeasance, redemption,
purchase, repurchase or other acquisition or retirement for value, in whole or
in part, of any Subordinated Debt (including,
-19-
<PAGE>
without limitation, the setting aside of assets or the deposit of funds
therefor) and (B) prepayment of interest on any Subordinated Debt.
"Rights" means rights, remedies, powers and privileges.
------
"RPA" means that certain Amended and Restated Receivables Purchase
---
Agreement, dated as of November 3, 1997, between the Borrower and CFI providing
for the sale by the Borrower to CFI and the purchase by CFI from the Borrower of
certain Receivables now owned and hereafter acquired and arising from time to
time prior to termination of the RPA, on the terms provided therein, as the same
may be renewed, extended, modified, amended or restated from time to time.
"Securitization" means, collectively, the transactions evidenced and
--------------
governed by the Securitization Documents.
"Securitization Documents" means, collectively, the RPA and the TAA and any
------------------------
other agreements or documents executed or delivered by any Person in connection
therewith.
"Security Agreement" means the security agreement relating to all Inventory
------------------
and Equipment (and all computer programs, applications, disks, plans, manuals,
specifications, files and other records pertaining thereto) of the Borrower and
its Subsidiaries, substantially in the form of Exhibit D hereto, as amended,
---------
modified, renewed, supplemented or restated from time to time.
"Solvent" means, with respect to any Person, that the fair value of the
-------
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
---------------
or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
--------------------
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subordinated Debt" means (i) the NCGI Note and (ii) any other Indebtedness
-----------------
of the Borrower or any Subsidiary of the Borrower having maturities and terms,
and which is subordinated to payment of the Obligations in a manner, approved in
writing by the Administrative Lender and the Determining Lenders, with only such
changes or amendments as are not prohibited by Section 7.22 hereof.
------------
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<PAGE>
"Subsequent Pricing Period" means the period from and including the date
-------------------------
which is the first day following the end of the Initial Pricing Period to and
including the Facility A Maturity Date or Facility B Maturity Date, whichever is
later.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),
(b) the interest in the capital or profits of such partnership or
joint venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person
and one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries; provided, however, that no Person shall be deemed to be a
Subsidiary of the Borrower solely by virtue of the fact that certain shares
of the stock of such Person have been pledged to the Borrower.
"Subsidiary Guaranty" means a guaranty, substantially in the form of
-------------------
Exhibit I hereto, executed and delivered by each Guarantor, as such
- ---------
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Swing Line Advance" means an Advance made pursuant to Section 2.1(c)
------------------ --------------
hereof.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successor
---------------
thereto appointed in accordance with Section 10.1(b) hereof.
---------------
"Swing Line Facility" has the meaning specified in Section 2.1(c) hereof.
------------------- --------------
"Swing Line Note" means the Swing Line Note of the Borrower payable to the
---------------
order of the Swing Line Bank, substantially in the form of Exhibit C hereto,
---------
together with any extension, renewal, or amendment thereof, or substitution
therefor.
"TAA" means that certain Amended and Restated Transfer and Administration
---
Agreement, dated as of November 3, 1997, among the Borrower, CFI, EFC and
NationsBank, N.A. in its capacity as Agent and a Bank Investor thereunder,
providing for the transfer by CFI to EFC and the acceptance by EFC from CFI of
an undivided interest in certain Receivables acquired by CFI from the Borrower
pursuant to the RPA, from time to time, on the terms provided therein, as the
same may be renewed, extended, modified, amended or restated from time to time.
-21-
<PAGE>
"Tangible Net Worth" means the sum of the following for the Borrower and
------------------
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP,
(a) Net Worth minus (b) the sum of the following (without duplication in respect
of items already deducted in arriving at Net Worth): Intangible Assets, and any
write-up in the book value of assets resulting from revaluation thereof
subsequent to December 31, 1995.
"Taxes" has the meaning specified in Section 2.14 hereof.
----- ------------
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
--------
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory or
public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unused Portion" means an amount equal to the result of (a) the sum of (i)
--------------
the Facility A Commitment plus (ii) the Facility B Commitment minus (b) the sum
of (i) the outstanding Facility A Advances plus (ii) the outstanding Facility B
Advances plus (iii) the outstanding Reimbursement Obligations in respect of the
Letters of Credit.
Section 1.2 Amendments and Renewals. Each definition of an agreement in
-----------------------
this Article 1 shall include such agreement as amended to date, and as amended
---------
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders or all the Lenders as required
pursuant to Section 11.11 hereof.
-------------
Section 1.3 Construction. The terms defined in this Article 1 (except as
------------
otherwise expressly provided in this Agreement) for all purposes shall have the
meanings set forth in Section 1.1 hereof, and the singular shall include the
-----------
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
ARTICLE 2
Advances
--------
Section 2.1 The Advances.
------------
-22-
<PAGE>
(a) Facility A Advances. Each Lender severally agrees, upon the terms and
-------------------
subject to the conditions of this Agreement, to make Facility A Advances to the
Borrower from time to time until the Facility A Maturity Date in an aggregate
amount not to exceed its Specified Percentage of the Facility A Commitment less
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing), for the purposes set forth in Section 5.8(a) hereof. Subject to
--------------
Section 2.9 hereof, Facility A Advances may be repaid and then reborrowed.
- -----------
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall the principal amount of all outstanding Facility A Advances exceed the
result of (A) Facility A Commitment, minus (B) the aggregate outstanding
Reimbursement Obligations and Swing Line Advances.
(b) Facility B Advances. Each Lender severally agrees, upon the terms and
-------------------
subject to the conditions of this Agreement, to purchase on the Agreement Date a
portion, equal to its Specified Percentage of the Facility B Commitment, of the
then-outstanding balance of the Facility B Advances under the Existing Credit
Agreement. Notwithstanding any provision in any Loan Document to the contrary,
in no event shall the principal amount of all outstanding Facility B Advances
exceed the Facility B Commitment. Facility B Advances may not be repaid and
then reborrowed. The Borrower hereby acknowledges and agrees that the "Facility
B Commitment Termination" (as such term is defined in the Existing Credit
Agreement) has heretofore occurred and that, except as provided herein with
respect to the purchase by the Lenders of the outstanding Facility B Advances
under the Existing Credit Agreement as of the Agreement Date, none of the
Lenders under the Existing Credit Agreement or hereunder have any obligation to
make any further or additional Facility B Advance(s) thereunder or hereunder.
(c) The Swing Line Loans. The Borrower may request Swing Line Bank to make,
--------------------
and Swing Line Bank agrees to make, on the terms and conditions hereinafter set
forth, advances ("Swing Line Advances") to the Borrower from time to time on any
-------------------
Business Day during the period from the date hereof until the Facility A
Maturity Date in an aggregate amount not to exceed at any time outstanding the
lesser of (i) $5,000,000, and (ii) the Facility A Commitment, less the sum of
(A) the aggregate principal amount of Facility A Advances then outstanding plus
----
(B) the aggregate principal amount of all Reimbursement Obligations then
outstanding (assuming compliance with all conditions to drawing) (the "Swing
-----
Line Facility"). Each Swing Line Advance shall be in an amount not less than
- -------------
$100,000 and in multiples thereof. Each Swing Line Advance shall be a Base Rate
Advance. Within the limits of the Swing Line Facility, Swing Line Advances may
be repaid and then reborrowed.
(d) Any Advance shall, at the option of the Borrower as provided in Section
-------
2.2 hereof (and, in the case of LIBOR Advances, subject to the provisions of
- ---
Article 9 hereof), be made as a Base Rate Advance or a LIBOR Advance; provided
- ---------
that there shall not be outstanding, at any one time, more than ten LIBOR
Advances.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
-23-
<PAGE>
(a) In the case of Base Rate Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, on the date of any proposed Base Rate Advance irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice,
in substantially the form of Exhibit J hereto (a "Notice of Borrowing")
--------- -------------------
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
a Base Rate Advance hereunder. Such notice of borrowing shall specify the
requested funding date, which shall be a Business Day, and the amount of the
proposed aggregate Base Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least two Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given) pursuant to a Notice of Borrowing, of its intention to borrow a LIBOR
Advance hereunder. Notice shall be given to the Administrative Lender prior to
11:00 a.m., Dallas, Texas time, in order for such Business Day to count toward
the minimum number of Business Days required. LIBOR Advances shall in all cases
be subject to Article 9 hereof. For LIBOR Advances, the notice of borrowing
---------
shall specify the requested funding date, which shall be a Business Day, the
amount of the proposed aggregate LIBOR Advances to be made by Lenders and the
Interest Period selected by the Borrower, provided that no such Interest Period
shall extend past the Facility A Maturity Date or the Facility B Maturity Date,
as appropriate, or prohibit or impair the Borrower's ability to comply with
Section 2.5 or 2.8 hereof.
- ----------- ---
(c) In the case of Swing Line Advances, the Borrower, through an Authorized
Signatory, shall give the Swing Line Bank and the Administrative Lender prior to
12:00 noon, Dallas, Texas time, on the date of any proposed Swing Line Advance
irrevocable written notice or irrevocable telephonic notice followed immediately
by written notice (provided, however, that the Borrower's failure to confirm any
telephonic notice in writing shall not invalidate any notice so given), of its
intention to borrow or reborrow a Swing Line Advance. Such notice of borrowing
shall specify the requested funding date, which shall be a Business Day, and the
amount of the proposed Swing Line Advance.
(d) Subject to Sections 2.1 and 2.9 hereof, the Borrower shall have the
------------ ---
option (i) to convert at any time all or any part (subject to the requirements
contained herein as to the minimum amounts of LIBOR Advances) of the outstanding
Base Rate Advances to LIBOR Advances and all or any part of the outstanding
LIBOR Advances to Base Rate Advances or (ii) upon expiration of any Interest
Period applicable to a LIBOR Advance, to continue all or any portion of such
LIBOR Advance equal to $5,000,000 and integral multiples of $1,000,000 in excess
of that amount as a LIBOR Advance and the succeeding Interest Period(s) of such
continued LIBOR Advance shall commence on the last day of the Interest Period of
the LIBOR Advance to be continued; provided, however, (a) LIBOR Advances may
only be converted into Base Rate Advances on the expiration date of the Interest
Period applicable thereto and (b) notwithstanding anything in this Agreement to
the contrary, no outstanding Advance may be continued as, or converted into, a
LIBOR Advance
-24-
<PAGE>
when any Default or Event of Default has occurred and is continuing. At least
two Business Days prior to a proposed conversion/continuation date, the
Borrower, through an Authorized Signatory, shall give the Administrative Lender
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), stating (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount of the Advance to be converted/continued, (iii)
in the case of a conversion to, or a continuation of, a LIBOR Advance, the
requested Interest Period, and (iv) in the case of a conversion of a Base Rate
Advance to a LIBOR Advance or continuation of a LIBOR Advance, stating that no
Default or Event of Default has occurred and is continuing. If the Borrower
shall fail to give any notice in accordance with this Section 2.2(d), the
--------------
Borrower shall be deemed irrevocably to have requested that such LIBOR Advance
be converted to a Base Rate Advance in the same principal amount. Notice shall
be given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time,
in order for such Business Day to count toward the minimum number of Business
Days required.
(e) The aggregate amount of Base Rate Advances to be made by the Lenders on
any day shall be in a principal amount which is at least $3,000,000 and which is
an integral multiple of $500,000; provided, however, that such amount may equal
the unused amount of the applicable Commitment. The aggregate amount of LIBOR
Advances having the same Interest Period and to be made by the Lenders on any
day shall be in a principal amount which is at least $5,000,000 and which is an
integral multiple of $1,000,000.
(f) The Administrative Lender shall promptly notify the Lenders of each
notice (other than with respect to a Swing Line Advance) received from the
Borrower pursuant to this Section. Each Lender shall, not later than 2:00 p.m.,
Dallas, Texas time, on the date of any Advance, deliver to the Administrative
Lender, at its address set forth herein, such Lender's Specified Percentage of
such Advance in immediately available funds in accordance with the
Administrative Lender's instructions. Prior to 2:30 p.m., Dallas, Texas time, on
the date of any Advance hereunder, the Administrative Lender shall, subject to
satisfaction of the conditions set forth in Article 3, disburse the amounts made
---------
available to the Administrative Lender by the Lenders by (i) transferring such
amounts by wire transfer pursuant to the Borrower's instructions, or (ii) in the
absence of such instructions, crediting such amounts to the account of the
Borrower maintained with the Administrative Lender. All Advances shall be made
by each Lender according to its Specified Percentage.
-25-
<PAGE>
(g) The Swing Line Bank shall, not later than 1:30 p.m., Dallas, Texas
time, on the date of any Swing Line Advance, deliver to the Administrative
Lender at its address set forth herein, the amount of such Swing Line Advance in
immediately available funds in accordance with the Administrative Lender's
instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of any Swing
Line Advance, the Administrative Lender shall, subject to the conditions set
forth in Article 3, disburse the amount made available to the Administrative
---------
Lender by the Swing Line Bank by (i) transferring such amounts by wire transfer
pursuant to the Borrower's instruction or (ii) in the absence of such
instructions, crediting such amounts to the account of the Borrower maintained
with the Administrative Lender. Forthwith upon demand by the Swing Line Bank and
in any event upon the making of the request or the granting of the consent
specified by Section 8.2 to authorize the Administrative Lender to declare the
-----------
Advances due and payable pursuant to the provisions of Section 8.2, each Lender,
-----------
including the Swing Line Bank, notwithstanding the failure of the Borrower at
such time to satisfy each condition specified in Article 3, shall make by 12:00
noon (Dallas, Texas time) on the first Business Day following receipt by such
Lender of notice from the Swing Line Bank, a Facility A Advance which is a Base
Rate Advance in an amount equal to the product of (i) the Specified Percentage
of such Lender times (ii) the aggregate outstanding principal amount of the
Swing Line Advances. The proceeds of such Facility A Advances shall be applied
by the Administrative Lender to repay the outstanding Swing Line Advance.
Section 2.3 Interest.
--------
(a) On Base Rate Advances.
---------------------
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Base Rate Advances outstanding from time to time,
until such Base Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) or repaid at a simple
interest rate per annum equal to the Base Rate Basis for the Base Rate
Advances as in effect from time to time. If at any time the Base Rate Basis
would exceed the Highest Lawful Rate, interest payable on the Base Rate
Advances shall be limited to the Highest Lawful Rate, but the Base Rate
Basis shall not thereafter be reduced below the Highest Lawful Rate until
the total amount of interest accrued on the Base Rate Advances equals the
amount of interest that would have accrued if the Base Rate Basis had been
in effect at all times.
(ii) Interest on the Base Rate Advances shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for the actual number of days
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Facility A Maturity Date or the Facility B Maturity Date, as appropriate.
-26-
<PAGE>
(b) On LIBOR Advances.
-----------------
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
LIBOR Advance. The Administrative Lender, whose determination shall be
controlling in the absence of manifest error, shall determine the LIBOR
Basis on the second Business Day prior to the applicable funding date and
shall notify the Borrower and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each LIBOR Advance
------------
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Facility A Maturity Date and the Facility B Maturity Date,
as appropriate; provided, however, that if the Interest Period for such
LIBOR Advance exceeds three months, interest shall also be due and payable
in arrears on each three-month anniversary of the commencement of such
Interest Period during such Interest Period.
(c) On Swing Line Advances.
----------------------
(i) The Borrower shall pay interest on the outstanding principal
amount of each Swing Line Advance, from the date each Swing Line Advance is
made until it is due (whether at maturity, by acceleration or otherwise) or
repaid, at a rate per annum equal to the Base Rate Basis in effect from
time to time. If at any time the Base Rate Basis would exceed the Highest
Lawful Rate, interest payable on the Swing Line Advances shall be limited
to the Highest Lawful Rate, but the Base Rate Basis shall not thereafter be
reduced below the Highest Lawful Rate until the total amount of interest
accrued on the Swing Line Advances equals the amount of interest that would
have accrued if the Base Rate Basis had been in effect at all times.
(ii) Interest on each Swing Line Advance shall be computed on the
basis of a year of 365 or 366 days, as applicable, for the number of days
elapsed, and shall be payable quarterly in arrears on each Quarterly Date
and on the Facility A Maturity Date.
(d) Interest After an Event of Default. (i) After an Event of Default
----------------------------------
(other than an Event of Default specified in Section 8.1(f) or (g) hereof) and
-------------- ---
during any continuance thereof, at the option of Determining Lenders and
provided that the Administrative Lender has given notice of the decision to
charge interest at the Default Rate, and (ii) after an Event of Default
specified in Section 8.1(f) or (g) hereof and during any continuance thereof,
-------------- ---
automatically and without any action or notice by the Administrative Lender or
any Lender, the Obligations shall bear interest at a rate per annum equal to the
Default Rate. Such interest shall be payable on the earlier of demand or the
Facility A Maturity Date or the Facility B Maturity Date, as appropriate, and
shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the
Determining Lenders) of the applicable Event of Default, (ii) agreement by the
Lenders to rescind the charging of interest at the Default
-27-
<PAGE>
Rate, or (iii) payment in full of the Obligations. The Lenders shall not be
required to accelerate the maturity of the Advances, to exercise any other
rights or remedies under the Loan Documents, or to give notice to the Borrower
of the decision to charge interest at the Default Rate.
Section 2.4 Fees.
----
(a) Commitment Fee. Subject to Section 11.9 hereof, the Borrower agrees to
-------------- ------------
pay to the Administrative Lender, for the ratable account of the Lenders, a
commitment fee (the "Commitment Fee") on the daily average Unused Portion during
--------------
the period commencing on the Agreement Date and ending on the Facility A
Maturity Date, at the following per annum percentages, applicable in the
following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) Initial Pricing Period 0.250%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Fixed Charge Coverage Ratio is greater than or equal to 0.225%
2.50 to 1
(2) The Fixed Charge Coverage Ratio is less than 2.50 to 1 but 0.250%
greater than or equal to 2.00 to 1
(3) The Fixed Charge Coverage Ratio is less than 2.00 to 1 but 0.300%
greater than or equal to 1.50 to 1
(4) The Fixed Charge Coverage Ratio is less than 1.50 to 1 0.375%
</TABLE>
The Commitment Fee shall be subject to reduction or increase, as applicable and
as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the Commitment Fee shall be effective
--------
on the date which is two Business Days following the date of receipt of the
financial statements required to be furnished pursuant to Section 6.1 or 6.2
----------- ---
hereof, as applicable, and the corresponding Compliance Certificate required
pursuant to Section 6.3 hereof. If such financial statements are not received
-----------
by the Administrative Lender by the date required, effective as of the first
Business Day following notification thereof from the Administrative Lender to
the Borrower the Commitment Fee shall be determined as if the Fixed Charge
Coverage Ratio is less than 1.50 to 1 until such time as such financial
statements and Compliance Certificate are received. The fee shall be (i)
payable in arrears on each Quarterly Date and on the Facility A Maturity Date,
(ii) fully earned when due and, subject to Section 11.9 hereof, nonrefundable
------------
when paid and (iii) subject to Section 11.9 hereof, computed on the basis of a
------------
year of 365 or 366 days, as appropriate, for the actual number of days elapsed.
-28-
<PAGE>
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower agrees to pay to
---------- ------------
the Administrative Lender, for the account of the Administrative Lender or its
affiliates, as applicable, the fees on the dates and in the amounts specified in
the letter agreement (the "Administrative Lender Fee Letter"), dated August 21,
--------------------------------
1997, among the Borrower, the Administrative Lender and NationsBanc Capital
Markets, Inc..
Section 2.5 Prepayments.
-----------
(a) Voluntary LIBOR Advance Prepayments. Upon three Business Days' prior
-----------------------------------
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Lender, LIBOR Advances may be voluntarily
prepaid but only so long as the Borrower concurrently reimburses the Lenders in
accordance with Section 2.9 hereof. Any notice of prepayment shall be
-----------
irrevocable. Subject to the other terms and provisions hereof, Base Rate
Advances may be voluntarily prepaid at any time.
(b) Mandatory Prepayment. On or before the date of any reduction of the
--------------------
Facility A Commitment, the Borrower shall prepay applicable outstanding Facility
A Advances in an amount necessary to reduce the sum of outstanding Facility A
Advances, Swing Line Advances and Reimbursement Obligations to an amount less
than or equal to the Facility A Commitment as so reduced. On any date that the
aggregate principal amount of outstanding Facility A Advances, Swing Line
Advances and Reimbursement Obligations (other than such Reimbursement
Obligations which are fully secured by funds in the L/C Cash Collateral Account
pursuant to Section 2.15(g) hereof) exceed the Facility A Commitment, the
---------------
Borrower shall immediately prepay Facility A Advances in an amount equal to such
excess amount and all interest attributable to such excess amount. To the
extent required by the immediately preceding two sentences, the Borrower shall
first prepay all Base Rate Advances, second prepay all Swing Line Advances and
shall thereafter prepay LIBOR Advances. To the extent that any prepayment
requires that a LIBOR Advance be repaid on a date other than the last day of its
Interest Period, the Borrower shall reimburse each Lender in accordance with
Section 2.9 hereof. To the extent that outstanding Facility A and Swing Line
- -----------
Advances exceed the Facility A Commitment after any reduction thereof, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Facility A Advances on the date of such reduction.
(c) Prepayment from Sales of Equity/Issuance of Indebtedness. Concurrently
--------------------------------------------------------
with receipt of Net Cash Proceeds from (i) the issuance of any Indebtedness the
proceeds of which are used to purchase or refinance Indebtedness with respect to
real property or (ii) the sale or disposition by the Borrower of any Equity
(other than a sale or disposition of Equity permitted by clauses (v) or (vi) of
Section 7.18 hereof), the Borrower shall prepay Facility B Advances in an
- ------------
aggregate principal amount equal to 100% of the aggregate Net Cash Proceeds
received by the Borrower from such issuance, sale or disposition of Equity or
Indebtedness. Any such prepayments shall be applied in the inverse order of
maturity to the scheduled payments of the Facility B Advances required pursuant
to Section 2.6(c).
--------------
(d) Payments, Generally. Any prepayment of any LIBOR Advance shall be
-------------------
-29-
<PAGE>
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial payment of a Base Rate Advance shall be in a principal amount
which is at least $3,000,000 and which is an integral multiple of $500,000. Any
voluntary partial payment of a LIBOR Advance shall be in a principal amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000,
and to the extent that any prepayment of a LIBOR Advance is made on a date other
than the last day of its Interest Period, the Borrower shall reimburse each
Lender in accordance with Section 2.9 hereof. Any voluntary partial payment of
-----------
a Swing Line Advance shall be in a principal amount which is at least $100,000
or an integral multiple thereof.
Section 2.6 Reduction of Commitments.
------------------------
(a) Voluntary Reduction. The Borrower shall have the right, upon not less
-------------------
than ten Business Days' notice by an Authorized Signatory to the Administrative
Lender (if telephonic, to be confirmed by telex or in writing on or before the
date of reduction or termination), which shall promptly notify the Lenders, to
terminate or reduce either the Facility A Commitment or the Facility B
Commitment, in whole or in part, without premium or penalty except as provided
in the next sentence. Each partial termination shall be in an aggregate amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000,
and no voluntary reduction of the Facility A Commitment shall cause any LIBOR
Advance to be repaid prior to the last day of its Interest Period unless the
Borrower shall reimburse each Lender in accordance with Section 2.9 hereof.
-----------
(b) Mandatory Reduction. The Facility A Commitment shall be automatically
-------------------
reduced to zero on the Facility A Maturity Date. Contemporaneously with any
voluntary or other prepayment of any Facility B Advances, the Facility B
Commitment shall be automatically reduced by the amount of such prepayment(s).
(c) General Requirements. Upon any reduction of a Commitment pursuant to this
--------------------
Section, the Borrower shall immediately make a repayment of applicable Advances
in accordance with Section 2.5(b) hereof. The Borrower shall reimburse each
--------------
Lender in connection with any such payment in accordance with Section 2.9 hereof
-----------
to the extent applicable. The Borrower shall not have any right to rescind any
termination or reduction. Once reduced, the Commitments may not be increased or
reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender. Unless the
-------------------------------------------------
Administrative Lender shall have been notified by a Lender prior to the date of
any proposed Advance (other than a Swing Line Advance) that such Lender does not
intend to make the proceeds of such Advance available to the Administrative
Lender, the Administrative Lender may assume that such Lender has made such
proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Administrative Lender shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
-30-
<PAGE>
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Lender receives such amount from (a) the Lender, at a per annum
rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal
Funds Rate or (b) the Borrower, at the per annum rate applicable at the time to
such Advance. No Lender shall be liable for any other Lender's failure to fund
an Advance hereunder.
Section 2.8 Payment of Principal of Advances.
--------------------------------
(a) Facility A Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of the Facility A Advances, all
accrued interest and fees thereon, and all other Obligations related thereto,
shall be due and payable in full on the Facility A Maturity Date.
-31-
<PAGE>
(b) Facility B Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of the Facility B Advances
shall be repaid on each of the following dates in such amounts as set forth next
to each such date below:
<TABLE>
<CAPTION>
Amount of Reduction of
Payment Date Facility B Advances as of each Date
------------ -----------------------------------
<S> <C>
April 1, 1999 $ 500,000
July 1, 1999 $ 500,000
October 1, 1999 $ 500,000
January 1, 2000 $1,000,000
April 1, 2000 $1,000,000
July 1, 2000 $1,000,000
October 1, 2000 $1,000,000
January 1, 2001 $2,000,000
April 1, 2001 $2,000,000
July 1, 2001 $2,000,000
October 1, 2001 $2,000,000
January 1, 2002 $2,000,000
April 1, 2002 $2,000,000
July 1, 2002 $2,000,000
April 30, 2002 $2,000,000
Facility B Maturity Date $3,500,000
or such other amount of Facility B
Advances then outstanding
</TABLE>
To the extent not otherwise required to be paid earlier as provided herein, the
principal amount of the Facility B Advances, all accrued interest and fees
thereon, and all other Obligations related thereto, shall be due and payable in
full on the Facility B Maturity Date.
(c) Swing Line Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of each Swing Line Advance, all
accrued interest and fees thereon, and all other Obligations related thereto,
shall be due and payable in full on the seventh Business Day following the
making of such Swing Line Advance.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur (other
-------------
than through a default by that Lender) any losses (inclusive of any such losses
attributable to change(s)
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<PAGE>
in the LIBOR Rate during the applicable period(s), but exclusive of any losses
of any other anticipated profits on the part of such Lender) or reasonable out-
of-pocket expenses actually incurred in connection with (a) failure by the
Borrower to borrow any LIBOR Advance after having given notice of its intention
to borrow in accordance with Section 2.2 hereof (whether by reason of the
-----------
Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3 hereof) or (b) any prepayment for any reason
of any LIBOR Advance in whole or in part (including a prepayment pursuant to
Section 9.3(b) hereof) on other than the last day of an Interest Period
- --------------
applicable to such LIBOR Advance, the Borrower agrees to pay to any such Lender,
within 30 days after demand by such Lender, an amount sufficient to compensate
such Lender for all such losses (inclusive of any such losses attributable to
change(s) in the LIBOR Rate during the applicable period(s), but exclusive of
any losses of any other anticipated profits on the part of such Lender) and out-
of-pocket expenses, subject to Section 11.9 hereof. Such losses shall include,
------------
without limiting the generality of the foregoing, reasonable expenses incurred
by such Lender in connection with the re-employment of funds prepaid, repaid,
converted or not borrowed, converted or paid, as the case may be. A certificate
as to any amounts payable to any Lender under this Section 2.9 submitted to the
-----------
Borrower by such Lender shall certify that such amounts were actually incurred
by such Lender and shall show in reasonable detail an accounting of the amount
payable and the calculations used to determine in good faith such amount and
shall be conclusive absent manifest or demonstrable error. Nothing in this
Section 2.9 shall provide the Borrower or any Subsidiary of the Borrower the
- -----------
right to inspect the records, files or books of any Lender.
Section 2.10 Manner of Payment.
-----------------
(a) Each payment (including prepayments) by the Borrower of the principal of
or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless, with respect to a
payment due in respect of a LIBOR Advance, such Business Day falls in another
calendar month, in which case payment shall be made on the preceding Business
Day. Any extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.
(c) Without waiving any other rights or recourse that the Borrower may
otherwise have against any Lender for such Lender's breach of its obligations
hereunder, the Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are received by
the Administrative Lender, the Administrative Lender shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the
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<PAGE>
Lenders then due and payable, if any; (ii) to the payment of all other fees then
due and payable; (iii) to the payment of interest then due and payable on the
Advances; (iv) to the payment of all other amounts not otherwise referred to in
this clause (d) then due and payable under the Loan Documents; and (v) to the
payment of principal then due and payable on the Advances.
(e) Each payment by the Borrower in respect of obligations relating to the
Facility A Advances, Facility B Advances and the Letters of Credit (whether for
principal, interest, fees or otherwise) shall be made to the Administrative
Lender for the account of the Lenders pro rata in accordance with their
respective Specified Percentages. Each payment by the Borrower in respect of
obligations relating to Swing Line Advances (whether for principal, interest,
fees or otherwise) shall be made to the Administrative Lender for the account of
the Swing Line Bank. Notwithstanding anything in this Section 2.10(e) or any
---------------
other provision of this Agreement or any other Loan Document to the contrary,
any payment by the Borrower in respect of any Advances after acceleration of the
Advances pursuant to Section 8.2 or any monies received by the Administrative
-----------
Lender as a result of the exercise of remedies under any Loan Documents after
acceleration of the Advances pursuant to Section 8.2 shall be distributed pro
-----------
rata to each Lender based on the percentage that the outstanding Advances and
Reimbursement Obligations owed to such Lender bears to the aggregate Advances
and Reimbursement Obligations owed to all Lenders.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending
---------------------
Office is set forth opposite its name in Schedule 1 attached hereto. Each
----------
Lender shall have the right at any time and from time to time to designate a
different office of itself or of any Affiliate of such Lender as such Lender's
LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to such
LIBOR Lending Office. No such designation or transfer shall result in any
liability on the part of the Borrower for increased costs or expenses resulting
solely from such designation or transfer (except any such transfer which is made
by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose
----------- ---
of complying with Applicable Law, to the extent that Applicable Law, or any
relevant construction or interpretation thereof, changes after the Agreement
Date). Increased costs for expenses resulting from a change in law occurring
subsequent to any such designation or transfer shall be deemed not to result
solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment (whether
-------------------
voluntary or involuntary, due to the exercise of any right of set-off, or
otherwise) on account of its Facility A Advances, Facility B Advances or its
participation in the Letters of Credit (other than pursuant to Sections 2.4(b),
---------------
2.14, 2.15(d), 9.3 or 9.5) in excess of its Specified Percentage of all payments
- ---- ------- --- ---
made by the Borrower with respect to Facility A Advances, Facility B Advances
and the Letters of Credit shall purchase from each other Lender such
participation in the Facility A Advances and Facility B Advances made by such
other Lender or its participation in the Letters of Credit as shall be necessary
to cause such purchasing Lender to share the excess payment pro rata according
to Specified Percentages with each other Lender; provided, however, that if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section, to the fullest extent permitted by law, may exercise
all its rights of payment (including the
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<PAGE>
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
Section 2.13 Calculation of LIBOR Rate. The provisions of this Agreement
-------------------------
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
Section 2.14 Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
------------
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
---------
of each Lender and the Administrative Lender, (i) taxes imposed on, based upon
or measured by its overall net income, net worth or capital, and franchise
taxes, doing business taxes or minimum taxes imposed on it, (A) by the
jurisdiction under the laws of which such Lender or the Administrative Lender
(as the case may be) is organized or in which it has its applicable lending
office or any political subdivision thereof; or (B) by any other jurisdiction,
or any political subdivision thereof, other than those imposed by reason of (1)
an asserted relation of such jurisdiction to the transactions contemplated by
this Agreement, (2) the activities of the Borrower in such jurisdiction or (3)
the activities in connection with the transactions contemplated by this
Agreement of a Lender or the Administrative Lender; (ii) taxes imposed by reason
of failure by the Lender or the Administrative Lender to comply with the
requirements of paragraph (e) of this Section 2.14; and (iii) in the case of any
------------
Lender, any Taxes in the nature of transfer, stamp, recording or documentary
taxes resulting from a transfer (other than as a result of foreclosure) by such
Lender of all or any portion of its interest in this Agreement, the Notes or any
other Loan Documents; (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
-----
If the Borrower shall be required by Law to deduct or withhold any Taxes from or
in respect of any sum payable hereunder to any Lender or the Administrative
Lender, (x) the sum payable shall be increased as may be necessary so that after
making all required deductions for Taxes (including deductions applicable to
additional sums payable under this Section 2.14) such Lender or the
------------
Administrative Lender (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (y) the Borrower shall
make such deductions and (z) the Borrower shall pay the full amount of Taxes
deducted to the relevant taxation authority or other authority in accordance
with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and documentary
taxes and any and all other excise and property taxes, charges and similar
levies (other than Taxes described in clause (iii) of the first sentence of
Section 2.14(a)) that arise from any payment made hereunder or from the
- ---------------
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
-----------
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<PAGE>
(c) The Borrower will indemnify each Lender and the Administrative Lender for
the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) paid by such Lender or the Administrative Lender (as the case may
- ------------
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence or wilful misconduct on the part of such Lender or the Administrative
Lender, provided, however, that the Borrower shall have no obligation to
-------- -------
indemnify such Lender or the Administrative Lender unless and until such Lender
or the Administrative Lender shall have delivered to the Borrower a certificate
certifying that such Taxes or Other Taxes (and/or penalties, additions to tax,
interest and reasonable expenses) were actually incurred by such Lender or the
Administrative Lender and showing in reasonable detail an accounting of the
amount payable and the calculations used to determine in good faith such amount,
which certificate shall be conclusive absent manifest or demonstrable error.
Nothing in this Section 2.14 shall provide the Borrower or any Subsidiary of the
------------
Borrower the right to inspect the records, files or books of any Lender or the
Administrative Lender. This indemnification shall be made within 30 days from
the date such Lender or the Administrative Lender (as the case may be) makes
written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Lender the original or a certified
copy of a receipt evidencing payment thereof. For purposes of this Section 2.14
------------
the terms "United States" and "United States Person" shall have the meanings set
------------- --------------------
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 11.6 after the
------------
Agreement Date, the date upon which such Lender becomes a party hereto) and at
such times as necessary in the reasonable determination of the Borrower,
deliver to the Borrower through the Administrative Lender, with a copy to the
Administrative Lender:
(A) if any lending office is located in the United States of America, two
(2) accurate and complete signed originals of Internal Revenue Service
Form 4224 or any successor thereto ("Form 4224"),
-----------
(B) if any lending office is located outside the United States of America,
two (2) accurate and complete signed originals of Internal Revenue
Service Form 1001 or any successor thereto ("Form 1001"),
-----------
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the account
of such lending office or lending offices under this Agreement free from
withholding of United States Federal income tax;
-36-
<PAGE>
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of Form
1001,
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such changed or additional lending office under this Agreement
free from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and
(v) it shall notify the Borrower after any event (including an
amendment to, or a change in any applicable law or regulation or in the
written interpretation thereof by any regulatory authority or any judicial
authority, or by ruling applicable to such Lender of any governmental
authority charged with the interpretation or administration of any law)
shall occur that results in such Lender no longer being capable of
receiving payments under this Agreement without any deduction or
withholding of United States federal income tax.
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of principal and interest
------------
hereunder.
(g) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver or by virtue of the location of any
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<PAGE>
Lender's lending office), (ii) it will use reasonable best efforts (consistent
with its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
materially disadvantageous to such Lender, and (iii) otherwise cooperate with
the Borrower to minimize amounts payable by the Borrower under this Section
-------
2.14; provided, however, the Lenders and the Administrative Lender shall not be
- ---- -------- -------
obligated by reason of this Section 2.14(g) to contest the payment of any Taxes
---------------
or Other Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
Section 2.14 and the Lender or the Administrative Lender receives a refund of
- ------------
any or all of such sums, such refund shall be applied to reduce any amounts then
due and owing under this Agreement or, to the extent that no amounts are due and
owing under this Agreement at the time such refunds are received, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower, provided that (i) no Event of Default is in existence at such time or
(ii) all of the Obligations have been fully and finally paid or satisfied. At
such time, if any, that such Default or Event of Default is cured or waived, the
party receiving such refund shall promptly pay over all such refunded sums to
the Borrower.
(h) If the Borrower becomes obligated to pay additional amounts described
in this Section 2.14 to any Lender, the Borrower may designate a financial
------------
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitments and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expense to, such Lender, for a
purchase price equal to the outstanding amounts owed to such Lender (including
such additional amounts owing to such Lender pursuant to this Section 2.14).
------------
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in Section 11.6 hereof.
------------
Section 2.15 Letters of Credit.
-----------------
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<PAGE>
(a) The Letter of Credit Facility. The Borrower may request the Issuing
-----------------------------
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
----------
Credit") for the account of the Borrower from time to time on any Business Day
- ------
from the date of the initial Advance until the Facility A Maturity Date in an
aggregate maximum amount (assuming compliance with all conditions to drawing)
not to exceed, at any time outstanding, the lesser of (i) $5,000,000 (the
"Letter of Credit Facility") and (ii) the Facility A Commitment, less the sum of
- --------------------------
(A) the aggregate principal amount of Facility A Advances then outstanding plus
(B) the aggregate principal amount of Swing Line Advances outstanding. No
Letter of Credit shall have an expiration date (including all rights of renewal)
later than the earlier of (i) the Facility A Maturity Date or (ii) one year
after the date of issuance thereof. Immediately upon the issuance of each
Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred
to each Lender, and each Lender shall be deemed to have purchased and received
from the Issuing Bank, in each case irrevocably and without any further action
by any party, an undivided interest and participation in such Letter of Credit,
each drawing thereunder and the obligations of the Borrower under this Agreement
in respect thereof in an amount equal to the product of (x) such Lender's
Specified Percentage times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing).
Within the limits of the Letter of Credit Facility, and subject to the limits
referred to above, the Borrower may request the issuance of Letters of Credit
under this Section 2.15(a), repay any Facility A Advances resulting from
---------------
drawings thereunder pursuant to Section 2.15(c) and request the issuance of
---------------
additional Letters of Credit under this Section 2.15(a).
---------------
(b) Request for Issuance. Each Letter of Credit shall be issued upon
--------------------
notice, given not later than 11:00 a.m. (Dallas, Texas time) on the fourth
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance of
Letters of Credit pursuant to this Agreement and containing terms and conditions
not inconsistent with this Agreement (a "Letter of Credit Agreement"), provided
-------------------------- --------
that if any such terms and conditions inconsistent with this Agreement, this
Agreement shall control. Each such notice of issuance of a Letter of Credit by
the Borrower (a "Notice of Issuance") shall be by telecopier, specifying
------------------
therein, in the case of a Letter of Credit, the requested (A) date of such
issuance (which shall be a Business Day), (B) maximum amount of such Letter of
Credit, (C) expiration date of such Letter of Credit, (D) name and address of
the beneficiary of such Letter of Credit, and (E) form of such Letter of Credit
and specifying such other information as shall be required pursuant to the
relevant Letter of Credit Agreement. If the requested terms of such Letter of
Credit are acceptable to the Issuing Bank in its reasonable discretion, the
Issuing Bank will, upon fulfillment of the applicable conditions set forth in
Article 3 hereof, make such Letter of Credit available to the Borrower at its
- ---------
office referred to in Section 11.1 or as otherwise agreed with the Borrower in
------------
connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
-------------------------
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Facility A Advance, which shall
bear interest at the Base Rate Basis, in the
-39-
<PAGE>
amount of such draft (but without any requirement for compliance with the
conditions set forth in Article 3 hereof). In the event that a drawing under any
---------
Letter of Credit is not reimbursed by the Borrower by 11:00 a.m. (Dallas, Texas
time) on the first Business Day after such drawing, the Issuing Bank shall
promptly notify Administrative Lender and each other Lender. Each such Lender
shall, on the first Business Day following such notification, make a Facility A
Advance, which shall bear interest at the Base Rate Basis, and shall be used to
repay the applicable portion of the Issuing Bank's Advance with respect to such
Letter of Credit, in an amount equal to the amount of its participation in such
drawing for application to reimburse the Issuing Bank (but without any
requirement for compliance with the applicable conditions set forth in Article 3
---------
hereof) and shall make available to the Administrative Lender for the account of
the Issuing Bank, by deposit at the Administrative Lender's office, in same day
funds, the amount of such Advance. In the event that any Lender fails to make
available to the Administrative Lender for the account of the Issuing Bank the
amount of such Advance, the Issuing Bank shall be entitled to recover such
amount on demand from such Lender together with interest thereon at a rate per
annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal
Funds Rate.
(d) Increased Costs. If after the Agreement Date any change in any Law or in
---------------
the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit or guarantees issued by, or assets held by, or
deposits in or for the account of, the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender or (ii) impose on the
Issuing Bank or any Lender or any corporation controlling the Issuing Bank or
any Lender any other condition regarding this Agreement or any Letter of Credit,
and the result of any event referred to in the preceding clause (i) or (ii)
shall be to increase the cost to the Issuing Bank or any corporation controlling
the Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender
or any corporation controlling such Lender of purchasing any participation
therein or making any Advance pursuant to Section 2.15(c), then, within 30 days
---------------
after demand by the Issuing Bank or such Lender (which demand shall be made not
later than one year after the Issuing Bank or applicable Lender receives notice
of the relevant change), the Borrower shall, subject to Section 11.9 hereof, pay
------------
to the Issuing Bank or such Lender, from time to time as specified by the
Issuing Bank or such Lender, additional amounts that shall be sufficient to
compensate the Issuing Bank or such Lender or any corporation controlling such
Lender for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower by the Issuing Bank or such Lender,
shall certify that such increased costs were actually incurred by the Issuing
Bank or such Lender and shall show in reasonable detail an accounting of the
amount payable and the calculation used to determine in good faith such amount
and shall be conclusive absent manifest or demonstrable error. In determining
such amount, the Issuing Bank or such Lender may use any reasonable averaging or
attribution method. Nothing in this Section 2.15(d) shall provide the Borrower
---------------
or any Subsidiary of the Borrower the right to inspect the records, files or
books of the Issuing Bank or any Lender. If the Borrower becomes obligated to
pay additional amounts described in this Section 2.15(d) to any Lender, the
---------------
Borrower may designate a financial institution reasonably acceptable to the
Administrative Lender to replace such Lender by purchasing for cash and
receiving an assignment of such Lender's pro rata share of the Commitments and
the Rights of such Lender under the Loan Documents without recourse to or
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<PAGE>
warranty by or expenses to, such Lender, for a purchase price equal to the
outstanding amounts owing to such Lender (including such additional amounts
owing to such Lender pursuant to this Section 2.15(d). Upon execution of an
---------------
Assignment Agreement, such other financial institution shall be deemed to be a
"Lender" for all purposes of this Agreement as set forth in Section 11.6 hereof.
------------
The obligations of the Borrower under this Section 2.15(d) shall survive
---------------
termination of this Agreement. The Issuing Bank or any Lender claiming any
additional compensation under this Section 2.15(d) shall use reasonable efforts
---------------
(consistent with legal and regulatory restrictions) to reduce or eliminate any
such additional compensation which may thereafter accrue and which efforts would
not, in the reasonable judgment of the Issuing Bank or such Lender, be otherwise
disadvantageous.
(e) Obligations Absolute. Except in the case of gross negligence or wilful
--------------------
misconduct on the part of the Issuing Bank, the obligations of the Borrower
under this Agreement with respect to any Letter of Credit, any Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of Credit
or any Facility A Advance pursuant to Section 2.15(c) shall be unconditional and
---------------
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement, any other
Loan Document, any Letter of Credit Agreement, any Letter of Credit or any
other agreement or instrument relating thereto (collectively, the "L/C Related
-----------
Documents");
---------
(ii) (A) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Facility A Advance pursuant to Section 2.15(c) or
---------------
(B) any other amendment or waiver of or any consent to departure from all or
any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee of
a Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank, any Lender or any other Person,
whether in connection with this Agreement, the transactions contemplated
hereby or by the L/C Related Documents or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms of
the Letter of Credit;
(vi) any exchange, release or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to departure from any guarantee,
for all or any of the
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<PAGE>
Obligations of the Borrower in respect of the Letters of Credit or any
Revolving Credit Advance pursuant to Section 2.15(c); or
---------------
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
(f) Compensation for Letters of Credit.
----------------------------------
(i) Credit Fee. Subject to Section 11.9 hereof, the Borrower shall pay
---------- ------------
to the Administrative Lender for the ratable account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date and on the
Facility A Maturity Date) equal to a rate per annum equal to the product of
the Applicable LIBOR Rate Margin in effect from time to time multiplied by the
average dai ly amount available for drawing under all outstanding Letters of
Credit. Subject to Section 11.9 hereof, such fee shall be computed on the
------------
basis of a 360-day year for the actual number of days elapsed.
(ii) Issuance Fee. Subject to Section 11.9 hereof, the Borrower shall
------------ ------------
pay to the Administrative Lender for the account of the Issuing Bank an
issuance fee (which shall be payable on the date of issuance of each Letter of
Credit) in an amount equal to the greater of (a) $250 or (b) the product of
(x) 0.125% times (y) the face amount of the Letter of Credit being issued.
(iii) Other Fees. Subject to Section 11.9 hereof, the Borrower shall pay,
---------- ------------
with respect to each amendment, renewal or transfer of each Letter of Credit
and each drawing made thereunder, reasonable documentary and processing
charges in accordance with the Issuing Bank's standard schedule for such
charges in effect at the time of such amendment, renewal, transfer or drawing,
as the case may be.
(g) L/C Cash Collateral Account.
---------------------------
(i) Upon the Facility A Maturity Date or the occurrence, and during the
continuance, of an Event of Default and demand by the Administrative Lender
pursuant to Section 8.2(c), the Borrower will promptly pay to the
--------------
Administrative Lender in immediately available funds an amount equal to the
maximum amount then available to be drawn under the Letters of Credit then
outstanding. Any amounts so received by the Administrative Lender shall be
deposited by the Administrative Lender in a deposit account maintained by the
Issuing Bank (the "L/C Cash Collateral Account").
---------------------------
(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Lender (for the benefit
of the Issuing Bank and Lenders), and creates in the Administrative Lender's
favor (for the benefit of the Issuing Bank and Lenders) a Lien in, all money,
instruments and securities at any time held in or acquired in
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connection with the L/C Cash Collateral Account, together with all proceeds
thereof. The L/C Cash Collateral Account shall be under the sole dominion and
control of the Administrative Lender and the Borrower shall have no right to
withdraw or to cause the Administrative Lender to withdraw any funds deposited
in the L/C Cash Collateral Account. At any time and from time to time, upon the
Administrative Lender's request, the Borrower promptly shall execute and deliver
any and all such further instruments and documents, including UCC financing
statements, as may be necessary, appropriate or desirable in the Administrative
Lender's judgment to obtain the full benefits (including perfection and
priority) of the security interest created or intended to be created by this
paragraph (ii) and of the rights and powers herein granted. The Borrower shall
not create or suffer to exist any Lien on any amounts or investments held in the
L/C Cash Collateral Account other than the Lien granted under this paragraph
(ii).
(iii) The Administrative Lender shall (A) apply any funds in the L/C Cash
Collateral Account on account of Reimbursement Obligations when the same become
due and payable, (B) after the Facility A Maturity Date, apply any proceeds
remaining in the L/C Cash Collateral Account first to pay any unpaid Obligations
-----
then outstanding hereunder and then to refund any remaining amount to the
----
Borrower.
(iv) The Borrower, no more than once in any calendar month, may direct the
Administrative Lender to invest the funds held in the L/C Cash Collateral
Account (so long as the aggregate amount of such funds exceeds any relevant
minimum investment requirement) in (A) Cash and Cash Equivalents or direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof and (B) one or more other
types of investments permitted by the Determining Lenders, in each case with
such maturities as the Borrower, with the consent of the Determining Lenders,
may specify, pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. In the
absence of any such direction from the Borrower, the Administrative Lender shall
invest the funds held in the L/C Cash Collateral Account (so long as the
aggregate amount of such funds exceeds any relevant minimum investment
requirement) in one or more types of investments with the consent of the
Determining Lenders with such maturities as the Borrower, with the consent of
the Determining Lenders, may specify, pending application of such funds on
account of Reimbursement Obligations or on account of other Obligations, as the
case may be. All such investments shall be made in the Administrative Lender's
name for the account of the Lenders, subject to the ownership interest therein
of the Borrower. The Borrower recognizes that any losses or taxes with respect
to such investments shall be borne solely by the Borrower, and the Borrower
agrees to hold the Administrative Lender and the Lenders harmless from any and
all such losses and taxes, except to the extent that such losses or taxes are
finally judicially determined by a court of competent jurisdiction to be the
result of gross negligence or wilful misconduct of the Administrative Lender.
Administrative Lender may liquidate any investment held in the L/C Cash
Collateral Account in order to apply the proceeds of such investment on account
of the Reimbursement Obligations as provided in Section 2.15(g)(iii) hereof (or
--------------------
on account of any other Obligation then due and payable, as
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<PAGE>
the case may be) without regard to whether such investment has matured and
without liability for any penalty or other fee incurred (with respect to which
the Borrower hereby agrees to reimburse the Administrative Lender) as a result
of such application.
(v) After the establishment of the L/C Cash Collateral Account pursuant to
Section 2.15(g)(i) hereof, the Borrower shall pay to the Administrative Lender
------------------
the fees customarily charged by the Issuing Bank with respect to the
maintenance of accounts similar to the L/C Cash Collateral Account.
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advance and the Initial
-----------------------------------------------------------
Issuance of Letters of Credit. The obligation of each Lender to make any
- -----------------------------
Advance and the obligation of the Issuing Bank to issue Letters of Credit is
subject to (i) receipt by the Administrative Lender of the following items which
are to be delivered, in form and substance satisfactory to each Lender, with a
copy (except for the Notes and this Agreement) for each Lender, and (ii)
satisfaction of the following conditions which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the accuracy of its
representations and warranties in the Loan Documents, certifying that no Default
has occurred, and including a certificate of incumbency with respect to each
Authorized Signatory, and including (i) a copy of the articles or certificate of
incorporation of such Obligor, certified to be true, complete and correct by the
secretary of state of its state of organization, and (ii) a copy of a
certificate of good standing and a certificate of existence for its state of
organization and, with respect to the Borrower, the States of Texas, California
and New Jersey;
(b) a duly executed Facility A Note and Facility B Note payable to the
order of each Lender and in an amount for each Lender equal to its Specified
Percentage of each Commitment, respectively;
(c) UCC searches in appropriate jurisdictions where Collateral is located;
(d) opinions of counsel to each Obligor addressed to the Lenders and in
form and substance satisfactory to the Lenders, dated the Agreement Date, and
covering certain of the matters set forth in Sections 4.1(a), (b), (c), (e),
--------------- --- --- ---
(f), (h), (m), (n), (o) and (p) and such other matters incident to the
- --- --- --- --- --- ---
transactions contemplated hereby as the Administrative Lender or Special Counsel
may reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof, to the extent invoiced;
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<PAGE>
(f) evidence that all proceedings of each Obligor taken in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be reasonably satisfactory in form and substance to the Lenders and Special
Counsel; and the Lenders shall have received copies of all documents or other
evidence which the Administrative Lender, Special Counsel or any Lender may
reasonably request in connection with such transactions;
(g) evidence of payment of any and all fees or expenses required to be paid on
or before the Agreement Date pursuant to the Administrative Lender Fee Letter;
(h) duly executed and completed Security Agreements, dated as of the Agreement
Date, granting a Lien, in all Collateral covered thereby, together with related
financing statements, the CFI Note duly endorsed, and insurance certificates
listing Administrative Lender as loss payee and additional insured and otherwise
in a form required by the Collateral Documents;
(i) the duly executed Swing Line Note payable to the order of the Swing Line
Bank in the aggregate principal amount of $5,000,000;
(j) a duly executed completed Pledge Agreement, dated as of the Agreement
Date, granting a Lien in all Collateral covered thereby, together with related
financing statements, stock powers and stock certificates evidencing ownership
of CFI;
(k) simultaneously with the making of the initial Advance, executed UCC-3
Termination Statements to be filed in appropriate jurisdictions to terminate all
Liens against assets of the Borrower and its Subsidiaries other than Permitted
Liens;
(l) all Securitization Documents, which shall be on terms and conditions
acceptable to the Administrative Lender, including any amendments and
modifications thereto as the Administrative Lender determines are necessary as a
result of the transactions contemplated by this Agreement and the other Loan
Documents;
(m) there shall have occurred no material adverse change in the business,
assets or financial condition of the Borrower and its Subsidiaries, taken as a
whole, since the date of the financial statements referred to in Section
-------
4.1(j)(i) hereof;
- ---------
(n) each of the Guaranties, duly executed by the Guarantor party thereto;
(o) all Indebtedness of the Borrower under the Existing Credit Agreement shall
have been (or shall simultaneously therewith be) refinanced in full pursuant to
the terms hereof;
(p) in form and substance reasonably satisfactory to the Lenders and Special
Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or authority of the Borrower or any Subsidiary of the
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<PAGE>
Borrower, and the enforceability of the Obligations; and
Section 3.2 Conditions Precedent to All Advances and Letters of Credit. The
----------------------------------------------------------
obligation of each Lender to make each Advance hereunder (including the initial
Advance) and the obligation of the Issuing Bank to issue each Letter of Credit
(including the initial Letter of Credit) is subject to fulfillment of the
following conditions immediately prior to or contemporaneously with each such
Advance or issuance:
(a) With respect to each Advance and each issuance of a Letter of Credit, all
of the representations and warranties of each Obligor under the Loan Documents,
which, pursuant to Section 4.2 hereof, are made at and as of the time of each
-----------
such Advance or issuance, shall be true and correct at such time in all material
respects, both before and after giving effect to the application of the proceeds
of the Advance or Letter of Credit.
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
--------------
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance or Letter of Credit, is received by the
Administrative Lender from the Borrower prior to the making of such Advance or
issuance of such Letter of Credit;
(c) There shall not exist a Default or Event of Default hereunder that has not
been waived;
(d) The aggregate Advances and Letters of Credit, after giving effect to such
proposed Advance or Letter of Credit, shall not exceed the maximum principal
amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall purport to
enjoin or restrain any Lender or the Issuing Bank from making any Advance or
issuing any Letter of Credit;
(f) There shall not be pending, or to the knowledge of the Borrower,
threatened any Litigation against or affecting the Borrower or any Subsidiary of
the Borrower or any property of the Borrower or any Subsidiary of the Borrower
that has not been disclosed in writing by the Borrower pursuant to Section
-------
4.1(h) or 6.5(a) prior to the making of the last preceding Advance or the
- ------ ------
issuance of the last preceding Letter of Credit (or in the case of the initial
Advances and Letters of Credit, prior to the Agreement Date) and there shall
have occurred no development not so disclosed in any such Litigation that, in
either event, could reasonably be expected to have a Material Adverse Effect;
and
(g) There shall have occurred no material adverse change in the business,
financial condition, results of operations or business prospects of the Borrower
and its Subsidiaries, taken as a whole, since December 31, 1995.
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<PAGE>
Notwithstanding anything herein to the contrary, the obligation of each Lender
to make a Facility A Advance, pursuant to Section 2.2(g) and 2.15(c) shall be
-------------- -------
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, (i) the occurrence of any Default or Event of
Default, (ii) the failure of the Borrower to satisfy any condition set forth in
this Section 3.2 or (iii) any other circumstance, happening or event whatsoever.
-----------
Section 3.3 Conditions Precedent to Conversions and Continuations. The
-----------------------------------------------------
obligation of the Lenders to convert any existing Base Rate Advance into a LIBOR
Advance or to continue any existing LIBOR Advance is subject to the condition
precedent that on the date of such conversion or continuation no Default or
Event of Default shall have occurred and be continuing or would result from the
making of such conversion or continuation. The acceptance of the benefits of
each such conversion and continuation shall constitute a representation and
warranty by the Borrower to each of the Lenders that no Default or Event of
Default shall have occurred and be continuing or would result from the making of
such conversion or continuation.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby represents
------------------------------
and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective jurisdiction of
----------------------------------
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on Schedule 4 are true and correct as of the Agreement Date.
----------
Schedule 4 is a complete and accurate listing as of the Agreement Date, showing
- ----------
with respect to the Borrower and each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number and amount of its Capital Stock authorized and
outstanding, (c) each record and beneficial owner of 5% or more of its
outstanding Capital Stock, and (d) all outstanding options, rights, rights of
conversion, redemption, purchase or repurchase, rights of first refusal and
similar rights relating to the Capital Stock. All of the outstanding Capital
Stock of the Borrower and each Subsidiary of the Borrower is validly issued,
fully paid and non-assessable. Each of the Borrower and its Subsidiaries is a
corporation or other legal Person duly organized, validly existing and in good
standing under the laws of its state of incorporation or organization. Each of
the Borrower and its Subsidiaries has the legal power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted. Each of the Borrower and its Subsidiaries is authorized to do
business, duly qualified and in good standing as set forth in Schedule 7 and no
----------
qualification or authorization is necessary in any other jurisdictions in which
the character of its properties or the nature of its business requires such
qualification or authorization, except where the failure to be so qualified or
authorized could not reasonably be expected to have a Material Adverse Effect.
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<PAGE>
(b) Authorization. The Borrower has legal power and has taken all necessary
-------------
legal action to authorize it to borrow and request Letters of Credit hereunder.
Each of the Borrower and its Subsidiaries has legal power and has taken all
necessary legal action to execute, deliver and perform the Loan Documents to
which it is party in accordance with the terms thereof, and to consummate the
transactions contemplated thereby. Each Loan Document has been duly executed and
delivered by the Borrower or the Subsidiary of the Borrower executing it. Each
of the Loan Documents to which the Borrower or any of its Subsidiaries is a
party is a legal, valid and binding obligation of the Borrower or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject, to
enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) Debtor Relief Laws (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any
Subsidiary of the Borrower).
(c) Compliance with Other Loan Documents and Contemplated Transactions. The
------------------------------------------------------------------
execution, delivery and performance by the Borrower and its Subsidiaries of the
Loan Documents to which they are respectively a party, and the consummation of
the transactions contemplated thereby, do not and will not (i) require any
consent or approval necessary on or prior to the Agreement Date not already
obtained, except to the extent that the failure to obtain any such consent or
approval could not reasonably be expected to have a Material Adverse Effect,
(ii) violate any Applicable Law, (iii) conflict with, result in a breach of, or
constitute a default under the certificate of incorporation or by-laws of the
Borrower or any Subsidiary of the Borrower, (iv) conflict with, result in a
breach of, or constitute a default under any Necessary Authorization, indenture,
agreement or other instrument, to which the Borrower or any Subsidiary of the
Borrower is a party or by which they or their respective properties may be
bound, the result of which could reasonably be expected to have a Material
Adverse Effect, or (v) result in or require the creation or imposition of any
Lien (other than Liens in favor of the Lenders to secure the Obligations
hereunder) upon or with respect to any property now owned or hereafter acquired
by the Borrower or any Subsidiary of the Borrower.
(d) Business. The Borrower and its Subsidiaries are engaged primarily in the
--------
business of providing distributed desktop computer-related products and network
integration services for large corporate customers worldwide and providing
related services, including LAN/WAN projects and consulting, network management,
help desk, field engineering configuration, distribution and procurement and
activities directly related thereto.
(e) Licenses, etc. All Necessary Authorizations have been duly obtained, and
--------------
are in full force and effect without any known conflict with the rights of
others and free from any unduly burdensome restrictions, unless the failure to
obtain or have in effect such Necessary Authorizations could not reasonably be
expected to result in a Material Adverse Effect. The Borrower and its
Subsidiaries are and will continue to be in compliance in all material respects
with all provisions thereof. No circumstance exists which could reasonably be
expected to impair the utility of the Necessary Authorization or the right to
renew such Necessary Authorization the effect of which could reasonably be
expected to have a Material Adverse Effect. No Necessary Authorization is the
subject of any pending or, to the best of the Borrower's knowledge, threatened
challenge, suspension, cancellation or revocation, the effect of which could
reasonably be expected to have a
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<PAGE>
Material Adverse Effect.
(f) Compliance with Law. The Borrower and its Subsidiaries are in compliance
-------------------
in all respects with all Applicable Laws, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.
(g) Title to Properties. The Borrower and its Subsidiaries have good and
-------------------
indefeasible title to, or a valid leasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
No financing statement or other Lien filing (except relating to Permitted Liens)
is on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries as debtor or covers (or purports to cover) any assets of the
Borrower or any of its Subsidiaries. The Borrower and its Subsidiaries have not
signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing (except
relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of the Agreement
---------- ----------
Date there is no Litigation pending against, or, to the Borrower's current
actual knowledge, threatened against the Borrower, or in any other manner
relating directly and adversely to the Borrower or any of its Subsidiaries, or
any of their respective properties, in any court or before any arbitrator of any
kind or before or by any governmental body in which the amount claimed (in
excess of applicable insurance) exceeds $100,000.
(i) Taxes. All material federal, state and other tax returns of the Borrower
-----
and its Subsidiaries required by law to be filed have been duly filed or
extensions have been timely filed, and all material federal, state and other
Taxes upon the Borrower, its Subsidiaries or any of their properties, income,
profits and assets, which are due and payable, have been paid, unless the same
are being diligently contested in accordance with Section 5.6 hereof. The
-----------
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of their Taxes are, in the reasonable judgment of the Borrower,
adequate.
(j) Financial Statements; Material Liabilities.
------------------------------------------
(i) The Borrower has heretofore delivered to Lenders (a) the audited
consolidated balance sheets of the Borrower and its Subsidiaries as at
December 31, 1996, and the related statements of earnings and changes in
investment and statement of cash flows for the twelve-month period then ended,
and (b) unaudited consolidated balance sheets of the Borrower and its
Subsidiaries as at June 30, 1997, and the related statements of earnings and
changes in investment and statement of cash flows for the six-month period
then ended. Such financial statements were prepared in conformity with GAAP
(except for the absence of footnotes) and fairly present, in all material
respects, the financial position of the Borrower and its Subsidiaries as at
the date thereof and the combined results of operations and cash flows for the
period covered thereby.
(ii) The projected financial statements of the Borrower and its
Subsidiaries delivered to the Lenders prior to or on the Agreement Date were
prepared in good faith and management of the Borrower believes them to be
based on reasonable assumptions (which assumptions have been included in the
most recent projections furnished to the Lenders prior to the Agreement Date)
and to fairly present in all material respects the projected financial
condition of the Borrower and its Subsidiaries and the projected results of
operations as of the dates and for the periods shown for the Borrower and its
Subsidiaries, it being recognized by the Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the
projected results.
(iii) The financial statements of the Borrower and its Subsidiaries
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<PAGE>
delivered to the Lenders pursuant to Section 6.1, and 6.2 hereof fairly
----------- ---
present in all material respects their respective financial condition and
their respective results of operations as of the dates and for the periods
shown, all in accordance with GAAP, subject to normal year-end adjustments.
The latest of such financial statements reflects all material liabilities,
direct and contingent, of the Borrower and each Subsidiary of the Borrower
that are required to be disclosed in accordance with GAAP. As of the date of
the latest of such financial statements, there were no Guaranties, liabilities
for Taxes, forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are substantial in amount that
are required to be reflected but that are not reflected on such financial
statements.
(k) No Adverse Change. Since December 31, 1996, no event or circumstance
-----------------
has occurred or arisen which is reasonably likely to have a Material Adverse
Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains or
-----
contributes to any Plan subject to Title IV of ERISA other than those disclosed
to the Administrative Lender in writing. Each such Plan (other than any
Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to have
a Material Adverse Effect. With respect to each Plan (other than any
Multiemployer Plan) of the Borrower and each member of its Controlled Group, all
reports required under ERISA or any other Applicable Law to be filed with any
Tribunal, the failure of which to file could reasonably be expected to result in
liability of the Borrower or any member of its Controlled Group in excess of
$100,000, have been duly filed. All such reports are true and correct in all
material respects as of the date given. No Plan of the Borrower or any member of
its Controlled Group has been terminated under Section 4041(c) of ERISA nor has
any accumulated funding deficiency (as defined in Section 412(a) of the Code)
been incurred (without regard to any waiver granted under Section 412 of the
Code), nor has any funding waiver from the Internal Revenue Service been
received or requested the result of which could reasonably be expected to have a
Material Adverse Effect. None of the Borrower or any member of its Controlled
Group has failed to make any contribution or pay any amount due or owing as
required under the terms of any such Plan, or by Section 412 of the Code or
Section 302 of ERISA by the due date under Section 412 of the Code and Section
302 of ERISA, the result of which could reasonably be expected to have a
Material Adverse Effect. There has been no ERISA
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<PAGE>
Event or any event requiring disclosure under Section 4041(c)(3)(C) or 4063(a)
of ERISA with respect to any Plan or its related trust of the Borrower or any
member of its Controlled Group since the effective date of ERISA. The present
value of the benefit liabilities, as defined in Title IV of ERISA, of each Plan
subject to Title IV of ERISA (other than a Multiemployer Plan) of the Borrower
and each member of its Controlled Group does not exceed by more than $500,000
the present value of the assets of each such Plan as of the most recent
valuation date using each such Plan's actuarial assumptions at such date. There
are no pending, or to the Borrower's knowledge threatened, claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Borrower nor any member of its Controlled
Group has knowledge of any threatened litigation or claims against, the assets
of any Plan or its related trust or against any fiduciary of a Plan with respect
to the operation of such Plan, the result of which could reasonably be expected
to have a Material Adverse Effect. None of the Borrower or, to the Borrower's
knowledge, any member of its Controlled Group has engaged in any prohibited
transactions, within the meaning of Section 406 of ERISA or Section 4975 of the
Code, in connection with any Plan the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has withdrawn from any Multiemployer Plan, nor has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any
withdrawal liability (and no event has occurred which with the giving of notice
under Section 4219 of ERISA would result in such liability) under Section 4201
of ERISA as a result of a complete or partial withdrawal (within the meaning of
Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability
under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section
4042 of ERISA. None of the Borrower, any member of its Controlled Group, or any
organization to which the Borrower or any member of its Controlled Group is a
successor or parent corporation within the meaning of ERISA Section 4069(b), has
engaged in a transaction within the meaning of ERISA Section 4069, the result of
which could reasonably be expected to have a Material Adverse Effect. None of
the Borrower or any member of its Controlled Group maintains or has established
any Plan, which is a welfare benefit plan within the meaning of Section 3(1) of
ERISA and which provides for continuing benefits or coverage for any participant
or any beneficiary of any participant after such participant's termination of
employment, except as may be required by any Applicable Law, the result of which
could reasonably be expected to have a Material Adverse Effect. Each of Borrower
and its Controlled Group which maintains a Plan which is a welfare benefit plan
within the meaning of Section 3(1) of ERISA has complied in all material
respects with any applicable notice and continuation requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations thereunder. None of the Borrower or any member of its Controlled
Group maintains, has established, or has ever participated in a multiemployer
welfare benefit arrangement within the meaning of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is not engaged
-----------------------------------------
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock within the
meaning of Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, and no part of the proceeds of the Advances or Letters of Credit
will be used to purchase or carry any margin stock or to extend credit to others
for
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<PAGE>
the purpose of purchasing or carrying any margin stock. No more than 25% of the
assets of the Borrower and its Subsidiaries are margin stock. None of the
Borrower and its Subsidiaries nor any agent acting on their behalf, have taken
or will knowingly take any action which would cause this Agreement or any other
Loan Documents to violate any regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.
(n) Authorization. The Borrower and its Subsidiaries are not required to
-------------
obtain any Necessary Authorization on or prior to the Agreement Date that has
not already been obtained from, or effect any material filing or registration
that has not already been effected with, any Tribunal in connection with the
execution and delivery of this Agreement or any other Loan Document, or the
performance thereof, in accordance with their respective terms, including any
borrowings hereunder, except for the filing of financing statements (and other
similar notices) containing a description of the Collateral with certain
Tribunals, including the United States Trademark and Copyright Offices.
(o) Absence of Default. The Borrower and its Subsidiaries are in compliance
------------------
all material respects with all of the provisions of their certificate of
incorporation and by-laws, and no event has occurred or failed to occur, which
has not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a default by the Borrower or any of
its Subsidiaries under any material indenture, agreement or other instrument, or
any judgment, decree or order to which the Borrower or any of its Subsidiaries
or by which they or any of their respective properties is bound, except to the
extent that such default could not reasonably be expected to have a Material
Adverse Effect.
(p) Governmental Regulation. Neither the Borrower nor any of its Subsidiaries
-----------------------
is subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act or the Investment Company Act
of 1940. Neither the entering into or performance by the Borrower of this
Agreement nor the issuance of the Notes violates any provision of such act or
requires any consent, approval, or authorization of, or registration with, the
Securities and Exchange Commission or any other Tribunal pursuant to any
provisions of such act.
(q) Environmental Matters. Neither the Borrower nor any Subsidiary has any
---------------------
current actual knowledge that any substance deemed hazardous by any Applicable
Environmental Law, has been installed (i) on any real property fee title to
which is now owned by the Borrower or any of its Subsidiaries or (ii) by
Borrower or any of its Subsidiaries on any real property leased by the Borrower
or any of its Subsidiaries, in either case in a manner which does not comply
with Applicable Environmental Laws, except to the extent that the failure to so
comply could not reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries are not in violation of or subject to any
existing, pending or, to the best of the Borrower's knowledge, threatened
investigation or inquiry by any Tribunal or to any remedial obligations under
any Applicable Environmental Laws, the effect of which could reasonably be
expected to have a Material Adverse Effect. The Borrower and its Subsidiaries
have not obtained and are not required
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to obtain any permits, licenses or similar authorizations other than
certificates of occupancy and building permits and other authorizations that
have been obtained to construct, occupy, operate or use any buildings,
improvements, fixtures, and equipment forming a part of any real property owned
or leased by the Borrower or any Subsidiary of the Borrower by reason of any
Applicable Environmental Laws, except to the extent that the failure to so
obtain could not reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries undertook, at the time of acquisition of fee title
to any real property, reasonable inquiry into the previous ownership and uses of
such real property consistent with good commercial or customary practice. The
Borrower and its Subsidiaries have taken reasonable steps to determine, and the
Borrower and its Subsidiaries have no current actual knowledge, that any
hazardous substances or solid wastes have been disposed of or otherwise released
(i) on or to the real property fee title to which is owned by the Borrower or
any of its Subsidiaries or (ii) by Borrower or any of its Subsidiaries on or to
any real property leased by Borrower or any of its Subsidiaries, all within the
meaning of the Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries have disposed of all hazardous substances and solid wastes (if
any), all within the meaning of the Applicable Environmental Laws, generated in
their respective businesses in compliance with all Applicable Environmental
Laws, except to the extent that the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
(r) Certain Fees. No broker's, finder's or other fee or commission will be
------------
payable by the Borrower (other than to the Lenders hereunder) with respect to
the making of the Commitments or the Advances hereunder. The Borrower agrees to
indemnify and hold harmless the Administrative Lender and each Lender from and
against any claims, demand, liability, proceedings, costs or expenses asserted
with respect to or arising in connection with any such fees or commissions.
(s) Patents, Etc. The Borrower and its Subsidiaries have collectively
------------
obtained or applied for all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their business as presently conducted and as
proposed to be conducted, except to the extent that the failure to so obtain or
apply could not reasonably be expected to have a Material Adverse Effect.
Nothing has come to the current actual knowledge of the Borrower or any of its
Subsidiaries to the effect that (i) any process, method, part or other material
presently contemplated to be employed by the Borrower or any Subsidiary of the
Borrower may infringe any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person, or (ii) there is
pending or overtly threatened any claim or litigation against or affecting the
Borrower or any Subsidiary of the Borrower contesting its right to sell or use
any such process, method, part or other material, which could reasonably be
expected to have a Material Adverse Effect.
(t) Disclosure. All factual information furnished by the Borrower or any
----------
of its Subsidiaries in writing to the Administrative Lender or any Lender in
connection with this Agreement, the other Loan Documents or any transaction
contemplated herein or therein is, and all other factual information hereafter
furnished by or on behalf of the Borrower or any of its Subsidiaries in writing
to the Administrative Lender or any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete
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by omitting to state any fact necessary to make such information (taken as a
whole) not misleading at such time in light of the circumstances under which
such information was provided. There is no fact known to the Borrower and not
known to the public generally that could reasonably be expected to have a
Material Adverse Effect, which has not been set forth in this Agreement or in
the documents, certificates and statements furnished to the Lenders by or on
behalf of the Borrower prior to the date hereof in connection with the
transaction contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries on a
--------
consolidated basis are, Solvent.
(v) Labor Relations. Except as provided on Schedule 8, neither the Borrower
--------------- ----------
nor any Subsidiary is a party to a collective bargaining agreement or similar
agreement, and the Borrower and each Subsidiary is in compliance in all material
respects with all Laws respecting employment and employment practices, terms and
conditions of employment, wages and hours and other laws related to the
employment of its employees, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect, and there are no
arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of the Borrower or
any Subsidiary or for which the Borrower or any Subsidiary may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute with
any union or group of employees pending or overtly threatened involving Borrower
or any Subsidiary that could reasonably be expected to have a Material Adverse
Effect.
(w) Consolidated Business Entity. The Borrower and its Material Subsidiaries
----------------------------
are operated as a part of one consolidated business entity and are directly or
indirectly dependent upon each other for and in connection with their respective
business activities.
Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof or (b) previously waived in writing by the Determining Lenders with
respect to any particular factual circumstance or permitted by the terms of this
Agreement. All such representations and warranties shall survive, and not be
waived by, the execution hereof by any Lender, any investigation or inquiry by
any Lender, or by the making of any Advance or the issuance of any Letter of
Credit under this Agreement.
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ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof, preserve
-----------
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, rights, franchises, licenses, authorizations, consents, privileges
and all other Necessary Authorizations from any Tribunal, the loss of which
could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof, qualify and
-----------
remain qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization, unless the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and its
----------------------------------------
Subsidiaries shall (a) engage primarily in the businesses set forth in Section
-------
4.1(d) hereof, and (b) comply in all respects with the requirements of all
- ------
Applicable Law, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. The Borrower shall, and shall cause
-------------------------
each Subsidiary of the Borrower to, maintain or cause to be maintained all its
properties (whether owned or held under lease) in reasonably good repair,
working order and condition, taken as a whole, and from time to time make or
cause to be made all appropriate (in the reasonable judgment of the Borrower)
repairs, renewals, replacements, additions, betterments and improvements
thereto, except where the failure to so maintain, repair, renew, replace or
improve could not reasonably be expected to have a Material Adverse Effect.
Section 5.4 Accounting Methods and Financial Records. The Borrower shall,
----------------------------------------
and shall cause each Subsidiary of the Borrower to, maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP, and keep accurate and complete
records of its respective assets. Except with respect to a change in the fiscal
year of any Subsidiary to conform to the fiscal year of the Borrower, the
Borrower and each of its Subsidiaries shall maintain its fiscal year in the
manner in existence on the Agreement Date.
Section 5.5 Insurance. The Borrower shall, and shall cause each Subsidiary
---------
of the Borrower to, maintain insurance from responsible companies in such
amounts and against such risks as shall be customary and usual in the industry
for companies of similar size and capability.
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Each insurance policy shall (a) provide for at least 30 days' prior notice to
the Administrative Lender of any proposed termination or cancellation of such
policy, whether on account of default or otherwise and (b) otherwise contain the
requirements for insurance set forth in the Security Agreements.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and shall cause
---------------------------
each Subsidiary of the Borrower to, pay and discharge all material Taxes to
which they are subject prior to the date on which penalties attach thereto, and
all lawful material claims for labor, materials and supplies which, if unpaid,
might become a Lien upon any of its properties; except that no such Tax or claim
need be paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as no Lien shall attach with respect thereto
and no foreclosure, distraint, sale or similar proceedings shall have been
commenced. The Borrower shall, and shall cause each Subsidiary of the Borrower
to, timely file all information returns (or extensions of such filing deadlines)
required by federal, state or local tax authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and shall cause each
----------------------
Subsidiary of the Borrower to, promptly permit representatives of the
Administrative Lender or any Lender from time to time after reasonable notice by
the Administrative Lender or any Lender to (a) visit and inspect the properties
of the Borrower and its Subsidiaries as often as the Administrative Lender or
any Lender shall reasonably deem advisable, (b) audit, inspect and make extracts
from and copies of the Borrower's and each such Subsidiary's books and records,
and (c) discuss with the Borrower's and each such Subsidiary's appropriate
directors, officers, employees and auditors its business, assets, liabilities,
financial positions, results of operations and business prospects, provided that
--------
such representatives of the Administrative Lender or any Lender shall keep
confidential all information obtained pursuant to this Section 5.7 to the extent
-----------
required by Section 11.14. The Borrower shall pay the reasonable expenses
-------------
related to inspections and audits performed by the Administrative Lender. Prior
to the occurrence of an Event of Default, all such visits and inspections shall
be conducted during normal business hours. Following the occurrence and during
the continuance of an Event of Default, such visits and inspections shall be
conducted at any time requested by the Administrative Lender or any Lender
without any requirement for reasonable notice.
Section 5.8 Use of Proceeds. The proceeds of (a) the Facility A Advances and
---------------
the Letters of Credit shall be used by the Borrower for refinancing of
Indebtedness of the Borrower, Capital Expenditures, Acquisitions permitted under
Section 7.6 hereof and for working capital and for other general corporate
- -----------
purposes and (b) the Facility B Advances shall be used solely to refinance the
outstanding balance, as of the Agreement Date, of the "Facility B Advances" (as
such term is defined in the Existing Credit Agreement", which original Facility
B Advances were used by the Borrower solely to purchase real property to be
utilized as the corporate headquarters for the Borrower.
SECTION 5.9 INDEMNITY.
---------
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<PAGE>
(A) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION,
THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF
ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
"INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
-----------
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS,
REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE
DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH
INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY
FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE
CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE
PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWER, ITS SUBSIDIARIES OR THEIR
RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER OR ITS SUBSIDIARIES),
RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY
ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR
ATTENDANT THERETO, THE MANAGEMENT OF THE ADVANCES OR LETTERS OF CREDIT,
INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY
ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER (OTHER THAN
THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE ADMINISTRATIVE
LENDER OR ANY LENDER AND NOT THE BORROWER OR ANY OF ITS SUBSIDIARIES), OR THE
USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES OR LETTERS OF CREDIT
HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER
COVERED HEREBY, BUT EXCLUDING (I) ANY CLAIM OR LIABILITY THAT ARISES AS THE
RESULT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF ANY INDEMNITEE, AS
FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, AND (II)
MATTERS RAISED BY ONE LENDER AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS OF A
LENDER AGAINST A LENDER OR ITS MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS").
-------------------
TO THE EXTENT THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH
INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS
REASONABLE DISCRETION DETERMINES THAT
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CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(B) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE
EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND PREPARATION)
INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. THE REIMBURSEMENT,
INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION
TO ANY LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE
SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF THE BORROWER, THE ADMINISTRATIVE LENDER, THE LENDERS AND ALL
OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT
AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the Borrower or any
----------------------------
Subsidiary of the Borrower intends to make of any real property which is owned
or leased by it will not result in the disposal or other release of any
hazardous substance or solid waste on or to such real property which is in
violation of Applicable Environmental Laws, the effect of which could reasonably
be expected to have a Material Adverse Effect. As used herein, the terms
"hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their properties establishes a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
or lesser than that specified in either CERCLA or RCRA, such broader or lesser
meaning shall apply. The Borrower agrees to indemnify and hold the
Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, reasonable costs and reasonable expenses (including
reasonable attorneys' fees and courts costs) of any kind or character, known or
unknown, fixed or contingent, asserted against or incurred by any of them at any
time and from time to time by reason of or arising out of (a) the failure of the
Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real property, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental
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Law at the time of its existence or occurrence; provided that, the Borrower
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the gross
negligence or wilful misconduct of such Person, as finally judicially determined
by a court of competent jurisdiction. The provisions of this paragraph shall
survive the Release Date and shall continue thereafter in full force and effect.
Section 5.11 Further Assurances. At any time or from time to time upon
------------------
request by the Administrative Lender, the Borrower or any Subsidiary of the
Borrower shall execute and deliver such further documents and do such other acts
and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender Schedules 3 and 4 hereto at the time of delivery of the financial
-----------------
statements set forth in Sections 6.1 and 6.2 hereof if the information provided
------------ ---
therein is not complete and correct, and (b) update and deliver to the
Administrative Lender Schedule 1 to the Security Agreements promptly upon
----------
discovery if the information provided therein is not complete and correct.
Section 5.12 Subsidiaries. At any time that any Person becomes a Subsidiary
------------
other than pursuant to Section 7.3(f) hereof, (a) such Subsidiary shall execute
--------------
a Subsidiary Guaranty of the Obligations and a security agreement (in
substantially the form of Exhibit D hereto, appropriately completed) granting a
---------
first priority Lien in all its assets of the types or classes included in the
Collateral, except, to the extent applicable, for Liens permitted in clause (f)
of the definition of Permitted Liens, to secure the Obligations and (b) the
Lenders shall receive such board resolutions, officer's certificates and
opinions of counsel as the Administrative Lender shall reasonably request in
connection with the actions described in clause (a) above.
Section 5.13 Real Property. At any time that the Borrower acquires any real
-------------
property with the proceeds of a Facility B Advance, the Borrower shall (a)
execute a Deed of Trust granting a first priority Lien in the real property
acquired with such proceeds, (b) deliver to the Administrative Lender a title
insurance policy with respect to such real property, in form and substance
acceptable to the Administrative Lender, (c) deliver to the Administrative
Lender an environmental site assessment with respect to such real property, in
form and substance acceptable to the Administrative Lender, prepared by a Person
acceptable to the Administrative Lender, (d) deliver to the Administrative
Lender surveys with respect to such real property, in form and substance
acceptable to the Administrative Lender, and (e) the Lenders shall receive such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request with respect thereto.
Section 5.14 Agreements in Respect of RPA and TAA. With respect to the RPA
------------------------------------
and the TAA, respectively, (a) unless otherwise agreed by the Administrative
Lender, the Borrower at all times shall have and maintain the sole and exclusive
right to service, administer and collect the Receivables, subject at all times,
---------------------
however, to the Loan Documents, (b) at all times after the occurrence and during
- -------
the continuance of any Default or Event of Default, the Borrower shall cause
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all proceeds of any increase in the Net Investment (as defined by the TAA)
received by CFI and paid to the Borrower in payment of any Receivable(s) under
the RPA to be paid directly to the Administrative Lender for application to the
Obligations, (c) the Borrower will not effect any increase in the Maximum Net
Investment (as defined by the TAA) without the prior written consent of the
Administrative Lender and (f) the Borrower will not enter into any agreement to
amend the RPA, the TAA or any of the other Securitization Documents without the
prior written consent of the Determining Lenders if such agreement, or the
amendment to the applicable Securitizations Document(s) contemplated thereby,
would have a material adverse effect upon any of the Lenders or the
Administrative Lender.
ARTICLE 6
Information Covenants
---------------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled), the Borrower shall furnish or cause to be furnished to each Lender
or shall notify each Lender of the following events:
Section 6.1 Quarterly Financial Statements and Information. Within 45 days
----------------------------------------------
after the end of each fiscal quarter of each fiscal year, the consolidated
balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal
quarter and the related consolidated statements of income for such fiscal
quarter and for the elapsed portion of the year ended with the last day of such
fiscal quarter, and consolidated statements of cash flow for the elapsed portion
of the year ended with the last day of such fiscal quarter, all of which shall
be certified by the president, chief financial officer, treasurer or controller
of the Borrower, to, in his or her opinion acting solely in his or her capacity
as an officer of the Borrower, present fairly in all material respects, in
accordance with GAAP (except for the absence of footnotes), the financial
position and results of operations of the Borrower and its Subsidiaries as at
the end of and for such fiscal quarter, and for the elapsed portion of the year
ended with the last day of such fiscal quarter, subject only to normal year-end
adjustments.
Section 6.2 Annual Financial Statements and Information; Certificate of No
--------------------------------------------------------------
Default.
- -------
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as of
and through the end of such Fiscal Year, all of which are prepared in accordance
with GAAP, and certified by independent certified public accountants reasonably
acceptable to the Lenders (provided, however, any big six public accounting firm
shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified as to scope of audit and going concern.
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(b) As soon as available, but in any event within 30 days after December 31,
1997 and within 30 days after the end of each fiscal year thereafter, a copy of
the annual consolidated financial projections (including proforma income
statements, balance sheets and statements of cash flow) of the Borrower and its
Subsidiaries for the succeeding three fiscal years.
Section 6.3 Compliance Certificate. At the time financial statements are
----------------------
furnished pursuant to Sections 6.1 and 6.2 hereof, the Compliance Certificate,
------------ ---
completed as provided therein, executed by the Chief Financial Officer,
Treasurer or Vice President of Finance of the Borrower.
Section 6.4 Copies of Other Reports and Notices.
-----------------------------------
(a) Promptly upon their becoming available, a copy of (i) all material final
reports or letters submitted to the Borrower or any Subsidiary of the Borrower
by accountants in connection with any annual, interim or special audit,
including without limitation any final report prepared in connection with the
annual audit referred to in Section 6.2 hereof, and, if requested by the
-----------
Administrative Lender, any other comment letter submitted to management in
connection with any such audit, (ii) each financial statement, report, notice or
proxy statement sent by the Borrower to stockholders generally, (iii) each
regular, periodic or other report and any registration statement (other than
statements on Form S-8) or prospectus (or material written communication in
respect of any thereof) filed by the Borrower or any Subsidiary of the Borrower
with any securities exchange, with the Securities and Exchange Commission or any
successor agency, and (iv) all press releases concerning material financial
aspects of the Borrower or any Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $500,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (ii) any occurrence or non-occurrence of
any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Borrower or any
Subsidiary of the Borrower under any material agreement or instrument other than
this Agreement to which the Borrower or any Subsidiary of the Borrower is a
party or by which any of their properties may be bound, or (iii) any event,
circumstance or condition which could reasonably be expected to be classified as
a Material Adverse Effect, a written notice specifying the details thereof (or
the nature of any claimed default or event of default) and what action is being
taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations or Operating Lease, in each case, in excess of $500,000, has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and copies of
any notices received from any Tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with any Law,
or could reasonably be expected to result in the payment
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of money by the Borrower or any Subsidiary of the Borrower in an amount of
$500,000 or more in the aggregate, or otherwise have a Material Adverse Effect,
or result in the loss or suspension of any Necessary Authorization where such
loss could reasonably be expected to have a Material Adverse Effect; and
(e) From time to time and promptly upon each request, such data, certificates,
reports, statements, documents or further information regarding the assets,
business, liabilities, financial position, projections, results of operations or
business prospects of the Borrower and its Subsidiaries, as the Administrative
Lender or any Lender may reasonably request.
Section 6.5 Notice of Litigation, Default and Other Matters. Prompt notice
-----------------------------------------------
of the following events after the Borrower has knowledge or notice thereof:
(a) The commencement of all Litigation and investigations by or before any
Tribunal, and all actions and proceedings in any court or before any arbitrator
involving claims for damages (including punitive damages) in excess of $500,000
(after deducting the amount with respect to the Borrower or any Subsidiary of
the Borrower is insured), against or in any other way relating directly to the
Borrower, any Subsidiary of the Borrower, or any of their respective properties
or businesses; and
(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action is
being taken or is proposed to be taken with respect thereto.
Section 6.6 ERISA Reporting Requirements.
----------------------------
(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a request for a minimum funding waiver
under Section 412 of the Code has been made with respect to any Plan of the
Borrower or any member of its Controlled Group, a written notice describing such
event and describing what action is being taken or is proposed to be taken with
respect thereto, together with a copy of any notice of such event that is given
to the PBGC;
(b) Promptly and in any event within three Business Days after receipt thereof
by the Borrower or any member of its Controlled Group from the PBGC, copies of
each notice received by the Borrower or any member of its Controlled Group of
the PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
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(c) Promptly and in any event within 30 days after the filing thereof by the
Borrower or any member of its Controlled Group with the United States Department
of Labor or the Internal Revenue Service, copies of each annual report
(including Schedule B thereto, if applicable) with respect to each Plan subject
to Title IV of ERISA of which Borrower or any member of its Controlled Group is
the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after receipt thereof,
a copy of any correspondence the Borrower or any member of its Controlled Group
receives from the Plan Sponsor (as defined by Section 4001(a)(10) of ERISA) of
any Plan concerning potential withdrawal liability pursuant to Section 4219 or
4202 of ERISA, and a statement from the chief financial officer of the Borrower
or such member of its Controlled Group setting forth details as to the events
giving rise to such potential withdrawal liability and the action which the
Borrower or such member of its Controlled Group is taking or proposes to take
with respect thereto;
(e) Notification within 30 days of any material increases in the benefits
provided under any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which the Borrower or any member of its Controlled Group was not previously
contributing, which could reasonably be expected in any such case to result in
an additional material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or any member
of its Controlled Group knows that the Borrower or any such member of its
Controlled Group has filed or intends to file a notice of intent to terminate
any Plan under a distress termination within the meaning of Section 4041(c) of
ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of commencement
thereof, notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Borrower or any member of its Controlled
Group with respect to any Plan, except those which, in the aggregate, if
adversely determined could not reasonably be expected to have a Material Adverse
Effect.
Section 6.7 RPA and TAA Reporting Requirements.
----------------------------------
(a) (i) At such times as the Administrative Lender may request, the amount of
the Maximum Net Investment (as defined by the TAA), (ii) promptly upon any
termination of the RPA or the TAA, or upon receiving or sending any notice of
intended or pending or potential termination of the RPA or the TAA, (iii)
promptly at any time when the "Percentage Factor" exceeds the "Maximum
Percentage Factor" (as those terms are defined by the TAA); (iv) promptly upon
becoming aware of any assignment by EFC, or any request by CFI for an assignment
by EFC, of EFC's interest under the TAA to any "Bank Investor" (as defined in
the TAA) pursuant to Section 9.7 of the TAA and (vi) promptly upon becoming
aware of any "Termination Event" or "Potential Termination Event" (as those
terms are defined in the TAA) under the TAA.
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(b) A true and correct copy of (i) at Administrative Lender's request, each
report delivered by the Borrower to CFI and/or EFC under the RPA, the TAA and/or
any of the other Securitization Documents; (ii) each notice, if any, at any time
given by CFI pursuant to Section 5.1(b)(i) of the TAA (notifications in respect
of any "Termination Event" or "Potential Termination Event", as those terms are
defined by the TAA) and (iii) any notice (or copy of any such notice) of
termination, or of intended, pending or potential termination of the RPA or the
TAA sent or received by the Borrower or CFI.
ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not permit any
------------
Subsidiary of the Borrower to, create, assume, incur or otherwise become or
remain obligated in respect of, or permit to be outstanding, or suffer to exist
any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the ordinary course
of business;
(c) Indebtedness, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which constitute
property, plant and equipment, in an aggregate principal amount not in excess of
$10,000,000 outstanding at any time;
(d) Indebtedness incurred or assumed in respect of Acquisitions permitted
pursuant to Section 7.6 hereof in an aggregate principal amount not in excess of
-----------
$20,000,000 per calendar year;
(e) Hedging obligations under Agreements entered into with any Lender;
(f) Indebtedness existing on the Agreement Date which is described on Schedule
--------
6 hereto, including renewals, replacements and refinancings (but no increases)
- -
thereof;
(g) Indebtedness in respect of endorsement of negotiable instruments in the
ordinary course of business;
(h) Indebtedness owing to the Borrower or any Guarantor by any Subsidiary or
the Borrower, which Indebtedness is evidenced by an entry on the financial
records of the Borrower and any such Subsidiary of the Borrower;
(i) Indebtedness of ClientLink, Inc. not to exceed $3,000,000 for working
capital;
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(j) Guaranties by the Borrower or by Subsidiaries of the Borrower of
Indebtedness of the Borrower or Subsidiaries of the Borrower, to the extent such
underlying Indebtedness is permitted hereunder;
(k) Trade accounts payable owing by the Borrower or any of its Subsidiaries to
any of (i) IBM Credit Corporation, (ii) Compaq Computer Corporation, (iii)
Hewlett-Packard Company or (iv) Apple Computer, Inc. for goods furnished by any
of such Persons to any of the Obligors;
(l) Unsecured trade accounts payable, incurred in the ordinary course of the
business of Borrower or any of its Subsidiaries; and
(m) Indebtedness of CFI to the Borrower evidenced by the CFI Note if, and to
the extent that, the Administrative Lender has a valid, perfected first priority
Lien in, and physical possession of, the CFI Note, together with any and all
necessary or appropriate endorsements to such CFI Note.
(n) Unsecured Indebtedness not otherwise permitted pursuant to clauses (a)
through (m) above not to exceed $50,000,000 (less any and all Indebtedness under
Subsections (c), (d) and/or (i) of this Section 7.1) in the aggregate principal
--- --- -----------
amount outstanding at any time.
Section 7.2 Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary of Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens. The Borrower shall not, and shall
not permit any Subsidiary to, agree with any other Person that it shall not
create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets other than in respect of Indebtedness permitted by Sections 7.1(c), (d),
--------------- ---
(f) and (k), provided that such agreement relates only to the assets purchased
- --- ---
or acquired.
Section 7.3 Investments. The Borrower shall not, and shall not permit any
-----------
Subsidiary of Borrower to, make any Investment, except that the Borrower and any
Subsidiary of the Borrower may purchase or otherwise acquire and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of business and are
payable on standard terms;
(c) Investments in existence on the Agreement Date which are described on
Schedule 5 hereto;
- ----------
(d) Investments which are Acquisitions permitted pursuant to Section 7.6
-----------
hereof;
(e) Investments in the form of Hedge Agreements permitted by Section 7.1(e)
--------------
hereof;
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(f) Investments (excluding accounts receivable from Subsidiaries of the
Borrower created in the ordinary course of business) in, and expenditures in
respect of Acquisitions of, Subsidiaries which are not Guarantors by the
Borrower in an aggregate amount not to exceed (calculated immediately prior to
the date of each such Investment or Acquisition) 5% of Net Worth at any time
outstanding;
(g) Investments in Subsidiaries of the Borrower (i) which have executed a
Subsidiary Guaranty and a Security Agreement granting a first priority Lien in
all its assets of the types or classes included in the Collateral to secure the
Obligations and (ii) which have delivered to the Lenders such board resolutions,
officer's certificates and opinions of counsel as the Administrative Lender
shall reasonably request;
(h) Guaranties permitted under Section 7.1(j) hereof;
--------------
(i) Investments arising from transactions by the Borrower or any of its
Subsidiaries with customers or suppliers in the ordinary course of business,
including endorsements of negotiable instruments, debt obligations and other
investments received in connection with the bankruptcy or reorganization of
customers and suppliers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers; and
(j) Other Investments not to exceed $5,000,000 in aggregate amount outstanding
at any time.
Section 7.4 Liquidation, Merger. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or dissolution) or
otherwise wind up, except that a Subsidiary of the Borrower may liquidate or
dissolve into the Borrower or a Subsidiary of the Borrower; or
(b) enter into any merger or consolidation unless (i) with respect to a merger
or consolidation involving the Borrower, the Borrower shall be the surviving
corporation, or if the merger or consolidation involves a Subsidiary of the
Borrower and not the Borrower, such Subsidiary shall be the surviving
corporation, (ii) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (iii) no Default or Event of
Default shall then be in existence or occur as a result of such transaction.
Section 7.5 Sales of Assets. The Borrower shall not, and shall not permit
---------------
any Subsidiary of the Borrower to, sell, lease, transfer or otherwise dispose
of, any of its assets except (a) inventory in the ordinary course of business,
(b) obsolete or worn-out assets, (c) asset sales in which the Net Cash Proceeds
from the disposition thereof are reinvested, within 90 days before or after such
disposition, in productive tangible assets of a similar nature of the Borrower
and its Subsidiaries, (d) asset sales between Obligors, (e) sales of interests
in Accounts pursuant to the Securitization and (f) other asset sales not to
exceed $100,000 in the aggregate amount during any one fiscal year.
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Section 7.6 Acquisitions. The Borrower shall not, and shall not permit any
------------
Subsidiary of Borrower to, make any Acquisitions; provided, however, if
immediately prior to and after giving effect to the proposed Acquisition there
shall not exist a Default or Event of Default, the Borrower or any Subsidiary of
the Borrower may make Acquisitions so long as (i) such Acquisition shall not be
opposed by the board of the directors of the Person being acquired, (ii) Lenders
shall have received written notice at least 15 Business Days prior to the date
of such Acquisition, (iii) the Administrative Lender shall have received at
least 10 Business Days prior to the date of such Acquisition a Compliance
Certificate setting forth the covenant calculations both immediately prior to
and after giving effect to the proposed Acquisition, (iv) the assets, property
or business acquired shall be in the business described in Section 4.1(d) hereof
--------------
and the Administrative Lender for the benefit of the Lenders shall have a first
priority Lien in such assets except for Liens permitted in clause (f) of the
definition of Permitted Liens, (v) the aggregate consideration (exclusive of
Equity in the Borrower or any Subsidiary of the Borrower, but inclusive of any
Indebtedness incurred or assumed by the Borrower or any Subsidiary of the
Borrower) paid or given by the Borrower and/or Borrower's Subsidiaries during
any calendar year in connection with Acquisitions shall not exceed $20,000,000
and (vi) at the Borrower's option, (A) such Subsidiary shall execute a
Subsidiary Guaranty of the Obligations and a Security Agreement granting a first
priority Lien in all its assets of the types or classes included in the
Collateral, except for Liens permitted in clause (f) of the definition of
Permitted Liens, to secure the Obligations and (B) the Lenders receive such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with the actions
described in clause (A) above. Notwithstanding anything in this Section 7.6 or
-----------
any other provision of this Agreement to the contrary, the aggregate amount of
expenditures in respect of Acquisitions of, and Investments in, Subsidiaries of
the Borrower that are not Obligors shall not exceed (calculated immediately
prior to the date of each such Investment or Acquisition) 5% of Net Worth at any
time outstanding.
Section 7.7 Capital Expenditures. The Borrower shall not, and shall not
--------------------
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures (a) during the fiscal year ending December 31, 1997 in an aggregate
amount in excess of $25,000,000 and (b) during any fiscal year thereafter in an
aggregate amount in excess of $15,000,000.
Section 7.8 Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of the Borrower to, directly or indirectly declare, pay or
make any Restricted Payments except (a) Dividends payable by a Subsidiary to the
Borrower or to a Guarantor, (b) scheduled payments of principal and interest on
the Subordinated Debt, (c) Dividends payable on "Series B Cumulative Preferred
Stock" of the Borrower to Safeguard Scientifics, Inc. in an aggregate amount for
any fiscal year not to exceed $2,000,000, (d) purchases by the Borrower of
treasury stock of the Borrower in an aggregate amount per fiscal year not to
exceed 25% of the Net Income of the Borrower and its Subsidiaries for the
immediately preceding fiscal year and (e) payments to the Borrower under the CFI
Note; provided, however, the Borrower shall not, and shall not permit any
Subsidiary of the Borrower to, declare, pay or make any Restricted Payments
permitted by this Section 7.8 unless there shall exist no Default or Event of
-----------
Default prior to or after giving effect to any such proposed Restricted Payment.
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Section 7.9 Affiliate Transactions. The Borrower shall not, and shall not
----------------------
permit any Subsidiary of the Borrower to, at any time engage in any transaction
with an Affiliate (other than as evidenced by the RPA or the TAA) other than in
the ordinary course of business and on terms not materially less advantageous to
the Borrower or such Subsidiary than would be the case if such transaction had
been effected with a non-Affiliate. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, incur or suffer to exist any
Indebtedness or Guaranty in favor of any Affiliate, unless such Affiliate shall
(i) subordinate the payment and performance thereof to the Obligations on terms,
conditions and documentation satisfactory to the Determining Lenders or (ii)
pledge the applicable Indebtedness to the Administrative Lender pursuant to
documentation acceptable to the Administrative Lender.
Section 7.10 Compliance with ERISA. The Borrower shall not, and shall not
---------------------
permit any Subsidiary to, directly or indirectly, or permit any member of its
Controlled Group to directly or indirectly, (a) terminate any Plan so as likely
to result in any material (in the reasonable opinion of the Determining Lenders)
liability to the Borrower or any member of its Controlled Group taken as a
whole, (b) permit to exist any ERISA Event, or any other event or condition with
respect to a Plan which could reasonably be expected to have a Material Adverse
Effect, (c) make a complete or partial withdrawal (within the meaning of Section
4201 of ERISA) from any Multiemployer Plan so as likely to result in any
material (in the reasonable opinion of the Determining Lenders) liability to the
Borrower or any member of its Controlled Group taken as a whole, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder which could reasonably be expected to have a Material Adverse Effect,
or (e) permit the present value of all benefit liabilities, as defined in Title
IV of ERISA, under any Plan (other than a Multiemployer Plan) of the Borrower or
any member of its Controlled Group that is subject to Title IV of ERISA (using
the actuarial assumptions utilized by each such Plan) to exceed the fair market
value of Plan assets allocable to such benefits by more than $500,000, all
determined as of the most recent valuation date for such Plan.
Section 7.11 Maximum Leverage Ratio. The Borrower shall not permit the
----------------------
Leverage Ratio to be greater than (a) 4.25 to 1 at the end of any fiscal quarter
ending prior to and including December 31, 2000 and (b) 3.75 to 1 at the end of
any fiscal quarter thereafter.
Section 7.12 Minimum Fixed Charge Coverage Ratio. The Borrower shall not
-----------------------------------
permit the Fixed Charge Coverage Ratio to be less than 1.25 to 1 at the end of
any fiscal quarter.
Section 7.13 Minimum Tangible Net Worth. The Borrower shall not permit the
--------------------------
Tangible Net Worth to be less than an amount equal to the sum of (a)
$130,000,000, plus (b) 75% of cumulative Net Income for the period from, but not
including, March 31, 1997 through the date of calculation (but excluding from
the calculation of such cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended) of the Borrower for
which Net Income was a negative number), plus (c) 75% of the Net Cash Proceeds
received by the Borrower as a result of any offering of Equity or pursuant to
any conversion or exchange of convertible Indebtedness or preferred Capital
Stock into common Capital Stock of the Borrower, plus (d) an
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amount equal to the net worth of any Person that becomes a Subsidiary of the
Borrower or is merged into or consolidated with the Borrower or any Subsidiary
of the Borrower or substantially all of the assets of which are acquired by the
Borrower or any Subsidiary of the Borrower to the extent the purchase price paid
therefor is paid in equity securities of the Borrower or any Subsidiary of the
Borrower.
Section 7.14 Minimum Asset Coverage Ratio. The Borrower shall not permit the
----------------------------
Asset Coverage Ratio to be less than 1.10 to 1 at the end of any fiscal quarter.
Section 7.15 Maximum Funded Debt to Capital. The Borrower shall not permit
------------------------------
the ratio of Funded Debt to Capital to exceed 0.65 to 1 at the end of any fiscal
quarter.
Section 7.16 Sale and Leaseback. The Borrower shall not, and shall not
------------------
permit any Subsidiary of the Borrower to, enter into any arrangement whereby it
sells or transfers any of its assets, and thereafter rents or leases such
assets; provided, however, that the Borrower and its Subsidiaries may enter into
such arrangements if the fair market value of the property covered thereby does
not, in the aggregate, exceed $25,000,000.
Section 7.17 Sale or Discount of Accounts. The Borrower shall not, and shall
----------------------------
not permit any Subsidiary of the Borrower to, directly or indirectly, sell, with
or without recourse, for discount or otherwise, any notes or Accounts other than
pursuant to the Securitization.
Section 7.18 Capital Stock. The Borrower shall not, and shall not permit any
-------------
Subsidiary of the Borrower to, issue, sell or otherwise dispose of any Capital
Stock in the Borrower or any Subsidiary of the Borrower or any options or any
rights to acquire such Capital Stock, except (i) to the extent that the Net Cash
Proceeds thereof during any fiscal year do not exceed $3,000,000 and the Net
Cash Proceeds thereof are, within 90 days after receipt by the Borrower or the
applicable Subsidiary of the Borrower, reinvested in productive tangible assets
of the Borrower and its Subsidiaries, (ii) to the extent that the Net Cash
Proceeds thereof are applied as provided in Section 2.5(c) hereof, (iii) any
--------------
Subsidiary of the Borrower may issue Capital Stock to the Borrower or to any
Guarantor which is the parent of such Subsidiary (iv) the issuance or
disposition of Capital Stock in the Borrower attributable to the conversion of
the NCGI Note into Equity in the Borrower in accordance with the terms of the
NCGI Note, (v) the disposition of Capital Stock of ClientLink as part of the
ClientLink IPO and (vi) the issuance of Capital Stock of the Borrower to
officers and other employees of the Borrower as the result of the exercise by
such officers and other employees of stock options granted to them by the
Borrower pursuant to stock option or similar incentive compensation plans of the
Borrower.
Section 7.19 Business. Neither the Borrower nor any Subsidiary of the
--------
Borrower shall conduct any business other than the business described in Section
-------
4.1(d) hereof.
- ------
Section 7.20 Fiscal Year. Except with respect to a change in the fiscal year
-----------
of any Subsidiary to conform to the fiscal year of the Borrower, neither the
Borrower nor any Subsidiary of the Borrower shall change its fiscal year.
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Section 7.21 Amendment of Organizational Documents. The Borrower shall not,
-------------------------------------
and shall not permit any Subsidiary of the Borrower to, amend its articles of
incorporation or bylaws in any manner that could reasonably be expected to (a)
result in a Material Adverse Effect or (b) impair or affect the Rights of the
Administrative Lender or any Lender under any Loan Documents or in respect of
any Collateral.
Section 7.22 Amendments and Waivers of Subordinated Debt. The Borrower shall
-------------------------------------------
not, and shall not permit any Subsidiary to, change or amend (or take any action
or fail to take any action the result of which is an effective amendment or
change) or accept any waiver or consent with respect to, any document,
instrument or agreement relating to any Subordinated Debt that would result in
(a) an increase in the principal, interest, overdue interest, fees or other
amounts payable under the Subordinated Debt, (b) an acceleration in any date
fixed for payment or prepayment of principal, interest, fees or other amounts
payable under the Subordinated Debt (including, without limitation, as a result
of any redemption), (c) a reduction in any percentage of holders of the
Subordinated Debt required under the terms of the Subordinated Debt to take (or
refrain from taking) any action under the Subordinated Debt, (d) a change in any
financial covenant under the Subordinated Debt making such financial covenant
more restrictive, (e) a change in any default or event of default (however
designated) under the Subordinated Debt which makes such default or event of
default more restrictive, (f) a change in the definition of "Change of Control"
as provided in the Subordinated Debt which would result in such definition being
more restrictive than such definition in this Agreement, (g) a change in any of
the subordination provisions of the Subordinated Debt, (h) a change in any
covenant, term or provision in the Subordinated Debt which would result in such
term or provision being more restrictive than the terms of this Agreement and
the other Loan Documents or (i) a change in any term or provision of the
Subordinated Debt that could have, in any material respect, an adverse effect on
the interest of the Lenders.
Section 7.23 Operating Leases. The Borrower shall not, and shall not permit
----------------
any Subsidiary of the Borrower to, enter into any Operating Leases except for
Operating Leases entered into in the ordinary course of business in a manner and
to an extent consistent with past practice; provided, however, that the total
rent per annum for all Operating Leases of the Borrower and its Subsidiaries
shall not exceed $12,000,000 in aggregate amount for any fiscal year.
ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute an
-----------------
Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:
(a) Any representation or warranty made under any Loan Document shall prove to
have
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been incorrect or misleading in any material respect when made;
(b) The Borrower shall fail to pay any (i) principal under any Note when due
or (ii) interest under any Note or any fees payable hereunder or any other
costs, fees, expenses or other amounts payable hereunder or under any other Loan
Document within two Business Days after the date due;
(c) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any agreement or covenant contained in Section 5.1
-----------
or Article 7;
---------
(d) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any other agreement or covenant contained in this
Agreement not specifically referred to elsewhere in this Section 8.1, and such
-----------
default shall not be cured within a period of fifteen days after the earlier of
notice from the Administrative Lender thereof or actual notice thereof by the
Borrower or such Subsidiary;
(e) There shall occur any default or breach in the performance or observance
of any agreement or covenant in any of the Loan Documents (other than this
Agreement) and such default shall not be cured within a period of thirty days
after the earlier of notice from the Administrative Lender thereof or actual
notice thereof by an officer of any Obligor;
(f) There shall be entered a decree or order by a court having jurisdiction in
the premises constituting an order for relief in respect of any Obligor under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal, state or foreign bankruptcy law or other similar
law, or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official of any Obligor, or of any substantial part of
their respective properties, or ordering the winding-up or liquidation of the
affairs of any Obligor, and any such decree or order shall continue unstayed and
in effect for a period of thirty consecutive days;
(g) Any Obligor shall file a petition, answer or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal, state or foreign bankruptcy law or other similar
law, or any Obligor shall consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment or taking of
possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of any Obligor or of substantially all of its
properties, or any Obligor shall take any corporate action in furtherance of any
such action;
(h) A final judgment or judgments shall be entered by any court against any
Obligor for the payment of money which exceeds $500,000 in the aggregate, or a
warrant of attachment or execution or similar process shall be issued or levied
against property of any Obligor which, together with all other such property of
the Borrower and its Subsidiaries subject to other such process, exceeds in
value $500,000 in the aggregate, and if such judgment or award is not insured
or, within 30 days after the entry, issue or levy thereof, such judgment,
warrant or process shall not
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have been paid or discharged or stayed pending appeal, or if, after the
expiration of any such stay, such judgment, warrant or process shall not have
been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its Controlled
Group: (i) the Borrower, any such member, or any other party-in-interest or
disqualified person (other than any Lender) shall engage in transactions which
in the aggregate would reasonably be expected to result in a direct or indirect
liability to the Borrower or any member of its Controlled Group under Section
409 or 502 of ERISA or Section 4975 of the Code; (ii) the Borrower or any member
of its Controlled Group shall incur any accumulated funding deficiency, as
defined in Section 412 of the Code, or request a funding waiver from the
Internal Revenue Service for contributions; (iii) the Borrower or any member of
its Controlled Group shall incur any withdrawal liability as a result of a
complete or partial withdrawal within the meaning of Section 4203 or 4205 of
ERISA, or any other liability with respect to a Plan, unless the amount of such
liability has been funded within the Plan or pursuant to one or more insurance
contracts; (iv) the Borrower or any member of its Controlled Group shall fail to
make a required contribution by the due date under Section 412 of the Code or
Section 302 of ERISA which would result in the imposition of a lien under
Section 412 of the Code or Section 302 of ERISA; (v) the Borrower, any member of
its Controlled Group or any Plan sponsor shall notify the PBGC of an intent to
terminate, or the PBGC shall institute proceedings to terminate, or the PBGC
shall institute proceedings to terminate, any Plan subject to Title IV of ERISA;
(vi) a Reportable Event shall occur with respect to a Plan subject to Title IV
of ERISA, and within 15 days after the reporting of such Reportable Event to the
Administrative Lender, the Administrative Lender shall have notified the
Borrower in writing that the Determining Lenders have made a determination that,
on the basis of such Reportable Event, there are reasonable grounds for the
termination of such Plan by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan and as a
result thereof an Event of Default shall have occurred hereunder; (vii) a
trustee shall be appointed by a court of competent jurisdiction to administer
any Plan or the assets thereof; or (viii) any ERISA Event with respect to a Plan
subject to Title IV of ERISA shall have occurred, and 30 days thereafter (A)
such ERISA Event, other than such event described in clause (f) of the
definition of ERISA Event herein, (if correctable) shall not have been corrected
and (B) the then present value of such Plan's benefit liabilities, as defined in
Title IV of ERISA, shall exceed the then current value of assets accumulated in
such Plan; provided, however, that the events listed in subsections (i) - (viii)
-------- -------
above shall constitute Events of Default only if the maximum aggregate liability
which the Borrower or any member of its Controlled Group has a reasonable
likelihood of incurring under the applicable provisions of ERISA resulting from
an event or events exceeds $100,000.
(j) The Borrower or any Subsidiary of the Borrower shall default in the
payment of any Indebtedness or any lease obligations in an aggregate amount of
$1,000,000 or more beyond any grace period provided with respect thereto, or any
other event or condition shall exist under any agreement or instrument under
which such Indebtedness is created or evidenced beyond any applicable grace
period, if the effect of such event or condition is to permit or cause the
holder of such Indebtedness (or a trustee on behalf of any such holder) to (i)
cause such Indebtedness to be prepaid or to become due prior to its date of
maturity or (ii) require the Borrower or any Subsidiary of the Borrower to
purchase such Indebtedness;
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(k) Any lease where the Borrower or any Subsidiary of the Borrower is the
lessee shall terminate or cease to be effective, and termination or cessation
thereof, together with all other leases, if any, which have been terminated or
cease to be effective, could reasonably be expected to have a Material Adverse
Effect; provided, however, that termination or cessation of a lease shall not
constitute an Event of Default if another lease reasonably satisfactory to the
Determining Lenders is contemporaneously substituted therefor;
(l) Any material provision of any Loan Document shall for any reason cease to
be valid and binding on or enforceable against any party to it (other than the
Administrative Lender or any Lender) other than in accordance with its terms, or
any such party (other than the Administrative Lender or any Lender) shall so
assert in writing and any such event or circumstance shall continue for seven
days following notification of the occurrence or existence thereof from the
Administrative Lender to the Borrower; provided, however, that such notice,
grace and cure period shall not apply to any event or circumstance evidenced or
represented by any assertion in writing by the Borrower or any Affiliate of the
Borrower;
(m) Any Collateral Document shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority Lien in
Collateral having a value in an aggregate amount in excess of $100,000;
(n) A Change of Control shall occur; or
(o) The Borrower, CFI or EFC shall breach or be in default of any obligations
under the RPA and such breach or default continues beyond any applicable grace
and/or cure period contained therein; or there shall occur any "Termination
Event" or "Potential Termination Event" as those terms are defined by the TAA.
Section 8.2 Remedies. If an Event of Default shall have occurred and shall
--------
be continuing:
(a) With the exception of an Event of Default specified in Section 8.1(f) or
--------------
(g) hereof, the Administrative Lender shall, upon the direction of the
- ---
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Section 8.1(f) or
--------------
(g) hereof, such principal, interest and other amounts shall thereupon and
- ---
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Lender, any
Lender or any holders of the Notes and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
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(c) If any Letter of Credit shall be then outstanding, the Administrative
Lender may, and upon the direction of the Determining Lenders shall, demand upon
the Borrower to, and forthwith upon such demand, the Borrower shall, pay to the
Administrative Lender in same day funds at the office of the Administrative
Lender for deposit in the L/C Cash Collateral Account, an amount equal to the
maximum amount available to be drawn under the Letters of Credit then
outstanding.
(d) The Administrative Lender and the Lenders may exercise all of the Rights
granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Lender and the Lenders hereunder shall be
cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any
------------------------------------
proposed LIBOR Advance for any Interest Period, (i) any Lender determines that
deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the Determining
Lenders determine that the LIBOR Rate for such proposed LIBOR Advance does not
adequately cover the cost to such Lender of making and maintaining such proposed
LIBOR Advance for such Interest Period, such Lender or Determining Lenders, as
the case may be, shall forthwith give notice thereof to the Borrower, whereupon
until such Lender or Determining Lenders, as the case may be, notify the
Borrower that the circumstances giving rise to such situation no longer exist,
the obligation of such Lender to make LIBOR Advances shall be suspended;
provided, however, such Lender or the Determining Lenders, as the case may be,
- -------- -------
shall promptly notify the Borrower if the circumstances giving rise to such
situation no longer exist.
Section 9.2 Illegality. If any change in applicable law, rule or regulation,
----------
or adoption thereof, or any change in any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its LIBOR Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for such Lender (or its LIBOR
Lending Office) to make, maintain or fund its LIBOR Advances, such Lender shall
so notify the Borrower and the Administrative Lender. Before giving any notice
to the Borrower pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice, notwithstanding anything contained in Article 2 hereof, the Borrower
---------
shall repay in full the then outstanding principal amount of each LIBOR Advance
owing to the notifying Lender, together with accrued interest thereon and any
reimbursement required under Section 2.9 hereof, on either (a) the last day
-----------
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of the Interest Period applicable to such Advance, if the Lender may lawfully
continue to maintain and fund such Advance to such day, or (b) immediately, if
the Lender may not lawfully continue to fund and maintain such Advance to such
day or if the Borrower so elects. Concurrently with repaying each affected
LIBOR Advance owing to such Lender if the Borrower does not terminate this
Agreement, notwithstanding anything contained in Article 2 hereof, the Borrower
---------
may, without any requirement to satisfy the conditions precedent set forth in
Section 3.1, 3.2 or 3.3, borrow a Base Rate Advance from such Lender, and such
- ----------- --- ---
Lender shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
repayment.
Section 9.3 Increased Costs.
---------------
(a) If after the Agreement Date any change in or adoption of any law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax (net
of any tax benefit engendered thereby) with respect to its LIBOR Advances or
its obligation to make such Advances, or shall change the basis of taxation of
payments to a Lender (or to its LIBOR Lending Office) of the principal of or
interest on its LIBOR Advances or in respect of any other amounts due under
this Agreement, as the case may be, or its obligation to make such Advances
(except for changes in the rate of tax on the overall net income, net worth or
capital of the Lender and franchise taxes, doing business taxes or minimum
taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's LIBOR
Lending Office or shall impose on the Lender (or its LIBOR Lending Office) or
on the London interbank market any other condition affecting its LIBOR
Advances or its obligation to make such Advances (but excluding any reserves
or deposits that are included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
------------
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section and will
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<PAGE>
designate a different LIBOR Lending Office or other lending office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable judgment of the affected Lender made in good
faith, be disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder shall
certify that such amounts or costs were actually incurred by such Lender and
shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be conclusive
absent manifest or demonstrable error. In determining such amount, a Lender may
use any reasonable averaging and attribution methods. Nothing in this Section
-------
9.3 shall provide the Borrower or any Subsidiary of the Borrower the right to
- ---
inspect the records, files or books of any Lender. If a Lender demands
compensation under this Section, the Borrower may at any time, upon at least
five Business Days' prior notice to the Lender, after reimbursement to the
Lender by the Borrower in accordance with this Section of all costs incurred,
prepay in full the then outstanding LIBOR Advances of the Lender, together with
accrued interest thereon to the date of prepayment, along with any reimbursement
required under Section 2.9 hereof. Concurrently with prepaying such LIBOR
-----------
Advances, the Borrower may borrow a Base Rate Advance from the Lender, and the
Lender shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
prepayment.
Section 9.4 Effect On Base Rate Advances. If notice has been given pursuant
----------------------------
to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender to make
----------- --- ---
LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or prepaid,
then, unless and until the Lender notifies the Borrower that the circumstances
giving rise to such repayment no longer apply, all Advances which would
otherwise be made by such Lender as LIBOR Advances shall be made instead as Base
Rate Advances.
Section 9.5 Capital Adequacy. If after the Agreement Date, (a) the
----------------
introduction of or any change in or in the interpretation of any law, rule or
regulation or (b) compliance by a Lender with any law, rule or regulation or any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) adopted or promulgated after the
Agreement Date affects or would affect the amount of capital required or
expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, within 30
days after demand by such Lender, subject to Section 11.9, the Borrower shall
------------
immediately pay to such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender with respect to such
circumstances, to the extent that such Lender reasonably determines in good
faith such increase in capital to be allocable to the existence of such Lender's
Commitments hereunder. A certificate as to any additional amounts payable to
any Lender under this Section 9.5 submitted to the Borrower by such Lender shall
-----------
certify that such amounts were actually incurred by such Lender or corporation
controlling such Lender and shall show in reasonable detail an accounting of the
amount payable and the calculations used to determine in
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good faith such amount and shall be conclusive absent manifest or demonstrable
error. In determining such amount, such Lender or a corporation controlling such
Lender may use any reasonable averaging and attribution methods. Notwithstanding
the foregoing, nothing in this Section 9.5 shall provide the Borrower or any
-----------
Subsidiary of the Borrower the right to inspect the records, files or books of
any Lender or any corporation controlling such Lender.
Section 9.6 Replacement Lender. If (i) any Lender is unable or unwilling
------------------
to make, maintain or fund any LIBOR Advance pursuant to Section 9.1 or 9.2 or
----------- ---
(ii) the Borrower becomes obligated to pay additional amounts to any Lender
described in Section 9.3 or 9.5, the Borrower may designate a financial
----------- ---
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of such Lender's Commitment and the Rights of such Lender under the
Loan Documents without recourse to or warranty by, or expense to, such Lender,
for a purchase price equal to the outstanding amounts owing to such Lender
(including such additional amounts owing to such Lender pursuant to Section 9.2,
------------
9.3 or 9.5). Upon execution of an Assignment Agreement, such other financial
- --- ---
institution shall be deemed to be a "Lender" for all purposes of this Agreement
as set forth in Section 11.6 hereof.
------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders. The Lenders agree among themselves
-----------------------
that:
(a) Administrative Lender. Each Lender hereby appoints the Administrative
---------------------
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, (i) unless and until the Administrative Lender shall have
received such requests, the Administrative Lender may take such administrative
action, or refrain from taking such administrative action, as it may deem
advisable and in the best interests of the Lenders, and (ii) the Administrative
Lender shall not be required to take any action that exposes the Administrative
Lender to personal liability or that is contrary to any Loan Document or
Applicable Law; to arrange the means whereby the proceeds of the Advances of the
Lenders are to be made available to the Borrower; to distribute promptly to each
Lender information, requests and documents received from the Borrower hereunder
and not otherwise provided to such Lender by the Borrower or any other Person,
and each payment (in like funds received) with respect to any of such Lender's
Advances, or the ratable amount of fees or other amounts; and to deliver to the
Borrower requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower and not otherwise provided to such Lender by the
Borrower or any other Person. The Administrative Lender shall have no fiduciary
relationship in respect of any Lender by reason of this Agreement or any other
Loan Document.
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<PAGE>
The Administrative Lender shall have no duties or responsibilities except those
expressly set forth in this Agreement. The duties of the Administrative Lender
are mechanical and administrative in nature.
(b) Replacement of Administrative Lender. Should the Administrative Lender or
------------------------------------
any successor Administrative Lender ever cease to be a Lender hereunder, or
should the Administrative Lender or any successor Administrative Lender ever
resign as Administrative Lender, or should the Administrative Lender or any
successor Administrative Lender ever be removed with cause or without cause by
the action of all Lenders (other than the Administrative Lender), then the
Lender appointed by the other Lenders (with the consent of the Borrower, which
consent shall not be unreasonably withheld) shall forthwith become the
Administrative Lender, and the Borrower and the Lenders shall execute such
documents as any Lender may reasonably request to reflect such change. If the
Administrative Lender also then serves in the capacity of the Swing Line Bank or
the Issuing Bank, such resignation or removal shall constitute resignation or
removal of the Swing Line Bank and the Issuing Bank. Any resignation or removal
of the Administrative Lender or any successor Administrative Lender shall become
effective upon the appointment by the Lenders of a successor Administrative
Lender; provided, however, if no successor Administrative Lender shall have been
so appointed and shall have accepted such appointment within 30 days after the
retiring Administrative Lender's giving of notice of resignation or the Lenders'
removal of the retiring Administrative Lender, then the retiring Administrative
Lender may, on behalf of the Lenders, appoint a successor Administrative Lender,
which shall be a commercial bank organized under the Laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as the
Administrative Lender hereunder by a successor Administrative Lender, such
successor Administrative Lender shall thereupon succeed to and become vested
with all the rights and duties of the retiring Administrative Lender, and the
retiring Administrative Lender shall be discharged from its duties and
obligations under the Loan Documents, provided that if the retiring or removed
Administrative Lender is unable to appoint a successor Administrative Lender,
the Administrative Lender shall, after the expiration of a 60 day period from
the date of notice, be relieved of all obligations as Administrative Lender
hereunder. Notwithstanding any Administrative Lender's resignation or removal
hereunder, the provisions of this Article shall continue to inure to its benefit
as to any actions taken or omitted to be taken by it while it was the
Administrative Lender under this Agreement.
(c) Expenses. Each Lender shall pay its pro rata share, based on its
--------
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents and/or the
Securitization Documents if Administrative Lender does not receive reimbursement
therefor from other sources within 60 days after the date incurred. Any amount
so paid by the Lenders to the Administrative Lender shall be returned by the
Administrative Lender pro rata to each paying Lender to the extent later paid by
the Borrower or any other Person on the Borrower's behalf to the Administrative
Lender.
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(d) Delegation of Duties. The Administrative Lender may execute any of its
--------------------
duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender and its
---------------------------------
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected by the Administrative Lender. The Administrative Lender may,
in its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
-----------------------------------------------
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or defend
any suit in respect hereof, unless indemnified to its reasonable satisfaction
against loss, cost, liability and expense unless expressly provided to the
contrary herein. The Administrative Lender shall not be responsible in any
manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE LENDER, PRO RATA
ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE ADMINISTRATIVE LENDER (IN SUCH
CAPACITY) IN ANY WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THE ADMINISTRATIVE LENDER UNDER THE LOAN DOCUMENTS (INCLUDING ANY
NEGLIGENT ACTION OF THE ADMINISTRATIVE LENDER), EXCEPT TO THE EXTENT THE SAME
ARE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION TO RESULT FROM GROSS
NEGLIGENCE OR WILFUL MISCONDUCT BY THE ADMINISTRATIVE LENDER. THE INDEMNITY
PROVIDED IN THIS SECTION 10.1(f) SHALL SURVIVE TERMINATION OF THIS AGREEMENT.
---------------
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(g) Liability Among Lenders. No Lender shall incur any liability (other than
-----------------------
the sharing of expenses and other matters specifically set forth herein and in
the other Loan Documents) to any other Lender, except for acts or omissions in
bad faith.
(h) Rights as Lender. With respect to its commitment hereunder, the Advances
----------------
made by it and the Notes issued to it, the Administrative Lender shall have the
same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Administrative Lender or any other
Lender and based upon the financial statements referred to in Sections 4.1(j),
---------------
6.1, and 6.2 hereof, and such other documents and information as it has deemed
- --- ---
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Lender or any other Lender and based
upon such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents. Each Lender also acknowledges that
its decision to fund the initial Advances shall constitute evidence to the
Administrative Lender that such Lender has deemed all of the conditions set
forth in Section 3.1 to have been satisfied.
Section 10.3 Benefits of Article. None of the provisions of this Article
-------------------
shall inure to the benefit of any Person other than Lenders and, with respect to
Section 10.1(b), the Borrower; consequently, no such other Person shall be
- ---------------
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of the Administrative Lender or any Lender to comply with such
provisions.
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.
-------
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(a) All notices and other communications under this Agreement shall be in
writing (except in those cases where giving notice by telephone is expressly
permitted) and shall be deemed to have been given on the date personally
delivered or sent by telecopy (answerback received), or three days after deposit
in the mail, designated as certified mail, return receipt requested, postage-
prepaid, or one day after being entrusted to a reputable commercial overnight
delivery service, addressed to the party to which such notice is directed at its
address determined as provided in this Section. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, at:
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attn: Daniel L. Celoni
Vice President - Finance
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
--------
(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances hereunder, including without
limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable attorneys' fees of
the Administrative Lender in connection with the administration of the
transactions contemplated in this Agreement and the other Loan Documents and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Administrative Lender relating to this
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Agreement or the other Loan Documents; and
(c) all reasonable costs, out-of-pocket expenses and reasonable attorneys'
fees of the Administrative Lender and each Lender incurred for enforcement,
collection, restructuring, refinancing and "work-out", or otherwise incurred in
obtaining performance under the Loan Documents, which in each case shall include
without limitation fees and expenses of consultants, counsel for the
Administrative Lender and any Lender, and administrative fees for the
Administrative Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders under this
-------
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Administrative Lender or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any
funding of a request for an Advance or issuance of a Letter of Credit. In the
event that any Lender decides to fund an Advance at a time when the Borrower is
not in strict compliance with the terms of this Agreement, such decision by such
Lender shall not be deemed to constitute an undertaking by the Lender to fund
any further requests for Advances or preclude the Lenders from exercising any
rights available under the Loan Documents or at law or equity. Any waiver or
indulgence granted by the Lenders shall not constitute a modification of this
Agreement, except to the extent expressly provided in such waiver or indulgence,
or constitute a course of dealing by the Lenders at variance with the terms of
the Agreement such as to require further notice by the Lenders of the Lenders'
intent to require strict adherence to the terms of the Agreement in the future.
Any such actions shall not in any way affect the ability of the Administrative
Lender or the Lenders, in their discretion, to exercise any rights available to
them under this Agreement or under any other agreement, whether or not the
Administrative Lender or any of the Lenders are a party thereto, relating to the
Borrower.
Section 11.4 Calculation by the Lenders Conclusive and Binding. Any
-------------------------------------------------
mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
Section 11.5 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuation of an Event of Default, each Lender and
any subsequent holder of any Note, and any assignee of any Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower or any other Person, any such notice being hereby expressly waived,
to set-off, appropriate and apply any deposits (general or special (except trust
and escrow accounts), time or demand, including without limitation Indebtedness
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other Indebtedness at any time held or owing by such Lender or holder to
or for the credit or the account of the Borrower, against and on account of the
Obligations and other liabilities of the Borrower to such Lender or holder,
irrespective of whether or not (a) the Lender or holder shall have made any
demand hereunder, or (b) the Lender or holder shall have declared the principal
of and interest on the Advances and other amounts due hereunder
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to be due and payable as permitted by Section 8.2. Any sums obtained by any
-----------
Lender or by any assignee or subsequent holder of any Note shall be subject to
pro rata treatment of all Obligations and other liabilities hereunder. Any
Lender exercising any Rights under this Section 11.5 shall give the Borrower
------------
prompt notice thereof after such exercise.
Section 11.6 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or obligations
hereunder or under the other Loan Documents without the prior written consent of
the Lenders.
(b) No Lender shall be entitled to assign or grant a participation in its
interest in this Agreement, its Notes or its Advances, except as hereinafter set
forth.
(c) Without the consent of the Borrower, any Lender may at any time sell
participations in all or any part of its Advances and Reimbursement Obligations
(collectively, "Participations") to any banks or other financial institutions
--------------
("Participants") provided that neither such Participation nor any agreement
------------
relating thereto shall confer on any Person (other than the parties hereto) any
right to vote on, approve or sign amendments or waivers, or any other
independent benefit or any legal or equitable right, remedy or other claim under
this Agreement or any other Loan Documents, other than the right to vote on,
approve, or sign amendments or waivers or consents with respect to items that
would result in (i) any increase in the commitment of any Participant; or
(ii)(A) the extension of the date of maturity of, or (B) the extension of the
due date for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Advances, the Letters of Credit, or
the Reimbursement Obligations to which such Participant is entitled; or (iii)
the release of security for the Obligations, including without limitation any
guarantee, except pursuant to this Agreement or the other Loan Documents; or
(iv) the reduction of any fees payable hereunder to which such Participant is
entitled. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 hereof as though
---------
they were Lenders and the Lenders may, subject to Section 11.14 hereof, provide
-------------
copies of all financial information received from the Borrower to such
Participants.
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<PAGE>
(d) Each Lender may assign to one or more financial institutions organized
under the laws of the United States, or any state thereof, or under the laws of
any other country that is a member of the Organization for Economic Cooperation
and Development, or a political subdivision of any such country, which is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business (each, an "Assignee") its rights and obligations
--------
under this Agreement and the other Loan Documents; provided, however, that (i)
-------- -------
each such assignment shall be subject to the prior written consent of the
Administrative Lender and Borrower, which consent shall not be unreasonably
withheld (provided, however, notwithstanding anything herein to the contrary, no
-------- -------
consent of the Borrower is required for any assignment during any time that an
Event of Default has occurred and is continuing), (ii) no such assignment shall
be in an amount of Commitments less than $10,000,000 unless such lesser amount
represents the entirety of the Commitments of the applicable Lender, (iii) the
applicable Lender, Administrative Lender and applicable Assignee shall execute
and deliver to the Administrative Lender an Assignment and Acceptance Agreement
(an "Assignment Agreement") in substantially the form of Exhibit H hereto,
-------------------- ---------
together with the Notes subject to such assignment, (iv) the Assignee executing
the Assignment, shall deliver to the Administrative Lender a processing fee of
$3,000 and (v) each such assignment shall be a constant, not a varying,
percentage of the assigning Lender's Rights and obligations in respect of the
Facility A Advances and the Facility B Advances. Upon such execution, delivery
and acceptance from and after the effective date specified in each Assignment,
which effective date shall be at least three Business Days after the execution
thereof, (A) the Assignee thereunder shall be party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment, have the rights and obligations of a Lender hereunder and (B) the
applicable Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment, relinquish such rights and
be released from such obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any Lender
may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and an
Assignee, and any Note or Notes subject to such assignment, the Borrower shall,
within five Business Days after its receipt of such Assignment Agreement, at no
expense to the Borrower, execute and deliver to the Administrative Lender in
exchange for the surrendered Notes new Notes to the order of such Assignee in an
amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A or B hereto, as applicable.
--------- -
(g) Any Lender may, in connection with any assignment or participation or
proposed
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assignment or participation pursuant to this Section 11.6, disclose to the
------------
assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower, provided such Person agrees in writing to handle such information in
accordance with the standards set forth in Section 11.14 hereof.
-------------
(h) Except as specifically set forth in this Section 11.6, nothing in this
------------
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no Assignee
------------
or Participant (nor the assigning or participating Lender) shall be entitled to
receive (whether individually or collectively) any greater payment under Section
-------
2.14 or Section 9.3 or Section 9.5 than such assigning or participating Lender
- ---- ----------- -----------
would have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement which is for any
------------
reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any parties to
--------------------
this Agreement to make an agreement in violation of the laws of any applicable
jurisdiction relating to usury. Regardless of any provision in any Loan
Documents, no Lender shall ever be entitled to receive, collect or apply, as
interest on the Obligations, any amount in excess of the Highest Lawful Amount.
If any Lender or participant ever receives, collects or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the end
of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Highest Lawful Rate, the Lenders
shall refund to the Borrower the amount of such excess or credit the amount of
such excess against
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<PAGE>
the total principal amount of the Obligations owing, and, in
such event, the Lenders shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
Highest Lawful Rate. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for convenience
--------
only and shall not be used in connection with the interpretation of any
provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement may not
--------------------
be amended, modified or waived except by the written agreement of the Borrower
and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend or postpone the date of maturity of, extend the due date for any
payment of principal or interest on, reduce the amount of any installment of
principal or interest on, or reduce the rate of interest on, any Advance, the
Reimbursement Obligations or other amount owing under any Loan Documents to
which such Lender is entitled, or (iii) release any security for or guaranty of
the Obligations (except pursuant to this Agreement or the other Loan Documents),
or (iv) reduce the fees payable hereunder to which such Lender is entitled, or
(v) revise this Section 11.11, or (vi) waive the date for payment of any
-------------
principal, interest or fees hereunder or (vii) amend the definition of
Determining Lenders; (b) without the consent of the Swing Line Bank, if it would
alter the rights, duties or obligations of the Swing Line Bank; (c) without the
consent of the Administrative Lender, if it would alter the rights, duties or
obligations of the Administrative Lender; or (d) without the consent of the
Issuing Bank, if it would alter the rights, duties or obligations of the Issuing
Bank. Neither this Agreement nor any term hereof may be amended orally, nor may
any provision hereof be waived orally but only by an instrument in writing
signed by the Administrative Lender and, in the case of an amendment, by the
Borrower. Notwithstanding the foregoing, each Lender (in its capacity as a
Lender hereunder and, if applicable, in its capacity as a "Participant" under
the Existing Credit Agreement) hereby consents to, and authorizes, the release
by the Administrative Lender of any and all Liens insofar as same (i) arose
under the Existing Credit Agreement or any prior financing arrangement and (ii)
cover property other than the Borrower's Inventory (provided, however, that the
Administrative Lender may release any and all Liens insofar as same cover
Inventory upon the occurrence of the Inventory Release Event), the CFI Note, the
Equity interest of the Borrower in CFI, the rights of CompuCom Properties, Inc.
under that certain Trademark License Agreement, dated as of October 25, 1991,
between CompuCom Properties, Inc., as licensor, and the Borrower, as licensee,
and/or any proceeds, products, amendments, modifications and/or restatements of
or to any of the foregoing property. Furthermore, each Lender which is a
"Lender" (as such term is defined in the Existing Credit Agreement) hereby
consents to, and authorizes, the sale and transfer of the Existing Credit
Agreement and the indebtedness, Liens and other rights thereunder or in
connection therewith to the Administrative Lender, for the ratable benefit of
the Lenders hereunder.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
----------------------
Subsidiary of the Borrower shall be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the
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<PAGE>
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes all risks
----------------------------
of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit, except for any payment made upon the
Issuing Bank's gross negligence or wilful misconduct; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Borrower shall have a claim against the Issuing Bank,
------
and the Issuing Bank shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the Borrower that a court of
competent jurisdiction determines were caused by (i) the Issuing Bank's wilful
misconduct or gross negligence or (ii) the Issuing Bank's wilful failure to make
lawful payment under a Letter of Credit after the presentation to it of a draft
and certificates strictly complying with the terms and conditions of the Letter
of Credit. In furtherance and not in limitation of the foregoing, the Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative Lender
---------------
agrees (on behalf of itself and each of its Affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any Litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify Borrower of any request for disclosure of any such non-public information
(i) by any Tribunal or representative thereof (other than any such request in
connection with an examination of such Lender's financial condition by such
governmental agency) or (ii) pursuant to legal process, or (f) to any Assignee
or Participant (or prospective Assignee or Participant) so long as such Assignee
or Participant (or prospective Assignee or Participant) agrees in writing to
handle such information in accordance with the provisions of this Section 11.14.
-------------
Section 11.15 Amendment, Restatement, Extension, Renewal and Increase. This
-------------------------------------------------------
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Agreement is a renewal, extension, amendment, increase and restatement of the
Existing Credit Agreement, and is not a novation of the "Obligations" (as
defined in the Existing Credit Agreement) thereunder. On the Agreement Date,
the "Facility A Notes" and the "Facility B Notes" (as such terms are defined in
the Existing Credit Agreement), all of the outstanding indebtedness of the
Borrower under the Existing Credit Agreement and all of the liens, security
interests and other rights and interests of each of the lenders under the
Existing Credit Agreement and of NationsBank of Texas, N.A., as administrative
lender thereunder, and under the other Loan Documents (as defined in the
Existing Credit Agreement) shall be acquired by the Administrative Lender
hereunder for the ratable benefit of the Lenders hereunder in their respective
Specified Percentages. On the Agreement Date, the outstanding indebtedness of
the Borrower under the Facility A Notes (as such term is defined in the Existing
Credit Agreement) shall be renewed, extended, modified and restated by the
Facility A Notes hereunder. On the Agreement Date, the outstanding indebtedness
of the Borrower under the Facility B Notes (as such term is defined in the
Existing Credit Agreement) shall be renewed, extended, modified and restated by
the Facility B Notes hereunder. The Borrower hereby consents to the acquisition
by the Administrative Lender of the indebtedness, rights and interests described
above. All terms and provisions of this Agreement supersede in their entirety
the Existing Credit Agreement. Except insofar as any of same may have
heretofore been, or may contemporaneoualy herewith or hereafter be, released
pursuant to written release documentation executed and delivered by the
Administrative Lender, all Liens covering the Collateral, or any part thereof,
under the collateral documents executed in connection with the Existing Credit
Agreement shall remain valid, binding and enforceable Liens against the Persons
which granted such Liens, as security for the Obligations hereunder.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
-------------
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE UNITED
STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, TEXAS, AND
BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER LIABLE
FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS, JOINTLY AND
SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER EACH
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS,
SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT TO ITSELF AND ITS
PROPERTY TO THE JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE OF ANY SUIT,
ACTION, PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE
--------------------
LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND
INTENTIONALLY WAIVE, TO THE
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MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
TO EACH LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
----------------
OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 11.19 Release of Certain Collateral. On the Agreement Date or as
-----------------------------
soon as practical thereafter the Administrative Lender shall release any Liens
held by the Administrative Lender insofar as such Liens cover the Receivables of
the Borrower other than such portion of such Receivables as constitute property
of the type(s) covered by (i) the Security Agreement to be executed by the
Borrower in favor of the Administrative Lender on the Agreement Date and/or (ii)
the Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Financing Statement, executed by the Borrower for the benefit of the
Administrative Lender and the other Lenders as of September 27, 1996, as amended
by a certain First Amendment thereto, dated as of the Agreement Date. Upon the
occurrence of the Inventory Release Event, the Administrative Lender shall
release any Liens held by the Administrative Lender insofar as such Liens cover
the Inventory of the Borrower or any of its Subsidiaries.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Credit Agreement is executed as
of the date first set forth above.
BORROWER: COMPUCOM SYSTEMS, INC.
By: /s/ DANIEL L. CELONI
____________________________________________
Name: Daniel L. Celoni
Title: Vice President - Finance
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<PAGE>
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as Administrative
Lender
By: /s/ TIMOTHY M. O'CONNOR
____________________________________________
Name: Timothy M. O'Connor
Title: Vice President
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<PAGE>
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender, Swing
Line Bank and Issuing Bank
Specified Percentage:
16.666666667%
By: /s/ TIMOTHY M. O'CONNOR
____________________________________________
Name: Timothy M. O'Connor
Title: Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
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<PAGE>
Specified Percentage: SANWA BUSINESS CREDIT CORPORATION
9.066666667%
By: /s/ STANLEY KAMINSKI
___________________________________________
Name: Stanley Kaminski
_________________________________________
Title: Vice President
________________________________________
1 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
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<PAGE>
Specified Percentage: CORESTATES BANK, N.A.
10.666666667%
By: /s/ SCOTT HUFFMAN
____________________________________________
Name: Scott Huffman
__________________________________________
Title: Vice President
_________________________________________
1339 Chestnut Street, FC 1-8-3-14
Philadelphia, Pennsylvania 19107
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<PAGE>
Specified Percentage: NATIONAL CITY BANK OF KENTUCKY
9.066666667%
By: /s/ JOHN Z. BARR
_____________________________________________
Name: John Z. Barr
Title: Senior Vice President
101 South Fifth Street, 8th Floor
Louisville, Kentucky 40202
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<PAGE>
Specified Percentage: PNC BANK, NATIONAL ASSOCIATION, successor-by-merger
to Midlantic Bank, N.A.
10.666666667%
By: /s/ JOSEPH G. METERCHICK
---------------------------------------------
Name: Joseph G. Meterchick
------------------------------------------
Title: Vice President
------------------------------------------
1535 Locust Street
Philadelphia, Pennsylvania 19102
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<PAGE>
Specified Percentage: CREDIT LYONNAIS NEW YORK BRANCH
10.000000000%
By: /s/ ROBERT IVOSEVICH
---------------------------------------------
Name: Robert Ivosevich
------------------------------------------
Title: Senior Vice President
------------------------------------------
1301 Avenue of the Americas
New York, New York 10019
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<PAGE>
Specified Percentage: UNION BANK OF CALIFORNIA, N.A.
9.066666667%
By: /s/ STEPHEN SWEENEY
------------------------------------------------
Name: Stephen Sweeney
------------------------------------------
Title: Vice President
------------------------------------------
By: /s/ STEVEN BIERMAN
---------------------------------------------
Name: Steven Bierman
------------------------------------------
Title: Vice President
------------------------------------------
70 South Lake Avenue, Suite 900
Pasadena, California 91109
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<PAGE>
Specified Percentage: NATIONAL BANK OF CANADA
9.066666667%
By: /s/ BILL HANDLEY
---------------------------------------------
Name: Bill Handley
------------------------------------------
Title: Vice President
------------------------------------------
By: /s/ LARRY L. SEARS
---------------------------------------------
Name: Larry L. Sears
------------------------------------------
Title: Group Vice President
------------------------------------------
2121 San Jacinto
Dallas, Texas 75201
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<PAGE>
Specified Percentage: COMERICA BANK
6.666666667%
By: /s/ KIM A. UHLEMANN
-----------------------------------------------
Name: Kim A. Uhlemann
------------------------------------------
Title: Vice President
------------------------------------------
500 Woodward Avenue
9th Floor
Mail Code 3281
Detroit, Michigan 48226
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<PAGE>
Specified Percentage: FLEET NATIONAL BANK
9.066666667%
By: /s/ FRANK BERESH
-----------------------------------------------
Name: Frank Beresh
------------------------------------------
Title: Vice President
------------------------------------------
One Federal Street, MA-OF-0323
Boston, Massachusetts 02110
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<PAGE>
SCHEDULE 1
----------
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
SANWA BUSINESS CREDIT CORPORATION
1 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
CORESTATES BANK, N.A.
1339 Chestnut Street, FC 1-8-3-14
Philadelphia, Pennsylvania 19107
NATIONAL CITY BANK OF KENTUCKY
101 South Fifth Street, 8th Floor
Louisville, Kentucky 40202
PNC BANK, NATIONAL ASSOCIATION
1600 Market Street
Philadelphia, Pennsylvania 19103
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, New York 10019
UNION BANK OF CALIFORNIA, N.A.
70 South Lake Avenue, Suite 900
Pasadena, California 91109
NATIONAL BANK OF CANADA
2121 San Jacinto
Dallas, Texas 75201
SCHEDULE 1 - Page 1
- ----------
<PAGE>
COMERICA BANK
500 Woodward Avenue
9th Floor
Mail Code 3281
Detroit, Michigan 48226
FLEET NATIONAL BANK
1 Federal Street
Boston, Massachusetts 02110
SCHEDULE 1 - Page 2
- ----------
<PAGE>
SCHEDULE 2
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EXISTING LIENS
<TABLE>
<CAPTION>
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
------- ---------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3
----------
EXISTING LITIGATION
AND MATERIAL LIABILITIES
<PAGE>
SCHEDULE 4
----------
SUBSIDIARIES
<TABLE>
<CAPTION>
State of
Incorporation Percentage
Name or Organization of Ownership Owner
----- --------------- ------------ -----
<S> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 5
----------
EXISTING INVESTMENTS
<PAGE>
SCHEDULE 6
----------
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 7
----------
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
<PAGE>
SCHEDULE 8
----------
LABOR RELATIONS
<PAGE>
EXHIBIT 10(u)
================================================================================
RECEIVABLES PURCHASE AGREEMENT
between
-------
COMPUCOM SYSTEMS, INC.,
as Seller
and
---
CSI FUNDING INC.,
as Purchaser
Dated as of April 1, 1996
as
Amended and Restated as of November 3, 1997
================================================================================
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
------------------------------
This RECEIVABLES PURCHASE AGREEMENT, dated as of April 1, 1996, as AMENDED
and RESTATED as of November 3, 1997, between COMPUCOM SYSTEMS, INC., a Delaware
corporation, as seller (the "Seller") and CSI FUNDING INC., a Delaware
------
corporation, as purchaser (the "Purchaser").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Purchaser and the Seller wish to amend and restate the
Receivable Purchase Agreement, dated as of April 1, 1996, as amended to the date
hereof, pursuant to which the Seller agreed to sell, and the Purchaser agreed to
acquire, an undivided interest in certain accounts receivable originated by the
Seller;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed by and between the Purchaser and the Seller as
follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Definitions. All capitalized terms used herein shall have
-----------
the meanings specified herein or, if not so specified, the meaning specified in,
or incorporated by reference into, the Transfer Agreement, and shall include in
the singular number the plural and in the plural number the singular:
"Advance" shall have the meaning specified in Section 3.2(b).
-------
"Advance Limit" shall have the meaning specified in Section 3.2(b).
-------------
"Agent" shall mean NationsBank, N.A., as agent
-----
<PAGE>
on behalf of Enterprise and the Bank Investors pursuant to the Transfer
Agreement.
"Closing Date" shall mean November 3, 1997.
------------
"Contributed Receivables" shall have the meaning specified in Section
-----------------------
3.2(b).
"Conveyance Papers" shall have the meaning set forth in Section 4.1(b)
-----------------
hereof.
"Enterprise" shall mean Enterprise Funding Corporation, a Delaware
----------
corporation, and its successors and assigns.
"Permitted Assignee" shall have the meaning set forth in Section 9.5
------------------
hereof.
"Purchase Discount" shall mean for any day, an amount, calculated in good
-----------------
faith by the Purchaser, equal to the decimal equivalent of the sum of (i) the
product of (A) the sum of (x) the "AA" rated commercial paper index rate for a
maturity most closely corresponding to the Estimated Maturity Period and (y)
0.50% (servicing fee) and (z) 1.50% and (B) a fraction the numerator of which is
the Estimated Maturity Period of the Receivables and the denominator of which is
360, and (ii) the decimal equivalent of the average Loss to Liquidation Ratio
---
with respect to the prior three calendar months.
"Purchase Price" shall have the meaning set forth in Section 3.1 hereof.
--------------
"Purchased Receivables" shall have the meaning specified in Section 3.2(b).
---------------------
"Purchaser" shall mean CSI Funding Inc., a Delaware corporation, and its
---------
successors and assigns.
"Receivable" shall mean, for purposes of this Agreement, the indebtedness
----------
owed to the Seller by any Obligor under a Contract, whether constituting an
account, chattel paper, instrument or general intangible, arising in connection
with the sale of merchandise or services by the Seller, and includes the right
to payment
2
<PAGE>
of any Finance Charges and other obligations of such Obligor with respect
thereto. Notwithstanding the foregoing, once a Receivable has been deemed
collected pursuant to Section 6.2 hereof, it shall no longer constitute a
Receivable hereunder.
"Release" means the Partial Release of Liens and Security Interests,
-------
executed on November 3, 1997 by NationsBank of Texas, N.A., whereby NationsBank
of Texas, N.A. released certain liens and security interests which cover the
property of CompuCom.
"Secured Obligations" shall have the meaning set forth in Section 2.1(d)
-------------------
hereof.
"Subordinated Note" shall have the meaning specified in Section 3.2(b).
-----------------
"Transfer Agreement" shall mean the Transfer and Administration Agreement,
------------------
dated as of April 1, 1996, as amended and restated as of November 3, 1997, by
and among the Purchaser, the Seller, Enterprise and NationsBank N.A., as Agent
thereunder, as such agreement may be amended, modified or supplemented from time
to time.
"Transferred Receivables" shall have the meaning specified in Section
-----------------------
3.2(b).
SECTION I.2. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC, and not specifically
defined herein, are used herein as defined in such Article 9.
SECTION I.3. Computation of Time Periods. Unless otherwise stated in this
---------------------------
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" shall mean "from and including" and the
words "to" and "until" each shall mean "to but excluding."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
SECTION II.1. Sale. (a) Upon the terms and subject to the
----
conditions set forth herein, the Seller hereby sells, assigns, transfers and
conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on
the terms and subject to the conditions specifically set forth herein, all of
the Seller's right, title and interest, whether now owned or hereafter acquired,
in, to and under the Receivables outstanding on the Closing Date and thereafter
originated by the Seller through any Termination Date (but not thereafter),
together with all Related Security and Collections with respect thereto and all
proceeds of the foregoing. The foregoing sale, assignment, transfer and
conveyance does not constitute an assumption by the Purchaser of any obligations
of the Seller or any other Person to Obligors or to any other Person in
connection with the Receivables or under any Related Security or other agreement
and instrument relating to the Receivables.
(b) In connection with the foregoing sale, the Seller agrees to record and file
on or prior to the Closing Date, at its own expense, a financing statement or
statements with respect to the Receivables and the other property described in
Section 2.1(a) sold by the Seller hereunder meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect and protect the interests of the Purchaser created hereby under the
UCC (subject, in the case of Related Security constituting returned inventory,
to the applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements) against all creditors of and purchasers from the Seller,
and to deliver either the originals of such financing statements or file-stamped
copies of such financing statements or other evidence of such filings to the
Purchaser on the Closing Date.
(c) The Seller agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents and take all actions as may be
necessary or as the Purchaser may reasonably request in order to perfect or
protect the interest of the Purchaser in
4
<PAGE>
the Receivables and other property purchased hereunder or to enable the
Purchaser to exercise or enforce any of its rights hereunder. Without limiting
the foregoing, the Seller will, in order to accurately reflect this purchase and
sale transaction, execute and file such financing or continuation statements or
amendments thereto or assignments thereof (as permitted pursuant hereto) as may
be requested by the Purchaser and mark its master data processing records and
other documents with a legend describing the purchase of the Receivables by the
Purchaser. The Seller shall, upon request of the Purchaser, obtain such
additional search reports as the Purchaser shall request. To the fullest extent
permitted by applicable law, the Purchaser shall be permitted to sign and file
continuation statements and amendments thereto and assignments thereof without
the Seller's signature. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a financing
statement.
(d) It is the express intent of the Seller and the Purchaser that the
conveyance of the Receivables and all Related Security and Collections with
respect thereto by the Seller to the Purchaser pursuant to this Agreement be
construed as a sale of such property by the Seller to the Purchaser. Further, it
is not the intention of the Seller and the Purchaser that such conveyance be
deemed a grant of a security interest in such property by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. However, in the
event that, notwithstanding the intent of the parties, the Receivables and all
Related Security and Collections with respect thereto are construed to
constitute property of the Seller, then (i) this Agreement also shall be deemed
to be, and hereby is, a security agreement within the meaning of the UCC; and
(ii) the conveyance by the Seller provided for in this Agreement shall be deemed
to be, and the Seller hereby grants to the Purchaser, a security interest in, to
and under all of the Seller's right, title and interest in, to and under the
Receivables outstanding on the Closing Date and thereafter originated by the
Seller, together with all Related Security and Collections with respect thereto
and all proceeds of the foregoing, to secure the rights of the Purchaser set
forth in this Agreement or as may be determined in connection therewith
5
<PAGE>
by applicable law (collectively, the "Secured Obligations"). The Seller and the
-------------------
Purchaser shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the Receivables and the Related Security and Collections
with respect thereto, such security interest would be deemed to be a perfected
security interest in favor of the Purchaser under applicable law and will be
maintained as such throughout the term of this Agreement.
SECTION II.2. Servicing of Receivables. The servicing, administering
------------------------
and collection of the Receivables shall be conducted by the Seller, who hereby
agrees to perform, take or cause to be taken all such action as may be necessary
or advisable to collect each Receivable from time to time, all in accordance
with applicable laws, rules and regulations and with the care and diligence
which the Seller employs in servicing similar receivables for its own account,
in accordance with the Credit and Collection Policy. The Purchaser hereby
appoints the Seller as its agent to enforce the Purchaser's rights and interests
in, to and under the Receivables, the Related Security and the Collections with
respect thereto. The Seller shall hold in trust for the Purchaser, in accordance
with its interests, all Records which evidence or relate to the Receivables or
Related Security, Collections and proceeds with respect thereto. Notwithstanding
anything to the contrary contained herein, from and after the occurrence of a
Termination Event or a Potential Termination Event (each as defined in the
Transfer Agreement), NationsBank, N.A., as Agent, shall have the absolute and
unlimited right to terminate the Seller's servicing activities described in this
Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay the
Seller a servicing fee of 0.50% per annum on the aggregate Outstanding Balance
of Receivables, payable monthly, for its performance of the duties and
obligations described in this Section 2.2.
6
<PAGE>
ARTICLE III
CONSIDERATION AND PAYMENT
SECTION 3.1. Purchase Price. The Purchase Price for the Receivables
--------------
and related property conveyed to the Purchaser by the Seller under this
Agreement shall be a dollar amount equal to (a) for the Receivables sold by
Seller on the Closing Date, the product of (i) the aggregate Outstanding Balance
of the Receivables as of the Closing Date and (ii) one minus the then applicable
-----
Purchase Discount, and (b) for any Receivables sold by the Seller on any date
thereafter, the product of (i) the aggregate Outstanding Balance of the
Receivables sold on such date and (ii) one minus the Purchase Discount
-----
applicable on such date.
SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for
-------------------------
the Receivables and related property shall be paid or provided for on the
Closing Date with respect to the Receivables existing on the Closing Date and on
the last Business Day of each calendar month thereafter during which Receivables
are originated by the Seller, as the case may be, by payment in immediately
available funds of $___________. The balance of such Purchase Price shall be
paid by capital contributed by the Seller to Purchaser in the form of a
contribution of the Receivables.
(b) The Purchase Price for any Receivables sold by the Seller on any
date after the date hereof shall be paid either (i) in cash or (ii) if Purchaser
does not have sufficient cash to pay the Purchase Price, by means of (A) an
advance under the Subordinated Note (each, an "Advance") or (B) with the consent
-------
of the Seller, capital contributed by the Seller to Purchaser in the form of a
contribution of the additional Receivables or (iii) with the consent of the
Seller, any combination of the foregoing. In the event Purchaser does not have
sufficient cash to pay the Purchase Price due on any Purchase Date and the
Seller is not willing to consent to the payment of such insufficiency by means
of a capital contribution, such insufficiency shall be evidenced by the making
of an Advance on such Purchase Date in an
7
<PAGE>
original principal amount equal to such cash shortfall owed to the Seller;
provided, however, that the Seller shall not make an Advance to Purchaser to the
- -------- -------
extent that the aggregate amount of outstanding Advances would be an amount such
that the net worth of the Purchaser would be less than 7.0% of the Outstanding
Balance of the Receivables (the "Advance Limit"). All Advances made by the
-------------
Seller to Purchaser shall be evidenced by a single subordinated note, duly
executed on behalf of Purchaser, in substantially the form of Exhibit B annexed
hereto, delivered and payable to the Seller in a principal amount equal to the
Advance Limit thereunder (the "Subordinated Note"). The Seller is hereby
-----------------
authorized by Purchaser to endorse on the schedule attached to the Subordinated
Note (or a continuation of such schedule attached thereto and made a part
thereof) an appropriate notation evidencing the date and amount of each Advance,
as well as the date and amount of each payment with respect thereto; provided,
--------
however, that the failure of any Person to make such a notation shall not affect
- -------
any obligations of Purchaser thereunder. Any such notation shall be conclusive
and binding as to the date and amount of such Advance, or payment of principal
or interest thereon, absent manifest error. The Receivables with respect to
which the Purchase Price therefor is paid pursuant to either clause (i) or
clause (ii)(A) above is referred to herein as the "Purchased Receivables", and
---------------------
the Receivables with respect to which the Purchase Price therefor is paid
pursuant to clause (ii)(B) above is referred to herein as the "Contributed
-----------
Receivables". The Purchased Receivables and the Contributed Receivables are
- -----------
collectively referred to herein as the "Transferred Receivables".
-----------------------
(c) The terms and conditions of the Subordinated Note and all
Advances thereunder shall be as follows:
(i) Repayment of Advances. All amounts paid by the Purchaser
---------------------
with respect to the Advances shall be allocated first to the repayment of
accrued interest until all such interest is paid, and then to the outstanding
principal amount of the Advances. Subject to the provisions of this Agreement,
the Purchaser may borrow, repay and reborrow Advances on and after the date
hereof and prior to the termination of this Agreement,
8
<PAGE>
subject to the terms, provisions and limitations set forth herein, including,
without limitation, the requirement that no Advance be made to the extent that
after giving effect thereto the aggregate outstanding principal amount of all
Advances would exceed the Advance Limit.
(ii) Interest. The Subordinated Note shall bear interest from its
--------
date on the outstanding principal balance thereof at a rate per annum equal to
5.00%. Interest on each Advance shall be computed based on the number of days
elapsed in a year of 360 days.
(iii) Sole and Exclusive Remedy/Subordination. The Purchaser shall be
---------------------------------------
obligated to repay Advances to the Seller only to the extent of funds available
to the Purchaser from Collections on the Receivables and the Related Security
and Collections with respect thereto and, to the extent that such payments are
insufficient to pay all amounts owing to the Seller under the Subordinated Note,
the Seller shall not have any claim against the Purchaser for such amounts and
no further or additional recourse shall be available against Purchaser. The
Subordinated Note shall be fully subordinated to any rights of Enterprise and
its permitted assigns pursuant to the Transfer Agreement, and shall not evidence
any rights in the Receivables or related property.
(iv) Offsets, etc. The Purchaser may offset any amount due and owing
-------------
by the Seller against any amount due and owing by Purchaser to the Seller under
the terms of the Subordinated Note.
SECTION 3.3. Monthly Report. On the last Business Day of each
--------------
calendar month, the Seller shall deliver to the Purchaser a monthly report,
substantially in the form of Exhibit A attached hereto, showing (i) the
aggregate Purchase Price of the Receivables acquired or generated by the Seller
in the preceding month and (ii) the aggregate Outstanding Balance of such
Receivables that are Eligible Receivables.
9
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Seller's Representations and Warranties. The Seller
---------------------------------------
represents and warrants to the Purchaser as of the Closing Date and shall be
deemed to represent and warrant as of the date of the creation of any sale of
any interest in Receivables to the Purchaser pursuant to this Agreement that:
(a) Corporate Existence and Power. The Seller is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
(b) Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by the Seller of this Agreement, and each
other document or instrument to be delivered by the Seller hereunder
(collectively, "Conveyance Papers"), are within its corporate powers, have been
-----------------
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except as
contemplated by Section 2.1(c)), and do not contravene, or constitute a material
default under, any provision of applicable law or regulation or of the
Certificate of Incorporation or By Laws of the Seller, or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the Seller
or result in the creation or imposition of any lien on assets of the Seller or
any of its respective Subsidiaries (except as contemplated by Section 2.1(c)).
(c) Binding Effect. Each of the Conveyance Papers constitutes the
--------------
legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally (whether considered in a proceeding at law or in equity).
10
<PAGE>
(d) Perfection. Immediately preceding each sale hereunder, the
----------
Seller shall be the owner of all of the Receivables, free and clear of any
Adverse Claims. On or prior to the date of each sale hereunder, all financing
statements and other documents required to be recorded or filed in order to
protect the Purchaser's interest in the Receivables against all creditors of and
purchasers from Seller (other than any financing statements or assignments of
financing statements required to perfect the Purchaser's interest hereunder),
will have been duly filed in each filing office necessary for such purpose and
all filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
the Seller to the Purchaser for purposes of or in connection with this
Agreement, the Conveyance Papers or any transaction contemplated in connection
therewith is, and all such information hereafter furnished by the Seller to the
Purchaser will be, true and accurate in every material respect, on the date such
information is stated or certified.
(f) Tax Returns. The Seller has filed all tax returns (federal,
-----------
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other government charges due and
payable.
(g) Action, Suits. There are no actions, suits or proceedings
-------------
pending, or to the knowledge of the Seller threatened, against or affecting the
Seller or any Affiliate of the Seller or their respective properties, in or
before any court, arbitrator or other body, which individually or in the
aggregate, could be reasonably expected to materially adversely affect the
financial condition of the Seller and its subsidiaries taken as a whole or
materially adversely affect the ability of Seller to perform its obligations
under this Agreement.
(h) Use of Proceeds. No proceeds of any sale hereunder will be used
---------------
by the Seller to acquire any security in any transaction which is subject to
Section
11
<PAGE>
13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
-----------------
executive office of the Seller is Dallas, Texas and the offices where the Seller
keeps all its Records, are located at the address(es) described on Exhibit G to
the Transfer Agreement or such other locations notified to the Purchaser in
accordance with Sections 2.1(b) in jurisdictions where all action required by
Section 2.1(b) has been taken and completed.
(j) Good Title. Prior to any sale hereunder, the Seller shall have
----------
all right, title and interest in, to and under each Receivable, free and clear
of any Adverse Claim. Upon the consummation of each sale hereunder, the Seller
shall have transferred to the Purchaser all right, title and interest of the
Seller in, to and under each Receivable that exists on the date of such sale and
in the Related Security and Collections with respect thereto free and clear of
any Adverse Claim. No Person to which the Seller has granted a security
interest in inventory shall have a security interest in any Receivable, except
as shall otherwise be consented to in writing by the Purchaser and, for so long
as the Transfer Agreement shall be in effect, the Agent.
(k) Tradenames, Etc. The Seller has not used any corporate names,
----------------
tradenames or assumed names other than its name set forth on the signature pages
of this Agreement and, within the last five (5) years, has not changed its name,
merged with or into or consolidated with any other corporation or been the
subject of any proceeding under Title 11, United States Code (Bankruptcy).
(l) Nature of Receivables. Each Receivable an interest in which is
---------------------
reported by the Seller as being an Eligible Receivable shall satisfy the
definition of "Eligible Receivable".
(m) Amount of Receivables. As of the close of business on the
---------------------
second Business Day prior to the Closing Date, the aggregate Outstanding Balance
of the Receivables in existence shall be as set forth in the
12
<PAGE>
certification of the Seller required to be delivered pursuant to Section 7.1(f).
(n) Credit and Collection Policy. Since November 21, 1995, there
----------------------------
have been no material changes in the Credit and Collection Policy; since such
date, no material adverse change has occurred in the overall rate of collection
of the Receivables or in the ability of the Seller to service and collect the
Receivables.
(o) Binding Effect of Receivables and Contract. Each Receivable and
------------------------------------------
related Contract constitutes a legal, valid and binding obligation of the
Obligor enforceable against the Obligor, subject to the effect of bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
(whether considered in a proceeding at law or in equity).
(p) No Restriction on Transfer. No Contract requires the prior
--------------------------
written consent of an Obligor or contains any other restriction relating to the
transfer or assignment of rights of payment under such Contract (other than a
consent or waiver of such restriction that has been obtained prior to the
related Purchase Date).
(q) Not an Investment Company. The Seller is not an "investment
-------------------------
company" within the meaning of the Investment Company Act of 1940, as amended,
or is exempt from all provisions of such Act.
(r) ERISA. The Seller is in compliance in all material respects with
-----
ERISA and no ERISA lien on any of the Receivables shall exist.
(s) Lockboxes. The names and addresses of all the Lockbox Banks,
---------
together with the account numbers of the Lockboxes at such Lockbox Banks, are
specified in Exhibit L to the Transfer Agreement (or at such other Lockbox Banks
and/or with such other Lockboxes as have been notified to the Purchaser and the
Agent and for which Lockbox Agreements have been executed and delivered to the
Collateral Agent). All Obligors have been instructed to make payment to a
Lockbox Account and only Collections are deposited into the Lockbox Accounts.
13
<PAGE>
(t) No Termination Event. No Termination Event, and no condition
--------------------
that, with the giving of notice and/or the passage of time would constitute a
Termination Event, has occurred and is continuing.
SECTION 4.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Seller; Notice of Breach. On each sale date, the Seller, by accepting the
- ------------------------
proceeds of such sale, shall be deemed to have certified that all
representations and warranties described in Section 4.1 are true and correct on
and as of such day as though made on and as of such day. The representations
and warranties set forth in Section 4.1 shall survive the conveyance of the
Receivables and related property to the Purchaser, and termination of the rights
and obligations of the Purchaser and the Seller under this Agreement. Upon
discovery by the Purchaser or the Seller of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other within three Business Days of such discovery.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
ARTICLE V
COVENANTS OF THE SELLER
SECTION 5.1. Covenants of the Seller. The Seller hereby covenants
-----------------------
and agrees with the Purchaser that, for so long as this Agreement is in effect,
and until all Receivables which have been sold to the Purchaser pursuant hereto
shall have been paid in full or written-off as uncollectible, and all amounts
owed by the Seller pursuant to this Agreement have been paid in full, unless the
Purchaser otherwise consents in writing, the Seller covenants and agrees as
follows:
(a) Conduct of Business. The Seller will, and will cause each of its
-------------------
Subsidiaries to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and will maintain all requisite authority to conduct its business
in each jurisdiction in which its business is conducted.
(b) Compliance with Laws. The Seller will, and will cause each of
--------------------
its Subsidiaries to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject.
(c) Furnishing of Information and Inspection of Records. The Seller
---------------------------------------------------
will furnish to the Purchaser from time to time such information with respect to
the Receivables as the Purchaser may reasonably request, including, without
limitation, listings identifying the Obligor and the Outstanding Balance for
each Receivable. The Seller will at any time and from time to time during
regular business hours permit the Purchaser, or its agents or representatives,
(i) to examine and make copies of and abstracts from all Records and (ii) to
visit the offices and properties of the Seller for the purpose of examining such
Records, and to discuss matters relating to Receivables or the Seller's
performance hereunder with
15
<PAGE>
any of the officers, directors, employees or independent public accountants of
the Seller having knowledge of such matters.
(d) Keeping of Records and Books of Account. The Seller will
---------------------------------------
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles, consistently applied, and will
maintain for each of its Subsidiaries, a system of accounting established and
administered in accordance with accounting practices currently used by its
Subsidiaries, consistently applied, and will maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Receivables in the event of the
destruction of the originals thereof), and keep and maintain, or obtain, as and
when required, all documents, books, records and other information reasonably
necessary or advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the daily identification of each new
Receivable and all Collections of and adjustments to each existing Receivable).
The Seller will give the Purchaser prompt notice of any change in the
administrative and operating procedures referred to in the previous sentence to
the extent such change may have a material adverse effect.
(e) Performance and Compliance with Receivables and Contracts. The
---------------------------------------------------------
Seller at its expense will, and will cause each of its Subsidiaries to, timely
and fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Contracts related to the
Receivables.
(f) Credit and Collection Policy. The Seller will comply in all
----------------------------
material respects with the Credit and Collection Policy in regard to each
Receivable and the related Contract.
(g) Collections. The Seller shall instruct all Obligors to cause all
-----------
Collections to be deposited directly to a Lockbox.
(h) Collections Received. Any and all Collections at any time coming
--------------------
into the Seller's possession
16
<PAGE>
shall be delivered to a Lockbox. All proceeds of Collections in
respect of the Receivables at any time coming into the Seller's possession shall
be held in trust for the Purchaser and applied as required by the Transfer
Agreement.
(i) Sale Treatment. The Seller agrees to treat this conveyance for
--------------
all purposes (including, without limitation, tax and financial accounting
purposes) as a sale and, to the extent any such reporting is required, shall
report the transactions contemplated by this Agreement on all relevant books,
records, tax returns, financial statements and other applicable documents as a
sale of the Receivables and related property to the Purchaser.
(j) No Sales, Liens, Etc. Except as otherwise provided herein, the
--------------------
Seller will not, and will not permit any of its Subsidiaries to, sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Adverse Claim upon (or the filing of any financing statement) or
with respect to, any Receivable, Related Security or Collections (subject, in
each case with respect to Related Security constituting returned inventory, to
the applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements) or upon or with respect to any Lockbox to which any
Collections of any Receivable are sent, or, in each case, assign any right to
receive income in respect thereof. The Seller will not, and will not permit any
of its Subsidiaries to, grant or suffer to exist any security interest in any
inventory unless such security interest (and related UCC financing statement,
other than the financing statements in favor of NationsBank of Texas, N.A.
relating to interests in Receivables which have been released pursuant to the
Release, or other related filing) expressly excludes Receivables, Related
Security (other than returned inventory) and Collections. The Seller will
provide the Purchaser and the Agent with a copy of any inventory financing
agreement at least three Business Days prior to the effectiveness thereof.
(k) No Extension or Amendment of Receivables. The Seller will not
----------------------------------------
extend, amend or otherwise modify the terms of any Receivable, or amend, modify
or waive any term or condition of any Contract related thereto,
17
<PAGE>
except as provided in the Transfer Agreement, without the prior written consent
of the Purchaser.
(l) No Change in Business or Credit and Collection Policy; Certain
--------------------------------------------------------------
Contracts. Except as provided in the Transfer Agreement, the Seller will not
- ---------
make any change in the Credit and Collection Policy, which change might impair
the collectibility of any Receivable.
(m) No Mergers, Etc. The Seller will not (i) consolidate or merge
---------------
with or into any other Person, or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person; provided, that the Seller
--------
may merge with another Person if the Seller is the surviving corporation and
such merger or consolidation does not cause a Termination Event or Potential
Termination Event under the Transfer Agreement.
(n) Change in Payment Instructions to Obligors. The Seller will not
------------------------------------------
add or terminate, or make any change to, any Lockbox. The Seller will not
direct Obligors to make payments on the Receivables to any location or account
other than a Lockbox.
(o) Deposits to Lockboxes. The Seller will not deposit or otherwise
---------------------
credit, or cause or permit to be so deposited or credited, to any Lockbox cash
or cash proceeds other than Collections of Receivables.
(p) Change of Name, Etc. The Seller shall not change its name,
--------------------
identity or structure or its chief executive office, unless at least ten (10)
days prior to the effective date of any such change the Seller delivers to the
Purchaser (i) UCC financing statements, executed by the Seller, necessary to
reflect such change and to continue the perfection of the Purchaser's interest
in the Receivables, and the Related Security and Collections with respect
thereto and (ii) new or revised Lockbox Agreements which reflect such change.
(q) Indemnification. The Seller agrees to indemnify, defend and hold
---------------
the Purchaser harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency, or expense (including interest, penalties,
reasonable attorneys' fees and amounts paid in
18
<PAGE>
settlement) to which the Purchaser may become subject insofar as such loss,
liability, damage, judgment, claim, deficiency, or expense arises out of or is
based upon a breach by the Seller of its representations, warranties and
covenants contained herein, or any information certified in any schedule or
certificate delivered by the Seller hereunder or in connection with the
Conveyance Papers, being untrue in any material respect at any time. The
obligations of the Seller under this Section 5.1(q) shall be considered to have
been relied upon by the Purchaser and shall survive the execution, delivery,
performance and termination of this Agreement for a period of three (3) years
following the Termination Date, regardless of any investigation made by the
Purchaser.
(r) ERISA. The Seller shall promptly give the Purchaser written
-----
notice upon becoming aware that the Seller is not in compliance in all material
respects with ERISA or that any ERISA lien on any of the Receivables exists.
(s) The Seller shall, no later than January 1, 1998, obtain written
confirmation, in form and substance acceptable to the Purchaser and the Agent,
from Apple Computer, Inc. that any security interest in inventory granted to
such Person by the Seller does not extend to accounts receivable created upon
the sale of inventory in which such Person has a security interest.
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19
<PAGE>
ARTICLE VI
REPURCHASE OBLIGATION
SECTION 6.1. Mandatory Repurchase.
--------------------
(a) Breach of Warranty. If on any day a Receivable which has been
------------------
sold by the Seller hereunder and which has been reported by the Seller as an
Eligible Receivable, shall fail to meet the conditions set forth in the
definition of Eligible Receivable or for which any representation or warranty
made herein in respect of such Receivable shall no longer be true, the Seller
shall be deemed to have received on such day a Collection of such Receivable in
full and shall on such day pay to the Purchaser an amount equal to the
Outstanding Balance of such Receivable.
(b) Reconveyance Under Certain Circumstances. The Seller agrees
----------------------------------------
that, with respect to any Receivable an interest in which has been sold
hereunder, in the event of a breach of any of the representations and warranties
set forth in Sections 4.1(d), 4.1(e), 4.1(g), 4.1(j), 4.1(l), 4.1(h), 4.1(o),
4.1(p) and 4.1(q), the Seller agrees to accept the reconveyance of such
Receivable created on and after the date of such breach upon receipt by the
Seller of notice given in writing by the Purchaser and the Seller's failure to
cure such breach within thirty (30) days (or, in the case of representations and
warranties found in Sections 4.1(d) and 4.1(j), within three (3) days) of such
notice. In the event of a reconveyance under this Section 6.1(b), the Seller
shall pay to the Purchaser in immediately available funds on such 30th day (or
third day, if applicable) an amount equal to the Outstanding Balance of any such
Receivables.
SECTION 6.2. Dilutions, Etc. The Seller agrees that if on any day
--------------
the Outstanding Balance of a Receivable which has been sold by the Seller
hereunder is either (x) reduced as a result of defective, rejected or returned
goods or other dilution factor, any billing adjustment or other adjustment, or
(y) reduced or canceled as a result of a setoff or offset in respect of any
claim
20
<PAGE>
by any Person (whether such claim arises out of the same or a related
transaction or an unrelated transaction), then the Seller shall be deemed to
have received on such day a collection of such Receivable in the amount of such
reduction, cancellation or payment made by the Obligor and shall on such day pay
to the Purchaser the amount of such reduction or cancellation.
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21
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. Conditions to the Purchaser's Obligations Regarding
---------------------------------------------------
Receivables. The obligations of the Purchaser to purchase any Receivable on any
- -----------
Business Day shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Seller contained in this
Agreement shall be true and correct on the Closing Date and on the day of
creation of any Receivable thereafter with the same effect as though such
representations and warranties had been made on such date;
(b) All information concerning the Receivables provided to the Purchaser
shall be true and correct in all material respects as of the Closing Date, in
the case of any Receivables which are sold to the Purchaser on the Closing Date,
or the date such Receivables are created, in the case of any Receivables which
are created after the Closing Date;
(c) The Seller shall have substantially performed all other obligations
required to be performed by the provisions of this Agreement;
(d) The Seller shall have either filed or caused to be filed the financing
statement(s) required to be filed pursuant to Section 2.1(b);
(e) All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Purchaser, and the Purchaser shall have received from
the Seller copies of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein contemplated as the
Purchaser may reasonably have requested; and
(f) On the Closing Date, the Seller shall
22
<PAGE>
deliver to the Purchaser a certification of the aggregate Outstanding Balance of
the Receivables in existence as of the close of business on the second Business
Day prior to the Closing Date.
(g) The Seller shall obtain written confirmation, in form and substance
acceptable to the Purchaser and the Agent, from Compaq Computer Corporation
that any security interest in inventory granted to such Person by the Seller
does not extend to accounts receivable created upon the sale of inventory in
which such Person has a security interest.
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23
<PAGE>
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.1. Term. This Agreement shall commence as of the date of
----
execution and delivery hereof and shall continue in full force and effect until
the date following the earlier of (i) the date designated by the Purchaser or
the Seller as the termination date at any time following sixty (60) day's
written notice to the other (with a copy thereof to Enterprise), (ii) the date
on which the Agent declares a Termination Event or Potential Termination Event
pursuant to Section 7.2 of the Transfer Agreement, (iii) the day on which a
Reinvestment Termination Date shall occur under the Transfer Agreement unless
the Transferred Interest shall have been assigned (or concurrently is so
assigned) to the Bank Investors under Section 9.7 of the Transfer Agreement,
(iv) upon the occurrence of an Event of Bankruptcy with respect to either the
Purchaser or the Seller or (v) the date on which either the Purchaser or the
Seller becomes unable for any reason to purchase or re-purchase any Receivable
in accordance with the provisions of this Agreement or defaults on its
obligations hereunder, which default continues unremedied for more than thirty
(30) days after written notice (any such date being a "Termination Date");
----------------
provided, however, that the termination of this Agreement pursuant to this
- -------- -------
Section 8.1 hereof shall not discharge any Person from any obligations incurred
prior to such termination, including, without limitation, any obligations to
make any payments with respect to any Receivable sold prior to such termination.
SECTION 8.2. Effect of Termination. Following the termination of this
---------------------
Agreement pursuant to Section 8.1, the Seller shall not sell, and the Purchaser
shall not purchase any Receivables. No termination or rejection or failure to
assume the executory obligations of this Agreement in any Event of Bankruptcy
with respect to the Seller or the Purchaser shall be deemed to impair or affect
the obligations pertaining to any executed sale or executed obligations,
including, without limitation, pre-termination breaches of representations and
warranties by the Seller or the Purchaser. Without limiting the fore-
24
<PAGE>
going, prior to termination, the failure of the Seller to deliver computer
records of Receivables or any reports regarding the Receivables shall not render
such transfer or obligation executory, nor shall the continued duties of the
parties pursuant to Article V of this Agreement render an executed sale
executory.
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25
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Amendment. This Agreement and any other Conveyance Papers
---------
and the rights and obligations of the parties hereunder may not be changed
orally, but only by an instrument in writing signed by the Purchaser and the
Seller. Any reconveyance executed in accordance with the provisions hereof
shall not be considered amendments to this Agreement.
SECTION 9.2. Governing Law; Submission to Jurisdiction.
-----------------------------------------
(A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(b) The parties hereto hereby submit to the nonexclusive jurisdiction of
the United States District Court for the Southern District of New York and of
any New York state court sitting in The City of New York for purposes of all
legal proceedings arising out of or relating to this agreement or the
transactions contemplated hereby. Each party hereto hereby irrevocably waives,
to the fullest extent it may effectively do so, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect
the right of the Purchaser to bring any other action or proceeding against the
Seller or its property in the courts of other jurisdictions.
SECTION 9.3. Notices. All demands, notices and communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to:
26
<PAGE>
(a) in the case of the Purchaser:
CSI Funding Inc.
7171 Forest Lane
Dallas, Texas 75230
Attention: ________
Telecopy: (972) 856-5395
with a copy to:
NationsBank, N.A.
NationsBank Corporate Center, 10th Floor
Charlotte, NC 28255
Attention: Michelle M. Heath
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
(b) in the case of the Seller:
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attention: Mr. Dan Celoni, Treasurer
Telecopy: (214) 265-5449
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
SECTION 9.4. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement or any other
Conveyance Paper shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement or any
other Conveyance Paper and shall in no way affect the validity or enforceability
of the other provisions of this Agreement or of any other Conveyance Paper.
SECTION 9.5. Assignment. This Agreement and all other Conveyance Papers
----------
may not be assigned by the parties hereto, except that the Purchaser may assign
its
27
<PAGE>
rights hereunder pursuant to the Transfer Agreement to the Agent for the benefit
of Enterprise and the Bank Investors and except that the Seller may grant a lien
on the Subordinated Note to pursuant to the NationsBank FSA. The Purchaser
hereby notifies (and the Seller hereby acknowledges that) the Purchaser,
pursuant to the Transfer Agreement, has assigned its rights hereunder to the
Agent. All rights of the Purchaser hereunder may be exercised by the Agent or
its assignees, to the extent of their respective rights pursuant to such
assignments.
SECTION 9.6. Further Assurances. The Purchaser and the Seller agree to do
------------------
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party more
fully to effect the purposes of this Agreement and the other Conveyance Papers,
including, without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of the Purchaser, the Seller or Enterprise,
any right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privilege provided by law.
SECTION 9.8. Counterparts. This Agreement and all other Conveyance Papers
------------
may be executed in two or more counterparts including telecopy transmission
thereof (and by different parties on separate counterparts), each of which shall
be an original, but all of which together shall constitute one and the same
instrument.
SECTION 9.9. Binding Effect; Third-Party Beneficiaries. This Agreement
-----------------------------------------
and the other Conveyance
28
<PAGE>
Papers will inure to the benefit of and be binding upon the parties hereto and
their respective successors and permitted assigns. Any Permitted Assignee,
including Enterprise and any Bank Investor, is intended by the parties hereto to
be a third-party beneficiary of this Agreement.
SECTION 9.10. Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement and the other Conveyance Papers set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement and
the other Conveyance Papers. This Agreement and the other Conveyance Papers may
not be modified, amended, waived or supplemented except as provided herein.
SECTION 9.11. Headings. The headings herein are for purposes of reference
--------
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 9.12. Exhibits. The schedules and exhibits referred to herein
--------
shall constitute a part of this Agreement and are incorporated into this
Agreement for all purposes.
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29
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller each have caused this
Receivables Purchase Agreement to be duly executed by their respective officers
as of the day and year first above written.
COMPUCOM SYSTEMS, INC.,
as Seller
By: /s/ M. LAZANE SMITH
____________________________
Name: M. Lazane Smith
Title: SVP-CFO
CSI FUNDING INC.,
as Purchaser
By: /s/ DANIEL CELONI
_____________________________
Name: Daniel Celoni
Title: Treasurer
Acknowledged and agreed as
of the date first above written:
ENTERPRISE FUNDING CORPORATION
By: /s/ STEWART CUTLER
_____________________________
Name: Stewart Cutler
Title: Vice President
NATIONSBANK, N.A., as Agent
By: /s/ STAN MEIHAUS
____________________________
Name: Stan Meihaus
Title: Vice President
<PAGE>
EXHIBIT A
---------
[FORM OF MONTHLY REPORT]
A-1
<PAGE>
EXHIBIT B
---------
FORM OF SUBORDINATED NOTE
Dallas, Texas
April 1, 1996
FOR VALUE RECEIVED, the undersigned, CSI FUNDING INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of COMPUCOM
-----
SYSTEMS, INC. (the "Payee"), on November 3, 1997 or earlier as provided for in
-----
the Receivables Purchase Agreement dated as of April 1, 1996, as amended and
restated as of November 3, 1997, between the Maker and the Payee (as such
agreement may from time to time be amended, supplemented or otherwise modified
and in effect, the "Receivables Purchase Agreement"), the lesser of the
------------------------------
principal sum of ______ Million Dollars ($__,000,000.00) or the aggregate unpaid
principal amount of all Advances to the Maker from the Payee pursuant to the
terms of the Receivables Purchase Agreement, in lawful money of the United
States of America in immediately available funds, and to pay interest from the
date thereof on the principal amount hereof from time to time outstanding, in
like funds, at said office, at the rate per annum set forth in the Receivables
Purchase Agreement and shall be payable in arrears on each Distribution Date.
The Maker hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever. The non-exercise by the holder hereof of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Subordinated Note and all payments and
prepayments of the principal hereof and interest hereon and the respective dates
thereof shall be endorsed by the holder hereof on the schedule attached hereto
and made a part hereof, or on a continuation thereof which shall be attached
hereto and
B-1
<PAGE>
made a part hereof, or otherwise recorded by such holder in its internal
records; provided, however, that the failure of the holder hereof to make such a
-------- -------
notation or any error in such a notation shall not in any manner affect the
obligation of the Maker to make payments of principal and interest in accordance
with the terms of this Subordinated Note and the Amended and Restated
Receivables Purchase Agreement.
The Maker shall have the right to prepay and, subject to the limitations
set forth in the Amended and Restated Receivables Purchase Agreement, reborrow
Advances made to it without penalty or premium.
This Subordinated Note is the Subordinated Note referred to in the
Receivables Purchase Agreement, which, among other things, contains provisions
for the subordination of this Subordinated Note to the rights of certain parties
under the Transfer and Administration Agreement, all upon the terms and
conditions therein specified.
This Subordinated Note is an amendment and restatement of the Subordinated
Note issued pursuant to the Receivables Purchase Agreement on April 1, 1996, and
shall not be deemed to represent evidence of the issuance of a new note.
This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.
CSI FUNDING INC.
By: /s/ DANIEL CELONI
________________________
Name: Daniel Celoni
Title: Treasurer
B-2
<PAGE>
Advances and Payments
Amount of Payments Unpaid Principal
Name of Person
Date Advance Principal/Interest Balance of Note
- ---- ------- ------------------ ---------------
Making Notation
- ---------------
B-3
<PAGE>
EXHIBIT 10(v)
================================================================================
TRANSFER AND ADMINISTRATION AGREEMENT
by and among
------------
CSI FUNDING INC.,
as Transferor,
COMPUCOM SYSTEMS, INC.,
individually and as Collection Agent,
ENTERPRISE FUNDING CORPORATION,
as Company,
and
---
NATIONSBANK, N.A.,
as Agent
Dated as of April 1, 1996
as
Amended and Restated as of November 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
DEFINITIONS............................................................... 1
SECTION 1.1. Certain Defined Terms...................................... 1
SECTION 1.2. Other Terms................................................ 25
SECTION 1.3. Computation of Time Periods................................ 25
ARTICLE II
TRANSFERS AND SETTLEMENTS................................................. 26
SECTION 2.1. Facility................................................... 26
SECTION 2.2. Transfers; Company Certificate; Eligible Receivables....... 26
SECTION 2.3. Selection of Tranche Periods and Tranche Rates............. 29
SECTION 2.4. Discount, Fees and Other Costs and Expenses................ 30
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures..... 30
SECTION 2.6. Liquidation Settlement Procedures.......................... 31
SECTION 2.7. Fees....................................................... 32
SECTION 2.8. Protection of Ownership Interest of the Company............ 33
SECTION 2.9. Deemed Collections; Application of Payments................ 34
SECTION 2.10. Payments and Computations, Etc............................. 35
SECTION 2.11. Reports.................................................... 35
SECTION 2.12. Collection Account......................................... 36
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................................ 37
SECTION 3.1. Representations and Warranties............................. 37
SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor................................................ 41
ARTICLE IV
CONDITIONS PRECEDENT...................................................... 42
SECTION 4.1. Conditions to Closing....................................... 42
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE V
<S> <C>
COVENANTS................................................................. 45
SECTION 5.1. Affirmative Covenants of each of Transferor and the
Collection Agent......................................... 45
SECTION 5.2. Negative Covenants......................................... 50
ARTICLE VI
ADMINISTRATION AND COLLECTIONS............................................. 53
SECTION 6.1. Appointment of Collection Agent............................. 53
SECTION 6.2. Duties of Collection Agent.................................. 53
SECTION 6.3. Rights After Designation of New Collection Agent............ 55
SECTION 6.4. Responsibilities of each of the Transferor and CompuCom..... 56
ARTICLE VII
TERMINATION EVENTS........................................................ 58
SECTION 7.1 Termination Events......................................... 58
SECTION 7.2. Termination................................................ 61
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS................................ 63
SECTION 8.1. Indemnities................................................ 63
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses................. 65
SECTION 8.3. Other Costs, Expenses and Related Matters.................. 67
SECTION 8.4. Reconveyance Under Certain Circumstances................... 68
ARTICLE IX
THE AGENT AND THE BANK COMMITMENT......................................... 69
SECTION 9.1 Authorization and Action................................... 69
SECTION 9.2. Agent's Reliance, Etc...................................... 70
SECTION 9.3. Credit Decision............................................ 71
SECTION 9.4. Indemnification of the Agent............................... 72
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9.5. Successor Agent............................................ 72
SECTION 9.6. Payments by the Agent...................................... 73
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.............. 73
ARTICLE X
MISCELLANEOUS............................................................. 78
SECTION 10.1. Term of Agreement.......................................... 78
SECTION 10.2. Waivers; Amendments........................................ 78
SECTION 10.3. Notices.................................................... 78
SECTION 10.4. Governing Law; Submission to Jurisdiction; Integration..... 80
SECTION 10.5. Severability; Counterparts................................. 80
SECTION 10.6. Successors and Assigns..................................... 81
SECTION 10.7. [RESERVED]................................................. 81
SECTION 10.8. Confidentiality............................................ 81
SECTION 10.9. No Bankruptcy Petition Against the Company................. 82
SECTION 10.10 Limited Recourse; Waiver of Setoff......................... 82
SECTION 10.11. Grant of Security Interest................................. 83
</TABLE>
3
<PAGE>
EXHIBITS
EXHIBIT A Form of Contract
EXHIBIT B Credit and Collection Policy
EXHIBIT C Form of Investor Report
EXHIBIT D Form of Transfer Certificate
EXHIBIT E Form of Settlement Statement
EXHIBIT F List of Actions and Suits
EXHIBIT G Schedule of Locations of Records
EXHIBIT H List of Subsidiaries, Divisions
and Tradenames
EXHIBIT I [Reserved]
EXHIBIT J Form of Secretary's Certificate
EXHIBIT K Form of Company Certificate
EXHIBIT L Lockbox Banks and Accounts
EXHIBIT M Form of Lockbox Agreement
EXHIBIT N Certain Definitions
EXHIBIT O Inventory Financing Agreement
4
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
This TRANSFER AND ADMINISTRATION AGREEMENT, dated as of April 1, 1996, as
AMENDED AND RESTATED as of November 3, 1997 (from time to time, this
"Agreement"), among CSI FUNDING INC., a Delaware corporation, as transferor (in
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such capacity, the "Transferor"), COMPUCOM SYSTEMS, INC., a Delaware
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corporation, individually and as collection agent (in such capacity, the
"Collection Agent"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
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"Company") and NATIONSBANK, N.A., as agent for the benefit of the Company and
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the Bank Investors (the "Agent").
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PRELIMINARY STATEMENT
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WHEREAS, the parties hereto wish to amend and restate the Transfer and
Administration Agreement dated as of April 1, 1996, as amended to the date
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Certain Defined Terms. As used in this Agreement, the
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following terms shall have the following meanings:
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
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other right or claim in, of or on any Person's assets or properties in favor of
any other Person.
"Advisory Fee" means the fee payable by the Transferor to the Agent
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pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
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"Affiliate" means, with respect to any Person, any other Person directly or
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indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if the controlling Person possesses, directly or indirectly, the power to direct
or cause the direction of the management or policies of the controlled Person,
whether through ownership of voting stock, by contract or otherwise.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
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Obligor.
"Agent" means NationsBank, N.A., in its capacity as agent for the Company
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and the Bank Investors, and any successor thereto appointed pursuant to Article
IX.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of (i)
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the aggregate accrued and unpaid Discount with respect to all Tranche Periods at
such time, (ii) the Net Investment at such time, and (iii) all other amounts
owed (whether due or accrued) hereunder by Transferor to the Company at such
time.
"Assignment" shall have the meaning specified in Section 9.7(a).
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"Assignment Amount" with respect to a Bank Investor shall mean an amount
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equal to the lesser of (i) such Bank Investor's Pro Rata Share of the Net
Investment plus any amounts which remain unpaid pursuant to Section 9.7(d)
hereof and (ii) such Bank Investor's unused Commitment.
"Bank Investors" means NationsBank, N.A., and any assignee thereof pursuant
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to Article IX.
"Base Rate" or "BR" means, a rate per annum equal to the greater of (i) the
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prime rate of interest announced by the Liquidity Provider from time to time,
changing when and as said prime rate changes (such rate not necessarily being
the lowest or best rate charged by the Liquidity Provider) and (ii) the rate
equal to the weighted average of the rates on overnight Federal funds
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transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day for such transactions received by the
Liquidity Provider from three Federal funds brokers of recognized standing
selected by it plus, in the case of this clause (ii), 1.50%.
"Business Day" means any day excluding Saturday, Sunday and any day on
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which banks in New York, New York, Charlotte, North Carolina or Dallas, Texas
are authorized or required by law to close, and, when used with respect to the
determination of any Eurodollar Rate or any notice with respect thereto, any
such day which is also a day for trading by and between banks in United States
dollar deposits in the London interbank market.
"BR Tranche" means a Tranche as to which Discount is calculated at the Base
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Rate.
"BR Tranche Period" means, with respect to a BR Tranche, prior to the
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Termination Date, a period of up to 30 days requested by the Transferor and
agreed to by the Company or the Liquidity Provider, as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider, as the case may be, and after the Termination
Date, a period of one day. If such BR Tranche Period would end on a day which
is not a Business Day, such BR Tranche Period shall end on the next succeeding
Business Day.
"Capitalized Lease" of a Person means any lease of property by such Person
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as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with generally accepted accounting principles.
"CD Rate" shall mean, with respect to any CD Tranche Period, a rate which
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is .75% in excess of a rate per annum equal to the sum (rounded upward to the
nearest 1/100 of 1%) of (A) the rate obtained by dividing (x) the Certificate of
Deposit Rate for such CD Tranche Period by (y) a percentage equal to 100% minus
the stated maximum rate for all reserve requirements as specified in Regula-
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tion D (including without limitation any marginal, emergency, supplemental,
special or other reserves) that would be applicable during such Tranche Period
to a negotiable certificate of deposit in excess of $100,000, with a maturity
approximately equal to such Tranche Period, of any member bank of the Federal
Reserve System plus (B) the then daily net annual assessment rate (rounded
upward, if necessary, to the nearest 1/100 of 1%) as estimated by the Liquidity
Provider for determining the current annual assessment payable by the Liquidity
Provider to the Federal Deposit Insurance Corporation for insuring such
certificates of deposit.
"CD Tranche" means a Tranche as to which Discount is calculated at the CD
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Rate.
"CD Tranche Period" means, with respect to a CD Tranche, prior to the
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Termination Date, a period of up to one month requested by the Transferor and
agreed to by the Company or the Liquidity Provider, as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider, as the case may be, and after the
Termination Date, a period of one day. If such CD Tranche Period would end on a
day which is not a Business Day, such CD Tranche Period shall end on the next
succeeding Business Day.
"Certificate of Deposit Rate" means, with respect to any CD Tranche Period,
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the average of the bid rates determined by the Liquidity Provider to be bid
rates per annum, at approximately 10:00 a.m. (New York City time) on the
Business Day before the first day of the CD Tranche Period for which such CD
Rate is to be applicable, of two or more New York certificate of deposit dealers
of recognized standing selected by the Liquidity Provider for the purchase in
New York from the Liquidity Provider at face value of certificates of deposit of
the Liquidity Provider in an aggregate amount approximately comparable to the
amount of the CD Tranche to which such CD Rate is to be applicable and with a
maturity approximately equal to the applicable CD Tranche Period.
"Closing Date" means November 3, 1997.
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"Collateral Agent" has the meaning specified in Section 10.6(b).
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"Collections" means, with respect to any Receivable, all cash collections
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and other cash proceeds of such Receivable, including, without limitation, all
Finance Charges, if any, and cash proceeds of Related Security with respect to
such Receivable, and any Deemed Collections of such Receivable.
"Collection Account" means the account no. 653035022, established by the
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Transferor and maintained at NationsBank, N.A.
"Collection Agent" means at any time the Person then authorized pursuant to
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Section 6.1 to service, administer and collect Receivables.
"Commercial Paper" means the promissory notes of the Company issued by the
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Company in the commercial paper market.
"Commitment" means for each Bank Investor, the commitment of such Bank
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Investor to make acquisitions from the Transferor or the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment".
"Commitment Termination Date" means November 2, 1998, or such later date to
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which the Commitment Termination Date may be extended by the Transferor, the
Agent and the Bank Investors.
"Company Certificate" means the certificate issued to the Company pursuant
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to Section 2.2 hereof.
"CompuCom" means CompuCom Systems, Inc., a Delaware corporation, and its
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successors and assigns.
"Concentration Amount" means for any Designated Obligor, (a) 2% of the
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aggregate Outstanding Balance of Eligible Receivables at such time; provided,
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however, that with respect to any Designated Obligor and its affiliates whose
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long term unsecured debt obligations are rated at least "A1" by Moody's and at
least "A+" by Stan-
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dard & Poor's and with respect to which rating neither Moody's nor Standard &
Poor's shall have made a public announcement anticipating a downgrading of such
Designated Obligor's long term unsecured debt obligations to a rating less than
the aforementioned ratings ("A1/A+ Rated Obligors"), 5% of the aggregate
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Outstanding Balance of all Eligible Receivables at such time; or (b) such other
amount with respect to a Designated Obligor determined by the Company in the
reasonable exercise of its good faith judgment and disclosed in a written notice
delivered to the Transferor.
"Contract" means an agreement or invoice in substantially the form of one
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of the forms set forth in Exhibit A or otherwise approved by the Company, and
any documents related thereto, pursuant to or under which an Obligor shall be
obligated to pay CompuCom for merchandise purchased or services rendered.
"CP Rate" means, with respect to any CP Tranche Period, the rate equivalent
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to the rate (or if more than one rate, the weighted average of the rates) at
which Commercial Paper having a term equal to such CP Tranche Period may be sold
by any placement agent or commercial paper dealer entering into a commercial
paper dealer agreement with the Company; provided, however, that if the rate (or
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rates) as agreed between any such agent or dealer and the Company is a discount
rate, then the rate (or if more than one rate, the weighted average of the
rates) resulting from the Company's converting such discount rate (or rates) to
an interest-bearing equivalent rate per annum.
"CP Tranche" means a Tranche as to which Discount is calculated at a CP
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Rate.
"CP Tranche Period" means, with respect to a CP Tranche, a period of days
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not to exceed 120 days commencing on a Business Day requested by the Transferor
and agreed to by the Company pursuant to Section 2.3. If such CP Tranche Period
would end on a day which is not a Business Day, such CP Tranche Period shall end
on the next succeeding Business Day.
"Credit and Collection Policy" shall mean CompuCom=s credit and collection
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policy or policies and
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practices, relating to Contracts and Receivables existing on the date hereof and
referred to in Exhibit B attached hereto, as modified from time to time in
compliance with Section 5.2(c).
"Credit Support Agreement" means the agreement between the Company and the
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Credit Support Provider evidencing the obligation of the Credit Support Provider
to provide credit support to the Company in connection with the issuance by the
Company of Commercial Paper.
"Credit Support Provider" means the Person or Persons who provide credit
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support to the Company in connection with the issuance by the Company of
Commercial Paper.
"Current Maturities of Long-term Debt" means that amount of principal due
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to be repaid within one-year, for debts that were incurred for a time period of
greater than one-year.
"Dealer Fee" means the fee payable by the Transferor to the Agent, pursuant
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to Section 2.4 hereof, the terms of which are set forth in the Fee Letter.
"Debt to Tangible Net Worth Ratio" has the meaning specified in the
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NationsBank FSA as in effect on [the date hereof] (without regard to any
amendments, supplements or modifications thereto after [the date hereof]).
"Deemed Collections" means any Collections on any Receivable deemed to have
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been received by the Transferor pursuant to Section 2.9(a) or (b).
"Defaulted Receivable" means a Receivable: (i) as to which any payment, or
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part thereof, remains unpaid for 91 days or more from the original due date for
such Receivable; (ii) as to which an Event of Bankruptcy has occurred with
respect to the Obligor thereof; (iii) which has been identified by the
Collection Agent as uncollectible; or (iv) which, consistent with the Credit and
Collection Policy, should be written off as uncollectible.
"Delinquency Ratio" means, with respect to any date of determination, the
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ratio (expressed as a percent-
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age) computed by dividing (i) the aggregate Outstanding Balance of all
Delinquent Receivables as of such date by (ii) the aggregate Outstanding Balance
of all Receivables as of such date less Defaulted Receivables as of such date.
"Delinquent Receivable" means a Receivable: (i) as to which any payment,
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or part thereof, remains unpaid for more than 30 days from the original due date
for such Receivable and (ii) which is not a Defaulted Receivable.
"Designated Obligor" means, at any time, each Obligor; provided, however,
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that any Obligor shall cease to be a Designated Obligor upon notice to the
Transferor from the Company exercising its reasonable discretion, delivered at
any time.
"Dilution Ratio" means, for any period of determination, the ratio
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(expressed as a percentage) computed by dividing (i) the aggregate balance of
Receivables subject to any credits, rebates, discounts, disputes, warranty
claims, repossessed or returned goods, charge back allowances and other dilutive
factors, and any other billing or other adjustment by the Transferor or the
Collection Agent, provided to Obligors in respect of Receivables during the
preceding month by (ii) the aggregate Outstanding Balance of all Receivables
which were originated during the month one month preceding the period of
determination.
"Dilution Reserve" means, at any time, an amount equal to the product of
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(i) 1.5, (ii) the highest Dilution Ratio as of the last day for any of the
preceding twelve (12) calendar months and (iii) the sum of the Net Investment,
the Loss Reserve, the Discount Reserve and the Servicing Fee Reserve at such
time.
"Discount" means, with respect to any Tranche Period:
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(TR x TNI x AD)
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Where:
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TR = the Tranche Rate applicable to such Tranche Period.
TNI = the portion of the Net Investment allocated to such Tranche Period.
AD = the actual number of days during such Tranche Period.
provided, however, that no provision of this Agreement shall require the payment
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or permit the collection of Discount in excess of the maximum permitted by
applicable law; and provided, further, that Discount shall not be considered
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paid by any distribution if at any time such distribution is rescinded or must
be returned for any reason.
"Discount Reserve" means, at any time, an amount equal to:
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TD + LY
Where:
TD = the sum of the unpaid Discount for all Tranche Periods; and
LY = the Liquidation Yield.
"Early Collection Fee" means, for any Tranche Period (such Tranche
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Period to be determined without regard to the last sentence in Section 2.3(a))
during which the portion of the Net Investment that was allocated to such
Tranche Period is reduced, the excess, if any, of (i) the additional Discount
that would have accrued during such Tranche Period if such reductions had not
occurred, minus (ii) the income received by the Company from investing the
proceeds of such reductions.
"Eligible Investments" shall mean (a) negotiable instruments or
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securities represented by instruments in bearer or registered or in book-entry
form which evidence (i) obligations fully guaranteed by the United States of
America; (ii) time deposits in, or bankers acceptances issued by, any depositary
institution or trust company incorporated under the laws of the United
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States of America or any state thereof and subject to supervision and
examination by Federal or state banking or depositary institution authorities;
provided, however, that at the time of investment or contractual commitment to
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invest therein, the certificates of deposit or short-term deposits, if any, or
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depositary institution or trust company shall have a
credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in
the case of the certificates of deposit or short-term deposits, or a rating not
lower than one of the two highest investment categories granted by Moody's and
by S&P; (iii) certificates of deposit having, at the time of investment or
contractual commitment to invest therein, a rating from Moody's and S&P of at
least "P-1" and "A-1", respectively; (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by the
applicable rating agencies, (b) demand deposits in any depositary institution or
trust company referred to in (a)(ii) above, (c) commercial paper (having
original or remaining maturities of no more than 30 days) having, at the time of
investment or contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively, (d) Eurodollar time
deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-
1", respectively, and (e) repurchase agreements involving any of the Eligible
Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the
other party to the repurchase agreement has at the time of investment therein, a
rating from Moody's and S&P of at least "P-1" and "A-1", respectively.
"Eligible Receivable" means, at any time, any Receivable:
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(i) which is subject to a valid sale and
assignment from CompuCom to the Transferor pursuant to the
Receivables Purchase Agreement and with respect to which the
Transferor has agreed to transfer, or has transferred to the
Company, a perfected ownership interest or a perfected
security interest pursuant to this Agreement thereto, free
and clear
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of all liens;
(ii) the Obligor, which shall be a United States
resident, is not an Affiliate of any of CompuCom, the
Transferor or the Company, is a Designated Obligor, and is
not a government or a governmental subdivision or agency;
(iii) which is required to be paid in full not
more than 30 days of the original billing date therefor and
does not represent a payment obligation by an Obligor to
Client Link Inc.;
(iv) which is not a Defaulted Receivable at the
time of the initial creation of an interest in such
Receivable;
(v) which is an "eligible asset" as defined in
Rule 3a-7 under the Investment Company Act of 1940, as
amended;
(vi) which is not more than 30 days delinquent at
the time of initial creation of an interest in such
Receivable;
(vii) which is an "account" within the meaning of
Section 9-106 of the UCC of all applicable jurisdictions;
(viii) which is denominated and payable only in
United States dollars in the United States;
(ix) which arises under a Contract which,
together with such Receivable, is in full force and effect
and constitutes the legal, valid and binding obligation of
the related Obligor enforceable against such Obligor in
accordance with its terms and is not subject to offset,
counterclaim or other defense;
(x) which, together with the Contract related
thereto, does not contravene
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in any material respect any laws, rules or regulations
applicable thereto;
(xi) which (a) satisfies all applicable
requirements of the Credit and Collection Policy and (b)
complies with such other reasonable criteria and
requirements as the Transferor or the Company may from time
to time specify to CompuCom following five (5) days' notice;
(xii) which was generated in the ordinary course
of CompuCom's business and represents amounts payable in
respect of goods delivered or services performed;
(xiii) the Obligor of which has been directed to
make all payments to a Lockbox, with respect to which there
shall be a Lockbox Agreement in effect; and
(xiv) as to which the Company has not notified
the Transferor that the Company has reasonably determined
that such Receivable, or class of Receivables, is not
acceptable for purchase hereunder because of the nature of
the business of the Obligor, or because of a potential
conflict of interest between the interests of CompuCom or
the Transferor and the Company.
"Estimated Maturity Period" shall mean, at any time, the period,
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rounded upward to the nearest whole number of days, equal to the weighted
average number of days until due of the Receivables as calculated by the
Collection Agent in good faith and set forth in the most recent Monthly Report,
such calculation to be based on the assumptions that (a) each Receivable within
a particular aging category, (as set forth in the Investor Report) will be paid
on the last day of such aging category and (b) the last day of the last such
aging category coincides with the last date on which any Outstanding Balance of
any Receivables would be written off as uncollectible or charged against any
applicable reserve or similar account in accordance with the objective
requirements of the Credit and Collection Policy and CompuCom's
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normal accounting practices applied on a basis consistent with those reflected
in CompuCom's financial statements; provided, however, that if the Company shall
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reasonably disagree with any such calculation, the Company may recalculate the
Estimated Maturity Period, and such recalculation, in the absence of manifest
error, shall be conclusive.
"Eurodollar Rate" means, with respect to any Eurodollar Tranche Period, a
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rate which is .625% in excess of a rate per annum equal to the sum (rounded
upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained
by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100%
minus the reserve percentage used for determining the maximum reserve
requirement as specified in Regulation D (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) that is applicable
to the Liquidity Provider during such Eurodollar Tranche Period in respect of
eurocurrency or eurodollar funding, lending or liabilities (or, if more than one
percentage shall be so applicable, the daily average of such percentage for
those days in such Eurodollar Tranche Period during which any such percentage
shall be applicable) plus (B) the then daily net annual assessment rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Liquidity
Provider for determining the current annual assessment payable by the Liquidity
Provider to the Federal Deposit Insurance Corporation in respect of eurocurrency
or eurodollar funding, lending or liabilities.
"Eurodollar Tranche" means a Tranche as to which Discount is calculated at
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the Eurodollar Rate.
"Eurodollar Tranche Period" means, with respect to a Eurodollar Tranche,
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prior to the Termination Date, a period of up to one month requested by the
Transferor and agreed to by the Company or the Liquidity Provider , as the case
may be, commencing on a Business Day requested by the Transferor and agreed to
by the Company; provided, however, that if such Eurodollar Tranche Period would
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expire on a day which is not a Business Day, such Eurodollar Tranche Period
shall expire on the next succeeding Business Day; provided, further, that if
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such Eurodollar Tranche Period would expire on (a) a day which is not a
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Business Day but is a day of the month after which no further Business Day
occurs in such month, such Eurodollar Tranche Period shall expire on the next
preceding Business Day or (b) a Business Day for which there is no numerically
corresponding day in the applicable subsequent calendar month, such Eurodollar
Tranche Period shall expire on the last Business Day of such month.
"Event of Bankruptcy", with respect to any Person, shall mean (i) that such
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Person shall generally not be able to 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 such Person seeking to adjudicate it as 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 any substantial part of its property
or (ii) if such Person is a corporation, such Person or any Subsidiary shall
take any corporate action to authorize any of the actions set forth in the
preceding clause (i).
"Facility Fee" means the fee payable by the Transferor to the Company
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pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Fee Letter" means the letter agreement dated the date hereof between the
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Transferor and the Company, as amended, supplemented or otherwise modified and
in effect from time to time.
"Facility Limit" means $175,000,000.
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"Finance Charges" means, with respect to a Contract, any finance, interest,
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late or similar charges owing by an Obligor pursuant to such Contract.
"Fixed Charge Coverage Ratio" means a fraction, the numerator of which is
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the sum of Net Income, Depreciation and Amortization (each as defined in GAAP)
and the denominator of which is Current Maturities of Long-term
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Debt.
"Guaranty" of a Person means any agreement by which such Person assumes,
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guarantees, endorses, contingently agrees to purchase or provide funds for the
payment of, or otherwise becomes liable upon, the obligation of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise assures any other creditor
of such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such Person in connection with any
application for a letter of credit.
"Incremental Transfer" means a Transfer which is made pursuant to Section
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2.2(a).
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
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money, (ii) obligations representing the deferred purchase price of property
other than accounts payable arising in the ordinary course of such Person's
business on terms customary in the trade, (iii) obligations, whether or not
assumed, secured by liens or payable out of the proceeds or production from
property now or hereafter owned or acquired by such Person, (iv) obligations
which are evidenced by notes, acceptances, or other instruments, (v) Capitalized
Lease obligations and (vi) obligations for which such Person is obligated
pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1.
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"Indemnified Parties" has the meaning specified in Section 8.1.
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"Interest Coverage Ratio" means a fraction, the numerator of which is Net
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Income before Interest Expense and taxes and the denominator of which is
Interest Expense.
"Interest Expense" means amounts due in the current period to the Company's
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lenders for the use of borrowed funds, exclusive of principal.
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"Inventory Financing Agreements" shall mean those certain agreements
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between CompuCom and each of IBM Credit Corporation, Compaq Computer
Corporation, Hewlett-Packard Company and Apple Computer, Inc., all of which are
attached hereto as Exhibit O, pursuant to which such parties claim an interest
in inventory the sale of which may give rise to accounts receivable, including
the Receivables.
"Investor Report" means a report, in substantially the form of Exhibit C or
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in such other form as is mutually agreed to by CompuCom and the Company,
furnished by the Collection Agent to the Company and the Agent pursuant to
Section 2.11.
"Law" shall mean any law (including common law), constitution, statute,
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treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIBOR Rate" shall mean, with respect to any Eurodollar Tranche Period, the
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rate at which deposits in dollars are offered to the Liquidity Provider in the
London interbank market at approximately 11:00 a.m. (London time) two Business
Days before the first day of such Eurodollar Tranche Period in an amount
approximately equal to the Eurodollar Tranche to which the Eurodollar Rate is to
apply and for a period of time approximately equal to the applicable Eurodollar
Tranche Period.
"Liquidation Yield" means, at any time, an amount equal to:
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(RVF x LBR x NI) x (EM x 1.5)
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360
Where:
RVF = the Rate Variance Factor.
LBR = the Base Rate which is applicable to the liquidation period of the Net
Investment at such time.
NI = the Net Investment.
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EM = the Estimated Maturity Period of the Receivables.
"Liquidity Provider Agreement" means the agreement between the Company
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and the Liquidity Provider evidencing the obligation of the Liquidity Provider
to provide liquidity support to the Company in connection with the issuance by
the Company of Commercial Paper.
"Liquidity Provider" means the Person or Persons who will provide
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liquidity support to the Company in connection with the issuance by the Company
of Commercial Paper.
"Lockbox" means an account maintained by the Collection Agent at a
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Lock-Box Bank for the purpose of receiving Collections from Receivables.
"Lockbox Agreement" means an agreement among the Collection Agent, the
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Agent and a Lockbox Bank in substantially the form of Exhibit M hereto.
"Lockbox Bank" means each of the banks set forth in Exhibit L hereto
------------
and such banks as may be added thereto or deleted therefrom pursuant to Section
2.8 herein.
"Loss Percentage" means on any day the greatest of (i) 5 times the
---------------
highest Loss-to-Liquidation Ratio as of the last day of the 12 calendar months
preceding the then current month, (ii) 3 times the highest Concentration Amount
of all Designated Obligors (exclusive of A1/A+ Rated Obligors) and (iii) 10
percent.
"Loss Reserve" means, on any day, an amount equal to:
------------
LP x (NI + DR + SFR)
Where:
LP = the Loss Percentage at the close of business of
the Collection Agent on such day.
NI = the Net Investment at the close of business of
the Collection Agent on such day.
17
<PAGE>
DR = the Discount Reserve at the close of business
of the Collection Agent on such day.
SFR = the Servicing Fee Reserve at the close of business
of the Collection Agent on such day.
Notwithstanding the foregoing, the Loss Reserve shall at all times be at least
equal to $17,500,000.
"Loss-to-Liquidation Ratio" means, for any period of determination, the
-------------------------
ratio (expressed as a percentage) computed by dividing (i) the aggregate
Outstanding Balance of all Receivables which became Defaulted Receivables during
such period, by (ii) the aggregate amount of cash Collections (excluding Deemed
Collections) received by the Collection Agent during such period.
"Majority Investors" has the meaning specified in Section 9.1(a).
------------------
"Maximum Net Investment" means $175,000,000.
----------------------
"Maximum Percentage Factor" means 98%.
-------------------------
"Moody's" means Moody's Investors Service, Inc.
-------
"NationsBank FSA" means that certain Amended and Restated Credit
---------------
Agreement dated as of November 3, 1997, among CompuCom Systems, Inc., as
Borrower, the Lenders from time to time party thereto, and NationsBank of Texas,
N.A., as administrative agent for the Lenders, as the same may from time to time
be amended, supplemented or otherwise modified and in effect.
"Net Asset Test" shall mean, in connection with any assignment by the
--------------
Company to the Bank Investors of an interest in the Net Investment pursuant to
Section 9.7 hereof, that on the day immediately prior to the day on which such
assignment is to take effect, the Net Receivables Balance shall be greater than
the Net Investment.
"Net Income" has the meaning specified in the NationsBank FSA as in
----------
effect on the date hereof (without regard to any amendments, supplements or
modifications thereto after the date hereof).
18
<PAGE>
"Net Investment" means the sum of the amounts paid to the Transferor for
--------------
each Incremental Transfer less the aggregate amount of Collections received and
applied by the Company to reduce such Net Investment pursuant to Section 2.6 or
Section 2.9; provided that the Net Investment shall be restored in the amount of
--------
any Collections so received and applied if at any time the distribution of such
Collections is rescinded or must otherwise be returned for any reason provided
--------
further that the Net Investment may be increased by the amount described in
- -------
Section 9.7(g) as described therein.
"Net Receivables Balance" means, at any time, (a) the Outstanding Balance
-----------------------
of the Eligible Receivables at such time reduced by (b) the sum of (i) the
aggregate Outstanding Balance of all Eligible Receivables which are Defaulted
Receivables, (ii) the aggregate Outstanding Balance of all Eligible Receivables
of each Obligor with respect to which 50% or more of such Obligor's Receivables
are more than ninety (90) days past due, (iii) for a particular Obligor on any
date of determination, the amount (if positive) by which either (x) if the
aggregate amount due and owing by CompuCom to such Obligor exceeds the aggregate
amount due and owing by such Obligor to CompuCom, then the amount due and owing
by such Obligor to CompuCom or (y) if the aggregate amount due and owing by an
Obligor to CompuCom exceeds the aggregate amount due and owing by CompuCom to
such Obligor, then the amount due and owing by CompuCom to such Obligor, (iv)
credits which are aged more than ninety (90) days (this clause (iv) calculated
in the aggregate for all Designated Obligors) minus (B) for each Designated
-----
Obligor, the amount by which (x) the aggregate Outstanding Balance of Eligible
Receivables related to such Designated Obligor exceeds (y) the Concentration
Amount with respect to such Designated Obligor.
"Obligor" means a Person obligated to make payments for the provision of
-------
goods and services pursuant to a Contract.
"Official Body" shall mean any government or political subdivision or any
-------------
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitra-
19
<PAGE>
tor, in each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
----------------
entered into a receivables purchase agreement or transfer and administration
agreement with the Company.
"Outstanding Balance" of any Receivable at any time shall mean the then
-------------------
outstanding principal amount thereof including any accrued and outstanding
Finance Charges related thereto.
"Percentage Factor" shall mean the percentage computed at any time of
-----------------
determination as follows:
NI + LR + DLR + DR + SFR
------------------------
NRB
Where:
NI = the Net Investment at the time of such computation.
LR = the Loss Reserve at the time of such computation.
DLR = the Dilution Reserve at the time of such computation.
DR = the Discount Reserve at the time of such computation.
SFR = the Servicing Fee Reserve at the time of such computation.
NRB the Net Receivables Balance at the time of such computation.
Notwithstanding the foregoing computation, the Percentage Factor shall
not exceed one hundred percent (100%). The Percentage Factor shall be calculated
by the Collection Agent on the day of the initial Incremental Transfer
hereunder. Thereafter, until the Termination Date, the Collection Agent shall
daily recompute the Percentage Factor and report such recomputations to the
Company weekly in the Investor Report or as requested by
20
<PAGE>
the Company. The Percentage Factor shall remain constant from the time as of
which any such computation or recomputation is made until the time as of which
the next such recomputation shall be made, notwithstanding any additional
Receivables arising, any Incremental Transfer made pursuant to Section 2.2(a) or
any reinvestment Transfer made pursuant to Section 2.2(b) and 2.5 during any
period between computations of the Percentage Factor. The Percentage Factor, as
calculated at the close of business on the Business Day immediately preceding
the Termination Date, shall remain constant at all times thereafter until such
time as the Company shall have received the Aggregate Unpaids, at which time the
Percentage Factor shall be recomputed in accordance with Section 2.6.
"Person" means any corporation, natural person, firm, joint venture,
------
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"Potential Termination Event" means an event which but for the lapse of
---------------------------
time or the giving of notice, or both, would constitute a Termination Event
which is impossible to cure.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
--------
"Program Fee" means the fee payable by the Transferor to the Company
-----------
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Pro Rata Share" means, for a Bank Investor, the Commitment of such Bank
--------------
Investor divided by the sum of the Commitments of all Bank Investors.
"Purchased Interest" means the Company's interest in the Receivables
------------------
acquired by the Liquidity Provider through purchase pursuant to the terms of the
Liquidity Provider Agreement.
"Rate Variance Factor" means the number, computed from time to time in good
--------------------
faith by the Company, that reflects the largest potential variance (from minimum
to maximum) in selected interest rates over a period
21
<PAGE>
of time selected by the Company from time to time, set forth in a written notice
by the Company to the Transferor and the Collection Agent.
"Receivable" means the indebtedness owed to CompuCom by any Obligor
----------
(without giving effect to the sale thereof under the Receivables Purchase
Agreement or hereunder), which shall have been sold to the Transferor pursuant
to the Receivables Purchase Agreement, under a Contract whether constituting an
account, chattel paper, instrument or general intangible, arising in connection
with the sale of merchandise or services by CompuCom, and includes the right to
payment of any Finance Charges and other obligations of such Obligor with
respect thereto. Notwithstanding the foregoing, once a Receivable has been
deemed collected pursuant to Section 2.9 hereof, it shall no longer constitute a
Receivable hereunder.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement,
------------------------------
dated as of April 1, 1996, as amended and restated as of November 3, 1997,
between CompuCom and the Transferor, as the same may from time to time be
amended, supplemented or otherwise modified and in effect.
"Records" means all Contracts and other documents, books, records and other
-------
information (including, without limitation, computer programs, tapes, discs,
punch cards, data processing software and related property and rights)
maintained by the Collection Agent with respect to Receivables and the related
Obligors.
"Reinvestment Termination Date" means the second Business Day after the
-----------------------------
delivery by the Company to the Transferor of written notice that the Company has
elected to commence the amortization of its interest in the Net Investment.
"Related Security" means with respect to any Receivable:
----------------
(i) the merchandise (including returned merchandise, subject to the
applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements), if any, the sale of which by CompuCom gave rise to
such
22
<PAGE>
Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, pursuant to the Contract related to such Receivable, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(iii) all guarantees, insurance or other agreements or arrangements
of any kind from time to time supporting or securing payment of such
Receivable pursuant to the Contract related to such Receivable;
(iv) all Records; and
(v) all proceeds (as defined in Section 9-306 of the UCC) of the
foregoing.
"Release" means the Partial Release of Liens and Security Interests,
-------
executed on November 3, 1997 by NationsBank of Texas, N.A., whereby NationsBank
of Texas, N.A. released certain liens and security interests which cover the
property of CompuCom.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d).
-----------------
"Servicing Fee" shall mean the fee payable monthly by the Company to the
-------------
Collection Agent, with respect to a Tranche, in an amount equal to 0.50% per
annum on the amount of the Net Investment allocated to such Tranche pursuant to
Section 2.3. Such fee shall accrue from the date of the initial purchase of an
ownership interest in the Receivables to the later of the Termination Date or
the date on which the Net Investment is reduced to zero. On or prior to the
Termination Date, such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.5. After the
Termination Date, such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.6.
23
<PAGE>
"Servicing Fee Reserve" means at any time an amount equal to the product of
---------------------
(A) the aggregate Outstanding Balance of Receivables at such time, (B) the
Servicing Fee percentage and (C) a fraction having as the numerator, the sum of
(x) 1.5 times the Estimated Maturity Period plus (y) 30, and as the denominator,
----
360.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services.
----------------- ---
"Subsidiary" of a Person means any corporation more than 50% of the
----------
outstanding voting securities of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Termination Date" means the earliest of (i) that Business Day designated
----------------
by the Transferor to the Company as the Termination Date at any time following
60 days' written notice to the Company, (ii) the date of termination of the
commitment of the Liquidity Provider under the Liquidity Provider Agreement,
(iii) the date of termination of the commitment of the Credit Support Provider
under the Credit Support Agreement, (iv) the day on which the Agent delivers to
the Transferor a notice of termination pursuant to the occurrence of a
Termination Event, (v) November 2, 1998, (vi) two (2) Business Days prior to the
Commitment Termination Date or (vii) unless the Transferred Interest shall have
been assigned (or concurrently is so assigned) to the Bank Investors pursuant to
Section 9.7 hereof, the day on which a Reinvestment Termination Date shall
occur.
"Termination Event" means an event described in Section 7.1.
-----------------
"Tranche" means a portion of the Net Investment allocated to a Tranche
-------
Period pursuant to Section 2.3.
"Tranche Period" means a CP Tranche Period, a BR Tranche Period, a CD
--------------
Tranche Period or a Eurodollar Tranche Period.
"Tranche Rate" means the CP Rate, the Base Rate, the CD Rate or the
------------
Eurodollar Rate.
24
<PAGE>
"Transaction Costs" has the meaning specified in Section 8.3(a).
-----------------
"Transaction Documents" means this Agreement, the Receivables Purchase
---------------------
Agreement, and all documents related thereto.
"Transfer" means a conveyance, transfer and assignment by the Transferor to
--------
the Company of a portion of the Transferred Interest hereunder pursuant to
Section 2.2.
"Transfer Certificate" has the meaning specified in Section 2.2(a).
--------------------
"Transfer Date" means, with respect to each Transfer, the Business Day on
-------------
which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the amount
--------------
paid to the Transferor by the Company as described in the Transfer Certificate.
"Transferred Interest" means, at any time of determination, an undivided
--------------------
percentage ownership interest in (i) each and every then outstanding Receivable,
(ii) all Related Security with respect to each such Receivable, (iii) all
Collections with respect thereto, and (iv) other Proceeds of the foregoing,
equal to the Percentage Factor at such time, and only at such time (without
regard to prior calculations). To the extent that the Transferred Interest
shall decrease as a result of a recalculation of the Percentage Factor, the
Company shall be considered to have reconveyed to the Transferor an undivided
percentage ownership interest in the Receivables, together with Related Security
and Collections, in an amount equal to such decrease.
"UCC" means, with respect to any state, the Uniform Commercial Code as from
---
time to time in effect in such state.
SECTION .1. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with generally accepted accounting
princi-
25
<PAGE>
ples. All terms used in Article 9 of the UCC in the State of New York,
and not specifically defined herein, are used herein as defined in such Article
9.
SECTION .2. Computation of Time Periods. Unless otherwise stated in
---------------------------
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
26
<PAGE>
ARTICLE I
TRANSFERS AND SETTLEMENTS
SECTION I.1. Facility. Upon the terms and subject to the conditions
--------
herein set forth, the Transferor may, at its option, convey, transfer and assign
to the Company, and the Company may accept such conveyance, transfer and
assignment from the Transferor, without recourse except as provided herein,
undivided percentage ownership interests in the Receivables and the Related
Security and Collections with respect thereto from time to time.
SECTION I.2. Transfers; Company Certificate; Eligible Receivables. (a)
----------------------------------------------------
Incremental Transfers. Upon the terms and subject to the conditions herein set
- ---------------------
forth, the Transferor may, at its option, convey, transfer and assign to the
Company, and the Company may accept such conveyance, transfer and assignment
from the Transferor, without recourse except as provided herein, undivided
percentage ownership interests in the Receivables, together with Related
Security and Collections with respect thereto (each, an "Incremental Transfer")
--------------------
from time to time prior to the occurrence of the Termination Date for an
aggregate Transfer Price not to exceed the Maximum Net Investment; provided that
--------
the Company shall not accept any such transfer if it is unable to obtain funds
therefor in the commercial paper market or under the Liquidity Provider
Agreement. The Transferor shall by notice given by telecopy offer to convey,
transfer and assign to the Company undivided percentage ownership interests in
the Receivables and the Related Security and Collections with respect thereto at
least three (3) Business Days prior to the proposed date of transfer.
Each such notice shall specify the desired Transfer Price (which shall be
at least $5,000,000 or integral multiples of $1,000,000 in excess thereof) and
the desired date of such Incremental Transfer, together with the desired Tranche
Period (or range) related thereto as required by Section 2.3. The Company, if
it accepts such offer, shall accept such offer to convey, transfer and assign
interests in the Receivables and related property by notice given to the
Transferor by
27
<PAGE>
telephone or telecopy. Each notice of proposed Transfer shall be irrevocable and
binding on the Transferor and the Transferor shall indemnify the Company against
any loss or expense incurred by the Company, either directly or through the
Liquidity Provider Agreement as a result of any failure by the Transferor to
complete such Incremental Transfer including, without limitation, any loss or
expense incurred by the Company, either directly or pursuant to the Liquidity
Provider Agreement, by reason of the liquidation or reemployment of funds
acquired by the Company or the Liquidity Provider (including, without
limitation, funds obtained by issuing commercial paper or promissory notes or
obtaining deposits as loans from third parties) for the Company to fund such
Incremental Transfer.
On the date of the initial Incremental Transfer, the Company shall deliver
written confirmation to the Transferor of the Transfer Price, the Tranche
Period(s) and the Tranche Rate(s) relating to such Transfer and the Transferor
shall deliver to the Company the Transfer Certificate in the form of Exhibit D
hereto (the "Transfer Certificate"). The Company shall indicate the amount of
--------------------
the initial Incremental Transfer together with the date thereof on the grid
attached to the Transfer Certificate. On the date of each subsequent
Incremental Transfer, the Company shall send written confirmation to the
Transferor of the Transfer Price, the Tranche Period(s), the Transfer Date and
the Tranche Rate(s) applicable to such Incremental Transfer. The Company shall
indicate the amount of the Incremental Transfer together with the date thereof
as well as any decrease in the Net Investment on the grid attached to the
Transfer Certificate. The Transfer Certificate shall evidence the Incremental
Transfers. As soon as is practicable following each Incremental Transfer, the
Company shall deposit to the Transferor's account at the location indicated in
Section 10.3, in immediately available funds, an amount equal to the Transfer
Price for such Incremental Transfer.
(b) Reinvestment Transfers. On each Business Day occurring after the
----------------------
initial Incremental Transfer and prior to the Termination Date, the Transferor
hereby agrees to convey, transfer and assign to the Company, and in
consideration of the Transferor's agree-
28
<PAGE>
ment to maintain at all times prior to the Termination Date a Net Receivables
Balance in an amount at least sufficient to maintain the Percentage Factor at an
amount not greater than the Maximum Percentage Factor, the Company hereby agrees
to purchase from the Transferor undivided percentage ownership interests in the
Receivables and the Related Security and Collections with respect thereto, to
the extent that Collections are available for such Transfer in accordance with
Section 2.5, such that after giving effect to such Transfer, the amount of the
Company's Net Investment at the close of the Company's business on such Business
Day shall be equal to the amount of the Company's Net Investment at the close of
the Company's business on the Business Day immediately preceding such Business
Day plus the Transfer Price of any Incremental Transfer made on such day, if
any. The Company may deliver a Reinvestment Termination Notice to the Transferor
(with a copy thereof to the Collection Agent) at any time.
(c) All Transfers. Each Transfer shall constitute a purchase of an
-------------
undivided percentage ownership interest in the Receivables then existing and
which arises at any time after the date of such Transfer. The Company's
aggregate undivided percentage ownership interest in the Receivables and the
Related Security and Collections with respect thereto shall equal the Percentage
Factor in effect from time to time.
(d) Company Certificate. The Transferor shall issue to the Company
-------------------
the Company Certificate, in the form of Exhibit K, on or prior to the date
hereof.
(e) Percentage Factor. The Percentage Factor shall be initially
-----------------
computed as of the opening of business of the Collection Agent on the date of
the initial Incremental Transfer hereunder. Thereafter, until the Termination
Date, the Percentage Factor shall be automatically recomputed by the Collection
Agent as of the close of business of the Collection Agent on each day (other
than a day after the Termination Date). The Percentage Factor shall remain
constant from the time as of which any such computation or recomputation is made
until the time as of which the next such recomputation, if any, shall be made.
The Percentage Factor, as computed as of the day immediately preceding the
Termination
29
<PAGE>
Date, shall remain constant at all times on and after such Termination Date
until the date on which the Net Investment shall become zero.
SECTION .1. Selection of Tranche Periods and Tranche Rates.
----------------------------------------------
(a) At all times hereafter, but prior to the occurrence of a
Termination Event, the Transferor shall, subject to the Company's approval and
the limitations described below, request Tranche Periods and allocate a portion
of the Net Investment to each selected Tranche Period, so that the aggregate
amounts allocated to outstanding Tranche Periods at all times shall equal the
Net Investment. The Transferor shall give the Company irrevocable notice by
telephone of the new requested Tranche Period(s) at least three (3) Business
Days prior to the expiration of any then existing Tranche Period; provided,
--------
however, that the Company may select, in its sole discretion, any such new
- -------
Tranche Period if (i) the Transferor fails to provide such notice on a timely
basis or (ii) the Company determines, in its sole discretion, that the Tranche
Period requested by the Transferor is unavailable or for any reason commercially
undesirable. The Company confirms that it is its intention to allocate all or
substantially all of the Net Investment to one or more CP Tranche Periods;
provided that the Company may determine, from time to time, in its sole
- --------
discretion, that funding such Net Investment by means of one or more CP Tranche
Periods is not desirable for any reason. If the Liquidity Provider acquires a
Transferred Interest with respect to the Receivables and related property
pursuant to the terms of the Liquidity Provider Agreement, the Liquidity
Provider may exercise the right of selection granted to the Company hereby. The
Tranche Rate applicable to any such Purchased Interest may be the BR Rate, the
CD Rate or the Eurodollar Rate, as determined by the Liquidity Provider. In the
case of any Tranche Period outstanding upon the occurrence of a Termination
Event or on the date of the assignment of the Transferred Interest to the Bank
Investors pursuant to Section 9.7, such Tranche Period shall end on the date of
such occurrence.
(b) At all times on and after the occurrence of a Termination Event,
the Company or the Liquidi-
30
<PAGE>
ty Provider, as applicable, shall select all Tranche Periods and Tranche Rates
applicable thereto; provided, that if the Bank Investors are assigned the
--------
Transferred Interest pursuant to Section 9.7, one Tranche Period, with a Tranche
Rate determined pursuant to the letter agreement referred to in Section 9.7,
with successive periods of one day, shall thereafter exist.
SECTION .2. Discount, Fees and Other Costs and Expenses. Notwithstanding
-------------------------------------------
the limitation on recourse under Section 2.1, the Transferor shall pay, as and
when due in accordance with this Agreement, all fees hereunder, Discount, all
amounts payable pursuant to Article VIII hereof, if any, and the Servicing Fee.
On the last day of each Tranche Period, the Transferor shall pay to the Company
an amount equal to the accrued and unpaid Discount for such Tranche Period
together with an amount equal to the discount accrued on the Company's
Commercial Paper notes to the extent such notes were issued in order to fund the
Transferred Interest in an amount in excess of the Transfer Price of an
Incremental Transfer; provided that any such excess amount will not exceed
--------
$100,000 in connection with any such Incremental Transfer. The Transferor shall
pay to the Company, on each day on which Commercial Paper is issued by the
Company, the Dealer Fee. Discount shall accrue with respect to each Tranche on
each day occurring during the Tranche Period related thereto. Nothing in this
Agreement shall limit in any way the obligations of the Transferor to pay the
amounts set forth in this Section 2.4.
SECTION .3. Non-Liquidation Settlement and Reinvestment Procedures. On
------------------------------------------------------
each day after the date of any Incremental Transfer, but prior to the
Termination Date, and provided that no Potential Termination Event shall have
occurred and be continuing, the Collection Agent shall out of the Percentage
Factor of the Collections received and distributed to the Transferor on or prior
to such day and not previously applied or accounted for: (i) set aside and hold
in trust for the Company (or deposit into the Collection Account if so required
pursuant to Section 2.12) an amount equal to all Discount and the Servicing Fee
accrued through such day and not so previously set aside or paid and (ii) apply
the balance of such Percentage Factor of Collections remaining after application
of the Collections as provided in clause (i)
31
<PAGE>
of this Section 2.5 to the Transferor, for the benefit of the Company to the
purchase of additional undivided percentage interests in the Receivables
pursuant to Section 2.2(b). On the last day of each Tranche Period, from the
amounts set aside as described in clause (i) of the first sentence of this
Section 2.5, the Collection Agent shall deposit to the Company's account, an
amount equal to the accrued and unpaid Discount for such Tranche Period and
shall deposit to its account an amount equal to the accrued and unpaid Servicing
Fee for such Tranche Period. As provided in Section 6.2(b), the Collection Agent
shall remit to the Transferor, as soon as practicable after receipt, such
portion of Collections not allocated to the Company.
SECTION .4. Liquidation Settlement Procedures. If on the Termination
---------------------------------
Date, the Percentage Factor is greater than the Maximum Percentage Factor, then
the Transferor shall immediately pay to the Company from previously received
Collections distributed to the Transferor, an amount equal to the amount such
that, when applied in reduction of the Net Investment, will result in a
Percentage Factor less than or equal to the Maximum Percentage Factor. Such
amount shall be applied by the Company to the reduction of the Net Investment of
Tranche Periods selected by the Company. On the Termination Date and on each
day thereafter, and on and after the date on which the Agent delivers to the
Transferor notice that a Potential Termination Event has occurred, the
Collection Agent shall set aside and hold in trust for the Company (or deposit
into the Collection Account if so required pursuant to Section 2.12) all
Collections received by the Transferor on such day. On the Termination Date or
the day on which the Agent delivers to the Transferor notice that a Potential
Termination Event has occurred, the Collection Agent shall deposit to the
Company's account any remaining amounts set aside pursuant to Section 2.5(i)
above. On the last day of each Tranche Period to occur on or after the
Termination Date or during the continuance of a Potential Termination Event, the
Collection Agent shall deposit to the Company's account, the amounts set aside
pursuant to the preceding sentence, together with any remaining amounts set
aside pursuant to Section 2.5(i) prior to the Termination Date or the day on
which a Potential Termination Event occurs but not to exceed the sum of (i) the
accrued Discount for such Tranche Period, (ii) the portion of the Net Investment
allocated to such Tranche
32
<PAGE>
Period, and (iii) the aggregate of all other Aggregate Unpaids then owed
(whether due or accrued) hereunder by Transferor to the Company. On such day,
the Collection Agent shall deposit to its account, from the amounts set aside
pursuant to the preceding sentence which remain after payment in full of the
aforementioned amounts, the accrued Servicing Fee for such Tranche Period.
If there shall be insufficient funds on deposit for the Collection Agent to
distribute funds in payment in full of the aforementioned amounts, the
Collection Agent shall distribute funds first, in payment of the accrued
-----
Discount, second, in payment of all fees and expenses payable to the Company
------
hereunder, third, if the Transferor is not the Collection Agent, to the
-----
Collection Agent's account, in payment of the Servicing Fee payable to the
Collection Agent, fourth, in reduction of the Net Investment allocated to such
------
Tranche Period, fifth, in payment of all other amounts payable to the Company
-----
and sixth, if the Transferor is the Collection Agent, to its account as
-----
Collection Agent, in payment of the Servicing Fee payable to the Transferor as
Collection Agent. Following the date on which the Net Investment has been
reduced to zero, all accrued Discount and Servicing Fees have been paid in full
and all other Aggregate Unpaids have been paid in full, (i) the Collection Agent
shall recompute the Percentage Factor, (ii) the Company shall be considered to
have reconveyed to the Transferor any interest in the Receivables and related
property (including the Transferred Interest), (iii) the Collection Agent shall
pay to Transferor any remaining Collections set aside and held by the Collection
Agent pursuant to the second sentence of this Section 2.6 and (iv) the Company
shall execute and deliver to the Transferor, at the Transferor's expense, such
documents or instruments as are necessary to terminate the Company's interest in
the Receivables and related property. Any such documents shall be prepared by
or on behalf of the Transferor.
SECTION .5. Fees. Notwithstanding any limitation on recourse contained
----
in this Agreement, the Transferor shall pay the following non-refundable fees:
(a) On the last day of each month, to the
33
<PAGE>
Company, the Program Fee and the Facility Fee as set forth in the Fee Letter.
(b) On the date of execution hereof, to the Agent, the Advisory Fee
as set forth in the Fee Letter.
SECTION .6. Protection of Ownership Interest of the Company. (a) Each
-----------------------------------------------
of the Transferor and the Collection Agent agrees that from time to time, at its
expense, it will promptly execute and deliver all instruments and documents and
take all actions as may be necessary or as the Agent may reasonably request in
order to perfect or protect the Transferred Interest or to enable the Agent to
exercise or enforce any of its rights hereunder. Without limiting the
foregoing, each of the Transferor and CompuCom will, upon the request of the
Agent, in order to accurately reflect this purchase and sale transaction, (1)
execute and file such financing or continuation statements or amendments thereto
or assignments thereof (as permitted pursuant to Section 10.6 hereof) as may be
requested by the Company, the Agent or any of the Bank Investors and (2) mark
its master data processing records and other documents with a legend describing
the purchase hereunder of the Transferred Interest. The Transferor shall, upon
request of the Agent, obtain such additional search reports as the Agent shall
request. To the fullest extent permitted by applicable law, the Agent shall be
permitted to sign and file continuation statements and amendments thereto and
assignments thereof without the Transferor's signature. Carbon, photographic or
other reproduction of this Agreement or any financing statement shall be
sufficient as a financing statement. Neither the Transferor nor CompuCom shall
change its name, identity or corporate structure (within the meaning of Section
9-402(7) of the UCC as in effect in the States of New York and Texas) or
relocate its chief executive office or any office where Records are kept unless
it shall have: (i) given the Agent at least thirty (30) days prior notice
thereof and (ii) prepared at Transferor's expense and delivered to the Agent all
financing statements, instruments and other documents necessary to preserve and
protect the Transferred Interest or requested by the Agent in connection with
such change or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in
34
<PAGE>
name or location shall be made at the expense of Transferor.
(b) The Collection Agent shall instruct all Obligors to cause
all Collections to be deposited directly to a Lockbox. Any Lockbox maintained by
a Lockbox Bank pursuant to the related Lock-Box Agreement shall be under the
exclusive ownership and control of the Agent which is hereby granted to the
Agent by the Transferor. The Collection Agent shall be permitted to give
instructions to the Lockbox Banks for so long as no Termination Event has
occurred hereunder. The Collection Agent shall not add any bank as a Lockbox
Bank to those listed on Exhibit L attached hereto unless such bank has entered
into a Lockbox Agreement. The Collection Agent shall, prior to adding any bank
as a Lockbox Bank, obtain prior written consent of the Agent (such consent not
to be unreasonably withheld). The Collection Agent shall not terminate any bank
as a Lockbox Bank unless the Agent shall have received fifteen (15) days' prior
notice of such termination; provided, however, that at all times hereafter there
-------- -------
must be at least one (1) Lockbox Bank. If the Transferor or the Collection
Agent receives any Collections, the Transferor or the Collection Agent, as
applicable, shall immediately, but in any event within 2 Business Days of
receipt, remit such Collections to a Lockbox.
SECTION .7. Deemed Collections; Application of Payments. (a) If
-------------------------------------------
on any day the Outstanding Balance of a Receivable is either (x) reduced as a
result of any defective, rejected or returned goods or services, any cash
discount, credit, rebate, allowance or other dilution factor, any billing
adjustment or other adjustment, or (y) reduced or canceled as a result of a
setoff or offset in respect of any claim by any Person (whether such claim
arises out of the same or a related transaction or an unrelated transaction),
the Transferor shall be deemed (for the limited purposes of this Agreement) to
have received on such day a collection of such Receivable in the amount of such
reduction or cancellation, and the Transferor shall pay to the Collection Agent
an amount equal to the Percentage Factor of such reduction or cancellation, and
such amount shall be applied by the Collection Agent as a Collection in
accordance with Section 2.5 or 2.6, as applicable. The Net Investment shall be
35
<PAGE>
reduced by the amount of such payment actually received by the Company.
(b) If on any day any of the representations or warranties in
Article III is no longer true with respect to a Receivable, the Transferor shall
be deemed to have received on such day a Collection of such Receivable in full
and the Transferor shall on such day pay to the Collection Agent an amount equal
to the aggregate Percentage Factor of the Outstanding Balance of such Receivable
and such amount shall be allocated to the Company and applied by the Collection
Agent as a Collection allocable to the Transferred Interest in accordance with
Section 2.5 or 2.6, as applicable. The Net Investment shall be reduced by the
amount of such payment actually received by the Company.
(c) Any payment by an Obligor in respect of any indebtedness
owed by it to the Transferor or CompuCom shall, except as otherwise specified by
such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Company, be applied as a Collection of any Receivable of such
Obligor included in the Transferred Interest (starting with the oldest such
Receivable) to the extent of any amounts then due and payable thereunder before
being applied to any other receivable or other indebtedness of such Obligor.
SECTION .1. Payments and Computations, Etc. All amounts to be paid
------------------------------
or deposited by the Transferor or the Collection Agent hereunder shall be paid
or deposited in accordance with the terms hereof no later than 12:00 noon (New
York City time) on the day when due in immediately available funds; if such
amounts are payable to the Company (or any assign thereof) they shall be paid or
deposited in the account of the Agent indicated by the Agent from time to time
in writing. The Transferor shall, to the extent permitted by law, pay to the
Company upon demand, interest on all amounts not paid or deposited when due to
the Company hereunder at a rate equal to 2% per annum plus the Base Rate. All
computations of discount, interest and all per annum fees hereunder shall be
made on the basis of a year of 360 days for the actual number of days (including
the first but excluding the last day) elapsed. Any computations of amounts
payable by the Transferor hereunder to the Company, the Liquidity
36
<PAGE>
Provider or the Credit Support Provider shall be binding absent manifest error.
SECTION .2. Reports. (a) Prior to the 15th day of each month, the
-------
Collection Agent shall prepare and forward to the Agent (i) an Investor Report
as of the end of the last day of the immediately preceding month, (ii) if
requested in writing by the Company or the Agent, a listing by Obligor of all
Receivables together with an aging of such Receivables and (iii) such other
information as the Company or the Agent may reasonably request.
(b) On or prior to the third Business Day of each calendar week,
the Collection Agent shall prepare and forward to the Agent a certification as
to the Net Receivables Balance and the Percentage Factor in the form of Exhibit
E hereto (calculated as of the last Business Day of the prior week).
SECTION .3. Collection Account. There shall be established on the
------------------
day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Company, with the Agent, a segregated account (the "Collection
----------
Account"), bearing a designation clearly indicating that the funds deposited
- -------
therein are held for the benefit of the Company. The Collection Agent shall
remit daily within twenty-four (24) hours of receipt to the Collection Account
all amounts received by the Collection Agent with respect to the Receivables;
provided, however, the Collection Agent shall be permitted to make payments to
- -------- -------
the Company on the last day of each Tranche Period instead of depositing funds
into the Collection Account on a daily basis for so long as, and only for so
long as no default has occurred in the performance by the Collection Agent of
its obligations hereunder and no other Termination Event has occurred hereunder.
Funds on deposit in the Collection Account (other than investment earnings)
shall be invested by the Collection Agent in Eligible Investments that will
mature so that such necessary funds will be available prior to the last day of
each successive Tranche Period following such investment. On the last day of
each calendar month, all interest and earnings (net of losses and investment
expenses) on funds on deposit in the Collection Account shall be retained in the
Collection Account and be available to make any payments required to be made
hereunder (including Discount) to the Company. On the date on which the Net
37
<PAGE>
Investment is zero and all amounts payable hereunder have been paid to the
Company, any funds remaining on deposit in the Collection Account shall be paid
to the Transferor.
38
<PAGE>
ARTICLE I
REPRESENTATIONS AND WARRANTIES
SECTION I.1. Representations and Warranties. Each of the Transferor
------------------------------
and CompuCom, as applicable as to itself and not as to the other, represents and
warrants to the Company that:
(a) Corporate Existence and Power. Each of the Transferor and
-----------------------------
CompuCom is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all corporate power
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business in all jurisdictions in which the failure to
obtain such licenses or approvals would materially and adversely affect its
business as it is now conducted.
(b) Corporate and Governmental Authorization; Contravention.
-------------------------------------------------------
The execution, delivery and performance by each of the Transferor and CompuCom
of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the
Company Certificate and the Transfer Certificate are within each of their
respective corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as contemplated by Section 2.8),
and do not contravene, or constitute a material default under, any provision of
applicable law or regulation or of the Certificate of Incorporation or Bylaws of
the Transferor or CompuCom, as applicable, or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Transferor or
CompuCom or result in the creation or imposition of any lien on assets of the
Transferor or CompuCom, respectively, or any of its respective Subsidiaries
(except as contemplated by Section 2.8).
(c) Binding Effect. Each of this Agreement, the Receivables
--------------
Purchase Agreement, the Fee Letter and the Company Certificate constitutes and
the Transfer Certificate upon payment by the Company of the Transfer Price set
forth therein will constitute the legal, valid
39
<PAGE>
and binding obligation of the Transferor, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors.
(d) Perfection. Immediately preceding each Transfer hereunder,
----------
the Transferor shall be the owner of the Receivables, free and clear of all
liens, encumbrances, security interests, preferences or other security
arrangement of any kind or nature whatsoever. On or prior to the sale of the
Receivables by CompuCom to the Transferor pursuant to the Receivables Purchase
Agreement, and each Transfer hereunder and each recomputation of the Transferred
Interest, all financing statements and other documents required to be recorded
or filed in order to perfect and protect the Transferred Interest against all
creditors of and purchasers from the Transferor or CompuCom, as applicable
(other than any financing statements or assignments of financing statements
contemplated by the Transaction Documents) will have been duly filed in each
filing office necessary for such purpose and all filing fees and taxes, if any,
payable in connection with such filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore
-----------------------
furnished by the Transferor and CompuCom (including without limitation, the
Investor Reports, any reports delivered pursuant to Section 2.11 and the
Transferor's financial statements) to the Company or the Agent for purposes of
or in connection with this Agreement or any transaction contemplated hereby is,
and all such information hereafter furnished by the Transferor and CompuCom to
the Company or the Agent will be, true and accurate in every material respect,
on the date such information is stated or certified.
(f) Tax Returns. The Transferor has filed all tax returns
-----------
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges.
(g) Action, Suits. Except as set forth in Exhibit F, there are
-------------
no actions, suits or proceedings pending, or to the knowledge of the Transferor
threat-
40
<PAGE>
ened, against or affecting the Transferor or CompuCom or any Affiliate thereof
or their respective properties, in or before any court, arbitrator or other
body, which may materially adversely affect the financial condition of the
Transferor, CompuCom or their Subsidiaries taken as a whole or materially
adversely affect the ability of each of the Transferor or CompuCom to perform
its obligations under this Agreement.
(h) Use of Proceeds. No proceeds of any Transfer will be used
---------------
by the Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and
-----------------
chief executive office of the Transferor are located at the address of the
Transferor indicated in Section 10.3 hereof and the offices where the Transferor
keeps all its Records, are located at the address(es) described on Exhibit G or
such other locations notified to the Company in accordance with Section 2.8 in
jurisdictions where all action required by Section 2.8 has been taken and
completed.
(j) Good Title. Upon each Transfer and each recomputation of
----------
the Transferred Interest, the Company shall acquire a valid and perfected first
priority undivided percentage ownership interest to the extent of the
Transferred Interest or a first priority perfected security interest in the
Receivables and the Related Security and Collections with respect thereto free
and clear of any Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the
----------------
Transferor's chief executive office is located at the address for notices set
forth in Section 10.3 hereof; (ii) the Transferor has only the subsidiaries and
divisions listed on Exhibit H hereto; and (iii) the Transferor has, within the
last five (5) years, operated only under the tradenames identified in Exhibit H
hereto, and, within the last five (5) years, has not changed its name, merged
with or into or consolidated with any other corporation or been the subject of
any proceeding under Title 11, United States Code (Bankruptcy), except as
disclosed in Exhibit H hereto.
41
<PAGE>
(l) Nature of Receivables. Each Receivable included as an
---------------------
Eligible Receivable on any report or statement delivered to or for the benefit
of the Company pursuant hereto shall satisfy the definition of "Eligible
Receivable" hereunder.
(m) Coverage Requirement; Amount of Receivables. The Percentage
-------------------------------------------
Factor does not exceed the Maximum Percentage Factor. As of September 30, 1997,
the aggregate Outstanding Balance of the Receivables in existence was
$322,716,000 and the Net Receivables Balance was $287,814,000.
(n) Credit and Collection Policy. Since November 21, 1995,
----------------------------
there have been no material changes in the Credit and Collection Policy; since
such date, no material adverse change has occurred in the overall rate of
collection of the Receivables.
(o) Collections and Servicing. Since November 21, 1995, there
-------------------------
has been no material adverse change in the ability of CompuCom to service and
collect the Receivables.
(p) No Termination Event. No event has occurred and is
--------------------
continuing and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(q) Not an Investment Company. The Transferor is not an
-------------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or is exempt from all provisions of such Act.
(r) ERISA. Each of the Transferor and the CompuCom is in
-----
compliance in all material respects with ERISA and no lien in favor of the
Pension Benefit Guaranty Corporation on any of the Receivables exists.
(s) Lockboxes. The names and addresses of all the Lockbox
---------
Banks, together with the account numbers of the Lockboxes at such Lockbox Banks,
are specified in Exhibit L hereto (or at such other Lockbox Banks and/or with
such other Lockboxes as have been notified to the Purchaser and the Agent and
for which Lockbox Agree-
42
<PAGE>
ments have been executed and delivered to the Collateral Agent). All Obligors
have been instructed to make payment to Lockboxes and only Collections are
deposited into the Lockboxes.
(t) Binding Effect of Receivables and Contract. Each
------------------------------------------
Receivable and related Contract constitutes a legal, valid and binding
obligation of the Obligor enforceable against the Obligor, subject to the effect
of bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally (whether considered in a proceeding at law or in equity).
(u) No Restriction on Transfer. No Contract requires the prior
--------------------------
written consent of an Obligor or contains another restriction relating to the
transfer or assignment of rights of payment under such Contract which is legally
enforceable (other than a consent or waiver of such restriction that has been
obtained prior to the Closing Date).
SECTION I.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Transferor. On each day that a Transfer is made hereunder, the Transferor and
- ----------
CompuCom, as applicable, by accepting the proceeds of such Transfer, whether
delivered to the Transferor pursuant to Section 2.2(a) or Section 2.2(b), shall
be deemed to have certified that all representations and warranties described in
Section 3.1 are correct on and as of such day as though made on and as of such
day. Each Incremental Transfer shall be subject to the further condition
precedent that prior to the date of such Incremental Transfer, the Collection
Agent shall have delivered to the Agent, in form and substance satisfactory to
the Agent, a completed Investor Report dated within three (3) days prior to the
date of such Incremental Transfer, together with a listing by Obligor, if
requested, and such additional information as may be reasonably requested by the
Agent; and each of the Transferor and CompuCom shall be deemed to have
represented and warranted that such conditions precedent have been satisfied.
43
<PAGE>
ARTICLE II
CONDITIONS PRECEDENT
SECTION II.1. Conditions to Closing. On or prior to the date of
---------------------
execution hereof, the Transferor and CompuCom, as applicable, shall deliver to
the Company the following documents, instruments and fees all of which shall be
in a form and substance acceptable to the Company:
(a) A copy of the Resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the Agreement and the other
documents to be delivered by the Transferor hereunder.
(b) The Articles of Incorporation of the Transferor certified by
the Secretary of State or other similar official of the Transferor's
jurisdiction of incorporation.
(c) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement.
(d) A Certificate of the Secretary of the Transferor certifying
(i) the names and signatures of the officers authorized on its behalf to execute
this Agreement, the Company Certificate, the Transfer Certificate, the Fee
Letter and any other documents to be delivered by it hereunder (on which
certificates the Company may conclusively rely until such time as the Company
shall receive from the Transferor a revised certificate meeting the requirements
of this clause (d)(i)) and (ii) that attached thereto is a true, correct and
complete copy of the Transferor's By-Laws.
(e) Copies of proper amendments to financing statements (Form
UCC-3), naming the Transferor as the debtor in favor of the Agent or other
similar instruments or documents as may be necessary or in the reason
44
<PAGE>
able opinion of the Company desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Company's ownership interest
in the Receivables.
(f) Copies of proper termination statements (Form UCC-3), if
any, necessary to terminate all security interests and other rights of any
person in Receivables previously granted by either the Transferor or CompuCom,
it being understood that Form UCC-3 releases need not be provided by NationsBank
of Texas, N.A. in connection with the Release.
(g) Certified copies of request for information or copies (Form
UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably near the date of the initial Incremental Transfer
listing all effective financing statements which name either of Transferor or
CompuCom (under its present name and any previous name) as debtor and which are
filed in jurisdictions in which the filings were made pursuant to item (e) above
together with copies of such financing statements (none of which shall cover any
Receivables or Contracts).
(h) Executed copies of the Lock-Box Agreements and the
Receivables Purchase Agreement, and documents related thereto.
(i) Opinions of Morgan, Lewis & Bockius LLP, special counsel to
the Transferor and CompuCom regarding, among other things, enforceability,
security interest matters and true sale and nonconsolidation matters, in form
and substance satisfactory to the Company and its counsel.
(j) A certificate of the Transferor in substantially the form of
Exhibit J hereto executed by the Secretary or Assistant Secretary of the
Transferor.
(k) A computer tape setting forth all Receivables and the
Outstanding Balances thereon and such other information as the Company may
reasonably request.
(l) An executed copy of the Fee Letter.
45
<PAGE>
(m) The Transfer Certificate, duly executed by the Transferor.
(n) The Company Certificate, duly executed by the Transferor and
appropriately completed.
(o) The Advisory Fee in accordance with Section 2.7(b).
(p) An Investor Report for September 30, 1997.
(q) Written confirmation, in form and substance acceptable to
the Agent, from Compaq Computer Corporation, that any security interest in
inventory granted to such Person by CompuCom does not extend to accounts
receivable created upon the sale of inventory in which such Person has a
security interest.
(r) The Release, in form and substance acceptable to the Agent,
from NationsBank of Texas, N.A., which provides that any security interest in
inventory granted to such Person by CompuCom does not extend to accounts
receivable created upon the sale of inventory in which such Person has a
security interest.
(s) Such other documents as the Company shall reasonably request.
46
<PAGE>
ARTICLE III
COVENANTS
SECTION III.1. Affirmative Covenants of each of Transferor and the
---------------------------------------------------
Collection Agent. At all times from the date hereof to the later to occur of
- ----------------
(i) the Termination Date or (ii) the date on which the Net Investment is zero
and all Aggregate Unpaids shall have been paid in full, unless the Company shall
otherwise consent in writing:
(a) Financial Reporting. The Transferor and the Collection Agent
-------------------
will each maintain, for itself and each Subsidiary, a system of accounting
established and administered in accordance with generally accepted accounting
principles, and the Transferor shall furnish to the Agent:
(i) Annual Reporting. Within ninety (90) days after the close
----------------
of each of CompuCom's fiscal years, audited financial statements, prepared in
accordance with generally accepted accounting principles on a consolidated
basis for CompuCom and its Subsidiaries, including balance sheets as of the
end of such period, related statements of operations, shareholder's equity and
cash flows, accompanied by an audit report certified by independent certified
public accountants, acceptable to the Agent, which report shall be unqualified
as to going concern and scope of audit and shall state that such consolidated
financial statements present fairly the financial position of CompuCom and its
Subsidiaries at the dates indicated and the results of their operations and
their cash flow for the periods indicated is in conformity with generally
accepted accounting principles, prepared in accordance with generally accepted
auditing standards and any management letter prepared by said accountants.
(ii) Quarterly Reporting. Within forty-five (45) days after the
-------------------
close of
47
<PAGE>
the first three quarterly periods of each of CompuCom's fiscal years, for
CompuCom and its Subsidiaries, consolidated unaudited balance sheets as at the
close of each such period and consolidated related statements of operations,
shareholder's equity and cash flows for the period from the beginning of such
fiscal year to the end of such quarter, all certified by its chief financial
officer.
(iii) Compliance Certificate. Together with the financial
----------------------
statements required hereunder, a compliance certificate signed by its chief
financial officer, vice president (finance) or treasurer stating that no
Termination Event or Potential Termination Event exists, or if any Termination
Event or Potential Termination Event exists, stating the nature and status
thereof and showing the computation of, and showing compliance with, each of
the financial ratios and restrictions set forth in Section 5.3.
(iv) Shareholders Statements and Reports. Promptly upon the
-----------------------------------
furnishing thereof to the shareholders of CompuCom, copies of all financial
statements, reports and proxy statements so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof, copies
--------------
of all annual, quarterly, monthly or other regular reports (including all
reports on Form 8-K) which CompuCom or any subsidiary files with the
Securities and Exchange Commission.
(vi) Change in Credit and Collection Policy and Debt Ratings.
-------------------------------------------------------
Within ten (10) days after the date any material change in or amendment to the
Credit and Collection Policy is made, a copy of the Credit and Collection
Policy then in effect indicating such change or amendment. Within five (5)
days after the date of any change in CompuCom's public or private debt
ratings, if any, a written certification of CompuCom's public and private debt
ratings
48
<PAGE>
after giving effect to any such change.
(vii) Credit and Collection Policy. Within ninety (90) days
----------------------------
after the close of each of its fiscal years, a complete copy of the Credit and
Collection Policy then in effect.
(b) The Transferor will notify the Agent in writing of any of the
following immediately upon learning of the occurrence thereof, describing the
same and, if applicable, the steps being taken by the Person(s) affected with
respect thereto:
(i) Notice of Termination Events or Potential Termination
-----------------------------------------------------
Events. As soon as possible, and in any event within two (2) days after the
-------
date on which the Transferor becomes aware of, or should have known of, the
occurrence of each Termination Event or each Potential Termination Event, a
statement of the chief financial officer or chief accounting officer of the
Transferor setting forth details of such Termination Event or Potential
Termination Event and the action which the Transferor proposes to take with
respect thereto.
(ii) Litigation. The institution of any litigation, arbitration
----------
proceeding or governmental proceeding against (x) the Transferor or (y)
CompuCom which in the case of CompuCom may result in a Material Adverse
Effect.
(iii) Judgment. The entry of any judgment or decree against (x)
--------
the Transferor or (y) CompuCom or any of its Subsidiaries if, in the case of
this clause (y), the aggregate amount of all judgments or decrees then
outstanding against CompuCom or any of its Subsidiaries exceeds $5,000,000
after deducting (A) the amount with respect to which CompuCom or any of its
Subsidiaries is insured and (B) the amount for which CompuCom or such
Subsidiary is otherwise indemnified if the terms of such indemnification are
satisfactory to the
49
<PAGE>
Company.
(iv) Other Information. Such other information including non-
-----------------
financial information) as the Agent may from time to time reasonably request.
(c) Conduct of Business. Each of the Transferor and CompuCom will,
-------------------
and will cause each of its Subsidiaries to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted and do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted.
Each of the Transferor and CompuCom, as applicable, will conduct its business
substantially in compliance with the factual assumptions set forth in the
opinion of Morgan, Lewis & Bockius LLP of even date herewith regarding true sale
and nonconsolidation matters.
(d) Compliance with Laws. Each of the Transferor and CompuCom will,
--------------------
and will cause each of its Subsidiaries to, comply in all material respects with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject.
(e) Furnishing of Information and Inspection of Records. Each of the
---------------------------------------------------
Transferor and the Collection Agent will furnish to the Company from time to
time such information with respect to the Receivables as the Company may
reasonably request, including, without limitation, listings identifying the
Obligor and the Outstanding Balance for each Receivable. Each of the Transferor
and the Collection Agent will at any time and from time to time during regular
business hours upon commercially reasonable notice in advance permit the
Company, or its agents or representatives, (i) to examine and make copies of and
abstracts from all Records and (ii) to visit the offices and properties of each
of the Transferor and the Collection Agent for the purpose of examining such
Records, and to discuss matters relating to Receivables or each of the
Transferor's and the Collection
50
<PAGE>
Agent's performance hereunder with the appropriate officers, directors,
employees or independent public accountants of each of the Transferor and the
Collection Agent having knowledge of such matters.
(f) Keeping of Records and Books of Account. Each of the Transferor
---------------------------------------
and the Collection Agent will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain, all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the daily
identification of each new Receivable and all Collections of and adjustments to
each existing Receivable). Each of the Transferor and the Collection Agent will
give the Company notice of any material change in the administrative and
operating procedures referred to in the previous sentence.
(g) Performance and Compliance with Receivables and Contracts. Each
---------------------------------------------------------
of the Transferor and CompuCom, at its expense, will timely and fully perform
and comply with all material provisions, covenants and other promises required
to be observed by it under the Contracts related to the Receivables.
(h) Credit and Collection Policies. Each of the Transferor and
------------------------------
CompuCom will comply in all material respects with the Credit and Collection
Policy in regard to each Receivable and the related Contract.
(i) Collections. Each of the Transferor and CompuCom shall instruct
-----------
all Obligors to remit all Collections directly to a Lockbox.
(j) Separate Business. The Transferor shall at all times (i) to the
-----------------
extent the Transferor's office is located in the offices of CompuCom or any
Affiliate of CompuCom, pay fair market rent for its executive office space
located in the offices of CompuCom or any Affiliate of CompuCom, (ii) maintain
the Transferor's books, financial statements, accounting records and other
corporate documents and records sepa-
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rate from those of CompuCom or any other entity, (iii) not commingle the
Transferor's assets with those of CompuCom or any other entity, (iv) act solely
in its corporate name and through its own authorized officers and agents, (v)
make investments directly or by brokers engaged and paid by the Transferor or
its agents (provided that if any such agent is an Affiliate of CompuCom it shall
--------
be compensated at a fair market rate for its services), (vi) separately manage
the Transferor's liabilities from those of CompuCom or any Affiliates of
CompuCom and pay its own liabilities, including all administrative expenses,
from its own separate assets, and (vii) pay from the Transferor's assets all
obligations and indebtedness of any kind incurred by the Transferor. The
Transferor shall abide by all corporate formalities, including the maintenance
of current minute books, and the Transferor shall cause its financial statements
to be prepared in accordance with generally accepted accounting principles in a
manner that indicates the separate existence of the Transferor and its assets
and liabilities. The Transferor shall (i) not incur indebtedness other than in
connection with the transactions contemplated by this Agreement and incidental
indebtedness not to exceed $9,500 in the aggregate, (ii) not assume the
liabilities of CompuCom or any Affiliate of CompuCom, and (iii) not make loans
to or guarantee the liabilities of CompuCom or any Affiliate of CompuCom. The
officers and directors of the Transferor (as appropriate) shall make decisions
with respect to the business and daily operations of the Transferor independent
of and not dictated by any controlling entity.
(k) Delivery of Documents from Apple Computer, Inc. CompuCom shall
-----------------------------------------------
deliver to the Company, no later than January 1, 1998, written confirmation, in
form and substance acceptable to Agent, from Apple Computer, Inc., that any
security interest in inventory granted to such Person by CompuCom does not
extend to accounts receivable created upon the sale of inventory in which such
Person has a security interest.
SECTION III.2. Negative Covenants. During the term of this Agreement,
------------------
unless the Company shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as
--------------------
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otherwise provided herein, the Transferor will not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon (or the filing of any financing statement) or with respect
to, the Receivables or upon or with respect to any Lockbox, or assign any right
to receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as otherwise
----------------------------------------
permitted in Section 6.2, each of the Transferor and the Collection Agent will
not extend, amend or otherwise modify the terms of any Receivable, or amend,
modify or waive any term or condition of any Contract related thereto.
(c) No Change in Business or Credit and Collection Policy. Each of
-----------------------------------------------------
the Transferor and the Collection Agent will not make any change in the
character of its business or in the Credit and Collection Policy, which change
would, in either case, materially impair the collectibility of any Receivable.
(d) Use of Proceeds. No proceeds of any Transfer will be used by the
---------------
Transferor to purchase or carry any margin stock (as defined in Regulation U of
the Board of Governors of the Federal Reserve System) in violation of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
(e) No Mergers, Etc. Each of the Transferor and CompuCom will not
---------------
(i) consolidate or merge with or into any other Person, or (ii) sell, lease or
transfer all or substantially all of its assets to any other Person; provided
--------
that with respect to clause (i) above, CompuCom may merge with another Person if
CompuCom is the surviving corporation provided that no Termination Event or
Potential Termination Event shall result directly or indirectly therefrom.
(f) Change in Payment Instructions to Obligors. Each of the
------------------------------------------
Transferor and the Collection Agent will not add or terminate, or make any
change to, any Lockbox except in accordance with Section 2.8(b) herein.
(g) Deposits to Lockboxes. Each of the
---------------------
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Transferor and the Collection Agent will not deposit or otherwise credit, or
cause or permit to be so deposited or credited, to any Lockbox cash or cash
proceeds other than Collections of Receivables.
(h) Change of Name, Etc. Neither the Transferor nor CompuCom will
--------------------
change its name, identity or corporate structure (within the meaning of Section
9-402(7) of the UCC), nor relocate its chief executive office or any office
where Records are kept, unless it shall have: (i) given the Agent at least
thirty (30) days' prior written notice thereof and (ii) delivered to the Company
all UCC financing statements, instruments and other documents (including, but
not limited to, new or revised Lockbox Agreements) requested by the Agent in
connection with such change or relocation.
(i) Changes to Receivables Purchase Agreement. The Transferor shall
-----------------------------------------
not agree to any amendment of or supplement to, or waiver of any provision of,
the Receivables Purchase Agreement without the prior written consent of the
Company.
(j) Dividend Restriction. The Transferor shall not pay, declare or
--------------------
make any dividends or distributions in respect of its common stock unless, after
giving effect thereto: (i) the Transferor would not become insolvent, (ii) there
would not have been a material adverse effect on the Transferor or its financial
condition or (iii) the payment, declaration or making of any such dividends or
distributions would not cause a Termination Event.
(k) Voluntary Petition. To the extent permitted by law, neither the
------------------
Transferor nor CompuCom will file a petition to commence a voluntary case under
the U.S. Bankruptcy Code (Title 11 USC) in any court of appropriate jurisdiction
within the Tenth Circuit of the United States.
54
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ARTICLE IV
ADMINISTRATION AND COLLECTIONS
SECTION IV.1. Appointment of Collection Agent. The servicing,
-------------------------------
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
----------------
with this Section 6.1. Until the Agent gives notice to CompuCom of the
designation of a new Collection Agent, CompuCom is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Agent may, only upon the occurrence of a
default in the performance of the Collection Agent's obligations hereunder or
any other Termination Event designate as Collection Agent any Person (including
itself) to succeed CompuCom or any successor Collection Agent, on the condition
in each case that any such Person so designated shall agree to perform the
duties and obligations of the Collection Agent pursuant to the terms hereof.
Upon the occurrence of a Potential Termination Event or Termination Event, the
Agent may notify any Obligor of the Transferred Interest.
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SECTION IV.2. Duties of Collection Agent.
--------------------------
(a) The Collection Agent shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. Each of the Transferor, the Company and the Bank Investors hereby
appoints as its agent the Collection Agent, from time to time designated
pursuant to Section 6.1, to enforce its respective rights and interests in and
under the Receivables, the Related Security and the Contracts. The Collection
Agent shall set aside for the account of the Transferor and the Company their
respective allocable shares of the Collections received by the Collection Agent
in accordance with Sections 2.5 and 2.6. The Collection Agent shall segregate
and deposit to the Company's account the Company's allocable share of
Collections received by the Collection Agent when required pursuant to Article
II hereof. So long as no Termination Event shall have occurred and be
continuing, the Collection Agent may, in accordance with the Credit and
Collection Policy, extend the maturity of Receivables, but not beyond sixty (60)
days, and extend the maturity or adjust the Outstanding Balance as the
Collection Agent may determine to be appropriate to maximize Collections
thereof; provided, however, that such extension or adjustment shall not alter
-------- -------
the status of such Receivable as a Delinquent Receivable or a Defaulted
Receivable. The Collection Agent shall hold in trust for the Transferor and the
Company in accordance with their respective interests, all Records which
evidence or relate to Receivables or Related Security. Notwithstanding anything
to the contrary contained herein, the Agent shall have the right, acting in its
reasonable discretion, to direct the Collection Agent (whether the Collection
Agent is CompuCom or any other Person) to commence or settle any legal action to
enforce collection of any Receivable or to foreclose upon or repossess any
Related Security.
(b) The Collection Agent shall hold, for the benefit of the
Transferor, Collections received minus the Percentage Factor of such
-----
Collections. On the last day of each Tranche Period, the Collection Agent shall
56
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deduct from such Collections and pay to the Company in reduction of the Net
Investment any amounts due under Section 2.9 hereof and unpaid from the
Transferor and turn the remainder of such Collections over to the Transferor.
In addition, the Collection Agent shall, as soon as practicable following
receipt thereof, turn over to the Transferor any collections of any indebtedness
of any Obligor which is not a Receivable. If CompuCom is not the Collection
Agent, the Collection Agent, by giving three (3) Business Days' prior written
notice to the Agent, may revise the percentage used to calculate the Servicing
Fee so long as the revised percentage will not result in a Servicing Fee that
exceeds 110% of the reasonable and appropriate out-of-pocket costs and expenses
of such Collection Agent incurred in connection with the performance of its
obligations hereunder as documented to the reasonable satisfaction of the
Company. The Collection Agent, if other than CompuCom, shall as soon as
practicable upon demand, deliver to CompuCom all Records in its possession which
evidence or relate to indebtedness of an Obligor which is not a Receivable.
(c) On or before 90 days after the end of each fiscal year of the
Collection Agent, beginning with the fiscal year ending December 31, 1997, the
Collection Agent shall cause either the Business Credit Field Exam Group of
NationsBank of Texas N.A. or such other Person as may be approved by Agent (who
may also render other services to the Collection Agent or the Transferor) to
furnish a report to the Agent to the effect that they have (i) compared the
information contained in the Investor Reports delivered during such fiscal year
with the information contained in the Contracts and the Collection Agent's
records and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the information
contained in the Investor Reports reconciles with the information contained in
the Contracts and the Collection Agent's records and computer system and that
the servicing of the Receivables has been conducted in compliance with this
Agreement, (ii) conducted a confirmation of a sample, based on a sample size
provided by the Agent or otherwise agreed to by the Agent, of the Receivables
and verified that the Collection Agent's records and computer system used in
servicing the Receivables contained correct information with regard to due dates
and outstanding
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balances, (iii) verified that the Receivables treated by the Collection Agent as
Eligible Receivables and the calculation of the Net Receivables Balance in fact
satisfied the requirements of the definition thereof contained herein, except,
in each case for (a) such exceptions as such firm shall believe to be immaterial
(which exceptions need not be enumerated) and (b) such other exceptions as shall
be set forth in such statement, and (iv) obtained no knowledge of any
Termination Event or Potential Termination Event, or if, in the opinion of such
accountants, any Termination Event or Potential Termination Event shall exist,
stating the nature and status thereof
SECTION IV.3. Rights After Designation of New Collection Agent. At any
------------------------------------------------
time following the designation of a Collection Agent (other than CompuCom)
pursuant to Section 6.1:
(i) The Agent may direct that payment of all amounts
payable under the Receivables be made directly to the Company or
its designee.
(ii) Each of the Transferor and the Collection Agent shall,
at the Company's request and at the Transferor's expense, give
notice of the Company's ownership of the Receivables to each
Obligor and direct that payments in respect thereof be made
directly to the Agent or its designee.
(iii) Each of the Transferor and the Collection Agent shall (A)
assemble all of the Records, and shall make the same available to
the Agent at a place selected by the Agent or its designee, and
(B) segregate all cash, checks and other instruments received by
it from time to time constituting Collections of Receivables in a
manner acceptable to the Agent and shall, promptly upon receipt,
remit all such cash, checks and instruments, duly endorsed or
with duly executed instruments of transfer, to the Agent or its
designee.
(iv) Each of the Transferor and the Collection Agent hereby
authorizes the
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Agent to take any and all steps in each of the Transferor's and
the Collection Agent's name and on behalf of each of the
Transferor and CompuCom necessary or desirable, in the
determination of the Agent, to collect all amounts due under the
Receivables, including, without limitation, endorsing the
Transferor's name on checks and other instruments representing
Collections and enforcing such Receivables and the related
Contracts.
SECTION IV.4. Responsibilities of each of the Transferor and
----------------------------------------------
CompuCom. Anything herein to the contrary notwithstanding, each of the
- --------
Transferor and CompuCom shall (i) perform all of its obligations under the
Contracts related to the Receivables to the same extent as if interests in such
Receivables had not been sold hereunder and the exercise by the Company of its
rights hereunder shall not relieve each of the Transferor and CompuCom from such
obligations and (ii) pay when due any taxes, including without limitation, any
sales taxes payable in connection with the Receivables and their creation and
satisfaction. Neither the Company nor any Bank Investor shall have any
obligation or liability with respect to any Receivable or related Contracts, nor
shall it be obligated to perform any of the obligations of the Transferor or
CompuCom thereunder.
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ARTICLE V
TERMINATION EVENTS
SECTION V.1. Termination Events. The occurrence of any one or more of the
------------------
following events shall constitute a Termination Event:
(a) (i) the Transferor, the Collection Agent or CompuCom shall fail
to perform or observe any term, covenant or agreement hereunder (other than as
referred to in clause (ii) of this Section 7.1(a) or the covenant set forth in
Section 5.1(k)) and such failure shall remain unremedied for ten (10) days, or
(ii) the Collection Agent shall fail to make any payment or deposit to be made
by it hereunder or under any other document delivered pursuant hereto when due
or the Collection Agent shall fail to observe or perform any term, covenant or
agreement on the Collection Agent's part to be performed under Section 2.8(b)
hereof; or
(b) any representation, warranty, certification or statement made by
either of the Transferor, the Collection Agent or CompuCom in this Agreement or
in any other document delivered pursuant hereto shall prove to have been
incorrect in any material respect when made or deemed made (provided that any
--------
such breach with respect to a Receivable shall not constitute a Termination
Event hereunder if such breach shall have been cured by the Transferor pursuant
to Section 2.9 or 8.4); or
(c) either of the Transferor or CompuCom shall default in the
performance of any payment or undertaking (other than those covered by clause
(a) above) or to be performed or observed under any other provision hereof or in
the Receivables Purchase Agreement or under any other document delivered
pursuant hereto or thereto; or
(d) failure of either of the Transferor or CompuCom, as initial
Collection Agent, or any of their Subsidiaries to pay when due any amounts due
under any agreement under which any Indebtedness greater than $10,000,000 is
governed; or the default by either of the Transferor or CompuCom or any of their
Subsidiaries in the performance of any term, provision or condition
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contained in any agreement under which any Indebtedness greater than $10,000,000
was created or is governed, regardless of whether such event is an "event of
default" or "default" under any such agreement; or any Indebtedness greater than
$10,000,000 shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the date of maturity
thereof; or
(e) any Event of Bankruptcy shall occur with respect to the
Transferor, the Collection Agent, CompuCom or any Subsidiary of either the
Transferor, the Collection Agent or CompuCom; or
(f) the Transferor shall, for any reason, fail to have a valid
ownership interest in the Receivables and the Related Security and Collections
with respect thereto; or
(g) either CompuCom or the Transferor shall enter into any
transaction or merger whereby it is not the surviving entity; or
(h) there shall have occurred and be continuing any event or
condition which materially affects the Transferor's, CompuCom's or the
Collection Agent's ability to either collect the Receivables or to perform under
this Agreement or the Receivables Purchase Agreement; or
(i) the Liquidity Provider or the Credit Support Provider shall have
given notice that an event of default has occurred and is continuing under its
agreements with the Company; or
(j) the Commercial Paper issued by the Company shall not be rated at
least "A-2" by Standard & Poor's and at least "P-2" by Moody's; or
(k) (i) the Percentage Factor exceeds the Maximum Percentage Factor
unless the Transferor reduces the Net Investment on the next day, bringing the
Percentage Factor to less than or equal to 98% or (ii) the Percentage Factor
equals or exceeds 100% at any time or (iii) the Receivables Purchase Agreement
shall have terminated pursuant to Section 8.1 thereof; or
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(l) the Dilution Ratio averaged for any three-month period exceeds
7%; or
(m) the Loss to Liquidation Ratio averaged for any three-month period
exceeds 1.50%; or
(n) the Delinquency Ratio averaged for any three-month period exceeds
15.0%; or
(o) CompuCom's Leverage Ratio (as such term is defined in Exhibit N
herein) exceeds (i) 4.25 to 1 at the end of any fiscal quarter ending prior to
and including December 31, 2000 and (ii) 3.75 to 1 at the end of any fiscal
quarter thereafter; or
(p) CompuCom's Fixed Charge Coverage Ratio (as such term is defined
in Exhibit N herein) falls below 1.25 to 1 at the end of any fiscal quarter; or
(q) CompuCom's Tangible Net Worth (as such term is defined in Exhibit
N herein) falls below an amount equal to the sum of (i) $130,000,000, plus (ii)
75% of cumulative Net Income (as such term is defined in Exhibit N herein) for
the period from, but not including March 31, 1997 through the date of
calculation (but excluding from the calculation of such cumulative Net Income
the effect, if any, of any fiscal quarter (or portion of a fiscal quarter not
then ended) of CompuCom for which Net Income was a negative number), plus (iii)
75% of the Net Cash Proceeds (as such term is defined in Exhibit N herein)
received by CompuCom as a result of any offering of Equity (as such term is
defined in Exhibit N herein) or pursuant to any conversion or exchange of
convertible Indebtedness (as such term is defined in Exhibit N herein) or
preferred Capital Stock (as such term is defined in Exhibit N herein) or into
common Capital Stock of CompuCom, plus (iv) an amount equal to the net worth of
any Person (as such term is defined in Exhibit N herein) that becomes a
Subsidiary (as such term is defined in Exhibit N herein) of CompuCom or is
merged into or consolidated with CompuCom or any Subsidiary of CompuCom or
substantially all of the assets of which are acquired by CompuCom or any
Subsidiary of CompuCom to the extent the purchase price paid therefor is paid in
equity
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securities of CompuCom or any Subsidiary of CompuCom; or
(r) CompuCom's Asset Coverage Ratio (as such term is defined in
Exhibit N herein) falls below 1.10 to 1 at the end of any fiscal quarter; or
(s) CompuCom's ratio of Funded Debt (as such term is defined in
Exhibit N herein) to Capital (as such term is defined in Exhibit N herein)
exceeds 0.65 to 1 at the end of any fiscal quarter; or
(t) if all or any part of the capital stock of the Transferor held
(beneficially or otherwise) by CompuCom or the Subordinated Note (as defined in
the Receivables Purchase Agreement) shall be pledged or otherwise be subject to
a security interest in favor of any Person, and NationsBank of Texas, N.A. or
any such other Person shall commence any action to foreclose on any such pledge
or security interest.
SECTION V.2. Termination. (a) If an event or condition specified in
-----------
Section 7.1 (other than an event or condition specified in Sections 7.1(i) and
(j)) occurs, the Agent may, by notice to the Transferor, declare a Termination
Event to have occurred and declare all outstanding Tranche Periods to be ended
and designate the Base Rate plus 2% to be applicable to the Net Investment. If
an event or condition specified in Section 7.1(i) or (j) occurs, the Agent may,
by notice to the Transferor, declare a Termination Event to have occurred and
declare all outstanding Tranche Periods to be ended and shall designate the Base
Rate to be applicable to the Net Investment. In addition, if a Termination
Event shall be declared, the Transferor hereby requests that the Company assign
the Transferred Interest and all of its rights hereunder (other than its rights
to receive payments in respect of Discount accrued to the date of such
assignment and other fees, costs, expenses and indemnities due the Company
hereunder) to the Bank Investors. If an event or condition shall have occurred
which constitutes a Potential Termination Event, the Agent may, by notice to the
Transferor, declare such event or condition a Potential Termination Event.
(b) In addition, if any Termination Event occurs hereunder (i) the
Agent shall promptly notify the
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Transferor in writing whether it has declared a Termination Event or a Potential
Termination Event and whether it will be exercising the remedies specified in
this Section 7.2, (ii) the Company and the Agent shall have all of the rights
and remedies provided to a secured creditor or a purchaser of accounts under the
UCC by applicable law in respect thereto, (iii) the Maximum Net Investment shall
be reduced as of each calendar date thereafter equal to the Net Investment as of
such date, and (iv) no Commercial Paper will thereafter be issued.
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ARTICLE VI
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION VI.1. Indemnities. Without limiting any other rights which the
-----------
Company or the Bank Investors may have hereunder or under applicable law, the
Transferor and CompuCom hereby agree to indemnify the Company, the Bank
Investors, the Agent, the Liquidity Provider and the Credit Support Provider
and any permitted assigns and their respective officers, directors and employees
(collectively, "Indemnified Parties") from and against any and all damages,
-------------------
losses, claims, liabilities, costs and expenses, including reasonable attorneys'
fees (which such attorneys may be employees of the Bank Investors, the Liquidity
Provider, the Credit Support Provider or the Agent) and disbursements (all of
the foregoing being collectively referred to as "Indemnified Amounts") awarded
-------------------
against or incurred by any of them arising out of or as a result of this
Agreement or the ownership, either directly or indirectly, by the Company or the
Bank Investors of the Transferred Interest excluding, however, (i) Indemnified
Amounts to the extent resulting from gross negligence or willful misconduct on
the part of an Indemnified Party or (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables. Without
limiting the generality of the foregoing, CompuCom and Transferor shall
indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(a) any representation or warranty made by CompuCom, the Collection
Agent or the Transferor (or any of their respective officers) under or in
connection with this Agreement, the Receivables Purchase Agreement, any Investor
Report or any other information or report delivered by either of them pursuant
hereto, which shall have been false or incorrect in any material respect when
made or deemed made;
(b) the failure by CompuCom, the Collection Agent or the Transferor
to comply with any applicable and material law, rule or regulation with respect
to any Receivable or the related Contract, or the nonconformity of any
Receivable or the related Contract with
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any such applicable and material law, rule or regulation;
(c) the failure to vest and maintain in the Transferor an undivided
percentage ownership interest in the Receivables free and clear of any Adverse
Claim or the failure to vest and maintain vested in the Company an undivided
percentage ownership interest, to the extent of the Transferred Interest, or a
first priority perfected security interest, in the Receivables and the Related
Security and Collections with respect thereto, free and clear of any Adverse
Claim;
(d) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivable, any part of which is included in the Transferred
Interest;
(e) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable, any part of which
is included in the Transferred Interest (including, without limitation, a
defense based on such Receivable or the related Contract not being legal, valid
and binding obligation of such Obligor enforceable against it in accordance with
its terms), or any other claim resulting from the sale of merchandise or
services related to such Receivable or the furnishing or failure to furnish such
merchandise or services;
(f) any failure of CompuCom or the Transferor, as Collection Agent or
otherwise, to perform its duties or obligations in accordance with the
provisions of Article VI; or
(g) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort arising
out of or in connection with merchandise or services which are the subject of
any Receivable;
provided, however, that if the Company enters into agreements for the purchase
- -------- -------
of interests in receivables from one or more Other Transferors, the Company
shall allocate such Indemnified Amounts which are in connection with the
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Liquidity Provider Agreement, the Credit Support Agreement or the credit support
furnished by the Credit Support Provider to the Transferor and CompuCom and each
Other Transferor; and provided, further, that if such Indemnified Amounts are
-------- -------
attributable to the Transferor and CompuCom and not attributable to any Other
Transferor, the Transferor and CompuCom shall be solely liable for such
Indemnified Amounts or if such Indemnified Amounts are attributable to Other
Transferors and not attributable to the Transferor and CompuCom, such Other
Transferors shall be solely liable for such Indemnified Amounts.
SECTION VI.2. Indemnity for Taxes, Reserves and Expenses. (a) If after
------------------------------------------
the date hereof, the adoption of any Law or bank regulatory guideline or any
amendment or change in the interpretation of any existing or future Law or bank
regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty
or other charge with respect to this Agreement, the Transferred
Interest, the Receivables or payments of amounts due hereunder,
or shall change the basis of taxation of payments to any
Indemnified Party of amounts payable in respect of this
Agreement, the Transferred Interest, the Receivables or payments
of amounts due hereunder or its obligation to advance funds under
the Liquidity Provider Agreement or the credit support furnished
by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interest or the Receivables (except
for changes in the rate of general corporate, franchise, net
income or other income tax imposed on such Indemnified Party);
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board
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of Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by, any
Indemnified Party or shall impose on any Indemnified Party or on
the United States market for certificates of deposit or the
London interbank market any other condition affecting this
Agreement, the Transferred Interest, the Receivables or payments
of amounts due hereunder or its obligation to advance funds under
the Liquidity Provider Agreement or the credit support provided
by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interest or the Receivables; or
(iii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement,
the Transferred Interest, the Receivables or payments of amounts
due hereunder or its obligation to advance funds under the
Liquidity Provider Agreement or the credit support furnished by
the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the Transferred Interest, the
Receivables, the obligations hereunder, the funding of any purchases hereunder,
the Liquidity Provider Agreement or the Credit Support Agreement, by an amount
deemed by such Indemnified Party to be material, then, within ten (10) days
after demand by the Agent, the Transferor or CompuCom shall pay to the Agent
such additional amount or amounts as will compensate such Indemnified Party for
such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any
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directive regarding capital adequacy (in the case of any bank regulatory
guideline, whether or not having the force of law) of any such Official Body,
has or would have the effect of reducing the rate of return on capital of such
Indemnified Party (or its parent) as a consequence of such Indemnified Party's
obligations hereunder or with respect hereto to a level below that which such
Indemnified Party (or its parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Indemnified Party to be
material, then from time to time, within ten (10) days after demand by the
Agent, the Transferor and CompuCom shall pay to the Agent such additional amount
or amounts as will compensate such Indemnified Party (or its parent) for such
reduction.
(c) The Agent will promptly notify each of the Transferor and
CompuCom of any event of which it has knowledge, occurring after the date
hereof, which will entitle an Indemnified Party to compensation pursuant to this
Section. A notice by the Agent claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it on behalf of an
Indemnified Party hereunder shall be conclusive in the absence of manifest
error. In determining such amount, the Agent and any applicable Indemnified
Party may use any reasonable averaging and attributing methods.
(d) Anything in this Section 8.2 to the contrary notwithstanding, if
the Company enters into agreements for the acquisition of interests in
receivables from one or more Other Transferors, the Company shall allocate the
liability for any amounts under this Section 8.2 incurred by the Company
("Section 8.2 Costs") to the Transferor and CompuCom and each Other Transferor;
- -------------------
and provided, further, that if such Section 8.2 Costs are attributable to the
-------- -------
Transferor and CompuCom and not attributable to any Other Transferor, the
Transferor and CompuCom shall be solely liable for such Section 8.2 Costs or if
such Section 8.2 Costs are attributable to Other Transferors and not
attributable to the Transferor and CompuCom, such Other Transferors shall be
solely liable for such Section 8.2 Costs.
SECTION .1. Other Costs, Expenses and Related
---------------------------------
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Matters. (a) Each of the Transferor and CompuCom agrees, upon receipt of a
- -------
written invoice, to pay or cause to be paid, and to hold the Company, the Agent
and the Bank Investors harmless against liability for the payment of, all
reasonable out-of-pocket expenses (including, without limitation, attorneys',
accountants' and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of the Company, the Agent and any
Bank Investor) incurred by or on behalf of the Company, the Agent and the Bank
Investors (i) in connection with the negotiation, execution, delivery and
preparation of this Agreement and any documents or instruments delivered
pursuant hereto and thereto and the transactions contemplated hereby and thereby
(including, without limitation, the perfection or protection of the Transferred
Interest) and (ii) from time to time (x) relating to any amendments, waivers or
consents under this Agreement, (y) arising in connection with the Company's, any
Bank Investor's, the Agent's or any agent of the Company's enforcement or
preservation of rights (including, without limitation, the perfection and
protection of the Transferred Interest under this Agreement), or (z) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement; (all of such amounts, collectively,
"Transaction Costs"); provided, however, that the parties hereto hereby agree to
----------------- -------- -------
cooperate to minimize such costs and to avoid duplication of efforts.
(b) The Transferor and CompuCom shall pay the Company on demand any
Early Collection Fee due on account of the reduction of a Tranche on a day prior
to the last day of its Tranche Period.
SECTION .2. Reconveyance Under Certain Circumstances. The Transferor
----------------------------------------
agrees to accept the reconveyance from the Company or the Bank Investors of the
Transferred Interest if the Agent notifies the Transferor of a material breach
of any representation or warranty made or deemed made pursuant to Article III of
this Agreement and the Transferor shall fail to cure such breach within 15 days
(or, in the case of the representations and warranties in Sections 3.1(d) and
3.1(j), 3 days) of such notice. The reconveyance price shall be paid by the
Transferor to the Company or the Agent in
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immediately available funds on such 15th day (or 3rd day, if applicable) in an
amount equal to the Aggregate Unpaids.
71
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ARTICLE I
THE AGENT AND THE BANK COMMITMENT
72
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SECTION I.1. Authorization and Action.
------------------------
(a) The Company and each Bank Investor hereby appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. In furtherance, and
without limiting the generality, of the foregoing, the Company and each Bank
Investor hereby appoints the Agent as its agent to execute and deliver all
further instruments and documents, and take all further action that the Agent
may deem necessary or appropriate or that the Company or a Bank Investor may
reasonably request in order to perfect, protect or more fully evidence the
interests transferred or to be transferred from time to time by the Transferor
hereunder, or to enable any of them to exercise or enforce any of their
respective rights hereunder, including, without limitation, the execution by the
Agent as secured party/assignee of such financing or continuation statements, or
amendments thereto or assignments thereof, relative to all or any of the
Receivables now existing or hereafter arising, and such other instruments or
notices, as may be necessary or appropriate for the purposes stated hereinabove.
The Company and the Bank Investors may direct the Agent to take any such
incidental action hereunder. With respect to other actions which are incidental
to the actions specifically delegated to the Agent hereunder, the Agent shall
not be required to take any such incidental action hereunder, but shall be
required to act or to refrain from acting (and shall be fully protected in
acting or refraining from acting) upon the direction of the Company or a Bank
Investor; provided, however, that Agent shall not be required to take any action
-------- -------
hereunder if the taking of such action, in the reasonable determination of the
Agent, shall be in violation of any applicable law, rule or regulation or
contrary to any provision of this Agreement or shall expose the Agent to
liability hereunder or otherwise. Upon the occurrence and during the continuance
of any Termination Event or Potential Termination Event, the Agent shall take no
action hereunder (other than ministerial actions or such actions as are
specifically provided for herein) without the prior consent of the Majority
Investors. Unless otherwise provided herein, the Agent shall not authorize the
release of any property conveyed to the Agent by the Company or the Transferor
hereunder without
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the prior consent of all Bank Investors. The Agent shall not, without the prior
written consent of all Bank Investors, agree to (i) amend, modify or waive any
provision of this Agreement in any way which would (A) reduce or impair
Collections or the payment of Discount or fees payable under the related fee
letter or delay the scheduled dates for payment of such amounts, (B) increase
the Servicing Fee, (C) modify any provisions of this Agreement relating to the
timing of payments required to be made by the Transferor or the application of
the proceeds of such payments, or (D) the appointment of any Person (other than
the Agent) as successor Collection Agent. The Agent shall not agree to any
amendment of this Agreement which increases the dollar amount of a Bank
Investor's Commitment without the prior consent of such Bank Investor. In
addition, the Agent shall not agree to any amendment of this Agreement not
specifically contemplated by the two preceding sentences without the consent of
the related Majority Investors. "Majority Investors" shall mean, at any time,
------------------
Persons consisting of Bank Investors which hold Commitments aggregating in
excess of 51% of the Maximum Net Investment as of such date. In the event the
Agent requests the Company's or a Bank Investor's consent pursuant to the
foregoing provisions and the Agent does not receive a consent (either positive
or negative) from the Company or such Bank Investor within ten (10) Business
Days of the Company's or Bank Investor's receipt of such request, then the
Company or such Bank Investor (and its percentage interest hereunder) shall be
disregarded in determining whether the Agent shall have obtained sufficient
consent hereunder.
(b) The Agent shall exercise such rights and powers vested in it by
this Agreement, and use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
SECTION I.2. Agent's Reliance, Etc. Neither the Agent nor any of its
----------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them as Agent under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limiting the foregoing, the Agent: (i) may consult with legal counsel
(including counsel for the Transferor or CompuCom), inde-
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pendent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (ii) shall
make no warranty or representation to the Company or any Bank Investor and shall
not be responsible to the Company or any Bank Investor for any statements,
warranties or representations made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of this Agreement on
the part of the Transferor, the Collection Agent or CompuCom or to inspect the
property (including the books and records) of the Transferor, the Collection
Agent or CompuCom; (iv) shall not be responsible to the Company or any Bank
Investor for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, or any other instrument or document
furnished pursuant hereto; and (v) shall incur no liability under or in respect
of this Agreement by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be by telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION I.3. Credit Decision. The Company and each Bank Investor
---------------
acknowledges that it has, independently and without reliance upon the Agent, any
of the Agent's Affiliates' any (other) Bank Investor or the Company (in the case
of any Bank Investors) and based upon such documents and information as it has
deemed appropriate, made its own evaluation and decision to enter into this
Agreement and, if it so determines, to accept the transfer of any undivided
ownership interest in Receivables hereunder. The Company and each Bank Investor
also acknowledges that it will, independently and without reliance upon the
Agent, any of the Agent's Affiliates, any (other) Bank Investor or the Company
(in the case of any Bank Investors) and based on such documents and information
as it shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under this Agreement.
SECTION I.4. Indemnification of the Agent. The Bank Investors agree to
----------------------------
indemnify the Agent (to the
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extent not reimbursed by the Transferor), ratably in accordance with their Pro
Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement;
provided that the Bank Investors shall not be liable for any portion
- --------
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
the Bank Investors agree to reimburse the Agent, ratably in accordance with
their Pro Rata Shares, promptly upon demand for any out-of-pocket expenses
(including counsel fees) incurred by the Agent in connection with the
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such
expenses are incurred in the interests of or otherwise in respect of the Bank
Investors hereunder and to the extent that the Agent is not reimbursed for such
expenses by the Transferor.
SECTION I.5. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to each Bank Investor, the Company and the Transferor and
may be removed at any time with cause by the Majority Investors. Upon any such
resignation or removal, the Bank Investors acting jointly shall appoint a
successor Agent. Each Bank Investor agrees that it shall not unreasonably
withhold or delay its approval of the appointment of a successor Agent. If no
such successor Agent shall have been so appointed by the Bank Investors, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Investors' removal of
the retiring Agent, then the retiring Agent may, on behalf of the Bank
Investors, appoint a successor Agent which successor Agent shall be either (i) a
commercial bank organized under the laws of the United States or of any state
thereof and have a combined capital and surplus of at least $50,000,000 or (ii)
an Affiliate of such a bank. Upon the acceptance of any appointment as Agent
hereunder
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by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
SECTION I.6. Payments by the Agent. Unless specifically allocated to a
---------------------
Bank Investor pursuant to the terms of this Agreement, all amounts received by
the Agent on behalf of the Bank Investors shall be paid by the Agent to the Bank
Investors (at their respective accounts specified in their respective
Assignments) in accordance with their respective related pro rata interests in
--- ----
the Net Investment on the Business Day received by the Agent, unless such
amounts are received after 12:00 noon (New York time) on such Business Day, in
which case the Agent shall use its reasonable efforts to pay such amounts to the
Bank Investors on such Business Day, but, in any event, shall pay such amounts
to the Bank Investors in accordance with their respective related pro rata
--- ----
interests in the Net Investment not later than the following Business Day.
SECTION I.7. Bank Commitment; Assignment to Bank Investors.
---------------------------------------------
(a) Bank Commitment. At any time on or prior to the Commitment
---------------
Termination Date, in the event that the Company does not effect an Incremental
Transfer as requested under Section 2.2, then, at any time thereafter, the
Transferor shall have the right to require the Company to assign its interest in
whole to the Bank Investors pursuant to an assignment and assumption agreement
(an "Assignment") in accordance with this Section 9.7. In addition, at any time
----------
on or prior to the Commitment Termination Date, (i) upon the occurrence of a
Termination Event or (ii) the Company elects to give notice of a Reinvestment
Termination Date, the Transferor hereby requests and directs that the Company
assign its interest in whole to the Bank Investors pursuant to this Section 9.7,
and the Transferor agrees to pay the amounts described in Section 9.7(d) below.
Provided that (i) the Net Asset Test is satisfied and (ii) the Transferor shall
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have paid to the Company all amounts due as described in Section 9.7(d) (which
amount may be deemed paid by the Transferor through an increase in the Net
Investment), upon any such election by the Company or any such request by the
Transferor, the Company shall make such assignment and the Bank Investors shall
accept such assignment and shall assume all of the Company's obligations
hereunder. In connection with any assignment from the Company to the Bank
Investors pursuant to this Section 9.7, each Bank Investor shall, on the date of
such assignment, pay to the Company an amount equal to its Assignment Amount.
In addition, at any time on or prior to the Commitment Termination Date, the
Transferor shall have the right to request funding under this Agreement directly
from the Bank Investors; provided that at such time all conditions precedent set
--------
forth herein for an Incremental Transfer shall be satisfied, and provided
--------
further that, in connection with such funding by the Bank Investors, the Bank
- -------
Investors accept the assignment of all of the Company's interest in the Net
Investment and assume all of the Company's obligations hereunder.
(b) Assignment. Upon any assignment pursuant to Section 9.7(a), the
----------
Company shall deliver to each Bank Investor an Assignment, duly executed,
assigning to each such Bank Investor a pro rata interest in the Net Investment
--- ----
plus amounts unpaid pursuant to Section 9.7(d) (which amounts may be applied to
increase the Net Investment), and the Company shall promptly execute and deliver
all further instruments and documents, and take all further action, that the
assignee may reasonably request, in order to protect, or more fully evidence the
assignee's right, title and interest in and to such interest and to enable the
Agent, on behalf of such assignee, to exercise or enforce any rights hereunder.
Upon any such assignment, (i) the assignee shall have all of the rights and
obligations of the Company hereunder with respect to such interest for all
purposes of this Agreement (it being understood that the Bank Investors, as
assignees, shall (x) be obligated to effect Incremental Transfers under Section
2.2 in accordance with the terms thereof unless a Termination Event has
occurred, notwithstanding that the Company was not so obligated and (y) not have
the right to elect the commencement of the amortization of the Net Investment
pursuant to the definition of "Termination Date", notwithstanding that the
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Company had such right) and (ii) the Company shall relinquish its rights with
respect to such interest for all purposes of this Agreement. No such assignment
shall be effective unless a fully executed copy of the related Assignment shall
be delivered to the Agent and Transferor. All reasonable costs and expenses of
the Company and assignee incurred in connection with any assignment hereunder
shall be borne by the Transferor and not by the Company or any such assignee.
No Bank Investor may assign all or any portion of its interest in the Net
Investment, the Receivables, Collections, Related Security and Proceeds with
respect thereto and its rights and obligations hereunder to any Person unless
approved in writing by the Agent. No Bank Investor shall assign any portion of
its Commitment hereunder without also simultaneously assigning an equal portion
of its interest in the Liquidity Provider Agreement.
(c) Effects of Assignment. By executing and delivering an
---------------------
Assignment, the assignor and assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment, the assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other instrument or document
furnished pursuant hereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any such other instrument
or document; (ii) the assignor makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Transferor or
the performance or observance by the Transferor of any of its obligations under
this Agreement, or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement and
such other instruments, documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment and
to purchase such interest; (iv) such assignee will, independently and without
reliance upon the Agent, or any of its Affiliates, or the assignor and based on
such agreements, documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes
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the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement and any other instrument or document furnished pursuant
hereto or thereto as are delegated to the Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto and to enforce
its respective rights and interests in and under this Agreement, the Receivables
and the Related Security; (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as the assignee of the assignor;
and (vii) such assignee agrees that it will not institute against the Company
any proceeding of the type referred to in Section 10.9 prior to the date which
is one year and one day after the payment in full of all Commercial Paper issued
by the Company.
(d) Transferor's Obligation to Pay Certain Amounts. The Transferor
----------------------------------------------
shall pay to the Company, prior to any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, an aggregate amount equal to all
Discount accrued with respect to each Tranche Period, all Discount to accrue
through the end of each outstanding Tranche Period plus all other Aggregate
Unpaids (other than the Net Investment). To the extent that such Discount
relates to interest or discount on Commercial Paper issued to fund the Net
Investment, if the Transferor fails to make payment of such amounts at or prior
to the time of assignment by the Company to the Bank Investors, such amount
shall be paid by the Bank Investors to the Company as additional consideration
for the interests assigned to the Bank Investors, and the amount of the "Net
Investment" hereunder held by the Bank Investors shall be increased by an amount
equal to the additional amount so paid by the Bank Investors.
(e) Administration of Agreement After Assignment; Discount. After
------------------------------------------------------
any assignment by the Company to the Bank Investors pursuant to this Section
9.7, all rights of the Collateral Agent set forth herein shall be deemed to be
afforded to the Agent on behalf of the Bank Investors instead of either such
party. After any such assignment, Discount hereunder shall be determined in
accordance with the terms of the Fee Letter dated the date hereof (as such
letter may be amended from time to time) between the Transferor and the Agent.
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(f) Payments. After any assignment by the Company to the Bank
--------
Investors pursuant to this Section 9.7, all payments to be made hereunder by the
Transferor or the Collection Agent to the Bank Investors shall be made to the
Agent's account as such account shall have been notified to the Transferor and
the Collection Agent.
(g) Downgrade of Bank Investor. If the short-term debt rating of a
--------------------------
Bank Investor shall be A-2 or P-2 from Standard & Poor's or Moody's,
respectively, with negative credit implications, such Bank Investor, upon
request of the Agent, shall, within thirty (30) days of such request, assign its
rights and obligations hereunder to another financial institution (which
institution's short-term debt shall be rated at least A-2 and P-2 from Standard
& Poor's and Moody's, respectively, and which shall not be so rated with
negative credit implications). If the short-term debt rating of a Bank Investor
shall be A-3 or P-3, or lower, from Standard & Poor's or Moody's, respectively,
such Bank Investor, upon request of the Agent, shall, within five (5) Business
Days of such request, assign its rights and obligations hereunder to another
financial institution (which institution's short- term debt shall be rated at
least A-2 and P-2 from Standard & Poor's and Moody's, respectively, and which
shall not be so rated with negative credit implications). In either such case,
if any such Bank Investor shall not have assigned its rights and obligations
under this Agreement within the applicable time period described above, the
Company shall have the right to require such Bank Investor to accept the
assignment of such Bank Investor's Pro Rata Share of the Net Investment, and
such assignment shall occur in accordance with the applicable provisions of this
Section 9.7. Such Bank Investor shall be obligated to pay to the Company, in
connection with such assignment, in addition to the Pro Rata Share of the Net
Investment, an amount equal to a pro rata portion of the interest component of
all outstanding Commercial Paper issued to fund the Net Investment, as
reasonably determined by the Agent.
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ARTICLE II
MISCELLANEOUS
SECTION II.1. Term of Agreement. This Agreement shall terminate following
-----------------
the Termination Date when the Net Investment has been reduced to zero, all
accrued Discount has been paid in full and all other Aggregate Unpaids have been
paid in full; provided, however, that (i) the rights and remedies of the Company
-------- -------
with respect to any representation and warranty made or deemed to be made by
each of Transferor, the Collection Agent and CompuCom pursuant to this
Agreement, (ii) the indemnification and payment provisions of Article VIII, and
(iii) the agreement set forth in Section 10.9, shall be continuing and shall
survive any termination of this Agreement for a period of three (3) years
following such date in the case of clauses (i) and (ii) above.
SECTION II.2. Waivers; Amendments. No failure or delay on the part of the
-------------------
Company in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and remedies herein
provided shall be cumulative and nonexclusive of any rights or remedies provided
by law. Any provision of this Agreement may be amended if, but only if, such
amendment is in writing and is signed by the parties hereto.
SECTION II.3. Notices. Except as provided below, all communications and
-------
notices provided for hereunder shall be in writing (including bank wire, telex,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other party at its address or telecopy number set forth below or at
such other address or telecopy number as such party may hereafter specify for
the purposes of notice to such party. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section and confirmation is received,
(ii) if given by mail 3 Business Days following such posting, or (iii) if given
by any other means, when received at the address
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specified in this Section. However, anything in this Section to the contrary
notwithstanding, the Transferor hereby authorizes the Company to effect
Transfers, Tranche Period and Tranche Rate selections based on telephonic
notices made by any Person which the Company in good faith believes to be acting
on behalf of the Transferor. The Transferor and the Company agree to deliver
promptly to the other a written confirmation of each telephonic notice signed by
an authorized officer of such party. However, the absence of such confirmation
shall not affect the validity of such notice.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
World Financial Center--South Tower
225 Liberty Street
New York, New York 10218
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Agent)
If to the Transferor:
CSI Funding Inc.
7171 Forest Lane
Dallas, Texas 75230
Telecopy: (972) 856-5395
Payment Information:
NationsBank of Texas, N.A.
ABA: 111000025
Account 1291795475
If to the Agent:
NationsBank, N.A.
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
ABA: 053000196
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Attention: Camille Zerbinos
Reference: CompuCom Expenses
SECTION II.4. Governing Law; Submission to Jurisdiction; Integration.
------------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE TRANSFEROR, THE COLLECTION AGENT
AND COMPUCOM HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK
STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. Each of the Transferor, the Collection Agent and CompuCom
hereby irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 10.4 shall affect the right of the Company to bring any action or
proceeding against the Transferor, the Collection Agent and CompuCom or their
property in the courts of other jurisdictions.
(b) This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the parties hereto with
respect to the subject matter hereof superseding all prior oral or written
understandings.
SECTION II.5. Severability; Counterparts. This Agreement may be executed
--------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are 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, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate
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or render unenforceable such provision in any other jurisdiction.
SECTION II.6. Successors and Assigns.
----------------------
(a) This Agreement shall be binding on the parties hereto and their
respective successors and assigns; provided, however, that neither the
-------- -------
Transferor, the Collection Agent nor CompuCom may assign any of its rights or
delegate any of its duties hereunder without the prior written consent of the
Company. No provision of this Agreement shall in any manner restrict the ability
of the Company to assign, participate, grant security interests in, or otherwise
transfer any portion of the Transferred Interest.
(b) Each of the Transferor and CompuCom hereby agrees and consents to
the assignment by the Company from time to time of all or any part of its rights
under, interest in and title to this Agreement and the Transferred interest to
any Liquidity Provider or the Bank Investors. In addition, each of the
Transferor and CompuCom hereby agrees and consents to the complete assignment by
the Company of all of its rights (but not its obligations) under, interest in
and title to this Agreement and the Transferred Interest to NationsBank, N.A.,
in its capacity as collateral agent (in such capacity, the "Collateral Agent")
----------------
for any Liquidity Provider, any Credit Support Provider and the holders of
Commercial Paper from time to time.
SECTION II.7. [RESERVED]
SECTION II.8. Confidentiality. (a) Each of the Transferor, the
---------------
Collection Agent and CompuCom hereby consents to the disclosure of any non-
public information with respect to it to (i) either the Agent or the Company by
the other and (ii) the Liquidity Provider, the Credit Support Provider, any Bank
Investor, or any nationally recognized rating agency providing a rating for the
Company's commercial paper.
(b) Each of the Transferor and the Company shall maintain, and shall
cause each of its officers, employees and agents to maintain, the
confidentiality of this Agreement, all documents related hereto and all other
confidential proprietary information with respect
85
<PAGE>
to, on the one hand, the Company, the Agent, any Bank Investor, the Liquidity
Provider or the Credit Support Provider, and, on the other hand, CompuCom and
the Transferor, and each of their respective businesses obtained by them in
connection with the structuring, negotiation and execution of the transactions
contemplated herein, except for information that has become publicly available
and has been disclosed to (i) legal counsel, accountants and other professional
advisors to the Company and the Transferor by the other, (ii) as required by
law, regulation or legal process and (iii) in connection with any legal or
regulatory proceeding to which the Transferor or the Company, as applicable, is
subject. Both the Company and the Agent, on the one hand, and the Transferor and
CompuCom, on the other hand, hereby consent to the disclosure of information in
the manner and to the Persons set forth in clauses (i) through (iii) above.
SECTION .1. No Bankruptcy Petition Against the Company. Each of the
------------------------------------------
Transferor, the Collection Agent and CompuCom hereby covenants and agrees that,
prior to the date which is one year and one day after the payment in full of all
outstanding Commercial Paper or other indebtedness of the Company, it will not
institute against, or join any other Person in instituting against, the Company
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
SECTION .2. Limited Recourse; Waiver of Setoff.
----------------------------------
(a) Notwithstanding anything to the contrary contained herein, the
obligations of the Company under this Agreement are solely the corporate
obligations of the Company and shall be payable at such time as funds are
received from the Transferor, CompuCom and other transferors or from any party
to any agreement with the Company in accordance with the terms thereof in excess
of funds necessary to pay matured and maturing Commercial Paper and, to the
extent funds are not available to pay such obligations, the claims relating
thereto shall continue to accrue. Each party hereto agrees that the payment of
any claim (as defined in Section 101 of Title 11 of the Bankruptcy Code) of any
such party shall be
86
<PAGE>
subordinated to the payment in full of all Commercial Paper. No recourse shall
be had for the payment of any amount owing in respect of any obligation of, or
claim against, the Company arising out of or based upon this Agreement against
any stockholder, employee, officer, director or incorporator of the Company or
any Affiliate thereof or against any stockholder, employee, officer, director,
incorporator or Affiliate of the Agent; provided, however, that the foregoing
-------- -------
shall not relieve any such person or entity from any liability they might
otherwise have as a result of fraudulent actions or omissions taken by them.
(b) Each of the Transferor and CompuCom hereby agrees to waive any
right of setoff which it may have or to which it may be entitled against the
Company and its assets.
SECTION .3. Grant of Security Interest. The Transferor does hereby grant
--------------------------
to the Agent, on behalf of the Company and the Bank Investors, a security
interest in all of the Transferor's right, title and interest in, to and under
the Receivables, together with Related Security and Collections with respect
thereto, and in all of the Transferor's rights under the Receivables Purchase
Agreement and that this Agreement shall constitute a security agreement under
applicable law.
87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amended and Restated Transfer and Administration Agreement as of the date
first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ STEWART CUTLER
__________________________
Name: Stewart Cutler
Title: Vice President
CSI FUNDING INC.,
as Transferor
By: /s/ DANIEL CELONI
__________________________
Name: Daniel Celoni
Title: Treasurer
COMPUCOM SYSTEMS, INC.,
individually and
as Collection Agent
By: /s/ M. LAZANE SMITH
__________________________
Name: M. Lazane Smith
Title: SVP-CFO
NATIONSBANK, N.A., as Agent
and as Bank Investor
Commitment:
$97,500,000.00 By: /s/ STAN MEIHAUS
__________________________
Name: Stan Meihaus
Title: Vice President
<PAGE>
BANK HAPOALIM, B.M.,
as Bank Investor
Commitment:
$30,000,000.00 By: /s/ JONATHAN KULKA
__________________________
Name: Jonathan Kulka
Title: FVP
By: /s/ PETER DOVAS
__________________________
Name: Peter Dovas
Title: VP
CREDIT LYONNAIS NEW YORK BRANCH,
as Bank Investor
Commitment:
$30,000,000.00 By: /s/ DAVID C. FINK
__________________________
Name: David C. Fink
Title: First Vice President
CORESTATES BANK, N.A.,
as Bank Investor
Commitment:
$17,500,000.00 By: /s/ SCOTT HUFFMAN
__________________________
Name: Scott Huffman
Title: Vice President
<PAGE>
EXHIBIT A
---------
[FORM OF CONTRACT]
A-1
<PAGE>
EXHIBIT B
---------
[CREDIT AND COLLECTION POLICY]
B-1
<PAGE>
EXHIBIT C
---------
[FORM OF INVESTOR REPORT]
C-1
<PAGE>
EXHIBIT D
---------
[Form of Transfer Certificate]
Reference is hereby made to the Transfer and Administration Agreement,
dated as of April 1, 1996, as amended and restated as of November 1, 1997 (as
amended, supplemented or otherwise modified and in effect from time to time, the
"Agreement"), by and among CSI FUNDING INC., a Delaware corporation, as
---------
Transferor, COMPUCOM SYSTEMS, INC., a Texas corporation, as Seller, ENTERPRISE
FUNDING CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK,
-------
N.A., as Agent. Capitalized terms used herein and not otherwise defined herein
shall have the meaning assigned to such terms in the Agreement.
The Transferor hereby conveys, transfers and assigns to the Company an
undivided ownership interest in the Receivables, together with Related Security
and Collections with respect thereto (each, an "Incremental Transfer"). Each
--------------------
Incremental Transfer by the Transferor to the Company, and each reduction or
increase in the Net Investment in respect of each Incremental Transfer evidenced
hereby, shall be indicated by the Company on the grid attached hereto which is
part of this Transfer Certificate.
This Transfer Certificate is made without recourse except as otherwise
provided in the Agreement.
This Transfer Certificate shall be governed by, and construed in accordance
with, the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has caused this Transfer Certificate to
be duly executed and delivered by its duly authorized officer as of the date
first above written.
CSI FUNDING INC.
By /s/ DANIEL CELONI
_______________________
Name: Daniel Celoni
Title: Treasurer
D-1
<PAGE>
GRID
<TABLE>
<CAPTION>
Net Investment
Date of Amount of (Giving Effect
Incremental Incremental to Incremental
Transfer Transfer Transfer)
- ----------- ----------- --------------
<S> <C> <C>
</TABLE>
D-3
<PAGE>
EXHIBIT E
---------
[FORM OF SETTLEMENT STATEMENT]
E-1
<PAGE>
EXHIBIT F
---------
[TO BE UPDATED]
List of Actions and Suits
-------------------------
Plaintiff Claim Claim
Amount
CompuCom Systems, Inc.
- ----------------------
Steinard $50K Wrongful termination.
Powell $50K Overtime pay issue - amount
is last offer by Powell to
settle.
SAI TBD Contract dispute over
disposition of computer
parts inventory. Trial date
set 5/13/96.
The Computer Factory, Inc.
- --------------------------
Joe Schonfeld $5M Former A/R Manager claims
wrongful termination. He
pleaded guilty to charges
filed by TCF for
embezzlement and is
currently paying restitution
to TCF.
Craig Robins $200K Seeks punitive damages for
double charge on credit card
of $200.00.
Susan Manno $100K Damages due to injury
Charles Manno suffered while using a
F-1
<PAGE>
Helen Tomlin computer purchased from TCF.
Other defendants include
NEC, AST, and LAN.
F-2
<PAGE>
EXHIBIT G
---------
Schedule of Locations of Records
--------------------------------
G-1
<PAGE>
EXHIBIT H
---------
List of Subsidiaries, Divisions and Tradenames
----------------------------------------------
[TO BE UPDATED]
Tradenames
----------
CompuCom Systems, Inc.
CompuCom
CompuCom Systems, Inc. d.b.a. Network Compatability Group, Inc.
Subsidiaries
------------
Active Operations
- -----------------
CSI Funding, Inc.
CompuCom Properties, Inc.
ClientLink, Inc.
No Active Ongoing Business Operations
- -------------------------------------
CompuCom Acquisition, Corp.
d/b/a/ Microsolutions
The Computer Factory, Inc.
S R Computer Corp.
H-1
<PAGE>
EXHIBIT I
---------
[RESERVED]
I-1
<PAGE>
EXHIBIT J
---------
[Form of Secretary's Certificate]
I, __________________, the undersigned Secretary of CSI Funding Inc. (the
"Company"), a Delaware corporation, DO HEREBY CERTIFY that:
1. Attached hereto as Annex A is a true and complete copy of the
Certificate of Incorporation of the Company as in effect on the date hereof.
2. Attached hereto as Annex B is a true and complete copy of the By-laws
of the Company as in effect on the date hereof.
3. Attached hereto as Annex C is a true and complete copy of the
resolutions duly adopted by the Board of Directors of the Company [adopted by
consent] as of _________________, 1996, authorizing the execution, delivery and
performance of each of the documents mentioned therein, which resolutions have
not been revoked, modified, amended or rescinded and are still in full force and
effect.
4. The below-named persons have been duly qualified as and at all times
since ________________, 1996, to and including the date hereof have been
officers or representatives of the Company holding the respective offices or
positions below set opposite their names and the signatures below set opposite
their names are their genuine signatures:
Name Office Signatures
---- ------ ----------
[OFFICE] _______________________
[OFFICE] _______________________
5. The representations and warranties of the Company contained in Section
3.1 of the Transfer and Administration Agreement dated as of __________, 199_
between the Company and Enterprise Funding Corporation are true and correct as
if made on the date hereof.]
J-1
<PAGE>
WITNESS my hand and seal of the Company as of this ____ day of ________,
199_.
______________________________
Secretary
[NAME OF COMPANY]
I, the undersigned, Vice President of the Company, DO HEREBY CERTIFY that
_____________________ is the duly elected and qualified Secretary of the Company
and the signature above is his/her genuine signature.
WITNESS my hand as of this ____ day of _______, 1996.
______________________________
Vice President
[NAME OF COMPANY]
J-2
<PAGE>
EXHIBIT K
---------
[Form of Company Certificate]
THIS CERTIFICATE OR ANY INTEREST HEREIN MAY NOT BE TRANSFERRED, ASSIGNED,
EXCHANGED OR CONVEYED EXCEPT IN ACCORDANCE WITH THE TRANSFER AND ADMINISTRATION
AGREEMENT REFERRED TO HEREIN.
No. 1 One Unit
November 3, 1997
Evidencing an undivided interest in a pool of accounts receivables generated
from time to time in the ordinary course of business by CompuCom Systems, Inc.
and sold to CSI Funding Inc. (the "Transferor").
(Not an interest in or obligation of CSI Funding Inc.)
This certifies that ENTERPRISE FUNDING CORPORATION ("Enterprise") is the
registered owner of a fractional undivided interest in a pool of accounts
receivables pursuant to the Transfer and Administration Agreement between
Enterprise, the Transferor and the several parties thereto, dated as of April 1,
1996, as amended and restated as of November 3, 1997 (as amended, supplemented
or otherwise modified and in effect from time to time, the "Agreement"). The
---------
Receivables consist of all accounts receivables generated under the Contracts
from time to time hereafter, all monies due or to become due in payment of the
Receivables and the other assets and interests as provided in the Agreement.
To the extent not defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement, as amended from time to time, the holder hereof by virtue of
the acceptance hereof assents and by which the holder hereof is bound. In the
event of any inconsistency or conflict between the terms of this
K-1
<PAGE>
Certificate and the terms of the Agreement, the terms of the Agreement shall
control.
This Certificate represents a fractional undivided interest in the
Receivables, including the right to receive a portion of Collections and other
amounts at the times and in the manner and amounts specified in the Agreement.
The aggregate interest in the Receivables represented by this Certificate at any
time shall equal the Percentage Factor as determined in accordance with the
Agreement.
IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly
executed.
CSI FUNDING INC.
By: __________________________________
Name:
Title:
K-2
<PAGE>
EXHIBIT L
---------
Lockbox Banks and Accounts
L-1
<PAGE>
EXHIBIT M
---------
FORM OF LOCK-BOX AGREEMENT
[Date]
[Name and Address
of Lock-Box Bank]
Re: [COLLECTION AGENT]
Lock-Box Account
No[s]. ___________
Ladies and Gentlemen:
[COLLECTION AGENT] ("COLLECTION AGENT") hereby notifies you that in
connection with certain transactions involving its accounts receivable, it has
transferred exclusive ownership and dominion of its lock-box account no[s].
__________ maintained with you (collectively the "Accounts") to NationsBank,
N.A., as agent (the "Agent"), and that COLLECTION AGENT will transfer exclusive
control of the Accounts to the Agent effective upon delivery to you of the
Notice of Effectiveness (as hereinafter defined).
In furtherance of the foregoing, COLLECTION AGENT and the Agent hereby
instruct you, beginning on the date of your receipt of the Notice of
Effectiveness: (i) to collect the monies, checks, instruments and other items
of payment mailed to the Accounts; (ii) to deposit into the Accounts all such
monies, checks, instruments and other items of payment or all funds collected
with respect thereto (unless otherwise instructed by the Agent); and (iii) to
transfer all funds deposited and collected in the Accounts pursuant to
instructions given to you by the Agent from time to time.
You are hereby further instructed: (i) unless and until the Agent
notifies you to the contrary at any time after
M1
<PAGE>
your receipt of the Notice of Effectiveness, to make such transfers from the
Accounts at such times and in such manner as COLLECTION AGENT, in its capacity
as collection agent for the Agent, shall from time to time instruct to the
extent such instructions are not inconsistent with the instructions set forth
herein, and (ii) to permit COLLECTION AGENT (in its capacity as collection agent
for the Agent) and the Agent to obtain upon request any information relating to
the Accounts, including, without limitation, any information regarding the
balance or activity of the Accounts.
COLLECTION AGENT also hereby notifies you that, beginning on the date
of your receipt of the Notice of Effectiveness and notwithstanding anything
herein or elsewhere to the contrary, the Agent, and not TRANSFEROR, shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the Accounts, including, without limitation, the right to
specify when payments are to be made out of or in connection with the Accounts.
The Agent has a continuing interest in all of the checks and their proceeds and
all monies and earnings, if any, thereon in the Accounts, and you shall be the
Agent's agent for the purpose of holding and collecting such property. The
monies, checks, instruments and other items of payment mailed to, and funds
deposited to, the Accounts will not be subject to deduction, set-off, banker's
lien, or any other right in favor of any person other than the Agent (except
that you may set off (i) all amounts due to you in respect of your customary
fees and expenses for the routine maintenance and operation of the Accounts, and
(ii) the face amount of any checks which have been credited to the Accounts but
are subsequently returned unpaid because of uncollected or insufficient funds).
This Agreement may not be terminated at any time by COLLECTION AGENT
or you without the prior written consent of the Agent. Neither this Agreement
nor any provision hereof may be changed, amended, modified or waived orally but
only by an instrument in writing signed by the Agent and COLLECTION AGENT.
You shall not assign or transfer your rights or obligations hereunder
(other than to the Agent) without the prior written consent of the Agent and
COLLECTION AGENT. Subject to the preceding sentence, this Agreement shall be
M2
<PAGE>
binding upon each of the parties hereto and their respective successors and
assigns, and shall inure to the benefit of, and be enforceable by, the Agent,
each of the parties hereto and their respective successors and assigns.
You hereby represent that the person signing this Agreement on your
behalf is duly authorized by you to so sign.
You agree to give the Agent and COLLECTION AGENT prompt notice if the
Accounts become subject to any writ, garnishment, judgment, warrant of
attachment, execution or similar process.
Any notice, demand or other communication required or permitted to be
given hereunder shall be in writing and may be personally served or sent by
facsimile or by courier service or by United States mail and shall be deemed to
have been delivered when delivered in person or by courier service or by
facsimile or three (3) Business Days after deposit in the United States mail
(registered or certified, with postage prepaid and properly addressed). For the
purposes hereof, (i) the addresses of the parties hereto shall be as set forth
below each party's name below, or, as to each party, at such other address as
may be designated by such party in a written notice to the other party and the
Agent and (ii) the address of the Agent shall be NationsBank, N.A., NationsBank
Corporate Center, 10th Floor, Charlotte, North Carolina 28255, Attention:
Michelle M. Heath, Investment Banking, or at such other address as may be
designated by the Agent in a written notice to each of the parties hereto.
Please agree to the terms of, and acknowledge receipt of, this notice
by signing in the space provided below.
M3
<PAGE>
The transfer of control of the Accounts, referred to in the first
paragraph of this letter, shall become effective upon delivery to you of a
notice (the "Notice of Effectiveness") in substantially the form attached hereto
as Annex "1".
Very truly yours,
[COLLECTION AGENT]
By: /s/ Daniel Celoni
-----------------------------
Title: VP - Finance
--------------------------
Attention:
----------------------
Facsimile No.:
------------------
ACKNOWLEDGED AND AGREED:
[NAME OF LOCK-BOX BANK]
By: /s/ Julie Perry-Schenkel
-------------------------
Title: Sr. Vice President
----------------------
Date:
-----------------------
[Address]
Attention:
------------------
Facsimile No.:
--------------
M4
<PAGE>
ANNEX 1
TO LOCK-BOX AGREEMENT
[FORM OF NOTICE OF EFFECTIVENESS]
DATED: ______________, 199_
TO: [Name of Lock-Box Bank]
[Address]
ATTN: ______________________
Re: Lock-Box Account No[s]._______
Ladies and Gentlemen:
We hereby give you notice that the transfer of control of the above-referenced
Lock-Box Account[s], as described in our letter agreement with you dated
__________ __, 199_ is effective as of the date hereof. You are hereby
instructed to comply immediately with the instructions set forth in that letter.
Very truly yours,
[COLLECTION AGENT]
By: /s/ Daniel Celoni
------------------------------
Title: VP - Finance
---------------------------
ACKNOWLEDGED AND AGREED:
[NAME OF LOCK-BOX BANK]
By: /s/ Stan Meihaus
------------------------
Title: Vice President
---------------------
Date:----------------------
M5
<PAGE>
[Address]
Attention:_________________
Facsimile No.:_____________
M6
<PAGE>
EXHIBIT N
---------
CERTAIN DEFINITIONS
(All defined terms contained in this Exhibit N shall only be used in connection
with Sections 7.1 (o), (p), (q), (r) and (s).)
Capitalized terms used in this Exhibit N which are also defined herein, are used
as so defined herein.
"Account" has the meaning assigned to such term in the UCC.
-------
"Accounts and Inventory Report" means a report, signed by an Authorized
-----------------------------
Signatory, in substantially the form of Exhibit E of the Credit Agreement,
appropriately completed.
"Acquisition" means any transaction pursuant to which the Borrower or any
-----------
of its Subsidiaries, (i) whether by means of a capital contribution or purchase
or other acquisition of stock or other securities or other equity participation
or interest, (A) acquires more than 50% of the equity interest in any Person
pursuant to a solicitation by the Borrower or such Subsidiary of tenders of
equity securities of such Person, or through one or more negotiated block,
market, private or other transactions, or a combination of any of the foregoing,
or (B) makes any corporation a Subsidiary of the Borrower or such Subsidiary, or
causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to be
merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or such Subsidiary), or
(ii) purchases all or substantially all of the business or assets of any Person
or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas,
---------------------
N-1
<PAGE>
N.A., a national banking association, as administrative agent for Lenders, or
such successor administrative agent appointed pursuant to Section 10.1(b) of the
Credit Agreement.
"Administrative Lender Fee Letter" has the meaning specified in Section
--------------------------------
2.4(c) of the Credit Agreement.
"Advance" means a Facility A Advance, a Facility B Advance or a Swing Line
-------
Advance and "Advances" means Facility A Advances, Facility B Advances and Swing
--------
Line Advances.
"Affiliate" means, as applied to any Person, any other Person that,
---------
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.
"Agreement Date" means the date of the Credit Agreement.
--------------
"Applicable Environmental Laws" means applicable laws pertaining to health
-----------------------------
or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
------
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
----
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
--------------
the laws of the
N-2
<PAGE>
United States of America, including without limitation 12 USC '' 85 and 86,
as amended from time to time, and any other statute of the United States of
America now or at any time hereafter prescribing the maximum rates of
interest on loans and extensions of credit, and the laws of the State of
Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other
---------
statute of the State of Texas; provided that the parties hereto agree that
the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas,
1925, as amended, shall not apply to Advances, this Agreement, the Notes or
any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum
----------------------------
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability
-------------
<S> <C>
(a) Initial Pricing Period 1.000%
1.250%
0.750%
(b) Subsequent Pricing Period
(1) The Fixed Charge Coverage Ratio is greater than 0.750%
or equal to 2.50 to 1 1.000%
0.625%
(2) The Fixed Charge Coverage Ratio is less than 0.875%
2.50 to 1 but greater than or equal to 2.00 to 1 1.125%
0.750%
(3) The Fixed Charge Coverage Ratio is less than 1.000%
2.00 to 1 but greater than or equal to 1.50 to 1 1.250%
0.875%
(4) The Fixed Charge Coverage Ratio is less than 1.250%
1.50 to 1 1.500%
1.125%
</TABLE>
N-3
<PAGE>
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis shall be effective
--------
with respect to LIBOR Advances (i) made following receipt by the Administrative
Lender of the financial statements required to be delivered pursuant to Section
6.2 or 6.3 of the Credit Agreement, as applicable, for each such fiscal
quarter, and the corresponding Compliance Certificate required pursuant to
Section 6.4 of the Credit Agreement, on the date of making such LIBOR Advance
and (ii) outstanding on the date of receipt of such financial statements and
Compliance Certificate referred to in clause (i) immediately preceding, on the
date which is two Business Days following the date of receipt of such financial
statements and Compliance Certificate. If such financial statements and
Compliance Certificate are not received by the Administrative Lender by the date
required, effective as of the first Business Day following notification thereof
from the Administrative Lender to the Borrower, the Applicable LIBOR Rate Margin
shall be determined as if the Fixed Charge Coverage Ratio is less than 1.50 to 1
until such time as such financial statements and Compliance Certificate are
received.
"Asset Coverage Ratio" means, for the Borrower and its Subsidiaries
--------------------
determined in accordance with GAAP on a consolidated basis, at the time in
question, the ratio of (a) the sum of (i) Cash and Cash Equivalents, plus (ii)
Accounts, plus (iii) Inventory to (b) the sum of (i) outstanding obligations in
respect of Facility A and Swing Line Advances, Reimbursement Obligations and
other Indebtedness, plus (ii) the Net Exposure Under Securitization, plus (iii)
accounts payable and accrued liabilities in the ordinary course of business.
"Assignees" means any assignee of a Lender pursuant to an Assignment
---------
Agreement and shall have the meaning
N-4
<PAGE>
ascribed thereto in Section 11.6 of the Credit Agreement.
"Assignment Agreement" has the meaning specified in of the Credit Agreement.
--------------------
"Authorized Signatory" means such senior personnel of the Borrower as may be
--------------------
duly authorized and designated in writing by the Borrower to execute documents,
agreements and instruments on behalf of the Borrower, and to request Advances
and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base Rate Basis.
-----------------
"Base Rate Basis" means, for any day, a per annum interest rate equal to the
---------------
higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such day
or (b) the Prime Rate on such day. The Base Rate Basis shall be adjusted
automatically without notice as of the opening of business on the effective date
of each change in the Prime Rate to account for such change.
"Borrower" has the meaning specified in the introductory provision of the
--------
Credit Agreement.
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Dallas, Texas, and, (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and its
-------
Subsidiaries, on a consolidated basis determined in accordance with GAAP, the
sum of (a) Funded Debt plus (b) Net Worth.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost
N-5
<PAGE>
of the item, but excluding capital expenditures made with insurance proceeds to
the extent used to replace or repair damaged fixed assets, plant and equipment)
computed in accordance with GAAP, consistently applied.
"Capital Stock" means, as to any Person, the equity interests in such Person,
-------------
including, without limitation, the shares of each class of capital stock in any
Person that is a corporation, and each class of partnership interest (including,
without limitation, general, limited and preference units) in any Person that is
a partnership.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (i) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (ii) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper issued by any Lender or the parent corporation of any Lender,
and commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equiva-
N-6
<PAGE>
lent thereof by Moody's Investors Service, Inc., and in each case maturing
within six months after the date of acquisition, and (vi) a readily redeemable
"money market mutual fund" advised by a bank described in clause (iii) hereof,
or an investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, that has and maintains an investment policy limiting its
investments primarily to instruments of the types described in clauses (i)
through (v) hereof and having on the date of such Investment total assets of at
least One Hundred Million Dollars ($100,000,000.00).
"CFI" means CSI Funding, Inc., a Delaware corporation and wholly-owned
---
Subsidiary of the Borrower, as purchaser under the RPA.
"CFI Note" means the "Subordinated Note" as defined by the RPA, and any and
--------
all renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Change of Control" means the occurrence of any of the following events after
-----------------
the Agreement Date: (a) any Person or any Persons acting together which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the
-----
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
------------
successor provision thereto, other than the Group whose nominees constituted a
majority of the board of directors of the Borrower as of the close of business
on the Agreement Date, together with any Affiliates or Related Persons thereof,
shall beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; or (b) any Person or Group, other than any Person or Group whose
nominees constituted a majority of the board of directors of the Borrower as of
the close of business on the Agreement Date, together with any Affiliates or
Related Persons thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of the Borrower, such that such
nominees, when added to any existing director
N-7
<PAGE>
remaining on the Board of Directors of the Borrower after such election who is
an Affiliate or Related Person of such Group, shall constitute a majority of the
Board of Directors of the Borrower.
"ClientLink Note" means that certain promissory note, dated September 5, 1996,
---------------
in the original principal amount of $2,500,000 executed and delivered by
ClientLink, Inc. and payable to the order of the Borrower, and any and all
renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral granted at any time by any Person to the
----------
Administrative Lender for the benefit of the Lenders to secure the Obligations;
provided, however, that on the Agreement Date or as soon as practical thereafter
the Administrative Lender shall release any Liens held by the Administrative
Lender insofar as such Liens cover the Receivables and provided, further, that
upon the occurrence of the Inventory Release Event, the Administrative Lender
shall also release any Liens held by the Administrative Lender insofar as such
Liens cover the Inventory of the Borrower or any of its Subsidiaries.
"Collateral Document" means any document under which Collateral is granted and
-------------------
any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) of the Credit
--------------
Agreement.
"Commitments" means, collectively, the Facility A Commitment and the Facility
-----------
B Commitment, as reduced from time to time pursuant to Section 2.6 of the
Credit Agreement.
"Compliance Certificate" means a certificate, signed by an Authorized
----------------------
Signatory, in substantially the form of Exhibit G to the Credit Agreement,
appropriately completed.
N-8
<PAGE>
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Credit Agreement" means the Amended and Restated Credit Agreement, dated
----------------
November 3, 1997, among CompuCom Systems, Inc., certain Lenders (as such term is
defined in this Exhibit N), and NationsBank of Texas, N.A. as Administrative
Lender (as such term is defined in this Exhibit N), as amended, modified,
supplemented or restated from time to time.
"Creditor" means a creditor of the Borrower or any Subsidiary of the Borrower
--------
and shall not include any Affiliate of any such creditor.
"Current Maturities" means, with respect to any Person, the principal portion
------------------
payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from
N-9
<PAGE>
time to time in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable, relating
-------------
to the real property of the Borrower purchased with the proceeds of the Facility
B Advances, in a form acceptable to the Administrative Lender, as amended,
modified, renewed, supplemented or restated from time to time.
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1 of the Credit Agreement, regardless of whether there shall have
occurred any passage of time or giving of notice that would be necessary in
order to constitute such event an Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the lesser of
(i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess of the
Applicable Rate Margin then in effect.
"Determining Lenders" means, on any date of determination, any combination of
-------------------
the Lenders having in excess of 50.0% of the aggregate amount of the Advances
(which for purposes of the calculation shall include for each Lender an amount
equal to the product of such Lender's Specified Percentage multiplied by the
aggregate principal amount of Swing Line Advances outstanding) then outstanding;
provided, however, that if there are no Advances outstanding hereunder,
"Determining Lenders" shall mean any combination of Lenders whose Specified
--------------------
Percentages aggregate in excess of 50.0%.
"Dividend" means, as to any Person, (a) any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any shares of Capital Stock of, or other similar interest in, such
Person and (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of, or similar interest in,
N-10
<PAGE>
such Person.
"Dollar" or "$" means the lawful currency of the United States of America.
------ -
"Domestic Subsidiary" means any Subsidiary of the Borrower other than a
-------------------
Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense.
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
"EFC" means Enterprise Funding Corporation, a Delaware corporation, as
---
purchaser of an undivided interest in a portion of the Receivables, as provided
by the TAA.
"Equipment" has the meaning assigned to such term in the UCC.
---------
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time, and any
N-11
<PAGE>
regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a) a
-----------
Reportable Event (other than a Reportable Event not subject to the provision for
30-day notice to the PBGC pursuant to regulations issued under Section 4043 of
ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1 of the
----------------
Credit Agreement, provided that any requirement for notice or lapse of time has
been satisfied.
"Existing Credit Agreement" has the meaning specified in the Background
-------------------------
provision hereof.
"Facility A Advance" means an Advance made pursuant to Section 2.1(a) of the
------------------
Credit Agreement.
"Facility A Commitment" means $125,000,000.00, as reduced pursuant to Section
---------------------
2.6 of the Credit Agreement .
"Facility A Maturity Date" means October 30, 2002, or the earlier date of
------------------------
termination in whole of the Facility A Commitment pursuant to Section 2.6 or 8.2
of the Credit Agreement.
N-12
<PAGE>
"Facility A Notes" means the promissory notes of Borrower evidencing Facility
----------------
A Advances hereunder, substantially in the form of Exhibit A of the Credit
Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"Facility B Advance" means an Advance made pursuant to Section 2.1(b) of the
------------------
Credit Agreement in order to refinance the outstanding Facility B Advances under
the Existing Credit Agreement as of the Agreement Date.
"Facility B Commitment" means $25,000,000.00, as reduced from time to time
---------------------
pursuant to Section 2.6 of the Credit Agreement.
"Facility B Maturity Date" means October 30, 2002, or the earlier date of
------------------------
termination in whole of the Facility B Commitment pursuant to Section 2.6 or
8.2 of the Credit Agreement.
"Facility B Notes" means the promissory notes of Borrower evidencing Facility
----------------
B Advances hereunder, substantially in the form of Exhibit B to the Credit
Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
------------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Lender from three
Federal funds brokers of recognized standing selected by it.
N-13
<PAGE>
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) the greater of (i) Current Maturities and (ii) 10% of Funded Debt, plus (b)
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges,
---------------------------
calculated for the four consecutive fiscal quarters immediately preceding the
date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America or the
District of Columbia.
"Funded Debt" means, as of any date of determination, determined for the
-----------
Borrower and its Subsidiaries on a consolidated basis, (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 other than trade payables incurred in the ordinary course
of business, (iv) Capitalized Lease Obligations and (v) Net Exposure Under
Securitization.
"GAAP" means generally accepted accounting principles applied on a consistent
----
basis, set forth in the Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants, or their successors which
are applicable in the circumstances as of the date in question. The requirement
that such principles be applied on a consistent basis shall mean that the
accounting principles applied in a current period are comparable in all material
respects to those applied in a preceding period.
"Guaranties" means, collectively, the Parent Guaranty and the Subsidiary
----------
Guaranty.
"Guarantor" means each direct and indirect Subsidiary of the Borrower that
---------
executes and delivers a Subsid-
N-14
<PAGE>
iary Guaranty hereunder.
"Guaranty" or "Guaranteed", as applied to an obligation of another Person,
-------- ----------
means (a) a guaranty, direct or indirect, in any manner, of any part or all of
such obligation, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit; provided, however, Guaranty does
not mean (i) the endorsement of instruments for collection or deposit in the
ordinary course of business and (ii) customary indemnities given in connection
with asset sales in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or arrangements
----------------
designed to protect at least one of the parties thereto from the fluctuations of
interest rates, exchange rates or forward rates applicable to such party's
assets, liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap, swap or collar protection
agreements, and forward rate currency or interest rate options, as the same may
be amended or modified and in effect from time to time, and any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
N-15
<PAGE>
"Indebtedness" means, with respect to any Person, without duplication, (a) all
------------
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition the amount of such
Indebtedness at any time shall be deemed to equal the fair market value of such
property or asset at such time), (f) to the extent not otherwise included, all
Capitalized Lease Obligations of such Person, all obligations in respect of
letters of credit, bankers' acceptances and similar instruments, and all
obligations under Hedge Agreements, (g) any Guaranty of such Person of any
obligation of another Person constituting obligations of a type set forth above
and (h) the Net Exposure Under Securitization.
"Indemnified Matters" has the meaning specified in Section 5.9(a) of the
-------------------
Credit Agreement.
"Indemnitees" has the meaning specified in Section 5.9(a) of the Credit
-----------
Agreement.
"Initial Pricing Period" means the period from and including the Agreement
----------------------
Date to and including the Rate Adjustment Date.
"Intangible Assets" means those assets which are treated as intangible
-----------------
pursuant to GAAP, and in any event including, without limitation: (i)
obligations, if any, owing by Affiliates to the Borrower or any Subsidiary of
the Borrower, (ii) the amount, if any, by which inventory exceeds the lower of
cost or market value thereof, (iii) the value of any inventory which is obsolete
or damaged or is otherwise deemed by the Administrative
N-16
<PAGE>
Lender not to be of a marketable quality commensurate with the inventory of the
Borrower and its Subsidiaries as a whole; (iv) accounts receivable which are
deemed by the Borrower, any of its Subsidiaries or the Administrative Lender to
be uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or setoffs; (v) leases and
leasehold improvements; (vi) any asset which is intangible or lacks intrinsic
and marketable value or collectibility, including without limitation goodwill,
noncompetition agreements, patents, copyrights, trademarks, franchises or
organization or research and development costs; (vii) organizational and
experimental expense; and (viii) unamortized debt discount and expense.
"Intercreditor Agreements" collectively means the following certain
------------------------
agreements: (i) Amended and Restated Intercreditor Agreement dated effective as
of April 1, 1996 among NationsBank of Texas, N.A., in its capacity as a lender,
the Borrower, IBM Credit Corporation and NationsBank of Texas, N.A. , (ii)
Subordination Agreement dated August 22, 1994 among NationsBank of Texas, N.A.,
in its capacity as a lender, the Borrower, IBM Credit Corporation and Hewlett-
Packard Company, (iii) Intercreditor Agreement dated December 27, 1993 among
NationsBank of Texas, N.A., in its capacity as a lender, the Borrower and Compaq
Computer Corporation, and (iv) any other intercreditor agreement hereafter
entered into among NationsBank of Texas, N.A., in its capacity as the
Administrative Lender, the Borrower and any Person that is a vendor to the
Borrower of Inventory, as any of the foregoing may be renewed, extended,
modified, amended, supplemented or restated from time to time.
"Interest Period" means the period beginning on the day any LIBOR Advance is
---------------
made and ending one, two, three or six months thereafter (as the Borrower shall
select); provided, however, that all of the foregoing provisions are subject to
-------- -------
the following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, such Interest
N-17
<PAGE>
Period shall be extended to the next succeeding Business Day, unless, with
respect to a LIBOR Advance, the result of such extension would be to extend
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month; and
(iii) the Borrower may not select any Interest Period which ends after the
date of a scheduled principal payment on the Advances unless, after giving
effect to such selection, the aggregate unpaid principal amount of the LIBOR
Advances for which Interest Periods end after such scheduled principal payment
shall be equal to or less than the principal amount to which the Advances or
Facility B Commitment are required to be reduced after such scheduled
principal payment is made.
"Inventory" has the meaning assigned to such term in the UCC.
---------
"Inventory Release Event" means the the occurrence of all of the following
-----------------------
events: (i) the release in writing (in form and substance acceptable to the
Administrative Lender) by all holders (other than the Administrative Lender) of
all Liens covering the Inventory, or any of same, of the Borower and/or any of
its Subsidiaries, (ii) the release or termination, as applicable, of any and all
UCC financing statements with respect to such Liens on such Inventory, (iii) the
delivery to the Administrative Lender of UCC searches, or other evidence
acceptable to the Administrative Lender, evidencing such releases, and (iv) the
delivery to the Administrative Lender of such other documents, agreements and
papers as the Administrative Lender shall reasonably request in order to
evidence that such Inventory is not subject to
N-18
<PAGE>
any Lien(s) in favor of any Person (other than the Administrative Lender).
"Investment" means any acquisition of all or substantially all assets of any
----------
Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
------------
association, in its capacity as issuer of the Letters of Credit.
"Landlord's Waiver" means an agreement in form and substance satisfactory to
-----------------
the Administrative Lender pursuant to which the landlord of any leased location
where any Collateral is located shall waive its rights, if any, to the
Collateral and shall grant to the Administrative Lender rights to enter upon the
premises to inspect, remove or dispose of the Collateral.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages hereof
------
so long as such financial institution maintains a portion of the Commitments or
is owed any part of the Obligations (including the Administrative Lender in its
individual capacity), and each Assignee that hereafter becomes a party hereto
pursuant to Section 11.6 of the Credit Agreement, subject to the limitations
set forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e) of the
---------------------
Credit Agreement.
N-19
<PAGE>
"Letter of Credit" has the meaning specified in Section 2.15(a) of the
----------------
Credit Agreement.
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b) of
--------------------------
the Credit Agreement.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a) of
-------------------------
the Credit Agreement.
"Leverage Ratio" means, for any date of calculation, the ratio of Funded Debt
--------------
as of the date of determination to EBITDA calculated for the four consecutive
fiscal quarters immediately preceding the date of calculation.
"LIBOR Advance" means an Advance which the Borrower requests to be made as a
-------------
LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with the
provisions of Section 2.2 of the Credit Agreement.
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office designated
--------------------
as its LIBOR Lending Office on Schedule 1 attached to the Credit Agreement, and
such other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
----------
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars
N-20
<PAGE>
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period. If
for any reason such rate is not available, the term "LIBOR Rate" shall mean, for
----------
any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
--------
however, if more than one rate is specified on Reuters Screen LIBO Page, the
- -------
applicable rate shall be the arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement or
other instrument.
"Loan Documents" means the Credit Agreement, the Notes, the Security
--------------
Agreement, the Pledge Agreement, the Subsidiary Guaranty, any other Collateral
Document, the Administrative Lender Fee Letter, any Hedge Agreements entered
into with any Lender, and any other document or agreement executed or delivered
from time to time by the Borrower, any Subsidiary of the Borrower or any other
Person in connection herewith or as security for the Obligations.
"Long Term Debt" means any obligation which is due
--------------
N-21
<PAGE>
one year or more from the date of creation thereof which under GAAP is shown as
a liability, plus (without duplication) amounts equal to the aggregate net
rentals (after making allowances for any interest, taxes or other expenses
included therein) payable more than one year from the date of creation thereof
under Capitalized Lease Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Subsidiaries taken as a whole, or (b) in any manner whatsoever
does or could reasonably be expected to materially and adversely affect the
validity or enforceability of any Loan Document.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender hereunder.
"NCGI Note" means that certain subordinated convertible note, dated October
---------
31, 1995, in the original principal amount of $3,000,000, executed and delivered
by the Borrower and payable to the order of Network Compatibility Group, Inc.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties,
including the sale of any Inventory.
"Net Cash Proceeds" means, with respect to any sale,
-----------------
N-22
<PAGE>
lease, transfer or other disposition of any asset by any Person, the amount of
cash received by such Person in connection with such transaction (including cash
proceeds of any property received in consideration of any such sale, lease,
transfer or other disposition) after deducting therefrom the aggregate, without
duplication, of the following amounts to the extent properly attributable to
such transaction or to the asset that is the subject thereof: (i) reasonable
brokerage commissions, legal fees, finder's fees, financial advisory fees,
accounting fees, underwriting fees, investment banking fees and other similar
commissions and fees, in each case, to the extent paid or payable by such
Person; (ii) filing, recording or registration fees or charges or similar fees
or charges paid by such Person; (iii) taxes paid or payable by such Person or
any shareholder, partner or member of such Person to governmental taxing
authorities as a result of such sale or other disposition; and (iv) payment of
the outstanding principal amount of, premium or penalty, if any, and interest on
any Indebtedness that is secured by a Lien on the asset in question and that is
required to be repaid under the terms thereof as a result of such asset sale.
"Net Exposure Under Securitization" means, for any date of calculation, the
---------------------------------
sum of the following (without duplication): (i) the "Net Investment" (as such
term is defined in the TAA) as of such date of calculation and (ii) any and all
obligations and liabilities of the Borrower, CFI or any other Subsidiary of
Borrower under, or in connection with, the Securitization, as of such date of
calculation, to the extent that same constitute liabilities of the Borrower or
of any Subsidiary of the Borrower under GAAP or would, under GAAP, constitute
liabilities of the Borrower or of any Subsidiary of the Borrower if the
Securitization was treated as an on balance sheet transaction.
"Net Income" means, with respect to any Person for any period, the net income
----------
(loss) of such Person, after provisions for taxes and extraordinary items,
determined in accordance with GAAP.
N-23
<PAGE>
"Net Worth" means, as of any date of calculation, for the Borrower and its
---------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, the
consolidated total stockholders' equity of the Borrower and its Subsidiaries.
"Notes" means, collectively, the Facility A Notes, the Facility B Notes and
-----
the Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a) of the
-------------------
Credit Agreement.
"Notice of Issuance" has the meaning specified in Section 2.15(b) of the
------------------
Credit Agreement.
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any other Obligor to any Lender or the Administrative Lender under
any of the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Borrower or any other Obligor of any obligation, covenant or
undertaking with respect to any Loan Document payable by the Borrower or any
other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
-------
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) of the Credit
-----------
Agreement
"Participation" has the meaning specified in Section 11.6(c) of the Credit
-------------
Agreement.
"Payment Date" means the last day of the Interest
------------
N-24
<PAGE>
Period for any LIBOR Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
----
to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, and (ii)
Liens for taxes, assessments, governmental charges, levies or claims that are
not yet delinquent or that are being diligently contested in good faith by
appropriate proceedings in accordance with Section 5.6 of the Credit Agreement
and for which adequate reserves shall have been set aside on such Person's
books, but only so long as no foreclosure, restraint, sale or similar
proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
incurred in the ordinary course of business for sums not yet due or being
contested in good faith, if such reserve or appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired (or existing
on property at the time such property is acquired) by such Person or created to
secure Indebtedness permitted by Section 7.1(c) or 7.1(d) of the Credit
Agreement, which is incurred solely for the
N-25
<PAGE>
purpose of financing the acquisition of such assets and incurred at the time of
acquisition or which exists against such assets at the time of acquisition
thereof, so long as each such Lien shall at all times be confined solely to the
asset or assets so acquired (and proceeds thereof), and refinancings thereof so
long as any such Lien remains solely on the asset or assets acquired and the
amount of Indebtedness related thereto is not in creased; provided, however,
that from and after the occurrence of the Inventory Release Event, Liens
covering Inventory of the Borrower or any of its Subsidiaries shall not
constitute Permitted Liens hereunder;
(g) Liens in respect of judgments or awards for which appeals or proceedings
for review are being prosecuted and in respect of which a stay of execution upon
any such appeal or proceeding for review shall have been secured, provided that
(i) such Person shall have established adequate reserves for such judgments or
awards, (ii) such judgments or awards shall be fully insured (subject to
customary deductibles) and the insurer shall not have denied coverage, or (iii)
such judgments or awards shall have been bonded to the satisfaction of the
Determining Lenders;
(h) Any Liens which are described on Schedule 2 to the Credit Agreement, and
Liens resulting from the refinancing of the related Indebtedness, provided that
the Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of the Borrower; provided, however, that from and after
the occurrence of the Inventory Release Event, Liens covering Inventory of the
Borrower or any of its Subsidiaries shall not constitute Permitted Liens
hereunder;
(i) Liens arising from filing Uniform Commercial Code financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;
(j) Any zoning or similar law or right reserved to or vested in any Tribunal
to control or regulate the use
N-26
<PAGE>
of any real property;
(k) Any other title exception with respect to real property assets disclosed
by any preliminary title report, title commitment report or other search of
title provided to the Administrative Lender in accordance with this Agreement
unless disapproved by the Administrative Lender prior to the Agreement Date;
(l) Any Lien in favor of any Lender to secure any obligations owed to such
Lender in respect of any Hedge Agreement;
(m) Liens incurred or deposits made to secure the performance of bids, trade
contracts (other than for Indebtedness), statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(n) Liens securing Indebtedness or other obligations of the Borrower or a
Subsidiary of the Borrower owing to the Borrower or a Subsidiary;
(o) Liens to the extent allowed under the MSAA or the Intercreditor
Agreements; provided, however, that from and after the occurrence of the
Inventory Release Event, Liens covering Inventory of the Borrower or any of its
Subsidiaries shall not constitute Permitted Liens hereunder;
(p) Liens in favor of EFC under, or in connection with, the TAA and/or the
RPA;
(q) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (h), (i), (j), (m),
(o) and (p) hereof; and
(r) Liens securing Indebtedness permitted by Section 7.1(k) of the Credit
Agreement, to the extent only that such Liens cover Inventory manufactured by,
purchased from or acquired from the holder of such Indebtedness and any renewals
thereof; provided, however, that
N-27
<PAGE>
from and after the occurrence of the Inventory Release Event, Liens covering
Inventory of the Borrower or any of its Subsidiaries shall not constitute
Permitted Liens hereunder.
"Person" means an individual, corporation, partnership, trust or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledge Agreement" means the pledge agreement, substantially in the form of
----------------
Exhibit F of the Credit Agreement, as amended, modified, renewed, supplemented
or restated from time to time, executed by the Borrower.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
--------------
December, beginning December 31, 1997.
"Rate Adjustment Date" means the date which is two Business Days following the
--------------------
date that the Lenders receive the financial statements for the fiscal year
ending December 31, 1996, required to be delivered pursuant to Section 6.2 of
the Credit Agreement.
N-28
<PAGE>
"Receivables" has the meaning assigned to such term in the RPA.
-----------
"Reference Lender" means NationsBank; provided that if the NationsBank
----------------
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank shall cease to be the Reference Lender, and
Administrative Lender (after consultation with Borrower) shall, with notice to
Borrower and Lenders, designate another Lender as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any individual
--------------
or entity who directly or indirectly holds 10% or more of any class of Capital
Stock of the Borrower, (c) any relative of such individual by blood, marriage or
adoption not more remote than first cousin and (d) any officer or director of
the Borrower.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of ERISA.
----------------
"Restricted Payments" means, collectively, (i) Dividends and (ii) any (A)
-------------------
payment or prepayment of principal, premium or penalty on any Subordinated Debt
of the Borrower or any Subsidiary of the Borrower or any defeasance, redemption,
purchase, repurchase or other acquisition or retirement for value, in whole or
in part, of any Subordinated Debt (including, without limitation, the setting
aside of assets or the deposit of funds
N-29
<PAGE>
therefor) and (B) prepayment of interest on any Subordinated Debt.
"Rights" means rights, remedies, powers and privileges.
------
"RPA" means that certain Receivables Purchase Agreement, dated as of April 1,
---
1996, as amended and restated as of November 3, 1997, between the Borrower and
CFI providing for the sale by the Borrower to CFI and the purchase by CFI from
the Borrower all Receivables now owned and hereafter acquired and arising from
time to time prior to termination of the RPA, on the terms provided therein, as
the same may be renewed, extended, modified, amended or restated from time to
time.
"Securitization" means, collectively, the transactions evidenced and governed
--------------
by the Securitization Documents.
"Securitization Documents" means, collectively, the RPA and the TAA and any
------------------------
other agreements or documents executed or delivered by any Person in connection
therewith.
"Security Agreement" means the security agreement relating to all Inventory
------------------
and Equipment (and all computer programs, applications, disks, plans, manuals,
specifications, files and other records pertaining thereto) of the Borrower and
its Subsidiaries, substantially in the form of Exhibit D to the Credit
Agreement, as amended, modified, renewed, supplemented or restated from time to
time.
"Solvent" means, with respect to any Person, that the fair value of the assets
-------
of such Person (both at fair valuation and at present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and such Person does not have
unreasonably small capital with which to
N-30
<PAGE>
carry on its business. In computing the amount of contingent or unliquidated
liabilities at any time, such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability discounted to present value at rates believed to be reasonable by such
Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C., or
---------------
such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
--------------------
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subordinated Debt" means (i) the NCGI Note and (ii) any other Indebtedness of
-----------------
the Borrower or any Subsidiary of the Borrower having maturities and terms, and
which is subordinated to payment of the Obligations in a manner, approved in
writing by the Administrative Lender and the Determining Lenders, with only such
changes or amendments as are not prohibited by Section 7.22 of the Credit
Agreement.
"Subsequent Pricing Period" means the period from and including the date which
-------------------------
is the first day following the end of the Initial Pricing Period to and
including the Facility A Maturity Date or Facility B Maturity Date, whichever is
later.
"Subsidiary" of any Person means any corporation, partnership, joint venture,
----------
trust or estate or other Person of which (or in which) more than 50% of:
(a) the outstanding capital stock having voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingen-
N-31
<PAGE>
cy),
(b) the interest in the capital or profits of such partnership or joint
venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries;
provided, however, that no Person shall be deemed to be a Subsidiary of the
Borrower solely by virtue of the fact that certain shares of the stock of such
Person have been pledged to the Borrower.
"Subsidiary Guaranty" means a guaranty, substantially in the form of Exhibit
-------------------
I to the Credit Agreement, executed and delivered by each Guarantor, as such
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Swing Line Advance" means an Advance made pursuant to Section 2.1(c) of the
------------------
Credit Agreement.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successor thereto
---------------
appointed in accordance with Section 10.1(b) of the Credit Agreement.
"Swing Line Facility" has the meaning specified in Section 2.1(c) of the
-------------------
Credit Agreement.
"Swing Line Note" means the Swing Line Note of the Borrower payable to the
---------------
order of the Swing Line Bank, substantially in the form of Exhibit C of the
Credit Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"TAA" means that certain the Transfer and Administration Agreement, dated as
---
of April 1, 1996, as amended and restated as of November 3, 1997, among the
Borrower,
N-32
<PAGE>
CFI, EFC and NationsBank, N.A. in its capacity as Agent and a Bank Investor
thereunder, providing for the transfer by CFI to EFC and the acceptance by EFC
from CFI of an undivided interest in certain Receivables acquired by CFI from
the Borrower pursuant to the RPA, from time to time, on the terms provided
therein, as the same may be renewed, extended, modified, amended or restated
from time to time.
"Tangible Net Worth" means the sum of the following for the Borrower and its
------------------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, (a)
Net Worth minus (b) the sum of the following (without duplication in respect of
items already deducted in arriving at Net Worth): Intangible Assets, and any
write-up in the book value of assets resulting from revaluation thereof
subsequent to December 31, 1995.
"Taxes" has the meaning specified in Section 2.14 of the Credit Agreement.
-----
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
--------
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory or
public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unused Portion" means an amount equal to the result of (a) the sum of (i) the
--------------
Facility A Commitment plus (ii) the Facility B Commitment minus (b) the sum of
(i) the outstanding Facility A Advances plus (ii) the outstanding Facility B
Advances plus (iii) the outstanding Reimbursement Obligations in respect of the
Letters of Credit.
N-33
<PAGE>
EXHIBIT O
---------
[Inventory Financing Agreement]
O-1
<PAGE>
EXHIBIT 10(y)
[IBM LETTERHEAD APPEARS HERE]
November 18, 1997
Mr. Jay Scott
Vice President, Product Services
CompuCom
7171 Forest Lane
Dallas, Texas 75230
Dear Jay:
IBM is pleased to offer to extend your Agreement for Participation in the IBM
Business Partner - PC, Authorized Assembler Program, dated 01/16/1997, (AAP
Agreement) to December 31, 1998.
Please indicate your agreement to this extension by signing below and
returning this letter to me. Your AAP Agreement will expire without
further notice on December 31, 1997 if you do not return the signed
letter to me by then.
We look forward to continuing our relationship so that IBM can work with you
more effectively, improve efficiency and reduce costs through our Advanced
Fulfillment Initiatives and the Authorized Assembler Program.
Sincerely,
/s/ BUD
John C. Nesbit
Policy Execution Manager, Authorized Assembler Program
IBM Personal Computer Company
Agreed to:
CompuCom
By: /s/ JAY SCOTT
-----------------------------------
Title: VP Product Services
--------------------------------
Date: 12/3/97
--------------------------------
<PAGE>
EXHIBIT 10(z)
AGREEMENT FOR PARTICIPATION IN THE
IBM BUSINESS PARTNER - PC, AUTHORIZED ASSEMBLER PROGRAM
THIS AGREEMENT ("Agreement") is entered into by and between International
Business Machines Corporation, a New York corporation maintaining a place of
business at Route 100, Somers, New York 10589 ("IBM"), and CompuCom Systems,
Inc., a state of Delaware corporation maintaining a place of business at 10100
North Central Expressway; Dallas, Texas 75231 ("You"), effective as of the 16th
day of January, 1997.
WHEREAS, IBM desires to expand its personal computer fulfillment capabilities by
authorizing a number of integrators to assemble and test IBM personal computer
products for sale to Resellers and End Users (as defined below); and
WHEREAS, these IBM authorized Integrators ("Authorized Assemblers") must meet
and maintain qualifications established by IBM as set forth more fully herein to
protect IBM's goodwill and long-standing reputation for high quality personal
computer products; and
WHEREAS, You desire to become an Authorized Assembler subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in exchange for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT. Except as expressly provided herein, this Agreement constitutes
the complete and exclusive statement of the agreement and understanding
between the parties governing the IBM Business Partner - PC, Authorized
Assembler Program ("Authorized Assembler Program"). Neither party is
relying upon any representations, promises, commitments or guarantees of
the other party about the financial benefits or profitability of this
program other than that which is expressly set forth herein. This Agreement
supersedes all other proposals, prior agreements, and other communications,
oral or written, between the parties regarding the Authorized Assembler
Program and any predecessor program(s). Except as expressly provided
herein, this Agreement does not modify or alter the IBM Business Partner
Agreement in effect between You and IBM. All other terms and conditions of
your IBM Business Partner Agreement not expressly modified by this
Agreement shall continue to apply to You while performing as an Authorized
Assembler.
2. DEFINITIONS. For purposes of this Agreement, the following definitions
shall apply:
(a) "Agreement" includes this Agreement, all exhibits, appendices, attachments
and amendments hereto, which are hereby incorporated by reference,
including those that may become effective in the future.
Page 1
<PAGE>
(b) "Appendix A" refers to the IBM standard machine type model assembly and
testing process documents that will be updated from time-to-time by IBM as
provided in Section 18.
(c) "Appendix B" refers to the custom solution and rework process documents
that will be updated from time-to-time by IBM as provided in Section 18.
(d) "Approved Component" means personal computer hardware parts (e.g., hard
files, memory SIMMS, adapter cards), miscellaneous assembly parts (e.g.,
screws, brackets, cables), and product ship groups (e.g., publications,
power cords), all of which are supplied by IBM and approved in the bill of
materials included in Appendix A or by IBM in writing as provided in
Appendix B for each Approved Product.
(e) "Approved Location" is a site controlled and operated by You in the United
States at which we authorize You to perform your responsibilities under
this Agreement. Certain Authorized Assembler Program requirements,
including, but not limited to, minimum number of trained personnel and pre-
assembly certification, must be met at each Approved Location.
(f) "Approved Product" is any IBM personal computer product that You are
authorized to configure under the Authorized Assembler Program. An Approved
Product is assembled and tested by You from a Base System Unit and Approved
Components according to the specifications set forth in Appendix A or
Appendix B, as appropriate. Except as otherwise provided in this Agreement,
Approved Products assembled by You in full and complete compliance with the
terms of this Agreement shall be governed as "Products" under the terms of
the IBM Business Partner Agreement.
(g) "Base System Unit" is an IBM personal computer system unit, including a
keyboard and mouse where appropriate, supplied by IBM and listed in
Appendix A or approved by IBM in writing as provided in Appendix B as the
base model from which an Approved Product is configured.
(h) "End User" is anyone unaffiliated with You who acquires Approved Products
for its own use and not for resale.
(i) "IBM Business Partner Agreement" includes the IBM Business Partner
Agreement Remarketer General Terms, its profiles, appendices, exhibits, and
transaction documents, as amended from time-to-time, entered into between
You and IBM.
(j) "Other Software" refers to software programs and other code, excluding
Software Images and Test Software, provided by IBM under the Authorized
Assembler Program to You to be used by You to make the Software Image or
any software program or code pre-installed on the Base System Unit or an
Approved Component operate as designed on the Approved Product. "Other
Software"
Page 2
<PAGE>
includes device drivers, approved vendor patches, BIOS and licensed
internal code upgrades but does not include such programs and code already
preloaded by IBM on a personal computer system or included on a diskette or
CD packaged and shipped by IBM with a Base System Unit or an Approved
Component.
(k) "Preload" refers to the process by which You are authorized, subject to the
terms of this Agreement, to load from the master media provided by IBM a
single copy of the designated Software Image onto the hard drive of an
Approved Product.
(l) "Removed Parts" refers to parts removed by You from a Base System Unit when
assembling certain Approved Products pursuant to this Agreement.
(m) "Reseller" includes any personal computer system remarketer to whom You are
authorized to resell personal computer products under the terms of your IBM
Business Partner Agreement.
(n) "Software Image" means the image, which includes software programs and
other code written by IBM or third parties, provided by IBM under the
Authorized Assembler Program to You for You to Preload or otherwise have
IBM install only on Approved Products according to the terms of this
Agreement. "Software Image" shall not include any operating system software
image or other software program or code included by IBM on a pre-installed
hard drive or included on a diskette or CD packaged and shipped by IBM with
a Base System Unit or Approved Component.
(o) "Subsidiary" means a corporation, company or other entity for which a party
to this Agreement now or hereafter owns or controls, directly or
Indirectly:
(1) more than fifty percent (50%) of the outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority, but such corporation, company or other entity
shall only be deemed to be a Subsidiary only for so long as such
ownership or control exists; or
(2) more than fifty percent (50%) of the ownership Interest representing
the right to make decisions for such corporation, company or other
entity if such corporation, company or other entity does not have
outstanding shares or securities, as may be the case in a partnership,
joint venture or unincorporated association, but such corporation,
company or other entity shall only be deemed to be a Subsidiary only
for so long as such ownership or control exists.
(p) "Test Software" refers to software programs and other code, excluding
Software Images and Other Software, provided by IBM under the Authorized
Assembler Program to You to be used by You in assembling and testing
Approved Products
Page 3
<PAGE>
pursuant to Appendices A and B, as applicable. Test Software includes
diagnostics code and virus protection software.
3. AUTHORIZATION. Provided that You comply fully with the terms of this
Agreement, You are hereby authorized by IBM to assemble and test Approved
Products bearing the IBM logo for sale under the terms of the IBM Business
Partner Agreement to Resellers and End Users. With prior written approval
from IBM, which approval may be withheld in IBM's sole discretion, You may
authorize your Subsidiaries located in the United States to assemble and
test Approved Products at Approved Locations pursuant to the terms of this
Agreement provided that You hereby unconditionally guarantee each of your
authorized Subsidiaries' full and complete compliance with the terms of
this Agreement. Pursuant to this guarantee, IBM shall not be required to
make demand upon your authorized Subsidiary as a condition to making demand
upon You. Each authorized Subsidiary shall co-execute this Agreement, and
the term "You" as used herein shall include all authorized Subsidiaries who
co-execute this Agreement and are approved in writing by IBM to assemble
and test Approved Products hereunder.
4. MINIMUM PARTICIPATION COVENANT. You agree to use your best efforts to
purchase a sufficient number of Base System Units and Approved Components
to enable You to assemble and test Approved Products listed in Appendix A
for at least twenty percent (20%) of your actual sales volume of personal
computer system units per Approved Product family of products as measured
on a calendar year, or any portion thereof.
5. ALLOCATION AND ORDERING. You agree to provide IBM with forecasts of your
requirements for and current on-hand inventory of Base System Units and
Approved Components weekly or otherwise upon request from IBM. IBM will
allocate Base System Units and Approved Components to You in IBM's sole
discretion upon consideration of your forecasts, your current on-hand
inventory, your actual sales, availability and other business factors
deemed relevant by IBM. You agree to use your best efforts to purchase the
total number of Base System Units and Approved Components that are
allocated to You, up to the greater of the amount of your forecast or your
minimum order replenishment requirements, if any. You agree to order
Approved Components in the minimum order quantities (MOQs) that can be
shipped in bulk as described in Appendix A. Except as otherwise provided in
this Agreement, your orders for Base System Units and Approved Components
will be governed as "Products" under the IBM Business Partner Agreement.
6. TITLE AND RISK OF LOSS.
(a) Hardware. From the point and time of shipment to You by IBM, You shall hold
title and all ownership interest and bear all risk of loss in all Base
System Units and Approved Components purchased by You, subject to any
applicable IBM financing terms.
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(b) Software. Title to Software Images, Test Software and Other Software is not
transferred by IBM. Except as expressly provided herein, this Agreement
does not grant You any rights of any kind under any IBM or third-party
patents, copyrights, trademarks, service marks or other intellectual
property and does not authorize You to use, copy, sublicense, sell,
distribute or prepare derivative works based upon any Software Images, Test
Software, Other Software or publications provided by IBM under this
Agreement.
7. ASSEMBLY AND TESTING.
(a) IBM's Responsibilities. IBM will provide initial training for your
personnel in the IBM assembly and testing processes described in Appendix A
and Appendix B. IBM must certify your initial compliance with the assembly
and test processes, including your handling of any Returned Parts, Software
Images, Test Software and Other Software, at each location before You will
be authorized by IBM to assemble and test Approved Products under this
Agreement at such location.
(b) Your Responsibilities. You represent, warrant and agree to:
(1) assemble and test Approved Products in full and complete compliance
with Appendix A or Appendix B, as applicable, using only IBM-approved
tools, equipment, Test Software and Other Software, and that the
Approved Products will be free from defects in your workmanship under
normal use and operation;
(2) assemble Approved Products using only Base System Units and Approved
Components that are new and unused unless the Approved Product, all
related packaging, all marketing materials, bid documents, and
invoices are conspicuously and permanently marked to identify the
Approved Product as containing "used" parts;
(3) create an electronic assembly record for each Approved Product in the
format prescribed in Appendix A or Appendix B, as applicable, and
transmit it to IBM via electronic data transmission no later than
forty-eight (48) hours after completion of assembly;
(4) include, in unmodified form, all publications, license agreements,
certificates of authenticity, labels and ship groups with each
Approved Product as set forth in the Approved Product's bill of
materials in Appendix A or as approved by IBM in writing as provided
in Appendix B;
(5) comply with all packaging and labeling requirements for the Approved
Product as provided in Appendix A or Appendix B, as appropriate;
(6) remove and return all Removed Parts in new and unused condition in the
manner prescribed in Appendix A or forfeit the reconciliation credit
for
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assembling the Approved Product listed in Appendix A from which the
parts were removed (the return of new and unused Removed Parts under
Appendix B is optional and subject to IBM approval);
(7) issue IBM-assigned Internet passcodes only to persons with actual
authority to commit You to the terms and conditions of any contracts
and licenses relating to the Authorized Assembler Program which may be
placed on the Internet by IBM, which contracts and licenses, if any,
are hereby incorporated by reference;
(8) use Appendices A and B only in a manner that is consistent with
participation in the Authorized Assembler Program and not to
distribute copies of such Appendices (in any form) outside of your
organization;
(9) make only such copies of Appendices A and B as are necessary for the
performance of your obligations under this Agreement, restrict access
to such necessary copies only to your employees with a need to know
for purposes of fulfilling your responsibilities under this Agreement,
and destroy all superseded copies of Appendices A and B except for no
more than two (2) file copies;
(10) assemble and test Approved Products only at Approved Locations;
(11) document your plan for obtaining ISO 9002 certification, or such
higher level certification specified by IBM, and obtain and maintain
such certification as described more fully in Appendix A;
(12) maintain a sufficient number (but not less than two (2)) of IBM-
trained assembly technicians at each Approved Location to enable You
to satisfy your responsibilities under this Agreement;
(13) provide ongoing assembly and testing training to your personnel;
(14) return to IBM pursuant to a valid IBM returns authorization any parts
that fall in the assembly and testing process along with failure
documentation specified by IBM in Appendix A and Appendix B, as
appropriate;
(15) acquire and maintain any tools and equipment necessary to perform the
assembly and testing processes described in Appendix A and Appendix B,
as appropriate;
(16) use, to the extent not otherwise expressly required by this Agreement,
a reasonable and workmanlike manner in assembling and testing Approved
Products pursuant to this Agreement; and
(17) use Approved Components that IBM offers for use only in the Authorized
Assembler Program (such as certain features and options or the
operating
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system publication packs, all of which are identified in Appendix A
and the IBM ordering system as available only to Authorized
Assemblers) solely for integration into the Approved Products for
which they are designated in Appendix A or approved by IBM in writing
as provided in Appendix B, and You agree not to distribute or resell
such restricted use Approved Components separate from an Approved
Product; provided, however, that these restrictions on use,
distribution and resale shall not apply to Approved Components that
are generally available from IBM in the same unit size to Authorized
Assemblers and other resellers alike but are merely in different
packaging.
8. PRELOADING.
(a) IBM's Responsibilities. IBM shall provide You the master media
containing the Software Image, if any, specified for the Approved
Products that You are authorized to Preload. Subject to your
compliance with the terms of this Section 8, IBM grants You a
revocable, non-exclusive, non-transferrable right and license to
Preload onto an Approved Product a single copy of the Software Image
designated for such Approved Product in the bill of materials in
Appendix A or otherwise approved by IBM in writing as provided in
Appendix B. As a condition to your assembling and testing certain
Approved Products under the Authorized Assembler Program, IBM, at its
sole discretion, may elect to control the master media and the preload
process for certain Software Images. Provided that You comply with the
terms of this Agreement, IBM authorizes You to distribute Software
Images Preloaded by You, or loaded by an IBM-controlled process, on
the Approved Product. IBM may revoke these grants and authorizations
in whole or in part at any time in its sole discretion.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to use the master media, and the Software Images obtained
therefrom, only at an Approved Location and only to Preload, or
otherwise have IBM install, in a manner expressly permitted by
IBM, a single copy of the Software Image designated for each
Approved Product in the bill of materials in Appendix A or
otherwise approved by IBM in writing as provided in Appendix B
onto the Approved Product, and for no other purpose whatsoever;
(2) that IBM may require, in order for You to be authorized under
this Agreement to Preload certain Software Images containing
programs and other code developed and owned by Microsoft
Corporation pursuant to the terms of IBM's license agreements
with Microsoft, that You execute and fully comply with the terms
of a Software Installation Agreement in the form attached hereto
as Exhibit 1, which is incorporated herein by reference;
(3) to ensure that the End User has an opportunity to review the IBM
Program License Agreement and the license agreements covering
third-party software programs and code, if any, before purchasing
the Approved Product and
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accepts such license agreements as a condition to such purchase,
and to otherwise distribute Approved Products in full compliance
with the terms and conditions of this Agreement and the IBM
Business Partner Agreement;
(4) to provide IBM with the electronic assembly record specified in
Appendix A or Appendix B, as appropriate, for all Approved
Products containing a Software Image;
(5) to maintain adequate business controls for the master media, and
the Software Images obtained therefrom, to prevent unauthorized
use or copies of any Software Image;
(6) not to copy or permit the copying (including back-up copies) of
all or any part of any Software Image, except as expressly
authorized by this Agreement;
(7) not to sublicense, rent, lease, distribute, assign or otherwise
transfer (including distributing back-up copies of) all or any
part of any Software Image, except as expressly authorized by
this Agreement;
(8) not to reverse engineer, disassemble, or decompile all or any
part of any Software Image provided by IBM;
(9) not to remove any Authorized Assembler Identification code that
may be placed on the Software Image by IBM;
(10) not to add to, delete from, or otherwise modify any software
program or other code included in the Software Image, or create
any derivative work therefrom;
(11) to make all payments due, if any, for any additional software
programs or other code You add to the Software Image;
(12) to comply with any additional requirements related to the
Software Image as set forth in Appendix A or Appendix B, as
appropriate; and
(13) not to export Approved Products containing any Software Image to
a country where the associated license agreement is not valid.
(c) Third-Party Rights. IBM's authority to authorize You to Preload
certain software programs and other code included in the Software
images derives from license agreements between IBM and third-party
software vendors. You agree that each software vendor is a third-party
beneficiary of the terms of this Section 8 with respect to the
software programs and other code that such vendor owns which is
included In any Software Image included on an Approved Product. The
software Vendor shall have a right to enforce such terms against You
to the same extent that
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IBM may enforce such terms against You. You shall notify IBM
immediately if a third-party software vendor seeks to enforce any
terms under this Agreement.
9. TEST SOFTWARE AND OTHER SOFTWARE.
(a) IBM's Responsibilities. IBM will provide You with a copy of the applicable
Test Software and Other Software. Subject to your compliance with the terms
of this Section 9, IBM grants You a revocable, non-exclusive, non-
transferrable right and license to the extent expressly described in
Appendix A or Appendix B, as appropriate: (i) to download the Test Software
and Other Software from IBM's homepage on the Internet, if necessary, and
to make one copy of the Test Software and Other Software for each
workstation dedicated to the Authorized Assembler Program, (ii) to use the
Test Software to assemble and test Approved Products, and (iii) to use and
install Other Software where appropriate on Approved Products. Provided You
comply with all of the terms of this Agreement, IBM authorizes You to
distribute Other Software installed by You on the Approved Product. IBM may
revoke theses grants and authorizations in whole or in part at any time in
its sole discretion.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to download and use the Test Software on workstations dedicated to the
Authorized Assembler Program only for assembling and testing Approved
Products in the manner and to the extent expressly permitted in
Appendix A or Appendix B, as appropriate;
(2) to use and install the Other Software only on Approved Products in the
manner and to the extent expressly permitted in Appendix A or Appendix
B, as appropriate;
(3) to maintain adequate business controls for the Test Software and Other
Software provided by IBM to prevent unauthorized use or copies;
(4) not to copy or permit the copying (including back-up copies) of all or
any part of any Test Software or Other Software, except as expressly
authorized by this Agreement;
(5) not to sublicense, rent, lease, distribute, assign or otherwise
transfer (including distributing back-up copies of) all or any part of
any Test Software or Other Software, except as expressly authorized by
this Agreement;
(6) not to reverse engineer, disassemble, or decompile all or any part of
any Test Software or Other Software provided by IBM;
(7) not to add to, delete from, or otherwise modify the Test Software or
Other Software, or create any derivative work therefrom; and
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(8) not to export Approved Products containing any Other Software to
countries where the associated license agreement is not valid.
10. QUALITY, RELIABILITY AND SAFETY.
(a) IBM's Rights. IBM reserves the right to immediately suspend your authority
to assemble Approved Products if IBM determines, in its sole discretion,
that Approved Products assembled and tested by You fail to meet required
specifications, whether or not You are at fault.
(b) IBM's Responsibilities. IBM will test the standard configuration of the
machine type models (i) designated in Appendix A as either Base System
Units or Approved Products, or (ii) approved as Base System Units by IBM in
writing pursuant to Appendix B, prior to including such models in the
Authorized Assembler Program to ensure that such configurations meet FCC,
UL and other specifications required by IBM.
(c) Your Responsibilities. You represent, warrant and agree that:
(1) all Approved Products which You assemble and resell will comply fully
and completely with all functional, quality, reliability, and other
specifications identified in Appendix A or Appendix B, as appropriate,
including all FCC, UL, consumer product safety, and other applicable
agency specifications and requirements;
(2) to the extent not otherwise expressly required by this Agreement, the
functional, quality, reliability and other specifications that You
utilize for an Approved Product will exceed industry requirements;
(3) You will immediately stop assembling Approved Products upon the
request of IBM due to any quality, reliability, safety, or other
reasons;
(4) You will comply with any Approved Product recall process established
by IBM;
(5) You will only assemble Approved Products pursuant to the assembly and
test processes set forth in Appendix A or Appendix B, as appropriate,
and You will not modify or alter the subassemblies of any Base System
Units or Approved Components, including, but not limited to, the power
supplies, processors, planars or mechanical subassemblies;
(6) You will add to an Approved Product only additional components (IBM or
otherwise) that are (i) certified by IBM either in the original
request for announcement or white letter for the Approved Product or
by the IBM Cross Brand Configuration laboratory, and (ii) approved by
the appropriate
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agencies (FCC, UL, etc.) for integration with such configuration;
provided, however, that You may add other additional components
subject to the terms of Subsection 10(c)(1) above and Subsection
10(c)(11) below.
(7) You will not use any ozone-depleting substances in your assembly and
test processes for Approved Products, and You will comply with all
environmental laws and regulations regarding the disposal of materials
used in the assembly and test processes;
(8) Effective for all Approved Products assembled on such date as mutually
agreed to by IBM and The Business Partner in writing, You will
transmit to IBM an electronic assembly record with sufficient
information for IBM to determine what additional components (IBM or
otherwise), if any, were incorporated into the Approved Product;
(9) You will cooperate fully with IBM during periodic audits of quality,
reliability, FCC and UL certification, and your compliance with the
terms of this Agreement, and You agree to make any changes and
improvements required by IBM in a timely manner;
(10) You will be warranty service capable on each type of Approved Product
You assemble and test under this Agreement, or You will have
procedures in place to provide warranty service for such Approved
Products through IBM-SERV or the IBM Authorized Servicers Program;
(11) You will not submit an End User warranty claim for payment by IBM on
an Approved Product assembled and tested by You if the cause of the
failure of the Approved Product is due to your failure to comply fully
and completely with all functional, quality, reliability, and other
specifications required by this Agreement, your inclusion in the
Approved Product of additional components that do not comply with
Subsection 10(c)(6)(i) and (ii) above, or your poor workmanship in
the assembly and test process, and You will reimburse IBM for any
expenses incurred relating to such non-compliance or poor workmanship;
(12) You will comply with all applicable laws, ordinances, rules and
regulations in the performance of your obligations under this
Agreement (in particular, as such relate to workplace safety);
(13) You will periodically assess and continuously improve your quality as
an Authorized Assembler in accordance with procedures under ISO 9002,
or such higher level certification specified by IBM; and
(14) You will track data on failure rates in the assembly process and
provide this data to IBM as provided in Appendix A or Appendix B, as
appropriate.
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11. DISTRIBUTION AND RESALE.
(a) IBM's Responsibilities. IBM's sole responsibilities regarding distribution
and resale of the Approved Products are set forth in the IBM Business
Partner Agreement.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to sell and distribute Approved Products according to the terms of the
IBM Business Partner Agreement;
(2) to specify in all bids, proposals, and sale invoices provided by You
to Resellers or End Users: (i) that the Approved Product was assembled
by You pursuant to the Authorized Assembler Program; (ii) the standard
machine type model number and the part numbers of all additional
components (IBM or otherwise) that are included in a configuration
assembled under Appendix A, including a clear and conspicuous
reference to the manufacturer of all such additional components; (iii)
the part numbers of the Base System Unit from which the Approved
Product was assembled and all Approved Components, Software Images,
and additional components (IBM or otherwise) that are included in a
configuration assembled under Appendix B, including a clear and
conspicuous reference to the manufacturer of all such additional
components; and (iv) the appropriate warranty terms, as described in
Appendix A or Appendix B, as applicable, for the Approved Product and
any additional components (IBM or otherwise);
(3) not to specify in any bids, proposals, or sales invoices provided by
You to Resellers or End Users a separate price for Software Images or
for Approved Components related to software (e.g., publication packs,
operating system CDS and diskettes, etc.);
(4) that, if You have not complied with the terms of this Agreement in
assembling and testing a personal computer system, You will not: (i)
represent that such personal computer system was assembled by You
under the Authorized Assembler Program; or (ii) use an IBM-designated
machine type model number to identify such personal computer system.
(5) that You will comply with all applicable laws in marketing or
transshipping any Base System Units, Approved Components, or Approved
Products that are used or that contain used parts, including, but not
limited to, conspicuously and permanently marking the Base System
Unit, Approved Component, and/or Approved Product, all related
packaging, all marketing materials and point of sale displays, and the
associated sales invoice to identify it as used or as containing used
parts;
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(6) that You will only represent that the Approved Products assembled by
You were assembled pursuant to an ISO 9002 (or higher level) certified
process if You have obtained such certification; and
(7) that You will not export Approved Products unless: (i) exporting of
such Approved Products is permitted by the IBM Business Partner
Agreement; and (ii) You comply with all applicable laws and
regulations of the United States and any other applicable
jurisdiction.
12. IBM INTELLECTUAL PROPERTY; GRANT OF LIMITED RIGHTS AND LICENSE.
(a) It is acknowledged by the parties that the design of the Approved Products
and all unique IBM tooling was developed under IBM's direction and at IBM's
expense. Those features and processes, as well as any other features and
processes which may be subsequently developed under IBM's direction and at
IBM's expense, are the proprietary and confidential designs of IBM and are
the sole and exclusive property of IBM. You agree that all right, title and
interest therein shall at all times vest and remain in IBM. You recognize
that IBM has invested considerable time and money in developing and
protecting its proprietary and intellectual property rights and in creating
goodwill and a reputation for excellence with respect to the Approved
Products.
(b) IBM owns or has the right to reproduce, license, sell and/or distribute all
proprietary or intellectual property rights in the Approved Products. To
the extent necessary to assemble, test, sell and distribute the Approved
Products solely pursuant to the terms of this Agreement, IBM grants You a
revocable, non-exclusive, non-transferrable, royalty-free, limited right
and license under any trade secret (if any), patent application or patent
owned or licensable by IBM that is embodied in the Approved Products or in
the assembly and testing procedures therefore, to make, use for test
purposes only, sell, and/or otherwise transfer the Approved Products,
either alone or in combinations with equipment or software or both, in
accordance with the terms and conditions of this Agreement. Any information
deemed by IBM to be a trade secret will be disclosed only pursuant to the
terms of a confidential disclosure agreement.
(c) Further, IBM grants You a revocable, non-exclusive, non-transferrable,
royalty-free limited right and license to use, in connection with the
assembly, testing, sale or distribution of Approved Products solely in
accordance with this Agreement, the Approved Product name(s) and
trademark(s) used by IBM to identify the Approved Products, including any
portion thereof; provided, however, that IBM reserves the right to review
and disapprove any references to "IBM" or any of IBM's trademarks. IBM has
ownership and title to the trademark "IBM", all other trademarks and trade
names of IBM, and the goodwill attaching thereto, and You agree that any
goodwill which accrues because of your use of the trade name "IBM"
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or any other trademarks or trade names of IBM shall vest in and become the
property of IBM.
(d) Except as otherwise provided in this Section 12 or in Sections 8 and 9 of
this Agreement, You shall not have any rights, interest or license in,
whether by implication, estoppel or otherwise, any US or foreign
copyrights, trademarks, trade names, trade secrets and/or patents
applicable in the Approved Products. IBM may revoke any of these grants at
any time in its sole discretion.
13. CREDITS AND ADJUSTMENTS.
(a) Standard Machine Type Models. Provided that You comply with all the terms
and conditions of this Agreement in assembling and testing Approved
Products under Appendix A, unless expressly provided otherwise herein and
to the extent permitted and/or required by law, after You transmit to IBM
the electronic assembly record, IBM will credit any amounts You owe IBM for
an amount equal to (a) the sum of the lowest prices generally published by
IBM to similarly-situated Authorized Assemblers for the Base System Unit
and the Approved Components required and used by You to assemble an
Approved Product under Appendix A, less (b) the lowest price generally
published by IBM to similarly-situated resellers who are not participating
in the Authorized Assembler Program for the Approved Product. Applicable
prices will be determined as of the date You transmit to IBM the electronic
assembly record required by Appendix A.
(b) Custom and Rework Models. Provided that You comply with all the terms and
conditions of this Agreement in assembling and testing Approved Products
under Appendix B, unless expressly provided otherwise herein and to the
extent permitted and/or required by law, IBM will authorize You to return
certain Removed Parts, subject to any limitations set forth in Appendix B,
at your option pursuant to the process set forth in Appendix B, and after
You transmit to IBM the electronic assembly record, IBM will credit any
amounts You owe IBM for an amount announced by IBM from time-to-time for
each Returned Part actually received by IBM.
(c) Marketing Funds and Promotional Offerings. Additionally, after You transmit
to IBM the electronic assembly record, any marketing funds and promotional
offerings (e.g., ProPlan and HQ Funds) allocated to You shall be adjusted,
if necessary, to reflect the purchase by You of the Approved Product rather
than the purchase of the Base System Unit and Approved Components. For
example, if the marketing funds associated with the Approved Product are
less than the sum of the funds allocated to You for the Base System Unit
and the Approved Components purchased by You to assemble the Approved
Product, IBM will reduce the amount of the marketing funds allocated to You
to equal the amount that would have been allocated to You for purchase of
the Approved Product. Conversely, if the marketing funds associated with
the Approved Product are greater than the sum of the marketing funds
allocated to You for the Base System Unit and the Approved Components
purchased by You to assemble the Approved Product, IBM will
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allocate to You an additional amount of marketing funds equal to the
difference. For the purpose of determining the marketing funds and
promotional offerings associated with Approved Products You are authorized
to assemble under Appendix B, the marketing funds and promotional offerings
associated with the highest IBM standard machine type model inherent in the
Approved Product and with any Approved Components above those required to
assemble the inherent model will be added together.
14. RETURNS. All Base System Units, Approved Components and Removed Parts that
You return to IBM must be new and unused, and by returning such items to
IBM, You represent and warrant that they are new and unused. Approved
Products assembled by You may not be returned assembled. In order to return
an Approved Product, You must disassemble it into the original Base System
Unit and Approved Components and transmit to IBM an electronic disassembly
record in the format prescribed by IBM in Appendix A. Further, all returns
of Base System Units and Approved Components are subject to the then-
current inventory adjustment terms and conditions of the IBM Business
Partner Agreement, including, but not limited to, returns caps and handling
fees.
15. WARRANTY.
(a) The IBM Statement of Limited Warranty included in the Approved Product's
designated ship group applies as provided in Appendices A and B to an
Approved Product assembled and tested by You and purchased by an End User
provided that such Approved Product was assembled and tested by You in full
and complete compliance with this Agreement and is otherwise free from
defects in your workmanship under normal use and operation during the
limited warranty period specified for such product in the applicable IBM
Statement of Limited Warranty. You shall bear exclusive responsibility for
all End User warranty claims relating to such Approved Products arising
from or connected with your failure to comply with the terms of this
Agreement, your inclusion in an Approved Product of additional components
that do not comply with Subsection 10(c)(6)(i) and (ii) above, and/or
your defective workmanship. TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE
LAW, IBM EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES FLOWING TO YOU OR TO
ANY END USERS RELATING TO ANY APPROVED PRODUCT, INCLUDING WITHOUT
LIMITATION, WARRANTIES AND CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. IN ADDITION, TO THE MAXIMUM EXTENT ALLOWED BY
APPLICABLE LAW, IBM EXPRESSLY DISCLAIMS ALL EXPRESS WARRANTIES AND
CONDITIONS FLOWING TO YOU OR TO ANY END USERS WITH RESPECT TO ANY APPROVED
PRODUCT THAT IS NOT ASSEMBLED AND TESTED BY YOU IN FULL AND COMPLETE
COMPLIANCE WITH THIS AGREEMENT, THAT INCLUDES ADDITIONAL COMPONENTS THAT DO
NOT COMPLY WITH SUBSECTION 10(c)(6)(i) AND (ii) ABOVE, OR THAT IS NOT FREE
FROM DEFECTS IN YOUR WORKMANSHIP.
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(b) ALL SOFTWARE IMAGES, TEST SOFTWARE AND OTHER SOFTWARE PROVIDED TO YOU UNDER
THE AUTHORIZED ASSEMBLER PROGRAM ARE PROVIDED "AS IS," WITHOUT WARRANTY OF
ANY KIND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IBM EXPRESSLY
DISCLAIMS ALL WARRANTIES AND CONDITIONS FLOWING TO YOU OR TO ANY END USER,
WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES AND
CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO SUCH SOFTWARE IMAGES, TEST SOFTWARE AND OTHER SOFTWARE.
16. INDEMNIFICATION. You will defend, indemnify and hold harmless, IBM, its
Subsidiaries, employees, and directors from all fines, claims, and expenses
of any kind (including reasonable attorneys' fees and expenses) arising
from or connected with (a) allegations that You have violated or otherwise
failed to comply with any applicable law, ordinance, rule or regulation in
the performance of your obligations under this Agreement, (b) any breach,
default, or non-compliance by You related to your representations,
warranties or obligations under this Agreement, (c) alteration or
modification by You of any Software Image, Test Software or Other Software,
whether IBM approved of such alteration or modification or not, (d)
unauthorized use, reproduction or distribution of Software Images, Test
Software and Other Software by You or your employees or agents, and (e)
modification by You of any assembly or test process, agency compliance
requirement, or other specifications contained in Appendix A or Appendix B,
as appropriate.
17. LIMITATION OF LIABILITY. Circumstances may arise where, because of a
default or other liability on IBM's part, You are entitled to recover
damages from IBM. In each such instance, regardless of the basis on which
damages can be claimed, IBM shall be responsible only for: (a) bodily
injury (including death) and damage to real property and tangible personal
property caused by an Approved Product assembled in accordance with the
terms of this Agreement; and (b) the amount of any other actual loss or
damage up to the greater of $100,000 or the amount You paid for the for the
Approved Product that is the subject of the claim. Under no circumstances
will IBM be liable for any of the following: (i) third-party claims against
You for losses or damages (other than those under the first item above);
(ii) loss of or damage to your records or data; or (iii) economic
consequential damages (including lost profits or savings) or incidental
damages, even if IBM was informed of their possibility.
18. MODIFICATIONS AND AMENDMENTS. Except as otherwise provided in this Section
18, this Agreement can only be modified or amended in a writing signed by
both parties. In order to maintain flexibility in our relationships, IBM
may modify, add or delete terms or conditions of this Agreement (excluding
its exhibits, appendices or attachments, which may be modified as provided
below) by providing You thirty (30) days advance written notice. You agree
to comply with all such
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modifications, additions, or deletions to this Agreement if you continue to
assemble Approved Products more than thirty (30) days after the date IBM
gives such notice. In any event, in order to make changes that IBM deems
timely and necessary in the Authorized Assembler Program, IBM may modify,
add or delete any exhibits, appendices or other attachments to this
Agreement by notifying You in writing or electronically that such exhibit,
appendix or attachment has been modified, added or deleted and the
effective date thereof. In order to improve communication of such changes,
IBM may announce modifications, additions and deletions to exhibits,
appendices or other attachments to this Agreement on the Internet, or by
other electronic or facsimile transmission.
19. CONTRACT PERIOD AND RENEWAL. This Agreement shall become effective as of
the date first above written when it is executed by You and accepted by IBM
and shall automatically expire as of December 31, 1997, unless sooner
terminated. This Agreement can be renewed for successive one-year terms by
mutual agreement of the parties. Neither party is obligated to renew, and
no cause need be given for non-renewal.
20. TERMINATION AND END OF AGREEMENT.
(a) Either party may terminate this Agreement with or without cause upon thirty
(30) days prior written notice to the other party.
(b) In addition, IBM may consider certain actions so serious a threat to the
integrity of the Authorized Assembler Program and/or IBM's goodwill as to
warrant immediate termination. Accordingly, IBM may terminate this
Agreement immediately upon written notice to You if You repudiate this
Agreement, if You materially breach its terms and/or conditions, or if You
engage in a course of conduct that has, in IBM's sole judgment, injured
IBM's reputation or the reputation of IBM's products.
(c) In the event that your IBM Business Partner Agreement is terminated for any
reason or otherwise expires, or in the event that You are no longer
eligible to purchase IBM personal computer products directly from IBM, this
Agreement shall be terminated concurrently with no separate notice
required.
(d) In the event that notice of termination of this Agreement is given for any
reason or for no reason, IBM shall be entitled to reject all or any orders
received from You after notice and prior to the effective date of
termination, or IBM may elect to limit shipments to You during such period.
Further, as of the date notice of termination is given, IBM in its sole
discretion may discontinue extension of any credit terms previously made
available to You.
(e) This Agreement shall end on the effective date of termination as provided
in this Section 20 or when the contract period expires without renewal as
provided in Section 19. When this Agreement ends, your right to receive any
credits or
Page 17
<PAGE>
adjustments for assembling Approved Products from your remaining inventory
immediately ceases.
(f) At the end of this Agreement, You agree to sell to IBM, at the price You
paid IBM less any credits issued to You, all new and unused Approved
Components that IBM offers for use only in the Authorized Assembler Program
(such as certain features and options or the operating system publication
packs, all of which are identified in Appendix A and the IBM ordering
system as available only to Authorized Assemblers). If any such Approved
Components are used, You agree to contact IBM for instructions on
disposition. Your obligations in this subsection shall not apply to
approved Components that are generally available in the same unit size to
Authorized Assemblers and other resellers alike but are merely in different
packaging.
(g) All obligations and duties of the parties, including, but not limited to,
your representations and warranties hereunder, that by their nature survive
the expiration or termination of this Agreement shall remain in effect
after expiration or termination and shall bind the parties and their legal
representatives, successors and assigns.
21. GENERAL TERMS.
(a) Neither party may assign, delegate, or otherwise transfer its rights or
obligations under this Agreement without the prior written approval of the
other party which may be withheld in that party's sole discretion. Any
attempted assignment, delegation or transfer without such approval shall be
void.
(b) Each party is free to enter into similar agreements with others, to market
competitive products and to conduct its business in whatever way it
chooses, provided that there is no conflict with this Agreement.
(c) You agree to keep the terms and conditions of this Agreement confidential
and not to disclose the terms or conditions to any third party without the
prior written approval of IBM.
(d) You are an independent contractor of IBM, and You are not IBM's employee or
franchisee. Neither of us is a legal representative or agent of the other.
Neither of us is legally a partner or joint venturer of the other (for
example, neither of us is responsible for the debts incurred by the other).
(e) IBM may periodically review your performance under this Agreement. You
agree to provide IBM with relevant records upon request and otherwise
cooperate with IBM's review. IBM has the right to reproduce the records,
retain the copies, and audit your compliance with this Agreement on your
premises during normal business hours. IBM may use an independent auditor
for this purpose.
Page 18
<PAGE>
(f) You will provide IBM with sufficient, free, and safe access to your
facilities at mutually-convenient times. You agree to allow one or more
IBM representatives to be on your premises at all times while You are
performing under the terms of this Agreement to inspect your activities and
monitor compliance with the terms of this Agreement. You will assign a
management level employee to interact with the IBM representative(s) and to
coordinate your activities in response to requirements identified by the
IBM representative(s). If You become aware of any unsafe conditions or
hazardous materials to which IBM personnel may be exposed at any of your
facilities, You agree to notify IBM immediately.
(g) Failure by either of the parties to insist upon strict performance or to
exercise a right when entitled does not prevent that party from doing so at
a later time, either in relation to that default or any subsequent one. All
waivers must be in writing and signed by an authorized representative of
the waiving party.
(h) If either party requires the exchange of confidential information, it will
be made under a signed confidential disclosure agreement, the terms of
which will be incorporated by reference herein.
(i) The laws of the State of New York, excluding its conflict of laws
principles, shall govern this Agreement. EACH PARTY EXPRESSLY WAIVES ANY
RIGHT IT MAY HAVE TO A JURY TRIAL. IN ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, YOU AGREE TO BRING ANY ACTION OR PROCEEDING
OVER SUCH DISPUTE SOLELY IN THE UNITED STATES DISTRICT COURT LOCATED IN
WESTCHESTER COUNTY, NEW YORK (OR, IF SUBJECT MATTER JURISDICTION IN THAT
COURT IS NOT AVAILABLE, IN ANY STATE COURT LOCATED WITHIN THE COUNTY OF
WESTCHESTER, NEW YORK).
(j) If the event of any inconsistency in the various documents which govern the
parties' performance under this Agreement, the order of precedence shall
be:
(i) this Agreement, excluding its exhibits, appendices and other
attachments (unless an exhibit, appendix or attachment specifically
supersedes a term of this Agreement, in which case the terms of such
exhibit, appendix or attachment shall govern);
(ii) the Installation Agreement attached as Exhibit 1;
(iii) Appendices A and B, as appropriate; and
(iv) any other exhibits, appendices or other attachments in the order in
which they are attached unless a subsequent exhibit, appendix, or
other attachment specifically supersedes a term of a prior exhibit,
appendix, or other attachment.
Page 19
<PAGE>
(k) The parties agree that:
(i) an identification code (called a "USERID") contained in an electronic
document is legally sufficient to verify the sender's identity and
the document's authenticity;
(ii) an electronic document that contains a USERID is a signed writing;
and
(iii) an electronic document, or any computer printout of it, is an
original when maintained in the normal course of business.
(l) If any section or subsection of this Agreement is found by competent
judicial authority to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of any such section or subsection
in every other respect and the remainder of this Agreement shall continue
in full force and effect.
(m) All of your rights and all of our obligations under this Agreement are only
valid in the United States and Puerto Rico.
Page 20
<PAGE>
IN WITNESS WHEREOF, the parties execute this Agreement for Participation in the
IBM Business Partner - PC, Authorized Assemble Program effective as of the
date first above written.
Received by IBM /s/ NAVA 16 JAN 97
---------------------- ----------------------
Office No. Date
Agreed and Accepted By:
International Business Corporation CompuCom Systems, Inc.
By: /s/ T E THIGPEN By: /s/ JAY SCOTT
-------------------------------- -------------------------------
Authorized Signature Authorized Signature
Thomas E Thigpen Jay Scott
-------------------------------- -------------------------------
Name (Print or Type) Name (Print or Type)
Agreed and Accepted By
Authorized Subsidiary:
Name of Authorized Subsidiary:
-----------------------------------
By:
-----------------------------------
Authorized Signature
-----------------------------------
Name (Print or Type)
Address of Authorized Subsidiary:
- ----------------------------------------
- ----------------------------------------
Authorized Subsidiary Approved:
International Business Machines Corporation Effective Date:
-----------------
By:
--------------------------------
Authorized Signature
--------------------------------
Name (Print or Type)
Page 21
<PAGE>
IBM Business Partner -- PC, Authorized Assembler Program
Appendix Cross Reference Table
Document
Number Document Title Appendix
IAA000 Current Document Listing N/A
IAA001 ESD Requirements A,B
IAA002 Drive Handling Requirements A, B
IAA005 Inspection Procedure A,B
IAA007 Quality Reporting A,B
IAA008 Download Software Information A, B
IAA009 System Unit Upgrade, 3x3(300) A
IAA010 System Unit Upgrade, 5x5(300) A
IAA012 External Hardfile Replication Process A, B
IAA014 Quality Management A,B
IAA0l5 Quarterly Audit Checklist A
IAA016 Site Review Checklist A
IAA017 Test/ Configuration Requirements A, B
IAA018 General Process Requirements A, B
IAA019 System Unit Upgrade, (Servers) A
IAA020 System Unit Upgrade, (6887, 5x5) A
IAA023 Miscellaneous Parts Fulfillment Process A, B
IAA024 Short Ship Parts Replacement Process A, B
IAA025 Component Parts Fulfillment Process A, B
IAA026 Software Use Criteria A,B
IAA027 Product Safety A,B
IAA028 Federal Communications Commission (EMC) A, B
IAA029 EDI 140 Product Registration A, B
IAA030 IAA Reconciliation Matrix/ Bill of Mater A, B
IAA031 Error Code LIsting A,B
IAA032 IBM Barcode Identification A, B
IAA033 System Unit Upgrade, (6577) A
IAA035 Authorized Assembly Download Process A, B
IAA036 Custom Solution Process B
IAA037 Warranty Terms A,B
Note: The documents listed above can be found on the program web page which
is userid/password controlled. The URL for accessing the web page is:
http://www.raleigh.ibm.com/pcco/eiaa
<PAGE>
EXHIBIT 1
SOFTWARE INSTALLATION AGREEMENT
THIS SOFTWARE INSTALLATION AGREEMENT, including its attachments, ("Agreement")
dated the 16 day of January, 1997 is entered into by and between CompuCom
Systems, Inc.("Installer"), a Delaware corporation having an office for the
transaction of business at, 10100 North Central Expressway; Dallas, Texas 75231
and International Business Machines Corporation ("IBM"), a New York corporation
having an office for the transaction of business at 3039 Cornwallis Road,
Research Triangle Park, North Carolina 27709. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Agreement
for Participation in the IBM Business Partner - PC, Authorized Assembler Program
entered into by and between Installer and IBM dated January 16, 1997 ("Assembly
Agreement"), the terms of which are hereby incorporated by reference.
WHEREAS, Installer has been authorized by IBM pursuant to the Assembly Agreement
to assemble and test IBM personal computer products for sale to Resellers and
End Users as provided therein; and
WHEREAS, in connection with the assembly and testing of IBM personal computer
products under the IBM Business Partner-PC, Authorized Assembler Program
("Authorized Assembler Program"), Installer desires to be able to Preload on
Approved Products certain Software Images containing programs and other code
developed and owned by Microsoft Corporation ("MS") and licensed to IBM; and
WHEREAS, in order for IBM to authorize Installer to Preload such Software Images
under the terms of the applicable license agreement ("MS License") between IBM
and MS, Installer agrees to comply with all of the terms and conditions of this
Agreement.
NOW, THEREFORE, in exchange for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT. With respect to Preloading of Software Images governed by this
Agreement, the terms and conditions of this Agreement are in addition to, and
not in lieu of, the terms and conditions of the Assembly Agreement. Except as
expressly provided herein, this Agreement, including any attachments, and the
Assembly Agreement constitute the complete and exclusive statement of the
agreement and understanding between the parties regarding Preloading by
Installer under the Authorized Assembler Program of certain Software Images
containing programs and other code developed and owned by MS. This Agreement
supersedes all other proposals, prior agreements (except for the Assembly
Agreement), and other communications, oral or written, between the parties
regarding the subject matter hereof. Except as expressly provided herein, this
Agreement does not modify or alter the Assembly Agreement in effect between the
parties. All other terms and conditions of the Assembly Agreement not expressly
modified by this Agreement will continue to apply to Installer while assembling
and testing Approved Products, including Preloading Software Images, under the
Authorized Assembler Program.
<PAGE>
2. AUTHORIZATION.
(a) Installer. Initially, this Agreement shall only apply to Windows 95
and NT Workstation 4.0, including any and all revisions, enhancements,
supplements or releases thereto (collectively, "MS Software Images"). If
required by MS, IBM may include additional Software Images in the term "MS
Software Images" under this Agreement by notifying Installer in writing.
Provided that Installer complies fully with the terms of this Agreement and
the Assembly Agreement (the terms of which are hereby incorporated by
reference), pursuant to the terms of the MS License, IBM hereby authorizes
Installer at Approved Locations to Preload MS Software Images on Approved
Products bearing the IBM logo. Other Software Images developed and owned by
MS which are not governed by this Agreement but are included in the
Authorized Assembler Program may be Preloaded by Installer as otherwise
permitted in the Assembly Agreement.
(b) Installer's Authorized Subsidiaries. With prior written approval from
IBM, which approval may be withheld in IBM's sole discretion, Installer may
authorize its Subsidiaries that are authorized to assemble and test
Approved Products pursuant to the Assembly Agreement to Preload MS Software
Images at Approved Locations in accordance with the terms of this Agreement
provided that Installer hereby unconditionally guarantees each of its
authorized Subsidiaries' full and complete compliance with the terms of
this Agreement. Pursuant to this guarantee, IBM shall not be required to
make demand upon Installer's Subsidiary as a condition to making demand
upon Installer. Each authorized Subsidiary shall co-execute this Agreement,
and the term "Installer" as used herein shall include all authorized
Subsidiaries who co-execute this Agreement and are approved in writing by
IBM to Preload MS Software Images as provided herein.
(c) MS Approval. Notwithstanding anything herein to the contrary, any
Installer, Subsidiary of Installer, or installation location is subject to
approval in writing by MS as provided in the MS License. If MS fails to
approve any Installer, Subsidiary of Installer, or installation location,
this Agreement shall be null and void as to such entity or location.
Installer shall provide IBM with the addresses of its headquarters and the
desired installation location(s) for which approval is requested at least
forty-five (45) days in advance of the anticipated first installation date
for such location.
3. INSTALLER'S RESPONSIBILITIES. Installer represents, warrants and agrees that
it shall:
(a) Comply fully and completely with all of the terms of the Assembly
Agreement, including, but not limited to, the terms of Section 8 regarding
Preloading Software Images.
(b) Comply fully and completely with the obligations of the MS License
including, but not limited to, those specifically set forth in the First
Annex of Additional Provisions hereto (which terms are hereby incorporated
by reference) in the same manner and to the same extent that IBM is
required to comply with such obligations; provided, however,
<PAGE>
that, except as expressly provided in this Agreement or Exhibit 1, this
provision is not a sublicense or assignment of any rights of IBM under the
MS License, and Installer shall not have any right or license to use,
reproduce or distribute any MS Software Images. Copies of the MS License
are available for review upon request.
(c) Implement one of the following processes, which are described more
fully in Appendices A and B of the Assembly Agreement (which Appendices are
hereby incorporated by reference), at each Approved Location to ensure
protection of the MS Software Image during the installation process:
(I) Process One. An IBM or IBM contractor employee shall be located
-----------
at the Installer's site to monitor the Preload process and to ensure
that the master media containing the MS Software Image used for the
Preload process is retained in a secure area accessible only to such
employee when not in use by the Installer; or
(II) Process Two. The master media containing the MS Software Image
-----------
used for the Preload process shall be located on a server system which
will be accessible only by an IBM or IBM contractor employee,
replication of the MS Software Image shall be performed only under the
authorization of IBM, and all copies shall be monitored and tracked to
an individual Approved Product serial number.
If process one is selected, Installer shall take all necessary steps to
ensure that only IBM and those authorized by IBM in writing shall have
access to such secured area including, without limitation, installing locks
to which only IBM has keys and ensuring no other possible access through
ceilings, walls, or floors. If process two is selected, Installer shall
designate a dedicated server system with phone line for such purpose, and
access to such server shall be limited to IBM and those authorized by IBM
in writing through passwords, keyboard lock, and a locked cover over all
diskette drives and CD drives. Further, Installer shall take all necessary
steps to protect such server system from unauthorized use. Installer's
compliance with such processes will be subject to audit by IBM as provided
in the Assembly Agreement.
(d) Immediately stop Preloading of all MS Software Images upon notice from
IBM or MS of the suspension, termination, or expiration of this Agreement,
the MS License, or the Assembly Agreement.
(e) Record, track and report to IBM (for consolidated reporting to MS) in
the manner and at intervals required by IBM under the Authorized Assembler
Program the number of units, the model number (if applicable), the
configuration, the name of the MS Software Image Preloaded, and the unique
serial number of the Approved Products distributed with an MS Software
Image. In addition, Installer shall report to IBM (for consolidated
reporting to MS), whether each Approved Product distributed with an MS
Software Image has been completely assembled and tested for End User use by
the Installer.
<PAGE>
(f) Maintain a separate inventory of all publications, license agreements,
certificates of authenticity, and other documentation related to the MS
Software Images that are provided by IBM for inclusion with Approved
Products.
(g) Distribute Approved Products with Preloaded MS Software Images only to
IBM or IBM Subsidiaries, or to End Users and Resellers to the extent
permitted in the Assembly Agreement.
4. ADDITIONAL AGREEMENTS BY INSTALLER. Installer further represents, warrants
and agrees:
(a) To notify IBM immediately in writing of any suspected or actual non-
compliance with the terms of this Agreement or the MS License by Installer,
its employees or agents.
(b) To pay MS' and IBM's attorneys' fees if MS or IBM employ attorneys to
enforce any rights arising out of this Agreement.
(c) That, if the Installer installs any image other than a Software Image
provided by IBM on an Approved Product, the installation of such image is
not authorized by this Agreement, and Installer is solely responsible for
payment of any royalties for, and support of, that image.
5. THIRD PARTY BENEFICIARY. MS is an intended third party beneficiary of this
Agreement with full rights to enforce the terms of this Agreement on its own
behalf.
6. INDEMNIFICATION. Installer agrees to indemnify and hold harmless IBM, its
Subsidiaries, employees, and directors, from all fines, claims and expenses of
any kind (including attorneys' fees and expenses) incurred by IBM or MS arising
from or connected with (a) any breach, default or non-compliance by Installer of
its representations, warranties or obligations under this Agreement, (b)
alteration or modification by Installer of any MS Software Image, whether IBM
approved of such alteration or modification or not, (c) installation of any
image other than a Software Image provided by IBM on an Approved Product, and
(d) any unauthorized use, reproduction or distribution of MS Software Images or
related documentation by Installer, or its employees or agents, whether or not
authorized by Installer.
7. MODIFICATION AND AMENDMENT. Notwithstanding any language in the Assembly
Agreement to the contrary, except as otherwise provided in this Section 7, this
Agreement may only be modified or amended in a writing signed by an authorized
representative of both parties. IBM may modify, add or delete terms or
conditions of this Agreement in response to a modification or amendment of the
MS License by providing Installer thirty (30) days advance written notice.
Installer agrees to comply with such modifications, additions, or deletions to
this Agreement if it continues to Preload MS Software Images on Approved
Products more than thirty (30) days after the date IBM gives such notice. No
waiver by IBM of any provision shall be effective unless it is in writing and
signed by an authorized representative of IBM.
<PAGE>
8. TERM AND TERMINATION. This Agreement shall be effective as of the date first
written above and shall continue in effect until the earlier of: (a) the
expiration or termination of the MS License; (b) the expiration or termination
of the Assembly Agreement; or (c) termination of this Agreement as specified
below:
(I) IBM may terminate this Agreement, with cause, immediately upon
written notice to Installer.
(II) MS may terminate this Agreement immediately upon written notice to
Installer and IBM in the event that MS leams of any unauthorized use,
reproduction or distribution of MS intellectual property.
(III) Either party may terminate this Agreement without cause upon thirty
(30) days prior written notice to the other party.
All obligations and duties of the parties, including, but not limited to,
Installer's representations, warranties and indemnification obligations
hereunder, that by their nature survive the expiration or termination of this
Agreement shall remain in effect after expiration or termination and shall bind
the parties and their legal representatives, successors and assigns.
9. GENERAL TERMS.
(a) No right, interest, privilege, or obligation of this Agreement shall
be assigned or delegated by Installer. Any attempted assignment, delegation
or transfer will be null and void.
(b) Installer agrees to keep the terms and conditions of this Agreement
confidential, including, but not limited to, the terms of the MS License
referenced herein, and not to disclose the terms or conditions to any third
party without the prior written approval of
IBM.
(c) Installer is an independent contractor of IBM and not an IBM employee
or franchisee. Neither of the parties is a legal representative or agent of
the other. Neither of the parties is legally a partner or joint venturer of
the other.
(d) Failure by either party to insist upon strict performance or to
exercise a right when entitled does not prevent that party from doing so at
a later time, either in relation to that default or any subsequent one.
(e) The laws of the State of New York, excluding its conflict of laws
principles, shall govern this Agreement. EACH PARTY EXPRESSLY WAIVES ANY
RIGHT IT MAY HAVE TO A JURY TRIAL. IN ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, YOU AGREE TO BRING ANY ACTION OR
PROCEEDING OVER SUCH DISPUTE SOLELY IN THE UNITED STATES DISTRICT COURT
LOCATED IN WESTCHESTER COUNTY, NEW YORK (OR, IF SUBJECT MATTER JURISDICTION
IN THAT COURT IS NOT AVAILABLE, IN
<PAGE>
ANY STATE COURT LOCATED WITHIN THE COUNTY OF WESTCHESTER, NEW YORK).
(f) If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, the legality, validity and enforceability of the remaining
provisions shall not be affected or impaired.
(g) All signed copies of this Agreement, and any copy of an original
signed Agreement made by reliable means (e.g., photocopy or facsimile),
shall be considered an original.
(h) All of Installer's rights and IBM's obligations under this Agreement
are only valid in the United States and Puerto Rico.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Software Installation
Agreement to be signed by their respective duly authorized representatives
effective as of the date first above written.
Accepted and Agreed By:
International Business Machines CompuCom Systems, Inc.
Corporation
By: /s/ T E THIGPEN By: /s/ JAY SCOTT
------------------------------- -------------------------------
Authorized Signature Authorized Signature
THOMAS E THIGPEN, DIR. JAY SCOTT, VP PRODUCT SERVICES
- ------------------------------------ ------------------------------------
Print Name and Title Print Name and Title
Agreed and Accepted By Authorized Subsidiary
Authorized Subsidiary: Approval
International Busness Machines
Corporation
- ------------------------------------
By: By:
------------------------------- -------------------------------
Authorized Signature Authorized Signature
------------------------------- -------------------------------
Print Name and Title Print Name and Title
<PAGE>
FIRST ANNEX OF ADDITIONAL PROVISIONS:
MS LICENSE OBLIGATIONS IMPOSED ON INSTALLER
1. INSTALLATION OBLIGATIONS. Installer represents, warrants and agrees:
(a) to install no more than one (1) copy of the MS Software Image on each
Approved Product system hard disk ("Preinstalled MS Software");
(b) to distribute directly or indirectly (e.g., through Resellers) (in
object code form) to End Users no more than one (1) copy each of the MS
Software Image and related documentation with each Approved Product system to
use, execute, display and reproduce for operational and archival purposes
under the terms of the applicable End User license agreement(s) ("EULA")
provided as part of the MS Software Image documentation; provided, however,
that if IBM provides Installer with a recovery CD of the MS Software Image
("Recovery CD") or back-up copy of the MS Software Image on CD ("Back-up
Copy") in an Approved Product's ship group, Installer shall distribute one
copy of such Recovery CD or Back-up CD along with the Approved Product;
(c) to distribute MS Software Image(s) only with Approved Product(s) and
only inside the Approved Product package. In the event that IBM or Microsoft
notifies Installer that any MS Software Image is being distributed by
Installer outside the Approved Product package, Installer shall take
immediate corrective action. For each copy of the MS Software Image that is
distributed other than in an Approved Product after the date of such notice,
Installer agrees to indemnify IBM and its Subsidiaries for any additional
royalty obligation due to MS. Except as provided in the Agreement, Installer
shall not remove or modify the package contents of any MS Software Image or
documentation. Installer shall (i) contractually obligate (e.g., by contract,
invoice or other written instrument) all distributors, dealers and others in
its entire distribution channels to comply with the provisions of this
subsection 1(c); (ii) promptly discontinue distribution of MS Software
Image(s) to any such distributor, dealer or other in its distribution channel
which does not comply with the provisions of this subsection 1(c); and (iii)
cooperate with IBM in investigating instances of distribution of Product
which do not comply with the provisions of this subsection 1(c).
(d) that if Installer is authorized by IBM to distribute the MS Software
Image(s) on media other than installed on the Approved Product hard disk,
Installer shall distribute the MS Software Image(s) on separate media (e.g.,
separate diskettes, CD-ROM disc, etc.) from other software, except for
distribution of a Recovery CD approved by MS.
(e) that Installer shall not reverse engineer (i.e., decompile or
disassemble) any MS Software Image provided by IBM to Installer under the
Agreement.
(f) that Installer shall distribute any supplements or fixes for the MS
Software Image that are provided by IBM in accordance with the terms of the
Agreement and any additional guidelines provided by IBM.
PAGE 1 Installer Please Initial: /s/ JS
<PAGE>
2. ADDITIONAL RESTRICTIONS. Installer represents, warrants and agrees to comply
with the following additional provisions:
(a) Notwithstanding anything to the contrary that may be contained in the
Agreement or the Assembly Agreement, the following shall apply to any MS
Software Image which is governed by the Agreement:
(i) Installer is not licensed to, and agrees that it will not,
modify, in any way, or delete any aspect of the MS Software Image
(including, without limitation, any features, shortcuts, icons, "wizards",
folders (including sub-folders) or programs of the MS Software Image) as
delivered by IBM.
(ii) If Installer enters registration information on behalf of End
Users in the boxes provided for the on-screen End User registration process
for the MS Software Image, Installer shall not enter its own name or make
any other false or fictional registrations. Installer shall not (A) relieve
End Users of their obligations to enter Certificate of Authenticity ("COA")
registration numbers in the on-screen End User registration process and to
reply to on-screen EULA inquiries or (B) insert COA registration numbers or
reply to EULA inquiries for or on behalf of End Users.
(iii) If and only if Installer distributes the MS Software Image
solely as Preinstalled MS Software (i.e., without a Recovery CD) with any
Approved Product, then if provided by IBM, Installer shall also preinstall
the Microsoft Create System Disk Tool together with the back-up diskette
images ("CAB" files) provided by IBM on the hard disk drive of such
Approved Product to enable the End User to make a back-up copy of the MS
Software Image according to the terms of the applicable EULA. Diskette
images may only be used with the Microsoft Create System Disk Tool.
Installer may not distribute, use, or authorize the use of the tangible
forms of the Microsoft Create System Disk Tool or diskette images except as
provided in this additional provision.
(iv) Installer shall distribute only the EULA provided by IBM for the
MS Software Image.
(v) Installer may distribute the MS Software Image only with
Approved Products which are marketed and distributed under IBM's or IBM
Subsidiaries' brand names and trademarks.
(vi) With respect to any multiple language versions of the MS
Software Image that may be provided to Installer by IBM:
(A) Installer may install such MS Software Image with each Approved
Product for which such multiple language version of the MS Software
Image is designated or approved in writing by IBM provided that
Installer complies with the following restrictions:
PAGE 2 Installer Please Initial: /s/ JS
<PAGE>
(1) Installer may distribute such multiple language versions of
the MS Software Image only in the form of Preinstalled MS Software.
Installer may distribute only one backup copy of the MS Software Image
in only one language version for use on each such Approved Product;
(2) Installer shall use the MS set-up utility included in the MS
Software Image deliverables which allows the End User to choose one,
and only one, language version of the MS Software Image for the
Approved Product;
(3) Installer shall follow all guidelines and procedures set
forth in the MS Software Image deliverables regarding the
installation, set-up, and initialization of multiple language versions
of the MS Software Image; and
(4) Installer shall use commercially reasonable efforts to
indicate to End Users, including in multiple language version
advertising and on Approved Products packaging, that End Users shall
have access to one language version only.
(B) Installer shall indemnify and defend IBM, MS and their respective
Subsidiaries from and against all damages, costs, and attorney's fees
arising from claims or demands awarded against the indemnified party (or
settlements to which Installer consents) based on any advertisements or
other representations made by Installer that the End User is entitled to
more than one language version of the MS Software Image or that any such
advertisements or other representations are otherwise false and/or
misleading with respect to the one-time language selection feature,
provided Installer is notified promptly in writing of the claim and has
sole control over its defense and settlement and IBM, MS and their
respective Subsidiaries provide reasonable assistance in the defense of the
same.
(C) Installer's report required under subsection 3(e) of the
Agreement shall separately indicate the number of Approved Products
distributed with each combination of language versions of MS Software
Image.
(vii) Installer is authorized under the Agreement to distribute the MS
Software Image only with and for use on Approved Products based on the Intel
x86, Pentium or compatible architecture. In addition, without the prior
written approval of IBM and the payment of any additional amounts required by
IBM, NT Workstation 4.0 may not be installed on Approved Products with more
than two (2) microprocessors.
(viii) Installer is authorized under the Agreement to install and
distribute only MS Software Images provided by IBM with the intended Approved
Product.
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<PAGE>
Upon notification by IBM, Installer shall immediately discontinue
installation or distribution of any MS Software Image.
(b) Installer shall pre-install the MS Software Image as the "default"
operating system on each Approved Product distributed with the MS Software
Image (i.e., the MS Software Image will set up and execute unless the End
User configures the Approved Product otherwise). Installer shall preinstall
the MS Software Image solely in accordance with the installation instructions
set forth in Appendices A and B of the Assembly Agreement. Installer may use
the tangible forms of the programming code (tools and software) provided by
IBM solely to preinstall the MS Software Image in accordance with the
Assembly Agreement and for no other purpose. Installer shall not modify the
MS Software Image provided by IBM, nor delete or remove any features or
functionality.
(c) Except as otherwise provided by IBM, Installer may not (i) distribute
both Windows 95 and any other MS Software Image with the same Approved
Product or (ii) distribute both Windows NT Workstation and any other MS
Software Image with the same Approved Product.
(d) Installer must distribute related MS Software Image documentation with
each Approved Product distributed with an MS Software Image. A COA must be
affixed to or accompany each copy of the MS Software Image documentation, and
the COA serial number must be registered with the Approved Product during the
assembly process as provided in Appendices A and B.
3. INTELLECTUAL PROPERTY NOTICES. Installer will not remove any copyright,
trademark or patent notices that appear on the MS Software Image as delivered to
Installer.
4. OBLIGATIONS UPON TERMINATION.
(a) Except as otherwise provided in subsection 4(c) below, within five (5)
days termination or expiration of the Agreement for any reason, Installer
shall return to IBM all MS Software Image(s) master media and all MS Software
Image documentation which has not been shipped to End Users.
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<PAGE>
(b) Termination of the Agreement as a result of Installer's default shall
result in accelerated payment of Installer's obligation to pay all sums
Installer is obligated to pay under the Agreement.
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<PAGE>
(c)(i) Except as otherwise provided in this subsection 4(c), upon termination
or expiration of the Agreement for any reason, Installer's authority to
Preload MS Software Images shall immediately cease and Installer's authority
to distribute Approved Products preinstalled by Installer with an MS Software
Image shall end sixty (60) days after such termination or expiration of the
Agreement. For purposes of this subsection 4(c)(i), completion of
distribution requires the Approved Product to be in the possesion of an End
User within the 60-day period.
(ii) If the Agreement terminates or expires due to a reason other than a
default on the part of Installer thereunder or other than the termination or
expiration of the Assembly Agreement, Installer's authority to Preload MS
Software Images may continue as provided in this subsection 4(c)(ii). With
the prior written approval of IBM and in accordance with the MS License, IBM
may extend Installer's authority to Preload MS Software Images for a
specified quantity and type of MS Software lmages for a period of no more
than sixty (60) days; provided that Installer's distribution of all such
Preloaded Approved Products must be completed within sixty (60) days after
termination or expiration of the Agreement. For purposes of this subsection
4(c)(ii), completion of distribution requires the Approved Product to be in
the possesion of an End User within the 60-day period. Any such extension
will be subject to compliance with all other applicable terms of the
Agreement and the Assembly Agreement, and such terms shall survive
termination or expiration of the Agreement.
(iii) Notwithstanding the above, with prior written approval from IBM and in
accordance with the MS License, IBM may extend Installer's authority to
Preload MS Software Images on Approved Products and to distribute such
Approved Products longer than sixty (60) days to fulfill any contractual
commitments for large account/government bids existing as of the termination
or expiration of date of the Agreement provided that at least ten (10) days
before termination or expiration of this Agreement, Installer provides IBM
with a copy of those portions of any such contract or other written
verification required by MS to verify the existence of the contract, contract
term, large account or government agency/department name, address, and
quantities of MS Software Images remaining to be delivered as of the date of
termination or expiration of the Agreement. Any such extension will be
subject to compliance with all other applicable terms of the Agreement and
the Assembly Agreement, and such terms shall survive termination or
expiration of the Agreement.
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<PAGE>
5. NONDISCLOSURE AGREEMENT. As provided in the Agreement, the terms and
conditions of the Agreement (including this attachment) are confidential, and
Installer shall not disclose the terms or conditions to any third party without
the prior written approval of IBM. All other exchanges of information between
the parties pursuant to the Agreement shall be deemed non-confidential unless
made pursuant to a separately signed written agreement for the exchange of
confidential information.
6. AUDITS AND INSPECTIONS.
(a) During the term of the Agreement, Installer agrees to keep all usual
and proper records and books of account and all usual and proper entries
relating to each MS Software Image sufficient to substantiate the number of
copies of MS Software Image installed and the number of Approved Products
distributed by Installer. Installer shall maintain on Installer's premises
such records, and all other records required to be kept by the Agreement, for
itself and for each Subsidiary of Installer that exercises rights under the
Agreement.
(b) In order to verify statements issued by Installer and Subsidiaries of
Installer and compliance with the terms of the Agreement by such entities,
IBM may cause (i) an audit to be made of Installer's and/or Installer's
Subsidiaries' books and records and/or (ii) an inspection to be made of
Installer's and/or Installer's Subsidiaries' facilities and procedures for
the sole purpose of determining the accuracy of Installer's or Installer's
Subsidiaries' reports. Any audit and/or inspection shall be conducted during
regular business hours at Installer's and/or Installer's Subsidiaries'
facilities, with at least forty-five (45) days prior written notice. Any
audit and/or inspection shall be conducted (other than on a contingent fee
basis) by an independent certified public accountant which is either (1)
jointly selected by Installer and IBM, or (2) has been agreed to by the
parties for any prior audit of any Installer/IBM license or agreement.
(c) Installer agrees to provide the audit or inspection team access to the
relevant Installer's and/or Installer's Subsidiaries' records and facilities
for the purpose of performing the audit.
(d) Prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be paid for by IBM
unless material discrepancies are disclosed. "Material" shall mean an
underaccounting of installed MS Software Images valued at more than $20,000.
If material discrepancies are
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<PAGE>
disclosed, Installer agrees to pay IBM or MS for the costs associated with
the audit. Further, Installer agrees to indemnify IBM and its Subsidiaries
for any additional costs incurred by IBM as a result of any unauthorized
copies or copies which were not reported to IBM. In no event shall audits be
made more frequently than semiannually unless the immediately preceding audit
disclosed a material discrepancy.
(e) Any audit must be initiated within two (2) years after termination or
expiration of the Agreement.
7. EXPORT OR RE-EXPORT. Installer agrees that it will not export or re-export
an MS Software Image to any country to which such export is restricted by
Section 770 of the Export Administration Regulations, without prior written
consent, if required, of the Office of Export Administration of the U.S.
Department of Commerce, or such other governmental entity as may have
jurisdiction over such export. Restricted countries currently include, but are
not necessarily limited to, Cuba, the Federal Republic of Yugoslavia (Serbia and
Montenegro, U.N. Protected Areas and areas of Republic of Bosnia and Herzegovina
under the control of Bosnian Serb forces), Iran, Iraq, Libya, North Korea, and
Syria. Installer warrants and represents that neither the U.S.A. Bureau of
Export Administration nor any other federal agency has suspended, revoked or
denied Installer's export privileges.
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<PAGE>
EXHIBIT 10(bb)
SOFTWARE
LICENSE AGREEMENT
This Software License Agreement ("Agreement") is entered into and is effective
as of JANUARY 15, 1998, ("Effective Date") by and between Compaq Computer
Corporation ("Compaq"), a Delaware corporation with its principal place of
business at 20555 SH 249, Houston, Texas 77070-2698, and the licensee as defined
in Exhibit A ("Licensee").
RECITALS
WHEREAS, Licensee is performing hardware and software configuration and testing
operations in relation to certain Compaq personal computer products ("Product").
The configuration and testing specifications will be set forth the Channel
Configuration Partner Agreement entered into by the parties. As part of this
development effort, Compaq has agreed to license Licensee Compaq's proprietary
software download, diagnostics, and test software for use by Licensee in its
configuration operations.
ARTICLE I
DEFINITIONS
-----------
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Compaq" means Compaq Computer Corporation and its subsidiaries.
(b) "Confidential Information" shall mean:
(i) Regardless of whether such information is disclosed by design or
by accident, Confidential Information includes, without
limitation, all of the following information disclosed by Compaq,
whether before, on or after the Effective Date of this Agreement,
in connection with the performance of its rights and obligations
specifically set forth in this Agreement or any Exhibit to this
Agreement: the terms and conditions of this Agreement, the
Licensed software and all portions and components thereof (in any
stage of development), source code, object code, plans, know-how,
programs, program materials, programming techniques, flow charts,
diagrams, notes, outlines, designs, drawings, specifications,
techniques, models, procedures, functions, formulas, processes,
algorithms, mask works, ideas, inventions, operations, methods,
concepts, data (including, without limitation, production data,
technical and engineering data, test data and results), the
status and details of research and development of products and
services, discoveries, documentation (including, but not limited
to, automation documentation), operations or system manuals,
sales methods and strategies, customer information, financial
information, pricing policies, price and cost information,
marketing techniques, employee information, agreements and other
information not generally known to the public.
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COMPAQ/LICENSEE CONFIDENTIAL
(ii) All trade secrets and other proprietary ideas, concepts, know-
how, methodologies and all information incorporated in the
Confidential Information.
(iii) All enhancements, upgrades, modifications, revisions and new
versions of the Confidential Information.
(iv) Information described or designated as proprietary or
confidential whether or not owned or developed by Compaq, and
information disclosed to Compaq by a third party which Compaq is
obligated to treat as confidential.
Confidential Information shall not include information which belongs
to the Licensee or is (v) already known by the Licensee without an
obligation of confidentiality, (w) publicly known or becomes publicly
known (other than as a result of any breach of this Agreement or any
other agreement between the parties hereto) through no unauthorized
act of the Licensee, (x) rightfully received by the Licensee from a
third party that is not a party to this Agreement without an
obligation of confidentiality, (y) independently developed by the
Licensee without use of the Compaq's Confidential Information and the
Licensee can prove such independent development, or (z) prior to any
disclosure, is specifically approved in writing for disclosure by the
Compaq.
(c) "License Purpose" shall mean the purpose set forth in Exhibit A.
(d) "Licensed Software" shall mean the software set forth in Exhibit A.
(e) "Notice Address" shall mean Licensee's address set forth in Exhibit A,
to which all notices required under the Agreement will be sent.
(f) "Object Code" shall mean the machine readable form computer
programming code as opposed to the human readable form of computer
programming code.
(g) "Product" shall mean the Compaq products defined in Exhibit A.
(h) "Site" shall mean the locations set forth in Exhibit A.
(i) "Source Code" shall mean the human readable form computer programming
code and related system level documentation, including all comments
and any procedural code such as job control language.
(j) "Term" shall mean the term set forth in Exhibit A.
1.2 OTHER DEFINITIONS. Terms used in this Agreement are defined in the context
in which they are used and shall have the respective meanings there indicated.
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COMPAQ/LICENSEE CONFIDENTIAL
ARTICLE II
LICENSE
-------
2.1 LICENSE. Compaq grants Licensee a non-exclusive, revocable, non-
transferable, non-assignable, limited license to use the Licensed Software
internally at the Site solely for the License Purpose and for no other purpose.
The license granted to Licensee in this Paragraph 2.1 does not authorize
Licensee to distribute, market, or sublicense the Licensed Software or a product
containing any portion of the Licensed Software or any modifications derived by
or resulting from Licensee's access to the Licensed Software under this
Agreement. No right, license or privilege is granted to any person or entity
other than Licensee. Specifically, but without limitation, no right, license or
privilege is granted to any entities related to or associated with Licensee
including, but not limited to, affiliates, subsidiaries, parent entities or
agents of Licensee.
ARTICLE III
PROTECTION OF PROPRIETARY RIGHTS
--------------------------------
3.1 CONFIDENTIALITY. The Licensee's obligations with respect to the
confidential and/or proprietary rights of Compaq are as follows:
(a) Licensee shall use at least the same means it uses to protect its own
confidential proprietary information, but in any event not less than
reasonable means, to prevent the disclosure and to protect the
confidential and/or proprietary nature of that Confidential
Information.
(b) Licensee shall not, directly or indirectly, disclose the Confidential
Information to third parties.
(c) Licensee shall maintain the confidentiality of the Confidential
Information and, without limitation thereon, shall not, other than as
expressly provided in this Agreement or any Exhibit to this Agreement,
directly or indirectly, (i) transfer or disclose the Confidential
Information or any portion thereof to any third party; (ii) use the
Confidential Information or any portion thereof in any manner except
for the performance of its rights and obligations specifically set
forth in this Agreement or in any Schedule to this Agreement; (iii)
copy or reproduce in any form, or alter or modify, any portion of the
Confidential Information; or (iv) reverse engineer, decompile,
disassemble, reengineer or otherwise reproduce in any form or attempt
to create or permit, allow or assist others to create source code of
any portion or component of any software that is Confidential
Information.
(d) Upon the written request of Compaq, Licensee shall return all copies
of Confidential Information to Compaq or certify by an officer of
Licensee, if so requested by Compaq, in writing that all copies of
Confidential Information have been destroyed. Licensee may return
Confidential Information, or any part thereof, to Compaq at any time.
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COMPAQ/LICENSEE CONFIDENTIAL
(e) Except as otherwise provided in this Agreement, Compaq does not make
any representation or warranty, express or implied, with respect to
any Confidential
(f) Information disclosed and Compaq shall not be responsible for any
expenses, losses or actions incurred or undertaken by Licensee as a
result of the receipt and use by the Licensee of the Confidential
Information.
(f) Nothing contained in this Agreement shall be construed as granting or
conferring any rights by license or otherwise in Confidential
Information except for the use of such Confidential Information as
expressly provided herein. This Agreement is not intended, nor shall
it be construed, to create or convey any right in or upon any person
or entity not a party to this Agreement.
(g) Licensee acknowledges that Compaq would suffer irreparable damage in
the event of any breach of the provisions of this Agreement and that
monetary damages will be inadequate to compensate Compaq for such
breach. Accordingly, if Compaq has or would suffer irreparable damage
as a result of such actual or threatened breach, then Compaq will be
entitled to preliminary and final injunctive relief, as well as to
seek any other applicable remedies at law or in equity, against
Licensee. Licensee further agrees, that upon discovery of any such
unauthorized reproduction or disclosure of any Licensed Software, it
will promptly advise Compaq of such events and endeavor remedy the
situation to Compaq's satisfaction and to prevent any further
unauthorized reproduction or disclosure of any Licensed Software.
(h) Licensee acknowledges that any inventions or ideas in whole or in part
conceived or made by Licensee or any of its employees, representatives
or agents resulting from the knowledge of or use of any the
Confidential Information shall belong to Compaq and shall be deemed
part of the Confidential Information for the purposes of this
Agreement.
(i) License shall reproduce all notices, including without limitation,
copyright and confidentiality notices, on all permitted copies of the
Confidential Information, including without limitations, the Licensed
Software.
(j) Except as expressly provided for in this Agreement, Licensee shall not
copy or reproduce in any form, alter or modify the Confidential
Information, including without limitation, the Licensed Software or
any portion thereof.
(k) Licensee shall not reverse engineer, decompile, disassemble, re-
engineer or otherwise reproduce in any form or create or attempt to
create or permit, allow or assist others to create the source code of
any portion or component of the Confidential Information, including
without limitation, the Licensed Software.
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COMPAQ/LICENSEE CONFIDENTIAL
(1) Licensee may use Confidential Information only for the Licensed
Purpose and for no other purpose and may disseminate such Confidential
Information only to its full-time employees who have executed a non-
disclosure agreement with provisions, at least as stringent as the
provisions in this Article III (and in form and substance similar to
the Notice of Confidentiality reproduced as Exhibit B to this
Agreement), each having a need for access to such Confidential
Information in connection with the performance of the rights and
obligations specifically set forth in this Agreement only, and with
respect to whom the Licensee takes steps no less rigorous than those
it takes to protect its own proprietary information, but in any event
not less than reasonable means, to prevent such consultants,
contractors and employees from acting in a manner inconsistent with
the terms of this Agreement. Licensee shall assign to Compaq its
rights under any such non-disclosure agreements insofar as they relate
to the Confidential Information and assist Compaq in enforcing such
rights and to be named as a necessary party in any litigation
thereunder. Licensee agrees to indemnify Compaq for damages Compaq may
suffer as a result of the failure of Licensee or any of its
consultants, contractors, or employees who receive Confidential
Information, including without limitation, the Licensed Software to
abide by the terms of Licensee's agreement.
3.2 INSPECTION. Licensee grants to Compaq the right, at any time during
Licensee's normal business hours, upon reasonable notice, to enter into and on
the premises without causing undue disruption to the business environment where
any portion or component of the Licensed Software is located for the sole
purpose of performing its obligations hereunder and/or to verify Licensee's
compliance with Licensee's obligations hereunder.
ARTICLE IV
OWNERSHIP; ASSIGNMENT
---------------------
4.1 OWNERSHIP. Licensee acknowledges and agrees that the Confidential
Information, including without limitation, the Licensed Software and all
intermediate and partial versions thereto, including without limitation all
modifications, enhancements, updates, all program material, flow charts,
processes, database designs, algorithms, ideas, inventions, know-how, notes,
outlines, formulas, techniques, as well as all intellectual property rights
including, without limitation, copyrights, patents, trade secrets, and all other
information relating thereto are and will remain the sole and exclusive property
of Compaq or a third party which may license parts of the Confidential
Information to Compaq, and License shall have no right, title or interest
therein except as expressly set forth in this License Agreement. With respect to
any derivative works of Confidential Information, including without limitation,
the Licensed Software developed by Licensee, including without limitation,
modifications, improvements and enhancements, and any documentation relating
thereto, Licensee hereby assigns to Compaq exclusively all right, title and
interest to such derivative works, and all copies thereof, and all related
intellectual property rights (including, without limitation, copyrights) without
further consideration. All such modifications, improvements, or enhancements,
and any documentation relating thereto, shall be provided to Compaq within seven
(7) days of creation.
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COMPAQ/LICENSEE CONFIDENTIAL
ARTICLE V
WARRANTY, DISCLAIMERS, AND INDEMINIFICATION
-------------------------------------------
5.1 WARRANTIES. Licensee represents and warrants that it has full authority to
enter into this Agreement and all of the terms and conditions herein and that it
will comply with all applicable laws and when exercising the license granted in
this Agreement.
5.2 DISCLAIMER. LICENSED SOFTWARE PROVIDED TO LICENSE HEREUNDER IS PROVIDED "AS
IS" "WHERE IS" WITHOUT ANY WARRANTY WHATSOEVER. THE ENTIRE RISK ASSOCIATED WITH
THE USE OF MATERIALS RESIDES WITH LICENSEE. ALL OTHER WARRANTIES, EITHER EXPRESS
OR IMPLIED, ARE DISCLAIMED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, ACCURACY, CONDITION, OWNERSHIP, AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH IN SECTION 5.4 AND FOR
LICENSEE'S BREACH OF SECTION 3.1, NEITHER PARTY SHALL BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES. IN NO EVENT SHALL COMPAQ
BE LIABLE FOR DIRECT DAMAGES ARISING OUT OF, IN CONNECTION WITH OR RELATED TO
THIS AGREEMENT.
5.4 INDEMNIFICATION. Licensee agrees to indemnify, defend, and hold Compaq, its
subsidiaries, successors, officers, suppliers, directors and employees harmless
from any and all actions, causes of action, claims, demands, costs, liabilities,
expenses and damages, including reasonable attorneys' fees, arising out of or in
connection with Licensee's use of the Licensed Software.
ARTICLE VI
TERM AND TERMINATION
--------------------
6.1 TERM. The term of this Agreement shall begin on the Effective Date and
remain in effect through the Term, except that Compaq may terminate this
Agreement and the rights licensed hereunder for any reason upon notice provided
five (5) business days before such termination and may terminate the Agreement
immediately upon the breach by Licensee of any of the terms of the Agreement.
6.2 RETURN OF PROPERTY. In the event this Agreement expires or terminates for
any reason, Licensee shall (i) immediately turn over to Compaq (a) the original
media containing the Confidential Information, including without limitation, the
Licensed Software, and (b) at least one copy of any and all modifications,
improvements, enhancements, or derivations to the Confidential Information,
including without limitation, the Licensed Software and any and all
documentation associated therewith; and (ii) certify that all other copies of
the Confidential Information, including without limitation, Licensed Software,
modifications, improvements, enhancements, or derivatives of the Confidential
Information, including without limitation, the Licensed Software, and/or any
documentation associated with the Licensed Software have been
destroyed.
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COMPAQ/LICENSEE CONFIDENTIAL
ARTICLE VII
GENERAL PROVISIONS
------------------
7.1 CHOICE OF LAW. This Agreement shall be treated as if it were executed in
the County of Harris, State of Texas, and were to have been performed in the
County of Harris, State of Texas. The rights and obligations under this
Agreement shall not be governed by the United Nations Convention on Contracts or
the International Sale of Goods, the application of which is expressly excluded,
but such rights and obligations will instead be governed by the laws of the
State of Texas, United States of America. The exclusive jurisdiction for any
legal proceeding regarding this Agreement shall be Courts of Harris County,
State of Texas, U.S.A. or the United States District Courts for the Southern
District of Texas, and the parties hereto expressly submit to the jurisdiction
of said courts. Licensee specifically consents to extraterritorial service of
process. This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Texas, U.S.A. (without regard to conflict of law
principles).
7.2 NO THIRD PARTY BENEFICIARIES. The parties agree that this Agreement is for
the benefit of the parties hereto and is not intended to confer any rights or
benefits on any third party, including any employee of any party, and that there
are not third party beneficiaries to this Agreement or any part or specific
provision of this Agreement.
7.3 NOTICES. All notices, requests, demands, and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed given when delivered personally upon receipt,
on the next business day when sent by overnight mail, including without
limitation, Federal Express, Express Mail or similar service and on the third
(3rd) business day after being mailed when mailed by certified first class mail,
return receipt requested, to each party at the following address (or to such
other address as that party may have specified by notice given to the others
pursuant to this provision):
If to Compaq: Compaq Computer Corporation
Attn: Legal Department
20555 S.H. 249
Houston, Texas 77070-2698
If to Licensee: Send to Notice Address
7.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
hereto without the prior written consent of the other. As a condition to any
assignment, the surviving entity shall be required to assume and agree to be
bound by the obligations and provisions of the Agreement to the same extent that
it would have been bound had it been an original party to this Agreement and at
the discretion of the other party may be required to demonstrate to the
reasonable satisfaction of the other party that it can fully perform its
obligations under this Agreement.
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COMPAQ/LICENSEE CONFIDENTIAL
7.5 SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, the parties will negotiate in good faith to restate such
provision to reflect the original intentions of the parties as nearly as
possible in accordance with applicable law and the remaining provisions of this
Agreement shall be enforced as if this Agreement was entered into with the
restated provision.
7.6 PRESS RELEASE. No press releases related to this Agreement or the
transactions contemplated hereby, or other announcements to employees, customers
and suppliers will be issued without the joint approval of Compaq and Licensee,
except as required by law on advice of counsel, in which case the party issuing
the press release shall use its best reasonable efforts to give advance notice
to the other party.
7.7 TRANSACTION COSTS. Except as expressly provided for in this Agreement or
any attached Schedules, each party shall bear its own costs and expenses
(including attorneys' fees and expenses, brokerage and finders fees, and agents
commissions, if any) separately incurred in connection with the negotiation,
execution and performance of this Agreement.
7.8 ATTORNEYS' FEES. In the event attorneys' fees or other out-of-pocket costs
are incurred, to secure performance of any of the obligations herein provided
for, or to establish damages for the breach thereof, or to obtain any other
appropriate relief, whether by way of prosecution or defense, any prevailing
party shall be entitled to recover reasonable attorneys' fees and out-of-pocket
costs incurred therein.
7.9 CAPTIONS. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
7.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts
all of which taken together will constitute one and the same instrument.
7.11 APPROVALS AND SIMILAR ACTIONS. Where agreement, approval, acceptance,
consent or similar action by either party hereto is required by any provision of
this Agreement, such action shall not be unreasonably delayed or withheld.
7.12 MODIFICATION; WAIVER. This Agreement may be modified only by a written
instrument duly executed by or on behalf of each party hereto. No delay or
omission by any party hereto to exercise any right or power hereunder shall
impair such right or power or be construed to be a waiver thereof. A waiver by
either of the parties hereto of any of the covenants to be performed by the
other or any breach thereof shall not be construed to be a waiver of any
succeeding breach thereof or of any other convenant herein contained.
7.13 REMEDIES. Except as otherwise provided in this Agreement, all remedies
provided for in this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party at law, in equity or
otherwise.
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COMPAQ/LICENSEE CONFIDENTIAL
7.14 INJUNCTIVE RELIEF. Compaq shall be entitled to seek extraordinary
injunctive and other equitable relief, without necessity of posting bond.
7.15 Entire AGREEMENT. This Agreement, including all exhibits which may be
added hereto from time to time, each of which is incorporated herein for all
purposes, constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and supersede and replace in all respects all other
prior agreements and understandings between the parties hereto with respect to
the subject matter hereof.
7.16 RELATIONSHIP OF THE PARTIES. Each party agrees that in performing its
duties hereunder it is operating as an independent contractor. Nothing contained
in this Agreement is intended or is to be construed to constitute Compaq and
Licensee as partners or joint venturers or either party as an employee of the
other. Neither party hereto shall have any express or implied right or authority
to assume or create any obligations on behalf of or in the name of the other
party in connection with any contract, agreement or undertaking with any third
party.
7.17 NOTICE OF JUDICIAL PROCESS. Each party shall give the other immediate
notice of any attachment or other judicial process affecting any of the rights
and obligations under this Agreement, including, but not limited to, Licensed
Software or any portion or component thereof and shall, whenever requested by
Compaq, advise Compaq of the exact location of the Licensed or any portion or
component thereof
7.18 AGREEMENT CONSTRUCTION. All parties to this Agreement and their counsel
have reviewed and revised this Agreement, and the normal rule of construction
that any ambiguities in the Agreement are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement
7.19 LICENSEE CERTIFICATION. UPON request by Compaq, Licensee shall, on each
anniversary date of this Agreement, certify that Licensee has complied with all
terms and conditions of this Agreement.
7.20 EXPORT. The parties agree to adhere to all applicable Export Laws and
Regulations of the United States and that absent any required prior
authorization from the Office of Export Licensing, U.S. Department of Commerce,
they will not knowingly export or re-export (as defined in Part 779 of the
Export Administration Regulations), directly or indirectly, through their
affiliates, licensees, or Subsidiaries, any of the Materials (or any product,
process, or service resulting directly therefrom) they receive under this or any
ancillary agreements, to Country Groups Dl, El, E2, or Iran, Syria, Sudan or any
other country hereafter restricted by the U.S. law or governmental order. The
parties agree that in no event shall Information be exported unless strictly
necessary to fulfill the purposes of this Agreement.
7.21 SURVIVING OBLIGATIONS. The obligations of Sections 3.1, 4.1, and 5.4 shall
survive any termination of this Agreement.
Page 9
<PAGE>
COMPAQ/LICENSEE CONFIDENTIAL
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
COMPAQ COMPUTER CORPORATION LICENSEE
BY: /s/ WILLIAM M. RAMSEY BY: /s/ JAY SCOTT
---------------------------------- ---------------------------------
Name: Bill Ramsey Name: Jay Scott
-------------------------------- -------------------------------
Title: V.P. MFG Strategy & Technology Title: VP Product Services
------------------------------- ------------------------------
Date: 2-9-98 Date: Jan 15, 1998
-------------------------------- -------------------------------
LEFT BLANK INTENTIONALLY
------------------------
Page 10
<PAGE>
COMPAQ/LICENSEE CONFIDENTIAL
EXHIBIT A
---------
LICENSE SPECIFICS
1. LICENSEE: COMPUCOM (Legal Name)
-------------------------------------------
2. LICENSEE'S PRINCIPAL PLACE OF BUSINESS:
- -------------------------------------------------------------------------
7171 Forest Lane Dallas, Texas 75230
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
3. LICENSEE'S STATE OR COUNTRY OF INCORPORATION: DELAWARE
------------------------
4. LICENSE PURPOSE: The purpose of the license is to provide Licensee access
to the CCP Software Download System software sufficient to permit the Licensee
to configure Compaq Products in accordance with the terms and conditions of the
Channel Configuration Program Agreement entered into between the parties. The
license does not convey to Licensee the right (a) to access, decompile, or
change any code relating to the CCP Software Download System or to permit any
third party to do so, (b) to copy or transfer the software, (c) to access the
secured servers where the licensed software is resident, or (d) to use the
software in connection with any products other than the specified Compaq
Products.
5. TERM: The term of this License Agreement shall commence on the Effective
Date first mentioned above and, unless otherwise terminated in accordance with
the terms of this License Agreement, shall continue for a period of twelve (12)
months. Compaq can extend this License Agreement, at its sole option, up to two
(2) times for twelve (12) months for each extension.
6. SITE ADDRESS: 1225 Forest Parkway, Suite 500 Paulsboro, New Jersey 08066
----------------------------------------------------------
4686 Frontier Way, Stockton, California 92745
----------------------------------------------------------
7. LICENSED SOFTWARE: The CCP Software Download System is designed to manage,
track, deliver, store, install, and configure software at a Channel
Configuration Program partner's location. In addition, the CCP Software Download
System stores in the local CCP database information about each Compaq Product
that receives a software configuration. The CCP Software Download System further
sends the same information to Compaq (Houston) for use by several organizations
including Compaq Service and Support and Finance.
The major components of the system are:
CCP Client Program
CCP Import Program
CCP Export Program
CCP Software Download System diskette
<PAGE>
COMPAQ/LICENSEE CONFIDENTIAL
CCP Image Capture Program
PRISM Software Delivery System
CCP CLIENT PROGRAM
- ------------------
Provides a means for defining a configuration through a graphical user
interface.
CCP IMPORT PROGRAM
- ------------------
Provides a means for defining a configuration through a text file.
CCP EXPORT PROGRAM
- ------------------
Transmits "As built" configuration information to Compaq (Houston).
CCP Software Download System diskette
- -------------------------------------
Controls the delivery of software to the CCP units configured.
CCP Image Capture Program
- -------------------------
Catalogs the contents of each hard drive in the PRISM and CCP databases. This
information may be selected on future system configurations.
PRISM Software Delivery System
- ------------------------------
Controls the copying of software from the PRISM database to the CCP configured
(UUT) system.
8. PRODUCTS (i.e., Products with which Licensee is authorized to use the
Licensed Software): Compaq Computer Corporation personal computer products as
specified in the Channel Configuration Program Agreement entered into between
the parties.
9. NOTICE ADDRESS: 1225 Forest Parkway, Suite 500 Paulsboro, New Jersey 08066
----------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPAQ/LICENSEE CONFIDENTIAL
EXHIBT B
--------
NOTICE AND NONDISCLOSURE AGREEMENT REGARDING
CONFIDENTIALITY OF INFORMATION
1. Licensee is in possession of certain Confidential Information of Compaq
that Licensee has received pursuant to the following agreements:
Confidentiality and Non-Disclosure Agreement and a License Agreement.
2. To further the purposes of the business relationship between Compaq and
Licensee, and in consideration of the disclosure to you of Compaq's
proprietary software download, diagnostics, and test software, all of which
is of a confidential nature and which contains valuable trade secrets, how-
how, and proprietary information of Compaq (the "Confidential
Information"), you acknowledge receipt of this Notice and agree to comply
with the terms of this Notice.
3. You agree to maintain Compaq's Confidential Information in strictest
confidence and not to disclose, whether verbally, in writing, or in other
tangible form, any of the Confidential Information or any information that
could be used to discover or reverse-engineer any of the Confidential
Information. You may not download copies of the Confidential Information
from the secured servers where the Confidential Information is resident or
from any other component of the systems used to access such Confidential
Information. You agree not to grant access to the Confidential Information
or the systems used to store or access the Confidential Information to any
unauthorized person, whether or not an employee or agent of Licensee.
4. You agree that Compaq and/or Licensee shall be entitled to enforce the
terms of this Notice insofar as necessary to protect Compaq' trade secrets
and Confidential Information. If you fail to comply with the terms of this
Notice, Compaq and/or Licensee shall be entitled to equitable relief to
protect their interests, including but not limited to injunctive relief, in
addition to any other rights and remedies proved by law.
ACKNOWLEDGED AND AGREED:
/s/ JAY SCOTT
- ---------------------------------
Signature of employee
Jay Scott VP Product Services
- ---------------------------------
Print Name and Title
Jan 15, 1998
- ---------------------------------
Date
Page 12
<PAGE>
EXHIBIT 10(cc)
ATTACHMENT Q
CHANNEL INSTALLATION AGREEMENT FOR MICROSOFT PRODUCTS
This Channel Installation Agreement for Microsoft Products ("Channel
Installation Agreement") is made on the 15th day of JANUARY, 1998, by and
between COMPAQ COMPUTER CORPORATION, a Delaware corporation ("Compaq"), having
an office at 20555 State Highway 249, Houston, Texas 77070 and COMPUCOM, a
DELAWARE corporation ("Participant"), having an office at 7171 FOREST LANE,
DALLAS, TEXAS 75230.
WHEREAS, Participant wishes to participate in Compaq's Channel Configuration
Program ("CCP");
WHEREAS, Participant participation in Compaq's CCP is conditioned upon
Participant's entry in this Channel Installation Agreement;
NOW, THEREFORE, Participant agrees to abide by the terms of this Channel
Installation Agreement as follows.
1. Participant agrees to provide Compaq with information sufficient to
satisfy requirements of the Compaq Channel Installation Partner Evaluation
Worksheet. Information will be truthful, accurate, and complete at the time of
submission, and will be updated from time to time if the information changes.
Participant understands that this information will be provided to Microsoft as
part of Compaq's obligation under certain Microsoft license agreements.
2. Participant agrees that Microsoft or Compaq shall have the right to
conduct, directly or through a mutually agreed-upon third party, an inspection
of Participant's premises and business procedures prior to acceptance as a
participant in Compaq's CCP Program.
3. Participant shall preinstall on each System no more than one (1) copy of
one of the Microsoft Products listed in Attachment Q-l.
4. Participant shall place inside the System packaging, Microsoft Product
packages (also known as "Associated Product Materials" or "APM"), consisting of
an end-user license agreement ("EULA"), registration card, Microsoft Product
manual, and as an optional item, Microsoft Product software on external media,
all as acquired by Compaq from an MICROSOFT Authorized Replicator and provided
to Participant.
5. Participant shall distribute Product (as preinstalled as described in (3)
above and as included in System packaging as described in (4) above) to end
users.
6. Participant shall not reverse engineer, decompile or dissassemble any
Microsoft Product.
7. Participant shall distribute Microsoft Product to end users only pursuant
to an end user license agreement ("EULA").
8. Participant will ensure that the packaging and labels of each copy of
Microsoft Product bears the copyright, trademark or patent notices for the
Microsoft Product that appear on the applicable release of the Microsoft Product
as provided to Compaq pursuant to Section 2 of Compaq's license agreement.
Participant will not remove any copyright, trademark or patent notices that
appear on the Microsoft Product as delivered by MICROSOFT. Participant shall
cause to appear on the title page of each volume of its documentation, and at
any other location where any copyright, patent or trademark notice appears, the
MICROSOFT and third party copyright, patent or trademark notices that appear in
the release of Microsoft Product documentation from which Participant's
documentation is derived.
<PAGE>
9. Within ten (10) days after termination or expiration of this Agreement,
Participant shall return to MICROSOFT or certify the destruction of all full or
partial copies of each Microsoft Product in Participant's possession or under
its control. Participant, however, may retain an adequate number of copies of
each Microsoft Product and the Microsoft Product documentation to be used solely
for support purposes.
10. Participant expressly undertakes to retain in confidence all information
and know-how transmitted to Participant by Compaq or MICROSOFT that MICROSOFT
has identified as being proprietary and/or confidential or that, by the nature
of the circumstances surrounding the disclosure, ought in good faith to be
treated as proprietary and/or confidential, and will make no use of such
information and know-how except under the terms and during the existence of this
Agreement. Participant agrees to use the same degree of care to protect
MICROSOFT confidential information as Participant takes to protect its own
confidential information of like importance. However, Participant shall have no
obligation to maintain the confidentiality of information that (i) it received
rightfully from another party prior to its receipt from MICROSOFT or Compaq;
(ii) MICROSOFT has disclosed to a third party without any obligation to maintain
such information in confidence; or (iii) has been or is independently developed
by Participant. Further, Participant may disclose confidential information as
required by governmental or judicial order, provided Participant gives MICROSOFT
prompt notice of such order and complies with any protective order (or
equivalent) imposed on such disclosure. Participant shall treat all Microsoft
Product adaptation materials (including source code) as confidential information
and shall not disclose, disseminate, or distribute such materials to any third
party without Microsoft's prior written permission. Participant shall treat the
terms and conditions of this Agreement as confidential; however, Participant may
disclose such information in confidence to its immediate legal and financial
consultants as required in the ordinary course of Participant's business.
Participant's obligation under this Section 10 shall extend to the earlier of
such time as the information protected hereby is in the public domain through no
fault of Participant or five (5) years following termination or expiration of
this Agreement.
11. During the term of this Agreement, Participant agrees to keep all usual and
proper records and books of account and all usual and proper entries relating to
each Microsoft Product preinstalled as consistent with generally accepted
accounting principles.
12. MICROSOFT may cause an audit to be made of the applicable Participant
records and facilities in order to verify Participant's compliance with the
terms of this Agreement and to verify royalty reports issued by Participant and
prompt adjustment shall be made to compensate for any errors or omissions
disclosed by such audit. Any such audit shall be conducted by an independent
certified public accountant of national stature (e.g., Deloitte) selected by
MICROSOFT (other than on a contingent fee basis) and shall be conducted during
regular business hours at Participant's offices and in such a manner as not to
interfere with Participant's normal business activities. Any such audit shall be
paid for by MICROSOFT unless Material discrepancies are disclosed. "Material"
shall mean the lesser of Fifty Thousand Dollars (US$50,000.00) or five percent
(5%) of the amount that should have been reported, but not less than Ten
Thousand Dollars (US$10,000.00). If Material discrepancies are disclosed,
Participant agrees to pay MICROSOFT for the costs associated with the audit not
to exceed Twenty Thousand Dollars (US$20,000.00). In no event shall audits be
made more frequently than annually unless the immediately preceding audit
discloses a Material discrepancy.
13. Neither the right to examine and audit nor the right to receive an
adjustment shall be affected by any statement to the contrary, appearing on
checks or otherwise, unless expressly agreed to in writing by the party having
such right.
14. In the event that MICROSOFT makes any claim with respect to an audit, upon
Participant's written request MICROSOFT will make available to Participant the
records and reports pertaining to such audit prepared by MICROSOFT' independent
auditor.
15. Any Microsoft Product which Participant distributes or licenses to or on
behalf of the United States of America, its agencies and/or instrumentalities
(the "Government"), are provided to Participant with RESTRICTED RIGHTS. Use,
duplication or disclosure by the Government is subject to restriction as set
<PAGE>
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFAR 252.227-7013, or as set forth in the particular
department or agency regulations or rules which provide MICROSOFT protection
equivalent to or greater than the above-cited clause. Participant shall comply
with any requirements of the Government to obtain such RESTRICTED RIGHTS
protection, including without limitation, the placement of any restrictive
legends on the Microsoft Product software, Microsoft Product documentation, and
any license agreement used in connection with the distribution of the Microsoft
Product. Manufacturer is Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399. Under no circumstances shall MICROSOFT be obligated to
comply with any Governmental requirements regarding the submission of or the
request for exemption from submission of cost or pricing data or cost accounting
requirements. For any distribution or license of the Microsoft Product that
would require compliance by MICROSOFT with Governmental requirements relating to
cost or pricing data or cost accounting requirements, Participant must obtain an
appropriate waiver or exemption from such requirements for the benefit of
MICROSOFT from the appropriate Governmental authority before the distribution
and/or license of the Microsoft Product to the Government.
16. Participant consents to venue and jurisdiction in the state and federal
courts sitting in the State of Washington with respect to any action brought by
MICROSOFT to enforce its rights under the Installation Agreement.
17. Participant shall provide access to its premises to audit and inspection
team(s) sent on behalf of MICROSOFT or Compaq, with or without notice, in order
that such team may perform an audit of the Channel Installer's books, records,
and Compaq's Channel Configuration Program (CCP) database, and/or an inspection
of the Channel Installer's procedures to determine compliance with the terms of
the Installation Agreement and the Agreement.
18. Participant shall halt preinstallation and shipment of the Microsoft
Product upon notice from Compaq or MICROSOFT, 10 business days after notice
defined in section (9) of this Channel Installation Agreement, of the
suspension, termination, or expiration of this Agreement.
19. Participant shall pay MICROSOFT' or Compaq's attorneys' fees if Compaq or
MICROSOFT employs attorneys to enforce any rights arising out of the
Installation Agreement.
20. Participant shall maintain the inventory of Microsoft Product packages
received from Compaq or the Authorized Replicator on behalf of Compaq, if any,
separate from inventory of Microsoft Product packages, if any, in the Channel
Installer's possession for other MICROSOFT OEMs.
21. Participant agrees and understands that MICROSOFT is a third party
intended beneficiary of this Installation Agreement, with full rights to enforce
such agreement.
<PAGE>
22. Participant agrees to indemnify, defend, and hold Compaq harmless from and
against any and all claims, costs, expenses (including legal fees and litigation
expenses), losses, and damage to property resulting from Participant's, its
agents', subcontractors', or employees' conduct under this Channel Installation
Agreement.
23. This Channel Installation Agreement shall be read in conjunction with,
shall become an integral part of, and its terms shall have the same meaning as,
the terms of the CCP Agreement to be entered into between Compaq and
Participant. Where the terms of this Channel Installation Agreement and the CCP
Agreement are inconsistent, the terms of this Channel Installation Agreement
will control.
IN WITNESS WHEREOF, the parties have executed this Installation Agreement as of
the date set forth above.
COMPAQ PARTICIPANT-COMPUCOM SYSTEMS
/s/ WILLIAM M. RAMSEY /s/ JAY SCOTT
- --------------------------------- --------------------------------------
Signature Signature
Bill Ramsey Jay Scott
- --------------------------------- --------------------------------------
Name Name
V.P. MFG Strategy & Technology V.P. Product Services
- --------------------------------- --------------------------------------
Title Title
2-9-98 Jan. 15, 1998
- --------------------------------- --------------------------------------
Date Date
<PAGE>
ATTACHMENT Q-1
LIST OF AUTHORIZED MICROSOFT PRODUCTS
1. MS-DOS 6.22/Windows for Workgroups 3.11
2. Windows 95
3. Windows NT Workstation 4.0
<PAGE>
EXHIBIT 10(ee)
[LOGO OF HEWLETT-PACKARD APPEARS HERE]
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
SIGNATURE PAGE
ICN# 1310
LEGAL BUSINESS NAME COMPUCOM SYSTEMS INC
ADDRESS 7171 FOREST LANE
CITY, STATE, ZIP DALLAS TX 75230-2306
PHONE, FAX # (972)856-3600 (972)856-3200
E-MAIL/INTERNET ADDRESS
--------------------------------------------------------
DBA(s)
--------------------------------------------------------
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
<TABLE>
<CAPTION>
AGREEMENT: EXHIBITS:
<S> <C>
X U.S. Reseller EXHIBIT L Approved Locations
- --- ---
U.S. Direct Convenience Retail Supplies EXHIBIT U11 Calculator and Palmtop Computing Products
- --- ---
EXHIBIT UD Calculator Distributor Products
ADDENDA: ---
*EXHIBIT U20I SEE EXHIBIT ELECTION BELOW
U.S. Dealer ---
- --- EXHIBIT U40A Accessory Products
U.S. Federal Reseller ---
- --- EXHIBIT U40C Consumable Products
U.S. Office Machine Distributor ---
- --- EXHIBIT U41A Suppliers Reseller Accessory Products
U.S. Cad/Speciality VAR Distributor ---
- --- EXHIBIT U41C Suppliers Reseller Consumable Products
U.S. Calculator Dealer ---
- --- EXHIBIT U46C Convenience Retail Supplies Products
U.S. Calculator Distributor ---
- --- EXHIBIT U60 Office Machine Distributor Products
U.S. Direct Value Added Reseller ---
- --- X EXHIBIT U74I Reseller Personal Computing Economy
U.S. Supplies Reseller --- Program
- --- EXHIBIT U8OD Cad/Speciality VAR Distributor Products
U.S. Consumer Products Distributor ---
- --- *EXHIBIT U77I Channel Assembly Products
U.S. HP Channel Assembly Program ---
- ---
X U.S. Personal Computing Economy Program
- ---
AMENDMENTS:
U.S. International Direct VAR
- ---
Microsoft Software Product Installation Terms
- ---
====================================================================================================================================
</TABLE>
EXHIBIT ELECTION
Reseller and HP agree that Reseller volume level at Net Reseller price, for HP
Products on these Exhibits, noted with a (*) above, for the term of this
Agreement is:
EXHIBIT U20I CHANNEL ASSEMBLY PROGRAM
COMPUTER RELATED PRODUCTS
LEVEL I $50,000,000 - 134,999,999 5,000 Units
- ---
X LEVEL II $135,000,000 - and up 15,000,000 Commercial PC Sales
- ---
SHIPMENT ELECTION
Please check one. Shipment elections made on March 1, 1997 regarding shipping
options apply to all products on Exhibits designated with an (*) above.
OUTLET HP will ship to all Reseller's approved shipment locations
- --- as listed on Exhibit L.
X CENTRALIZED HP will ship to no more than six approved shipment
- --- locations as listed on Exhibit L.
================================================================================
<PAGE>
STATEMENT OF OWNERSHIP:
- -----------------------
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
-------------------------------------
For a Corporation, specify whether: Publicly Held: X Privately Held:
------ -------
State of Incorporation/Organization
- --------
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
. Sole Proprietor: Identify all owners, officers and ownership
percentages held
. Trust: Identify Trustee(s), Administrators and
Beneficiaries of Trust
. Partnership: Identify all General Partners, Limited
Partners, Officers and ownership
percentages held
Specify dollar investment of limited
partners
. Privately Held Corporation: Identify all shareholders with class and
percentage ownership, Officers and Board of
Director Members
. Publicly Held Corporation: Identify owners of 20% or more of each class
of shares with class and percentage
ownership, Officers and Board of Director
Members
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership Type of Ownership Interest
(Dollar Investment in (Assets, Common or
Limited Partners) Preferred Shares)
<S> <C> <C> <C>
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:
- -------------------------------------------------------------------------------
Parent/Owner, including DBA(s)
- -------------------------------------------------------------------------------
Address
( )
- -------------------------------------------------------------------------------
City State Zip Telephone
( )
- -------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
- --------------------- -----------------------
/s/ JAY SCOTT
- ------------------------------ ------------------------------------
Authorized Signature Susan Weatherman
Jay Scott Reseller Contracts Manager
- ------------------------------
Typed Name
VP Product Services February 28, 1998
- ------------------------------ --------------- -----------------
Title Effective Date Expiration Date
<PAGE>
[LOGO OF HEWLETT-PACKARD APPEARS HERE]
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
SIGNATURE PAGE
ICN# 1310
LEGAL BUSINESS NAME COMPUCOM SYSTEMS INC
ADDRESS 7171 FOREST LANE
CITY, STATE, ZIP DALLAS TX 75230-2306
PHONE, FAX # (972)856-3600 (972)856-3200
E-MAIL/INTERNET ADDRESS
--------------------------------------------------------
DBA(s)
--------------------------------------------------------
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
<TABLE>
<CAPTION>
AGREEMENT: EXHIBITS:
<S> <C>
X U.S. Reseller EXHIBIT L Approved Locations
- --- ---
U.S. Direct Convenience Retail Supplies EXHIBIT U11 Calculator and Palmtop Computing Products
- --- ---
EXHIBIT UD Calculator Distributor Products
ADDENDA: ---
*EXHIBIT U20I SEE EXHIBIT ELECTION BELOW
U.S. Dealer ---
- --- EXHIBIT U40A Accessory Products
U.S. Federal Reseller ---
- --- EXHIBIT U40C Consumable Products
U.S. Office Machine Distributor ---
- --- EXHIBIT U41A Suppliers Reseller Accessory Products
U.S. Cad/Speciality VAR Distributor ---
- --- EXHIBIT U41C Suppliers Reseller Consumable Products
U.S. Calculator Dealer ---
- --- EXHIBIT U46C Convenience Retail Supplies Products
U.S. Calculator Distributor ---
- --- EXHIBIT U60 Office Machine Distributor Products
U.S. Direct Value Added Reseller ---
- --- X EXHIBIT U74I Reseller Personal Computing Economy
U.S. Supplies Reseller --- Program
- --- EXHIBIT U8OD Cad/Speciality VAR Distributor Products
U.S. Consumer Products Distributor ---
- --- *EXHIBIT U77I Channel Assembly Products
U.S. HP Channel Assembly Program ---
- ---
X U.S. Personal Computing Economy Program
- ---
AMENDMENTS:
U.S. International Direct VAR
- ---
Microsoft Software Product Installation Terms
- ---
====================================================================================================================================
</TABLE>
EXHIBIT ELECTION
Reseller and HP agree that Reseller volume level at Net Reseller price, for HP
Products on these Exhibits, noted with a (*) above, for the term of this
Agreement is:
EXHIBIT U20I CHANNEL ASSEMBLY PROGRAM
COMPUTER RELATED PRODUCTS
LEVEL I $50,000,000 - 134,999,999 5,000 Units
- ---
X LEVEL II $135,000,000 - and up 15,000,000 Commercial PC Sales
- ---
SHIPMENT ELECTION
Please check one. Shipment elections made on March 1, 1997 regarding shipping
options apply to all products on Exhibits designated with an (*) above.
OUTLET HP will ship to all Reseller's approved shipment locations
- --- as listed on Exhibit L.
X CENTRALIZED HP will ship to no more than six approved shipment
- --- locations as listed on Exhibit L.
================================================================================
<PAGE>
STATEMENT OF OWNERSHIP:
- -----------------------
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
-------------------------------------
For a Corporation, specify whether: Publicly Held: X Privately Held:
------ -------
State of Incorporation/Organization
- --------
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
. Sole Proprietor: Identify all owners, officers and ownership
percentages held
. Trust: Identify Trustee(s), Administrators and
Beneficiaries of Trust
. Partnership: Identify all General Partners, Limited
Partners, Officers and ownership
percentages held
Specify dollar investment of limited
partners
. Privately Held Corporation: Identify all shareholders with class and
percentage ownership, Officers and Board of
Director Members
. Publicly Held Corporation: Identify owners of 20% or more of each class
of shares with class and percentage
ownership, Officers and Board of Director
Members
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership Type of Ownership Interest
(Dollar Investment in (Assets, Common or
Limited Partners) Preferred Shares)
<S> <C> <C> <C>
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
- -------------------- --------------------- ---------------------- -------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:
- -------------------------------------------------------------------------------
Parent/Owner, including DBA(s)
- -------------------------------------------------------------------------------
Address
( )
- -------------------------------------------------------------------------------
City State Zip Telephone
( )
- -------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
- --------------------- -----------------------
/s/ JAY SCOTT
- ------------------------------ ------------------------------------
Authorized Signature Susan Weatherman
Reseller Contracts Manager
Jay Scott
- ------------------------------ February 28, 1998
Typed Name --------------- -----------------
Effective Date Expiration Date
VP Product Services
- ------------------------------
Title
<PAGE>
U.S. PERSONAL COMPUTING ECONOMY PROGRAM ADDENDUM
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints Reseller as a participant in
the HP Personal Computing Economy Program ("HP PC Economy Program").
B. This Addendum modifies the applicable terms and conditions of the U.S.
First Tier Reseller Agreement, U.S. Distributor Agreement, U.S.
Reseller Agreement, U.S. Mail Order Addendum, U.S. Retail Addendum,
U.S. Direct VAR Addendum, HP Product Categories, and Operations Policy
Manual (collectively, "Agreement"), all solely as they relate to
Reseller's purchase of personal computers made available to reseller
pursuant to the HP PC Economy Program. All terms and conditions not
specifically amended here remain in effect.
C. HP Products eligible for the HP PC Economy Program ("PC Products") are
identified in the attached Product Exhibits.
D. Reseller accepts appointment on these terms.
3. RESELLER RESPONSIBILITIES
A. Reseller may sell HP PC Products only to those of its Customers who
have been appointed by HP under its Agreement and as permitted in the
HP Product Categories.
B. Reseller agrees to:
1. Focus its activities on the marketing and sales of HP PC Products
defined in the attached Product Exhibit by strictly conforming
its marketing, promotion and sales activities to a mutually
agreed PC Economy Program marketing plan signed by HP and
Reseller.
2. Provide the following Information on a daily basis to HP,
complying with the CompTIA electronic standards as specified:
- Sell-through from Reseller to its Customers, complying with
CompTIA EDI specification 867;
- Reseller inventory, complying with CompTIA EDI specification
846;
- Reseller's shipment receipt information, complying with
CompTIA EDI specification 861.
3. Provide a monthly forecast of HP PC Product orders for the
subsequent six months, on the 15th working day of each month.
4. Provide the a weekly forecast of HP PC Product orders for the
subsequent eight weeks, on the 15th working day of each month.
4. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Reseller's orders must comply with the shipment delivery process
defined by HP, which includes the requirement that Reseller provide a
scheduled appointment for delivery of HP PC Products no later than the
HP earliest delivery date.
B. Reseller's requested date for shipment must be within 45 days after
order date. HP reserves the right to schedule and reschedule any
order, at HP's discretion, and to decline any order for credit reasons
or because the order specifies an unreasonably large quantity or makes
an unreasonable shipment request.
C. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date.
D. Orders cannot be canceled within two working days of scheduled
shipment date.
E. Shipments are subject to availability. If HP Products are in short
supply, HP will allocate them equitably, at HP's discretion. In
addition to any other rights HP may have under its Agreement with
Reseller, HP reserves the right to modify allocation priority as a
result of non-compliance with this Addendum.
F. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.
5. PRICE ADJUSTMENTS; PRICE PROTECTION
A. HP reserves the right to change its list prices upon reasonable notice
to Reseller. If HP raises the list price of any PC Product, HP will
invoice based on the previous lower price for orders placed by
Reseller within 14 days (two weeks) after the effective date of the
increase.
B. If HP reduces the list prices, certain PC Products may be eligible for
a price protection credit equal to the difference between the net
price paid by Reseller and the reduced price. Eligible PC Products
will be those units in stock, capped at the number of units shipped
from HP during the previous fourteen (14) days, plus those units in
transit to Reseller at time of reduction.
C. HP will invoice based on the new reduced price for such PC Product
shipped on or after the effective date of the reduction.
D. HP will not pay price protection on any claim for price protection
submitted more than 30 days after the effective date of the price
reduction.
6. STOCK ADJUSTMENT
A. HP PC Products are not eligible for stock adjustment. HP will return
ineligible items to Reseller at Reseller's expense.
7. CUSTOMER SATISFACTION AND DEFECTIVE UNIT RETURNS
A. Pursuant to the Operations Policy Manual, HP will accept defective
unit and Customer satisfaction returns of HP PC Products. In amendment
to the Operations Policy Manual, HP PC Product returns will be
accepted up to a three-percent cap, measured by Economy Program
shipments received by Reseller during the previous quarter.
B. HP shall not be obligated to provide credit, but will honor the
Product warranty, to Reseller for HP PC Product Defective Returns
(combined with HP PC Product Customer Satisfaction Returns) exceeding
the Returns Cap.
C. Quarters are calculated as follows: February through April, May
through July, August through October, and November through January.
D. HP will return to Reseller items returned by Reseller which are
ineligible under this Addendum at Reseller's expense.
<PAGE>
EXHIBIT U74I
RESELLER ESP ECONOMY PROGRAM
DISCOUNT SCHEDULE
A. Reseller and HP agree that Reseller's volume level, at Net Reseller price,
for HP Products on Exhibit U26I for the term of this Addendum is:
(Corresponds to U20I/U20D Level)
B. DISCOUNT SCHEDULE
============================================================
DISCOUNTS
------------------------------------------------------------
VOLUME LEVEL SHIPMENT ELECTION A
------------------------------------------------------------
LEVEL I OUTLET SHIPMENT 17%
------------------------------------------------------------
CENTRALIZED SHIPMENT 18%
------------------------------------------------------------
------------------------------------------------------------
LEVEL II OUTLET SHIPMENT 19%
------------------------------------------------------------
CENTRALIZED SHIPMENT 20%
============================================================
C. The capital letter referenced left of the product number on the Product List
indicates the applicable Discount column A above.
D. The products purchased under this Exhibit will be included in determining
whether the volume commitment under Product Exhibit U20I has been satisfied.
<PAGE>
EXHIBIT U74I
RESELLER ESP ECONOMY PROGRAM
MATRIX
========================================================
CAT. QD MO PP SA AP WW W9O DR
--------------------------------------------------------
C1 . . . . .
========================================================
QD: Products are designated as "Qualified Distribution Products" (QD). To
purchase products from QD product categories, Reseller must have submitted
the appropriate Qualified Distribution Application and received approval to
order such products.
MO: Minimum order is $25; minimum release and ship-to is $25.
PP: Products are eligible for Price Protection.
SA: Eligible products returned for stock adjustment may not exceed 15% of the
previous quarter's invoiced amount of shipments. Restocking charges will
apply to returns in any one quarter exceeding 5% of shipments. Such
products are eligible for stock adjustment restocking charges of 3% of
list price value.
AP: Products are eligible for the HP Advantage program.
WW: Products are covered by HP's written warranty.
W90: Products are covered by HP's standard 90-day warranty.
DR: Eligible defective and customer satisfaction returns may not exceed 3% of
the invoiced amount of shipments during the previous quarter. (Except that
if the total number of defective units exceeds the returns cap percentage,
HP shall be obligated to honor the Product warranty for those units).
The HP Products listed below are U.S. versions only.
Products followed by an "@" symbol are eligible for drop-shipment.
<PAGE>
EXHIBIT U741
RESELLER ESP ECONOMY PROGRAM
Rev. 02/98
CATEGORY Cl
A D4595T HP Vectra VL 5/200 MMX SeriesS M2500/16
A D4796T HP Kayak XA 6/266 M4300ATA--32
A D4796T ABA U.S. - English localization
A D4799T HP Kayak XA 6/266 MT M4500SCS1--32
A D4799T ABA U.S. -- English localization
A D4807T HP Kayak XA 6/233 M2500ATA--32
A D4807T ABA U.S. -- English localization
A D5042T HP Vectra VL 6/233 Series6 M2500/32 NT4
A D5042T lBZ Delete standard accessories
A D5042T ABA U.S. -- English localization
A D5043T HP Vectra VL 6/266 Series6 M2500/32 NT4
A D5043T ABA U.S. -- English localization
A D5052T HP Vectra VL 6/266MT S6 M4000/64 MXM NT4
A D5052T ABA U.S. -- English localization
A D5221T HP Vectra VL 5/200 MMX MT S5 M2500/32CDS
A D5557T HP Brio Model 8034 5/200MMX 2100/32 AB
A D5557T ABA U.S. -- English localization
A D5602T HP Vectra VE 5/200 MLIX Series4 M2100/16
A D5602T ABA U.S. -- English localization
A D5604T HP Vectra VE 5/200 MliX Ser4 M2100/32 CDS
A D5604T lBZ Delete standard accessories
A D5604T ABA U.S. -- English localization
A D5605T HP Vectra VE 5/200 Mlix Series4 M3200/32
A D5605T lBZ Delete standard accessories
A D5605T ABA U.S. -- English localization
A D5609T HP Vectra VE 5/200 Mlix MT S4 M3.2/32 CDS
A D5609T 1BZ Delete standard accessories
A D5609T ABA U.S. -- English localization
A D5612T HP Vectra VE 5/233 MMX Series4 M2100/16
A D5612T ABA U.S. -- English localization
A D5614T HP Vectra VE 5/233 MMX Ser4 M2100/32 CDS
A D5614T lBZ Delete standard accessories
A D5614T ABA U.S. -- English localization
A D5615T HP Vectra VE 5/233 Mlix Series4 M3200/32
A D5615T lBZ Delete standard accessories
A D5615T ABA U.S. -- English localization
A D5619T HP Vectra VE 5/233 Mlix MT S4 M3.2/32 CDS
A D5619T lBZ Delete standard accessories
A D5619T ABA U.S. -- English localization
A D5710T HP Vectra VL 6/233 57 M3200/32
A D5710T lBZ Delete standard accessories
A DS7lOT ABA U.S. -- English localization
A D5711T HP Vectra VL 6/233 S7 M3200/32 NT4
A D5711T lBZ Delete standard accessories
A D57llT ABA U.S. -- English localization
A D5739T HP Vectra VL 6/333 MT S7 M6400/64 MXM NT
A D5739T lBZ Delete standard accessories
A D5739T ABA U.S. -- English localization
A D5830T HP Brio Model 8316 6/233 4000/32 B
A D5832T HP Brio Model 8337 6/266 4000/32 AB
A D5833T HP Brio Model 8377 6/266 8000/32 ABC
- ------------------------------------------------------------------
MicroSoft(R), MS-DOS(R), MS Word(R), and MS Windows(R) are
U.S. registered trademarks of the MicroSoft Corp.
UNIX(R) is a registered trademark of AT&T in the U.S.A and
in other countries.
<PAGE>
EXHIBIT 10(jj)
CONTRACT OF SALE
----------------
(10100 NORTH CENTRAL EXPRESSWAY, DALLAS, TX)
This Contract of Sale (the "Contract") is made and entered into by and
between COMPUCOM SYSTEMS, INC., a Delaware corporation ("Seller"), and MACFARLAN
REALTY PARTNERS, L.L.C., a Texas limited liability company ("Purchaser").
ARTICLE I
DEFINED TERMS
-------------
1.1 Definitions. As used herein, the following terms shall have the
-----------
meanings respectively indicated:
"Business Day" means any day on which business is transacted by
------------
national banks in Dallas County, Texas.
"Closing" means the consummation of the purchase of the Property by
-------
Purchaser from Seller in accordance with the terms and provisions of Article IX.
----------
"Closing Date" means the date specified in Section 9.1 on which the
------------ -----------
Closing will be held.
"Closing Documents" means the documents to be executed and delivered
-----------------
by Seller and Purchaser at the Closing pursuant to Section 9.2.
-----------
"Earnest Money Deposit" means that portion of the Purchase Price
---------------------
deposited by Purchaser in escrow with the Title Company at the time and in the
form and amount specified in Section 3.2, plus any interest accrued thereon.
-----------
"Effective Date" means the date on which a counterpart of this
--------------
Contract, fully executed by Purchaser and Seller, is delivered to and accepted
in writing by the Title Company.
"Land" means all of that certain lot, tract or parcel of land,
----
containing approximately 1.035 acres, located in Dallas County, Texas and being
more fully described on Exhibit "A", on which is constructed an office building
-----------
located at 10100 North Central Expressway, Dallas, Texas, together with all and
singular the rights appurtenant to that land. On Purchaser's acceptance of the
Survey and Seller's consent thereto, the metes and bounds description contained
thereon shall be the description of the Land for purposes of this Contract and
shall be attached and substituted as Exhibit "A".
-----------
"Permitted Exceptions" means those exceptions or conditions that
--------------------
affect or may affect Seller's title to or use of the Property that are approved
or deemed to be approved by Purchaser in accordance with Section 4.4.
-----------
"Personal Property" means (a) all tangible personal property and
-----------------
fixtures owned by Seller and located on or attached to the Project and normally
used in the ownership or operation of a commercial office building (exclusive,
however, of personal property and trade fixtures that are readily removable from
the Project without causing material damage, that would normally be removable by
a tenant upon termination of a lease of office space within the a commercial
office building and which are actually removed from the Project before the
Closing in accordance with the provisions of this Contract); (b) Seller's
interest, to the extent assignable, in all licenses or permits with respect to
the Property, (c) Seller's interest, to the extent assignable, in all service,
maintenance, management or other contracts relating to the ownership or
operation of the Project, and (d) Seller's interest, to the extent assignable,
in all warranties or guaranties relating to the Project, or any portion thereof.
"Project" means the building, fixtures and improvements situated upon
-------
the Land.
"Property" means, collectively, the Land, the Project and the Personal
--------
Property.
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 1
<PAGE>
"Purchase Price" means the total consideration to be paid by Purchaser
--------------
to Seller for the purchase of the Property.
"Title Company" means Southwest Land Title Insurance Company, located
-------------
at 2900 Lincoln Plaza, 500 North Akard Street, LB 6, Dallas, Texas 75201-3396,
Attention Daniel Lorimer. (Phone 214-720-1020; Fax 214-720-4083).
"Title Exception" means any lien, mortgage, security interest,
---------------
encumbrance, pledge, assignment, claim, charge, lease (surface, space, mineral,
or otherwise), condition, restriction, option, conditional sale contract, right
of first refusal, restrictive covenant, exception, easement (temporary or
permanent), right-of-way, encroachment, overlap, or other outstanding claim,
interest, estate, or equity of any nature which affects the Property, exclusive
of zoning ordinances.
"Title Underwriter" means Chicago Title Insurance Company.
-----------------
1.2 Other Defined Terms. Certain other defined terms shall have the
--------------------
respective meanings assigned to them elsewhere in this Contract.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE
------------------------------
On the terms and conditions stated in this Contract, Seller hereby sells
and agrees to convey the Property to Purchaser, and Purchaser hereby agrees to
purchase and acquire the Property from Seller.
ARTICLE III
PURCHASE PRICE
--------------
3.1 Purchase Price. The Purchase Price shall be TEN MILLION THREE
--------------
HUNDRED THIRTY TWO THOUSAND AND NO/100 DOLLARS ($10,332,000.00).
3.2 Earnest Money Deposit. Within three (3) business days after the
---------------------
Effective Date, Purchaser shall deliver the Earnest Money Deposit in cash to the
Title Company, and the Earnest Money Deposit shall thereafter be held by the
Title Company in escrow to be applied or disposed of by it as is provided in
this Contract. The Earnest Money Deposit shall be in the amount of FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00). If this Contract will remain in
effect following the expiration of the Inspection Period (as such term is
hereinafter defined), then Purchaser shall increase the amount of the Earnest
Money Deposit to ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) on or
prior to the expiration of the Inspection Period. The Earnest Money Deposit
shall be invested in an interest-bearing account with a financial institution
and in a manner reasonably acceptable to Seller and Purchaser; such account to
be determined at or prior to the time the Earnest Money Deposit is delivered.
All interest earned shall become part of the Earnest Money Deposit to be applied
or disposed of in the same manner as the Earnest Money Deposit, as provided in
this Contract. If the purchase and sale hereunder is consummated, then the
Earnest Money Deposit shall be applied to the cash portion of the Purchase Price
at the Closing. In all other events, the Earnest Money Deposit shall be
disposed of by the Title Company as provided in this Contract. In the event
that Purchaser fails to deliver the Earnest Money Deposit within the specified
time, then this Contract shall be automatically terminated and neither Seller
nor Purchaser shall have any rights or obligations hereunder.
3.3 Payment of Purchase Price. The Purchase Price shall be payable to
-------------------------
Seller through the Title Company in cash or other immediately available United
States Federal funds at Closing. The Earnest Money Deposit shall be delivered
to the Seller and applied as a credit against the Purchase Price.
ARTICLE IV
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 2
<PAGE>
TITLE AND SURVEY
----------------
4.1 Title Commitment; Exception Documents.
-------------------------------------
(a) Within fifteen (15) days after the Effective Date, Seller, at
Seller's sole cost and expense, shall cause to be furnished to Purchaser a
current Commitment for Title Insurance (the "Title Commitment") issued by the
Title Company, on behalf of the Title Underwriter. The Title Commitment shall
set forth the state of title to the Property as of a date not more than thirty
(30) days prior to the Effective Date, including a list of Title Exceptions
affecting the Property that would appear in an owner's title policy, if one were
issued. The Title Commitment shall contain the expressed commitment of the
Title Company to issue the Title Policy (as hereinafter defined) to Purchaser in
the amount of the Purchase Price, insuring the title to the Property as is
specified in the Title Commitment, with the standard printed exceptions.
(b) Within fifteen (15) days after the Effective Date, Seller shall
also cause to be furnished to Purchaser true, correct, and legible copies of all
instruments (the "Exception Documents") that create or evidence Title Exceptions
affecting the Property, including those described in Schedule B and Schedule C
of the Title Commitment.
4.2 Survey.
------
(a) Within fifteen (15) days after the Effective Date, Seller, at
Purchaser's sole cost and expense, shall cause a Survey (herein so called) to be
prepared and copies delivered to both parties. The Survey shall be prepared by
a registered surveyor (the "Surveyor") reasonably acceptable to Purchaser and to
the Title Company; it shall be dated not earlier than ninety (90) days prior to
the scheduled Closing Date; it shall show the location on the Property of all
improvements, fences, easements (identified by recording information), roads,
rights-of-way, the number and location of parking spaces; visible evidence of
utilities serving the Property; shall contain a legal description of the
boundaries of the Land by metes and bounds or other appropriate legal
description and shall state the area of the Land and the buildings on the Land.
The Surveyor shall certify to Purchaser and to the Title Company that the Survey
was made on the ground and meets the requirements for a Category 1A, Condition
II Survey, under the most recent specifications promulgated by the Texas
Surveyors Association; that there are no visible discrepancies, conflicts,
encroachments, overlapping of improvements, flood plain or flood hazard areas,
fences, easements, roads, or rights-of-way except as shown on the Survey; and
that the Survey is a true, correct and accurate representation of the Land and
the Project. The legal description of the Land contained in the Survey and in
the Title Policy shall be used for purposes of describing the Land in the
special warranty deed conveying the Land from Seller to Purchaser.
(b) If the Survey does not comply in all material respects with these
requirements, then Seller shall not be in default under this Contract, but shall
endeavor to have the Surveyor revise the Survey so as to comply with these
requirements; and the Title Review Period (as defined in Section 4.3) shall be
-----------
extended on a day for day basis until a Survey in compliance with the provisions
of this Agreement is delivered to Purchaser, but in no event shall the Title
Review Period be extended for more than ten (10) days by reason thereof.
4.3 Review of Title Commitment, Survey and Exception Documents.
----------------------------------------------------------
Purchaser shall have a period of twenty (20) days (the "Title Review Period")
after Purchaser's receipt of the last to be received of the Title Commitment,
the Exception Documents, and the Survey in which to give written notice to
Seller specifying Purchaser's objections to one or more of those items
("Objections"), if any.
4.4 Seller's Obligation to Cure; Purchaser's Right to Terminate. If
-----------------------------------------------------------
Purchaser timely notifies Seller in writing of Objections to any of the matters
furnished to Purchaser pursuant to Sections 4.1 and 4.2, then Seller shall,
--------------------
within ten (10) business days after Seller's receipt of Purchaser's notice (the
"Cure Period") either satisfy the Objections at Seller's sole cost and expense,
or promptly notify Purchaser in writing of the Objections that Seller cannot or
will not satisfy at Seller's expense or of any Objections which Seller cannot
satisfy within the Cure Period but agrees to satisfy prior to Closing. Seller
shall be required to remove all liens affecting the Property which secure
indebtedness of an ascertainable amount and any encumbrance placed upon the
Property by Seller after the date of this Contract, but Seller shall have no
obligation to satisfy any other objections to title. If Seller shall fail to
notify Purchaser within the Cure Period of its election to satisfy any
Objections, then Purchaser shall have the option of either (i) waiving the
unsatisfied
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 3
<PAGE>
Objections, in which event those unsatisfied Objections shall become Permitted
Exceptions, or (ii) terminating this Contract and receiving back the Earnest
Money Deposit, in which latter event Seller and Purchaser shall have no further
obligations, one to the other, with respect to the subject matter of this
Contract, except as provided in Section 5.2. If Purchaser fails to deliver
-----------
written notice of termination to Seller within five (5) days after the
expiration of the Cure Period, then Purchaser shall be deemed to have waived and
accepted the unsatisfied Objections, which (together with all Title Exceptions
to which Purchaser has not objected) shall become Permitted Exceptions, with no
reduction in the Purchase Price, and Purchaser shall have no further right to
terminate this Contract under this Section 4.4.
-----------
4.5 Title Policy. At the Closing, Seller, at Seller's sole cost and
------------
expense, shall cause a standard Form T-1 Texas Owner Policy of Title Insurance
(the "Title Policy") to be furnished to Purchaser. The Title Policy shall be
issued by the Title Company, on behalf of the Title Underwriter, in the amount
of the Purchase Price, and insuring that Purchaser has good and indefeasible fee
simple title to the Property, subject only to the Permitted Exceptions. To the
extent available, the Title Policy shall be modified to limit the standard
printed exception for standby fees and taxes to the year 1997 and subsequent
years, and subsequent assessments for prior years due to changes in land usage
or ownership and to limit the "survey exception" to shortages in area.
ARTICLE V
INSPECTION PERIOD
-----------------
5.1 Inspection Period. During the period commencing with the Effective
-----------------
Date and ending forty-five (45) days thereafter, Purchaser shall have access to
the Property upon reasonable prior notice to Seller (which notice shall be
reasonable if given one or more business days in advance and which may be given
by telephone or in writing) to conduct such physical inspections and other
tests, examinations, studies, and appraisals of the Property as Purchaser deems
necessary or desirable, at Purchaser's sole cost and expense, to determine if
the Property is suitable for Purchaser's purposes. Purchaser shall use
Purchaser's reasonable efforts to conduct any such physical inspections, tests,
examinations, studies, and appraisals in a manner that will not unreasonably
disturb Seller's employees who are working within the Project. All of
Purchaser's inspections of the Property and tests upon the Property shall be
conducted during normal business hours and, in the case of systems tests, with
reasonable opportunity for a representative of Seller to be present. If
Purchaser is not satisfied with the condition of the Property for any reason, in
Purchaser's sole discretion, then Purchaser may terminate this Contract by
giving written notice to Seller on or before the end of the Inspection Period,
in which case the Earnest Money Deposit shall be returned to Purchaser, and the
parties shall have no further obligations under this Contract, one to the other,
except as provided in Section 5.2. If Purchaser fails to notify Seller in
-----------
writing before the expiration of the Inspection Period that Purchaser has
terminated this Contract pursuant to this Section 5.1, then (a) Purchaser shall
-----------
be deemed to have accepted the condition of the Property, (b) Purchaser's right
to terminate this Contract pursuant to this Section 5.1 shall be deemed waived,
-----------
and (c) the Earnest Money Deposit shall be non-refundable in any event other
than Seller's default or Purchaser's termination of the Contract under the
provisions of Section 4.4.
-----------
5.2 Access. To facilitate the review contemplated in Section 5.1,
------ -----------
during the Inspection Period, Seller shall provide Purchaser and Purchaser's
agents and representatives access to the Property subject to the requirements of
Section 5.1. Purchaser agrees to indemnify and hold Seller harmless from and
- -----------
against any liens, claims, or damages arising out of unpaid bills incurred by
Purchaser in connection with its inspection and out of property damages and
personal injuries arising out of acts or omissions of Purchaser, its agents and
representatives in connection with its inspection including, without limitation,
any and all demands, actions or causes of action, assessments, losses, costs,
liabilities, interest and penalties, and reasonable attorney's fees suffered or
incurred by Seller as a result of Purchaser's conduct of the review. Purchaser
shall repair or cause to be repaired any damages caused by Purchaser's review.
The indemnification obligations of Purchaser in this Section 5.2 shall survive
-----------
the termination of this Contract for any reason.
5.3 Vacation of Project, Absence of Tenancies; Post Move-Out Inspection.
-------------------------------------------------------------------
Seller shall vacate its personnel from the Project at least thirty (30) days
before the Closing and at the Closing, Seller shall deliver possession of the
Property to Purchaser free of all tenancies or other rights of parties in
possession. Prior to the expiration of the Inspection Period, Purchaser may
designate in writing those items in the nature of modifications, additions and
improvements to the Project undertaken by Seller or its tenants that Purchaser
desires to have removed before the Closing. Seller shall not be required to
remove any of such items except to the extent Seller agrees in writing to remove
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 4
<PAGE>
specific items or categories of items designated by Purchaser. However, if
Seller does agree to remove any items or categories of items, Seller shall be
unconditionally obligated to complete the removal of those items in a good and
workmanlike manner at least twenty days (20) before the Closing and to repair in
a good and workmanlike manner all damages resulting from such removal. Within
twenty (20) days before the Closing, Purchaser shall have the right to a further
inspection of the Property to assess the completion of Seller's removal of items
agreed to be removed and to identify any damages to the Property occurring since
the expiration of the Inspection Period, including, without limitation, damages
occurring in connection with the move-out of Seller's personnel from the
Project. Seller shall have the right to accompany Purchaser in its inspection.
During such inspection, Purchaser may note all damages occurring to the Property
since expiration of the Inspection Period and, subject to Section 13.9, dealing
------------
with casualty and condemnation, Seller shall, at its sole cost, repair such
damages in order that upon its delivery to Purchaser, the condition of the
Property shall be as good as its condition upon the expiration of the Inspection
Period. Notwithstanding anything to the contrary contained in this Contract, in
the event of Seller's breach of its obligations pursuant to this Section 5.3,
-----------
Purchaser shall have the right to pursue all legal or equitable remedies for
such breach and shall not be limited to the provisions of Section 10.1.
------------
ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS,
---------------------------------------
AND AGREEMENTS OF SELLER
------------------------
6.1 Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants to Purchaser as of the Effective Date and as of the Closing Date,
except where specific reference is made to another date or dates, that to
Seller's current actual knowledge:
(a) There are no parties in possession of the Property, except
Seller;
(b) Seller has, and at the Closing Date Seller shall have, and shall
convey to Purchaser by special warranty deed, good and indefeasible fee simple
title to the Property, subject only to the Permitted Exceptions;
(c) Except as otherwise provided in Section 8.3, Seller has the full
-----------
right, power, and authority to sell and convey the Property as provided in this
Contract and to carry out Seller's obligations hereunder, and that all requisite
action necessary to authorize Seller to enter into this Contract and to carry
out Seller's obligations hereunder has been, or on the Closing Date will have
been, taken;
(d) Seller has not received written notice from any governmental or
quasi-governmental agency requiring Seller to correct any condition with respect
to all or any portion of the Project by reason of a violation of any legal
requirement which has not been corrected;
(e) Seller is not a foreign person, as that term is defined in
Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder; and
(f) Seller is not aware of any actual or alleged default or breach of
a material nature by Seller under any covenants, conditions, restrictions,
rights-of-way or easements affecting the Property or any portion thereof;
(g) Seller has not received written notice of any pending
condemnation proceedings, eminent domain proceedings or similar actions against
the Property or any portion thereof;
(h) Seller has not received written notice of pending or threatened
litigation affecting or questioning Seller's title to, or operations at, the
Property;
(i) Seller is not a party to any real estate brokerage agreements
that would be binding upon Purchaser after the Closing;
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 5
<PAGE>
(j) Seller has not received written notice of any special public
assessments (other than ad valorem taxes) which would constitute a charge
against the Property; and
(k) The Service Contracts to be furnished by Seller pursuant to
Section 6.2(a) shall be true complete and correct copies of the original
- --------------
counterparts thereof and there exist no other service contracts that affect the
Property as of the Effective Date that would be binding on Purchaser or the
Property after the Closing.
6.2 Covenants and Agreements of Seller. Seller covenants and agrees
----------------------------------
with Purchaser as follows:
(a) Within three (3) business days after Seller is notified that the
Earnest Money Deposit has been received by the Title Company, Seller will
deliver to Purchaser true, complete and legible copies of the following:
(i) [intentionally omitted];
(ii) All service, maintenance, management, and other contracts
relating to the ownership and operation of the Project;
(iii) All building permits and certificates of occupancy or of
substantial completion issued with respect to the construction and
ownership of the Project in Seller's possession;
(iv) Certificates evidencing all fire, hazard, liability, and
builder's risk insurance policies held by Seller on the Property;
(v) All available real estate and personal property tax
statements for the year prior to Closing with respect to the Property and,
if received by Seller, the valuation notice issued with respect to the
Property for the year of Closing;
(vi) Any plans and specifications with respect to the Project
in Seller's possession;
(vii) Copies of the ad valorem tax bills for 1996 for the
Property;
(viii) Copies of all maintenance records for 1996 and the
current year to date reflecting all capital expenditures or any maintenance
or repair in excess of $3,000.00 for any single item of capital
expenditure, maintenance or repair including, but not limited to, all
records with respect to all maintenance, repair, or replacement regarding
the roofs on any improvements, the parking lots and any drainage repair or
improvements regarding the Property in the possession of Seller; and
(ix) [intentionally omitted];
(b) From the Effective Date until the Closing Date or earlier
termination of this Contract, Seller shall:
(i) Operate and maintain the Property in the ordinary course
of Seller's business; and
(ii) Not, without Purchaser's prior written consent, enter
into any contracts, leases or other commitments that will survive Closing
other than the following:
(A) service contracts that are terminable without
penalty on thirty (30) days or less notice; or
(B) emergency repairs to the Property (provided, no
consent of Purchaser shall be required for any expenditure
required to prevent imminent danger to persons or property);
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6.3 Survival Beyond Closing. The representations and warranties of Seller
-----------------------
contained in this Contract as set forth in Section 6.1 shall survive the Closing
-----------
for a period of one year.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
7.1 Representations and Warranties of Purchaser. Purchaser represents,
-------------------------------------------
warrants, covenants, and agrees with Seller as of the Effective Date and as of
the Closing Date, except where specific reference is made to another date or
dates, that:
(a) Purchaser has the full right, power, and authority to purchase
the Property from Seller as provided in this Contract and to carry out
Purchaser's obligations under this Contract, and all requisite action necessary
to authorize Purchaser to enter into this Contract and to carry out Purchaser's
obligations hereunder has been or on or before Closing will have been taken;
(b) As of the Effective Date, Purchaser has been hereby advised in
writing that Purchaser should have an abstract covering the Land examined by an
attorney of Purchaser's own selection or that Purchaser should be furnished with
or obtain a policy of title insurance;
(c) Purchaser hereby acknowledges that Purchaser has had and will
have, pursuant to this Contract, an adequate opportunity to make such legal,
factual, and other inquiries and investigations as it deems necessary,
desirable, or appropriate with respect to the Property, including, without
limitation, the physical and environmental condition thereof. Such inquiries
and investigations of Purchaser shall be deemed to include, but shall not be
limited to, any service contracts pertaining to the Property, the physical
components of all portions of the Property, the condition of the Property, the
existence of any wood-destroying organisms on the Property, such state of facts
as an accurate survey and inspection would show, the present and future zoning
ordinances, resolutions, and regulations of the city, county, and state where
the Property is located, and the value and marketability of the Property.
7.2 Survival Beyond Closing. The representations and warranties of
-----------------------
Purchaser contained in this Contract as set forth in Section 7.1 shall survive
-----------
the Closing for a period of one year.
7.3 "AS IS" NATURE OF TRANSACTION. PURCHASER ACKNOWLEDGES AND AGREES THAT
-----------------------------
IT IS ACQUIRING THE PROPERTY ON AN "AS IS, WHERE IS" BASIS AND WITH ALL FAULTS,
AND WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR
NATURE, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 6.1 HEREOF AND EXCEPT
AS SET FORTH IN SELLER'S DEED TO BE DELIVERED TO PURCHASER AT THE CLOSING. THE
PROVISIONS OF THIS SECTION 7.3 SHALL SURVIVE THE CLOSING.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S AND SELLER'S PERFORMANCE
------------------------------------------------------------
8.1 Performance of Seller's Obligations. Purchaser is not obligated to
-----------------------------------
perform under this Contract unless Seller has furnished or caused to be
furnished to Purchaser all items required to be so furnished under other
sections of this Contract, and, unless Seller cures or Purchaser waives or is
deemed to have waived each of Purchaser's objections made in accordance with
Section 4.4.
- -----------
8.2 Breach of Seller's Representations, Warranties, Covenants, and
--------------------------------------------------------------
Agreements. Purchaser is not obligated to perform under this Contract unless
- ----------
all of the representations, warranties, covenants, and agreements of Seller set
forth in this Contract are true and correct in all material respects as of the
Closing Date and unless Seller, on or before the Closing Date, has met, complied
with, and performed in all material respects any conditions or agreements
required by Seller under this Contract.
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<PAGE>
8.3 Termination by Purchaser if Conditions Precedent Not Satisfied or
-----------------------------------------------------------------
Waived. If any of the specified conditions precedent to the performance of
- ------
Purchaser's obligations under this Contract have not been satisfied, waived, or
deemed waived by Purchaser on or before the Closing Date, then Purchaser may, at
its sole and exclusive option, (i) waive the unsatisfied condition and close
this transaction; or (ii) terminate this Contract and obtain the return of the
Earnest Money Deposit, whereupon the parties shall have no further liabilities
hereunder, one to the other, except as provided in Section 5.2; or (iii) if the
-----------
failure of the condition precedent to be satisfied arises from the failure of
Seller to perform an obligation hereunder, Purchaser may exercise the additional
remedies provided herein by reason of Seller's default. If Purchaser elects to
terminate this Contract then, immediately upon Purchaser's termination, the
Earnest Money Deposit shall be forthwith returned to Purchaser by the Title
Company. If the Earnest Money Deposit is properly returnable to Purchaser, then
Seller shall, on written request from Purchaser, promptly issue necessary
instructions to cause the Title Company to return to Purchaser the Earnest Money
Deposit and, thereafter, Purchaser and Seller shall have no further obligations
under this Contract, one to the other, except as provided in Section 5.2.
-----------
ARTICLE IX
CLOSING
-------
9.1 Date and Place of Closing. The Closing shall take place in the
-------------------------
offices of the Title Company. The Closing Date shall be on January 15, 1998,
subject to Seller's right to designate December 31, 1997 as the Closing Date,
which right shall be exercised, if at all, at least seven (7) business days
before the expiration of the Inspection Period. If a date designated as the
Closing Date is not a Business Day, then the Closing Date shall be the first
Business Day thereafter. By mutual written agreement, Seller and Purchaser may
select an earlier or later date as the Closing Date.
9.2 Items to be Delivered at the Closing.
------------------------------------
(a) Seller. At the Closing, Seller shall deliver or cause to be
------
delivered to Purchaser, at Seller's sole cost and expense (except as provided to
the contrary), the following items:
(i) the Title Policy, in the form specified in Section 4.5
-----------
hereof;
(ii) a special warranty deed, duly executed by Seller and
acknowledged, subject to the Permitted Exceptions;
(iii) [intentionally omitted];
(iv) [intentionally omitted];
(v) duplicate originals of a bill of sale and Seller's
assignment and Purchaser's assumption of contracts and warranties;
(vi) an affidavit in compliance with Section 1445 of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder, stating that Seller is not a "foreign person" as that term is
defined in Section 1445, duly executed by Seller and acknowledged;
(vii) keys to all locks located in the Project that are in
Seller's possession or to which Seller has reasonable access without the
necessity of incurring any expense in connection therewith;
(viii) [intentionally omitted];
(ix) [intentionally omitted];
(x) duplicate originals of assignment and assumption of
contracts, bonds, warranties and guaranties, duly executed by Seller;
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<PAGE>
(xi) originals of all service contracts, plans, governmental
approvals, warranties, guaranties and other contracts and agreements
relating to the ownership and operation of the Property that, to Seller's
current actual knowledge, are in Seller's possession or to which Seller has
reasonable access without the necessity of incurring any expense in
connection therewith;
(xii) other items reasonably requested by the Title Company as
administrative requirements for consummating the Closing;
(xiii) evidence of appropriate authorization, reasonably
satisfactory to Purchaser and the Title Company, in their reasonable
discretion, for the sale of the Property to Purchaser on the terms and
conditions set forth in this Contract; and
(xiv) other items reasonably requested by the Title Company or
Purchaser as administrative requirements for consummating the Closing.
(b) Purchaser. At the Closing, Purchaser, at Purchaser's sole cost
---------
and expense, shall deliver to Seller or the Title Company:
(i) the cash sum required by Section 3.3;
-----------
(ii) [intentionally omitted];
(iii) duplicate originals of Seller's assignment and
Purchaser's assumption of contracts and warranties, in the form required by
this Contract, duly executed by Purchaser;
(iv) [intentionally omitted];
(v) duplicate originals of assignment and assumption of
contracts, bonds, warranties and guaranties;
(vi) evidence of appropriate authorization, reasonably
satisfactory to Seller and the Title Company, in their reasonable
discretion, for the purchase of the Property in accordance with this and
the consummation of the transactions contemplated by this Contract on
behalf of Purchaser; and
(vii) other items reasonably requested by the Title Company or
Seller as administrative requirements for consummating the Closing.
9.3 Adjustments at Closing. Notwithstanding anything to the contrary
----------------------
contained in this Contract or applicable law, the provisions of this Section 9.3
-----------
shall survive the Closing. The following items shall be adjusted or prorated
between Seller and Purchaser with respect to the Property:
(a) Ad valorem taxes relating to the Property for the calendar year
of the Closing shall be prorated between Seller and Purchaser as of 12:01 a.m.
on the Closing Date. If the actual amount of taxes for the calendar year of the
Closing is not known as of the Closing Date, the proration shall be based on the
amount of taxes due and payable with respect to the Property for the calendar
year immediately preceding the calendar year of the Closing, and Seller shall
pay to Purchaser in cash (or by credit on Purchaser's closing statement) at the
Closing Seller's pro rata portion of those taxes. When the amount of taxes
levied against the Property for the year of Closing is known, either Seller or
Purchaser shall have the right to have the proration amount readjusted with the
result that Seller shall pay for those taxes attributable to the period of time
prior to the Closing Date and Purchaser shall pay for those taxes attributable
to the period of time commencing with and following the Closing Date; provided,
however, that to avail itself of the right to have the proration amount
readjusted, the party seeking readjustment must deliver to the other party a
written request to that effect on or before August 1 of the calendar year
immediately following the year of Closing. Notwithstanding anything to the
contrary herein, Seller shall be responsible for all subsequent assessments for
prior years due to change in land usage or ownership and Seller shall promptly
pay those taxes. Payments after the Closing Date shall be made in immediately
available funds to the applicable party at its address set forth in Section
-------
13.1.
- ----
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<PAGE>
(b) [intentionally omitted];
(c) [intentionally omitted];
(d) All other income and ordinary operating expenses of the Property
(except public utilities, for which each party shall deal directly with the
service provider), including, without limitation, maintenance, management, and
other service charges, and all other normal operating charges with respect to
the Property shall be prorated at the Closing effective as of 12:01 a.m. on the
Closing Date, and appropriate cash adjustments shall be made by Purchaser and
Seller.
(e) Seller shall pay the outstanding balance of any liens covering
the Property and cause the Title Company to deliver the Title Policy with no
exception for any liens, other than the lien for the current year's taxes.
(f) If, following the Closing, Purchaser or Seller discover any
errors or omissions in the prorations or adjustments approved at Closing, then
either party shall have the right to obtain a correction of the error or
omission provided written request, and the rational basis therefor, for such
correction is delivered within 180 days after Closing.
9.4 Possession and Closing. Possession of the Property shall be
----------------------
delivered to Purchaser by Seller at the Closing, subject only to the Permitted
Exceptions.
9.5 Costs of Closing. Each party is responsible for paying the legal
----------------
fees of its counsel in negotiating, preparing, and closing the transaction
contemplated by this Contract. Seller is responsible for paying the cost of the
entire premium for the Title Policy, including the additional premium for
modification of the "survey exception", one-half of the Title Company's escrow
fee and the other fees, costs, and expenses identified herein as being the
responsibility of Seller. Purchaser shall be responsible for one-half (1/2) of
the Title Company's escrow fees and the other fees, costs and expenses
identified herein as being the responsibility of Purchaser. All other expenses
shall be allocated between the parties in the customary manner for closings of
real property similar to the Property in the area in which the Property is
located. Each party shall bear the cost of its own legal counsel in negotiating
and closing this transaction. This Section 9.5 shall survive the Closing for
-----------
all purposes.
9.6 Indemnification. Any and all costs and expenses relating to the
---------------
operation, management or ownership of the Property incurred by Seller prior to
the Closing Date, pursuant to the Service Contracts, or for utilities serving
the Property are the responsibility of Seller and Seller shall pay the same and
shall indemnify and hold Purchaser harmless therefrom. Any and all costs and
expenses relating to the operation, management or ownership of the Property for
the period of time commencing with and following the Closing Date are the
responsibility of Purchaser and Purchaser shall pay the same and shall indemnify
and hold Seller harmless therefrom. This indemnification shall survive the
Closing.
ARTICLE X
DEFAULTS AND REMEDIES
---------------------
10.1 Seller's Default; Purchaser's Remedies.
--------------------------------------
(a) Seller's Default. Seller shall be in default under this Contract
----------------
if any one or more of the following shall occur and remain uncured and
unsatisfied for ten (10) days after Seller's receipt of specific written notice
from Purchaser thereof:
(i) Any of Seller's warranties or representations contained
in this Contract are untrue in any material respect on the Closing Date;
(ii) Seller fails to meet, comply with, or perform in any
material respect any covenant, agreement, or obligation on Seller's part
required within the time limits and in the manner required in this
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<PAGE>
Contract and Seller fails to cure such failure within ten (10) days after
written notice of such failure is delivered to Seller (provided, that no
period for notice and cure shall apply in the event of Seller's failure to
consummate the Closing on the Closing Date); or
(iii) Seller fails to consummate this Contract for any reason
except Purchaser's default hereunder or the termination of this Contract by
Purchaser or Seller pursuant to a right granted under the terms and
provisions hereof.
(b) Purchaser's Remedies. If Seller is in default hereunder,
--------------------
Purchaser may, at Purchaser's sole option, do either of the following, as
Purchaser's sole and exclusive remedy:
(i) Terminate this Contract by written notice delivered to
Seller on or before the Closing Date, in which event the Earnest Money
Deposit shall be returned to Purchaser; or
(ii) Enforce specific performance of this Contract against
Seller.
10.2 Purchaser's Default; Seller's Remedies.
--------------------------------------
(a) Purchaser's Default. Purchaser is in default under this Contract
-------------------
if Purchaser fails to timely deliver the Earnest Money Deposit or if Purchaser
fails to increase the amount thereof upon the expiration of the Inspection
Period within the time provided in Section 3.2; or if Purchaser fails to
-----------
consummate the transaction contemplated by this Contract on the Closing Date,
provided that on such date, this Contract has not been terminated by a party
hereto pursuant to a right to do so granted herein and the conditions precedent
to Purchaser's obligations set forth in Section 8.1 and Section 8.2 have been
----------- -----------
satisfied; or if any one or more of the following shall occur and remain uncured
and unsatisfied for ten (10) days after Purchaser's receipt of specific written
notice from Seller thereof:
(i) Any of Purchaser's material warranties or representations
contained in this Contract are untrue in any material respect on the
Closing Date; or
(ii) Purchaser fails to meet, comply with, or perform in any
material respect any other covenant, agreement, or obligation on
Purchaser's part required within the time limits and in the manner required
in this Contract; or
(iii) Purchaser fails to consummate this Contract for any
reason except Seller's default hereunder or the termination of this
Contract by Purchaser or Seller pursuant to a right granted under the terms
and provisions hereof.
(b) Seller's Remedies. If Purchaser is in default under this
-----------------
Contract, Seller may, as Seller's sole and exclusive remedy, terminate this
Contract and receive the Earnest Money Deposit from the Title Company as
liquidated damages and not as a penalty, it being acknowledged and agreed by
Seller and Purchaser that the amount of Seller's damages for Purchaser's breach
of this Contract would be difficult, expensive and impractical to determine, and
the Earnest Money Deposit is a reasonable estimate of Seller's damages that
would be caused by Purchaser's breach. Seller waives any right to seek damages
or to enforce specific performance against Purchaser of Purchaser's obligations
under this Contract, but Seller may seek damages against Purchaser for breach of
Section 5.2 hereof.
- -----------
10.3 Payment of Earnest Money Deposit. Upon termination of this Contract
--------------------------------
pursuant to the terms hereof, or upon the occurrence of a default of Purchaser
or Seller hereunder, the Earnest Money Deposit shall be forthwith tendered by
the Title Company to the party entitled thereto pursuant to this Contract.
Purchaser and Seller, respectively, agree promptly on written request from the
other, to execute and deliver any documents necessary to cause the Title Company
to deliver the Earnest Money Deposit as required by this Contract.
ARTICLE XI
BROKERAGE COMMISSIONS
---------------------
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<PAGE>
11.1 Commissions. Conditioned upon the closing and funding of the
-----------
transaction contemplated hereby, Seller hereby agrees to pay a real estate
commission to its brokers, Jackson & Cooksey and the Staubach Company, each
pursuant to a separate written commission agreement. Purchaser shall pay a real
estate commission to its broker, Macfarlan Real Estate Services, LLC pursuant to
a separate written agreement. With the exception of the brokers referred to
above, each party hereby warrants that it has not engaged any other broker in
connection with this transaction. Each party (the "Indemnifying Party") hereby
indemnifies and agrees to hold the other party (the "Indemnified Party")
harmless from any loss, liability, damage, cost, or expense (including, but not
limited to, reasonable attorneys' fees) resulting to the Indemnified Party from
any obligation incurred by the Indemnifying Party to any other real estate
broker, finder, agent or other party in connection with this transaction. The
provisions of this Section 11.11 shall survive the Closing.
-------------
ARTICLE XII
ENVIRONMENTAL PROVISIONS
------------------------
12.1 Definitions. As used in this Article XII, the following terms have
----------- -----------
the meanings indicated:
(a) "Applicable Environmental Law" means all statutes, rules,
----------------------------
rulings, regulations, ordinances, orders, permits and other requirements imposed
by federal, state, local and other governmental or regulatory authorities having
competent jurisdiction over the subject matter thereof that pertain to health,
safety or the environment, as amended from time to time.
(b) The terms "Asbestos Containing Material," "Discharge,"
---------------------------- ---------
"Disposal," "Hazardous Substance," "Release" "Remedial Action," "Remove" or
-------- ------------------- ------- --------------- ------
"Removal," "Response," "Solid Waste" and "Spill" shall have the meaning set
------- -------- ----------- -----
forth in the definition of those terms in Applicable Environmental Law as of the
effective date of this document. However, if the definition of any of those
terms is subsequently broadened or expanded, the broadened or expanded
definition shall be used for purposes of this Article XII. If a term is defined
-----------
more than once by Applicable Environmental Law, the broadest definition of such
term shall be used for purposes of this Article XII. Additionally, for purposes
-----------
of this Article XII, the term "Hazardous Substance" shall include petroleum
----------- -------------------
products and derivatives thereof.
12.2 Environmental Survey. Seller hereby warrants and represents that,
--------------------
to the current actual knowledge of Seller, without independent investigation,
except as otherwise described in an environmental report prepared by Maxim
Engineers dated May 6, 1992, Seller is not aware of any environmental
contamination affecting the Property and that, insofar as Seller is aware, the
Property is not in violation of Applicable Environmental Law. Seller shall
provide Purchaser with copies of any environmental reports and other similar
information for the Property in Seller's possession. Purchaser shall be
responsible for any further environmental investigation of the Property and
shall have the right to perform such investigations, including soil borings, as
Purchaser's environmental consultants may recommend. Seller shall cooperate
fully with Purchaser in its environmental investigation.
12.3 Waiver, Release and Discharge. If Closing shall occur, then
-----------------------------
Purchaser and Purchaser's successors in interest to the Property shall thereby
be deemed to have waived, released and forever discharged Seller and Seller's
partners, agents, employees, officers, managers and representatives from any and
all liability of any nature whatsoever, whether presently existing or occurring
in the future, resulting from, relating to or arising out of Seller's ownership,
construction, occupancy, use or operation of the Property or the environmental
condition of the Property (including, without limitation, the Spill, Disposal,
Discharge or Release of Hazardous Substances or Solid Wastes in, on or under the
Property or the presence, Disposal, Discharge or Release of Asbestos Containing
Materials in or on the Property), whether before, as of, or after Closing The
foregoing waiver, release and discharge does not benefit parties other than
those expressly referred to above. The provisions of this Section 12.3 shall
------------
survive the Closing.
ARTICLE XIII
MISCELLANEOUS
-------------
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<PAGE>
13.1 Notices. All notices, demands, requests, and other communications
-------
required or permitted hereunder shall be in writing, and shall be deemed to be
delivered on receipt if delivered by hand delivery, or whether actually received
or not, upon the deposit of both the original and the copy, as provided below,
with the Federal Express Corporation or in a regularly maintained receptacle for
the United States mail, registered or certified, return receipt requested,
postage prepaid, addressed as follows:
If to Seller: CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attn: Ron Giles
Copies to: Fred H. Deal
Jackson & Cooksey
12750 Merit Drive, Suite 1310, LB 81
Dallas, TX 75251
and
Copies to: Daniel F. Susie, Esq.
Strasburger & Price, L.L.P.
Suite 4300
901 Main Street
Dallas, Texas 75202-3714
Telecopier: (214) 651-4330
If to Purchaser: Macfarlan Realty Partners, L.L.C.
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite 400
Dallas, Texas 75219
Attn: Mr. John L. Jenkins
Telecopier: (214) 559-4606
Copies to: Robert A. McCulloch, Esq.
Haynes and Boone
3100 NationsBank Plaza
901 Main Street
Dallas, Texas 75202-3714
Telecopier: (214) 651-5940
13.2 Governing Law. THIS CONTRACT IS BEING EXECUTED AND DELIVERED, AND
-------------
IS INTENDED TO BE PERFORMED, IN THE STATE OF TEXAS, AND THE LAWS OF TEXAS SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS
CONTRACT, UNLESS OTHERWISE SPECIFIED HEREIN. THIS CONTRACT IS PERFORMABLE IN,
AND THE EXCLUSIVE VENUE FOR ANY ACTION BROUGHT WITH RESPECT HERETO, SHALL LIE
IN, DALLAS COUNTY, TEXAS.
13.3 Entirety and Amendments. This Contract embodies the entire
-----------------------
agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the Property, and may be amended or
supplemented only by an instrument in writing executed by the party against whom
enforcement is sought.
13.4 Parties Bound. This Contract is binding on and inures to the
-------------
benefit of Seller and Purchaser, and their respective heirs, executors,
administrators, successors, and assigns.
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<PAGE>
13.5 Further Acts. In addition to the acts and deeds recited in this
------------
Contract and contemplated to be performed, executed, and/or delivered under this
Contract, Seller and Purchaser agree to perform, execute, and/or deliver or
cause to be performed, executed and/or delivered at the Closing or after the
Closing all further acts, deeds and assurances reasonably necessary to
consummate the transactions contemplated hereby as required by the terms hereof.
13.6 Multiple Counterparts. This Contract may be executed in any number
---------------------
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties to this Contract may execute the Contract by
signing any of the counterparts.
13.7 Time of the Essence. It is expressly agreed by Seller and Purchaser
-------------------
that time is of the essence with respect to this Contract.
13.8 Exhibits. The Exhibits which are referenced in, and attached to,
--------
this Contract are incorporated in, and made a part of, this Contract for all
purposes.
13.9 Risk of Loss. Seller agrees to give Purchaser prompt notice of any
------------
fire or other casualty affecting the Property or of any actual or threatened (to
the extent that Seller has current actual knowledge thereof) taking or
condemnation of all or any portion of the Property. If prior to the Closing,
there shall occur:
(a) damage to the Property caused by fire or other casualty which
would cost an amount, greater than, or equal to, $150,000.00 to repair; or
(b) the taking or condemnation of all or any portion of the Property
which would diminish the value of the Property by $150,000.00 or more;
then, in such event, Purchaser shall have the right to terminate this Contract
by written notice thereof delivered to Seller within fifteen (15) Business Days
after Purchaser has received notice from Seller of that event. If Purchaser
does not so timely elect to terminate this Contract, then the Closing shall take
place as provided herein and there shall be assigned to Purchaser at the Closing
all interests of Seller in and to any insurance proceeds (plus Seller's
deductible amount) or condemnation awards payable to Seller on account of that
event, less sums which Seller incurs before the Closing to repair any of the
damage. If before the Closing there occurs:
(a) damage to the Property caused by fire or other casualty which
would cost less than $150,000.00 to repair; or
(b) the taking or condemnation of a portion of the Property which
would not diminish the value of the Property by $150,000.00 or more;
then, Purchaser may not terminate this Contract and there shall be assigned to
Purchaser at the Closing all interest of Seller in and to any insurance proceeds
(plus Seller's deductible amount) or condemnation awards payable to Seller on
account of that event, less sums which Seller incurs, with Purchaser's consent
(except that emergency repairs shall not require Purchaser's consent) before the
Closing to repair any of the damage. If Seller elects to repair the damages so
caused, Seller shall use reasonable business judgment in selecting a contractor
to make the repairs and shall promptly notify Purchaser of the identity of the
Contractor. If Purchaser elects, the Closing may be delayed up to forty five
(45) days in order to permit any repairs commenced by Seller to be completed.
13.10 Assignment. This Contract shall be assignable by Purchaser without
----------
the prior written consent of Seller, provided that an assignee is affiliated,
and under common management, with Purchaser.
13.11 Attorney's Fees. If either party hereto employs an attorney to
---------------
enforce or defend its rights hereunder, the prevailing party shall be entitled
to recover its reasonable attorney's fees.
13.12 IRS Reporting Requirements. For the purpose of complying with any
--------------------------
information reporting requirements or other rules and regulations of the
Internal Revenue Service ("IRS") that are or may become applicable as a result
of or in connection with the transaction contemplated by this Contract,
including, but not limited to, any
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 14
<PAGE>
requirements set forth in proposed Income Tax Regulation Section 1.6045-4 and
any final or successor version thereof (collectively the "IRS Reporting
Requirements"), Seller and Purchaser hereby designate and appoint the Title
Company to act as the "Reporting Person" (as that term is defined in the IRS
Reporting Requirements) to be responsible for complying with any IRS Reporting
Requirements. The Title Company hereby acknowledges and accepts such designation
and appointment and agrees to fully comply with any IRS Reporting Requirements
that are or may become applicable as a result of or in connection with the
transaction contemplated by this Contract. Without limiting the responsibility
and obligations of the Title Company as the Reporting Person, Seller and
Purchaser hereby agree to comply with any provisions of the IRS Reporting
Requirements that are not identified therein as the responsibility of the
Reporting Person, including, but not limited to, the requirement that Seller and
Purchaser each retain an original counterpart of this Contract for at least four
(4) years following the calendar year of the Closing.
13.13 Independent Contract Consideration. Without limiting the scope of
----------------------------------
the other consideration received by Seller in the form of Purchaser's promises
contained in this Contract, Seller hereby acknowledges receipt from Purchaser of
$100 in cash, which shall serve as independent and additional consideration for
the agreements of Seller made herein. In no event shall Purchaser be entitled
to the return of such independent additional consideration.
13.14 Effect of Delivery. Execution of this Contract by Purchaser shall
------------------
constitute an offer by Purchaser to purchase the Property on the terms and
conditions herein stated, which offer Seller may accept or reject in its sole
and absolute discretion and for any reason whatsoever. In the event Seller does
not execute such offer within five (5) Business Days of its receipt of a copy
thereof executed by Purchaser, Seller shall conclusively be deemed to have
rejected such offer.
Executed by Seller on the 22nd SELLER:
------
day of October, 1997.
COMPUCOM SYSTEMS, INC.,
a Delaware corporation
By: /s/ M. Lazane Smith
-------------------------------------
Name: M. Lazane Smith
Title: Sr. VP Finance, CFO
Executed by Purchaser on the _____ BUYER:
-----
day of _________________, 1997.
MACFARLAN REALTY PARTNERS, L.L.C.
By: /s/ D. Dean MacFarlan
-------------------------------------
Name: D. Dean MacFarlan
Title: Chairman & CEO
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 15
<PAGE>
TITLE COMPANY JOINDER AND RECEIPT
---------------------------------
A fully executed counterpart of this Contract was received by the Title
Company on the _____ day of ________________, 1997. The Title Company hereby
executes this Contract for the purposes of (i) acknowledging its receipt of a
fully executed counterpart of this Contract, together with the Earnest Money
Deposit, (ii) evidencing its agreement to hold and dispose of the Earnest Money
Deposit in strict accordance with the terms of this Contract, and (iii)
evidencing its agreement to the terms of Section 13.12 of this Contract. The
-------------
Title Company's consent shall not be required to amend any other provision or
term of this Contract.
TITLE COMPANY:
-------------
SOUTHWEST LAND TITLE INSURANCE COMPANY
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 16
<PAGE>
EXHIBIT "A"
-----------
PROPERTY DESCRIPTION
--------------------
[ATTACHED]
- --------------------------------------------------------------------------------
Contract of Sale / Macfarlan Realty Partners, LLC, - CompuCom Services, Inc.
Page 17
<PAGE>
EXHIBIT 10(kk)
12/9/97
FIRST AMENDMENT TO CONTRACT OF SALE
FIRST AMENDMENT TO CONTRACT OF SALE made as of December 10, 1997, between
COMPUCOM SYSTEMS, INC., a Delaware corporation ("Seller"), and MACFARLAN REALTY
PARTNERS, L.L.C., a Texas limited liability company ("Purchaser").
RECITALS
A. The Seller and the Purchaser are parties to a contract of sale
(10100 North Central Expressway, Dallas, TX) dated effective October 23, 1997
(the "Original Contract of Sale").
B. The parties have agreed to amend the Original Contract of Sale to make
a number of changes including extending the inspection period, increasing the
earnest money deposit, changing the closing date, adjusting the purchase price
and providing for Seller financing, all as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. The defined terms used herein shall have the same
meanings as provided therefor in the Original Contract of Sale, unless the
context hereof otherwise requires or provides. The term "Contract" means the
Original Contract of Sale as amended by this First Amendment to Contract of Sale
and as the same may hereafter be amended from time to time.
2. AMENDMENTS TO ARTICLE III. Article III of the Original Contract of
Sale is hereby amended as follows:
(a) Section 3.1 is hereby amended to read in its entirety as
follows:
3.1 Purchase Price. The Purchase Price shall be Nine Million
Eight Hundred Thousand Dollars ($9,800,000).
(b) Section 3.2 is hereby amended by changing "One Hundred Thousand
and No/100 Dollars ($100,000)" to "One Hundred Fifty Thousand and No/100
Dollars ($150,000)" on the seventh and eighth lines thereof.
(c) Section 3.3 is hereby amended to read in its entirety as
follows:
3.3 Payment of Purchase Price. The Purchase Price shall be
payable to Seller through the Title Company as follows:
(a) $1,960,000 in cash or other immediately
available United States Federal funds at Closing. The Earnest
Money Deposit shall be delivered to Seller and applied as a
credit against the Purchase Price.
(b) Delivery at Closing of Purchaser's promissory
note (the "Note") made payable to the order of Seller in the
original principal sum of $7,840,000
FIRST AMENDMENT TO CONTRACT OF SALE - Page 1
<PAGE>
dated the Closing Date. The Note shall bear interest at the rate
of 6.8% per annum and shall be due and payable in one installment
of principal and interest on October 31, 1998, and shall be in
such form as is satisfactory to Seller. The Note shall be secured
by a first and superior lien against the Property pursuant to the
terms of a deed of trust and collateral assignment of rents ("Deed
of Trust") from Purchaser, to Frederick J. Fowler, as Trustee for
the use and benefit of Seller, which Deed of Trust shall contain
provisions prohibiting the sale and the placing of subordinate
liens against the Property without Purchaser's consent and which
shall be in such form as is satisfactory to Seller.
3. TERMINATION OF INSPECTION PERIOD. The parties agree that (a) the
Inspection Period has expired, (b) Purchaser has accepted the condition of the
Property, (c) Purchaser's right to terminate the Original Contract of Sale
pursuant to Section 5.1 thereof has been waived, and (d) the Earnest Money
Deposit is non-refundable in any event other than Seller's default or
Purchaser's termination of the Original Contract of Sale pursuant to the
provisions of Section 4.4 thereof. Upon the execution of this First Amendment to
Contract of Sale, Purchaser shall deposit the remaining $100,000 of the Earnest
Money Deposit with the Title Company.
4. AMENDMENTS TO ARTICLE IX. Article IX of the Original Contract of Sale
is hereby amended as follows:
(a) Section 9.1 is hereby amended to read in its entirety to read as
follows:
9.1 Date and Place of Closing. The Closing shall take place in the
offices of the Title Company. The Closing Date shall be on December
30, 1997. By mutual written agreement, Seller and Purchaser may select
an earlier or later date as the Closing Date.
(b) Section 9.2(b)(ii) is hereby amended to read in its entirety as
follows:
(ii) the original of the Note and the original of the Deed of
Trust fully executed by Purchaser and accompanied by one or more UCC-1
financing statements and the opinion of Messrs. Haynes and Boone, LLP,
counsel for Purchaser, as to the power and authority of Purchaser to
execute, deliver and perform the Note and the Deed of Trust and as to
the enforceability of the Note and the Deed of Trust against
Purchaser.
(c) Section 9.2(b)(iv) is hereby amended to read in its entirety as
follows:
(iv) a mortgagee policy of title insurance in the maximum amount
of the Note insuring that the Deed of Trust constitutes a valid lien
against the Property subject only to those exceptions and encumbrances
which Seller approves, in a form acceptable to Seller.
(d) Section 9.3(e) is hereby amended by adding the phrase "(other than
the Note and Deed of Trust)" after the word "Property" on the first line
thereof.
(e) Section 9.5 is hereby amended by adding the following sentence as
the fourth sentence in such section:
FIRST AMENDMENT TO CONTRACT OF SALE - Page 2
<PAGE>
Purchaser is responsible for paying the cost of the entire premium for
the mortgagee policy of title insurance, including the additional
premium for modification of the "survey exception".
5. AUTHORITY. Each party represents that it has full power and authority
to execute, deliver and carry out the terms and provisions of this First
Amendment to Contract of Sale and that all necessary and appropriate corporation
action has been taken in order to authorize the transactions contemplated by
this First Amendment to Contract of Sale.
6. NO FURTHER AMENDMENTS. Except as previously amended in writing or as
hereby amended, the Original Contract of Sale shall remain unchanged and all
provisions shall remain fully effective between the parties.
7. LIMITATION ON AGREEMENTS. The agreements and amendments set forth
herein are limited precisely as written and shall not be deemed (a) to be a
waiver or waivers of or a consent or consents to or an amendment of any other
term or condition in the Original Contract of Sale, or (b) to prejudice any
right to rights which either party now has or may have in the future under or in
connection with the Original Contract of Sale.
8. COUNTERPARTS. This First Amendment to Contract of Sale may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and either of the parties to this First
Amendment to Contract of Sale may execute this First Amendment to Contract of
Sale by signing any counterpart.
9. ENTIRE AGREEMENT. This First Amendment to Contract of Sale, together
with the Original Contract of Sale, embodies the entire agreement between the
parties and supersedes all prior agreements and understandings, if any, relating
to the Property.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Contract of Sale to be effective for all purposes as of the date and year first
above written.
SELLER:
COMPUCOM SYSTEMS, INC.
By /s/ M. LAZANE SMITH
--------------------------------------
M. Lazane Smith
Senior Vice President of Finance
Chief Financial Officer
BUYER:
MACFARLAN REALTY PARTNERS, L.L.C.
By /s/ JOHN L. JENKINS
--------------------------------------
John L. Jenkins
President
FIRST AMENDMENT TO CONTRACT OF SALE - Page 3
<PAGE>
EXHIBIT 10(ll)
PROMISSORY NOTE
$7,840,000 DALLAS, TEXAS DECEMBER 30, 1997
FOR VALUE RECEIVED, MACFARLAN REALTY PARTNERS, L.L.C., a Texas limited
liability company having its principal place of business at Two Turtle Creek
Village, 3838 Oak Lawn Avenue, Suite 400, Dallas, Texas 75219 referred to herein
as "Borrower," promises to pay to the order of COMPUCOM SYSTEMS, INC., a
Delaware corporation having its principal place of business at 7171 Forest Lane,
Dallas, Texas 75230 referred to herein as the "Lender," the principal sum of
Seven Million Eight Hundred Forty Thousand Dollars ($7,840,000), or, if less,
such amount as may have been advanced and be outstanding hereunder, together
with interest on the unpaid principal balance as set forth below. All sums
hereunder are payable to the Lender at its principal office at 7171 Forest Lane,
Dallas, Texas 75230.
1. DEFINITIONS. Unless the context hereof otherwise requires or provides,
the terms used herein defined in that certain Deed of Trust (with Security
Agreement, Assignment of Rents and Leases and Financing Statement), made by the
Borrower in favor of Frederick J. Fowler, as Trustee for the use and benefit of
the Lender dated as of December 30, 1997, as the same has been or may be amended
or supplemented from time to time (the "Agreement") have the same meanings.
2. INTEREST RATE. The principal balance from the date hereof until
maturity (whether by acceleration or otherwise) shall bear interest at the rate
of 6.8% per annum. Interest shall be calculated at a daily rate equal to 1/365th
of the rate per annum herein provided. All past-due payments of principal and
interest under this Note shall bear interest at the rate of 15% per annum from
maturity until paid.
3. PAYMENT OF PRINCIPAL AND INTEREST. The principal and accrued interest
of this Note shall be due and payable in one installment of $8,285,484 on
October 31, 1998. The principal and interest due hereunder shall be evidenced by
the Lender's records which, absent manifest error, shall be conclusive evidence
of the computation of principal and interest balances owed by the Borrower to
the Lender.
4. DEFAULT. Upon the occurrence of an Event of Default described in
Section 7.4 of the Agreement, the entire principal of and accrued interest on
this Note shall forthwith be due and payable without demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by the Borrower. Should any
other Event of Default occur and be continuing, the holder of this Note may,
without demand or notice of its election declare the entire unpaid balance of
this Note, or any part thereof, immediately due and payable, whereupon the
principal of and accrued interest on such Note shall be forthwith due and
payable without demand, presentment for payment, notice of nonpayment, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
all other notices and further actions of any kind, all of which are hereby
expressly waived by the Borrower.
5. PREPAYMENT. The Borrower may at any time prepay in whole or in part
the unpaid principal of this Note without premium or penalty, and the interest
shall immediately cease on any amounts so prepaid. Prepayments of principal
shall be applied in the inverse order of maturity.
6. WAIVER. Each surety, endorser, guarantor and any other party now or
hereafter liable for the payment of this Note in whole or in part ("Surety") and
the Borrower hereby severally (a) waive grace, demand, presentment for
payment, notice of nonpayment, protest, notice of protest, non-payment
PROMISSORY NOTE - Page 1 [ILLEGIBLE]
- --------------- ----------------------------
Initialed for identification
<PAGE>
or dishonor, notice of intent to accelerate, notice of acceleration and all
other notices (except as provided in the Agreement), filing of suit and
diligence in collecting this Note or enforcing any other security with respect
to same, (b) agree to any substitution, surrender, subordination, waiver,
modification, change, exchange or release of any security or the release of the
liability of any parties primarily or secondarily liable hereon, (c) agree that
the Lender is not required first to institute suit or exhaust its remedies
hereon against the Borrower, any Surety or others liable or to become liable
hereon or to enforce its rights against them or any security with respect to
same or to join any of them in any suit against any others of them, and (d)
consent to any extension or postponement of time of payment of this Note and to
any other indulgence with respect hereto without notice thereof to any of them.
No failure of delay on the part of the Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
7. ATTORNEYS' FEES. If this Note is not paid at maturity, regardless of
how such maturity may be brought about, or is collected or attempted to be
collected through the initiation or prosecution of any suit or through any
probate, bankruptcy or any other judicial proceedings, or is placed in the hands
of an attorney for collection, the Borrower shall pay, in addition to all other
amounts owing hereunder, all actual expenses of collection, all court costs and
reasonable attorney's fees incurred by the holder thereof.
8. LIMITATION ON AGREEMENTS. All agreements between the Borrower and the
Lender, whether now existing or hereafter arising, are hereby limited so that in
no event shall the amount paid, or agreed to be paid to or charged or demanded
by the Lender for the use, forbearance, or detention of money or for the payment
or performance of any covenant or obligation contained herein or in any other
document evidencing, securing or pertaining to this Note, exceed the Maximum
Rate. If any circumstance otherwise would cause the amount paid, charged or
demanded to exceed the Maximum Rate, the amount paid or agreed to be paid to or
charged or demanded by the Lender shall be reduced to the Maximum Rate, and if
the Lender ever receives interest which otherwise would exceed the Maximum Rate,
such amount which would be excessive interest shall be applied to the reduction
of the principal of this Note and not to the payment of interest, or if such
excessive interest otherwise would exceed the unpaid balance of principal of
this Note such excess shall be applied first to other indebtedness of the
Borrower to the Lender, and the balance, if any, shall be refunded to the
Borrower. In determining whether the interest paid, agreed to be paid, charged
or demanded hereunder exceeds the highest amount permitted by applicable law,
all sums paid or agreed to be paid to or charged or demanded by the Lender for
the use, forbearance or detention of the indebtedness of the Borrower to the
Lender shall, to the extent permitted by applicable law, (i) be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the actual rate of interest on account of such
indebtedness is uniform through such term, (ii) be characterized as a fee,
expense or other charge other than interest, and (iii) exclude any voluntary
prepayments and the effects thereof. The terms and provisions of this paragraph
shall control and supersede every other provision of all agreements between the
Lender and the Borrower in control herewith.
9. GOVERNING LAW AND VENUE. This Note and the rights and obligations of
the parties hereunder shall be governed by the laws of the United States of
America and by the laws of the State of Texas, and is performable in Dallas
County, Texas. Chapter 346 of the Texas Finance Code does not apply to this
Note.
10. AGREEMENT. This Note is the Note referred to in Section 1.1 of the
Agreement, and is entitled to the benefits thereof and the security as provided
therein. Reference is made to the Agreement and the Loan Documents for a
statement of the rights and obligations of the Borrower, a
PROMISSORY NOTE - Page 2 [ILLEGIBLE]
- --------------- ----------------------------
Initialed for Identification
<PAGE>
description of the nature and extent of the security and the rights of the
parties in respect to such security, and a statement of the terms and conditions
under which the due date of this Note may be accelerated.
MACFARLAN REALTY PARTNERS, L.L.C.
By /s/JOHN L. JENKINS
----------------------------------
John L. Jenkins
President
PROMISSORY NOTE - Page 3
- ---------------
<PAGE>
EXHIBIT 10(pp)
TERM NOTE
$661,251.00 Dallas, Texas June 16, 1997
FOR VALUE RECEIVED, Daniel F. Brown, an individual, referred to herein as
"Borrower", promises to pay to the order of CompuCom Systems, Inc., a Delaware
corporation and referred to herein as "Lender", the principal sum Six Hundred
Sixty One Thousand, Two Hundred Fifty-One Dollars ($661,251.00), together with
interest on the unpaid principal balance as set forth below. All sums hereunder
are payable to Lender at its principal office in Dallas, Dallas County, Texas.
1. DEFINITIONS. Unless the context hereof otherwise requires or provides,
the terms used herein defined in that certain Pledge Agreement between Borrower
and Lender dated June 16, 1997, as the same has been or may be amended or
supplemented from time to time (the "Agreement") have the same meanings. In
addition, the following terms shall have the following meanings:
a. "PRIME RATE" means that variable rate of interest per annum
established by NationsBank of Texas, N.A. (the "Bank") from time to time as its
"prime rate" (whether by that or any other name). The Bank sets such rate as a
general reference rate of interest and takes into account such factors as the
Bank may deem appropriate. Many of the Bank's commercial or other loans are
priced in relation to such rate, but it is not necessarily the lowest or best
rate actually charged to any customer.
b. "MAXIMUM RATE" means the higher of the maximum interest rate allowed
by applicable United States or Texas law as amended from time to time and in
effect on the date for which a determination of interest accrued hereunder is
made. The determination of the maximum rate permitted by applicable Texas law
shall be made pursuant to the indicated rate ceiling as defined in
Tex.Rev.Civ.Stat.Ann. art. 5069-1.04, but Lender reserves the right to implement
from time to time any other rate ceiling permitted by such law.
2. INTEREST RATE.
a. The unpaid principal balance from the date hereof until maturity
(whether by acceleration or otherwise) shall bear interest at a rate per annum
equal to 6.25%.
b. All past-due payments of principal and interest under this Note shall
bear interest at the Maximum Rate (or if there is no such Maximum Rate, then at
the Prime Rate plus 3%) from maturity until paid.
<PAGE>
3. PAYMENT OF PRINCIPAL AND INTEREST.
a. The principal amount outstanding under this Note shall be due and
payable on June 17, 2000. Interest shall be payable annually on June 17th of
each year during the term hereof, commencing June 17, 1998, and upon payment of
this Note in full.
b. Unless Lender in its sole discretion elects to apply payments
differently, each payment shall be first credited to the discharge of interest
accrued on the unpaid principal balance to the date of the payment, and the
remainder shall be credited to the reduction of said principal.
c. The principal and interest due hereunder shall be evidenced by
Lender's records which, absent manifest error, shall be conclusive evidence of
the computation of principal and interest balances owed by Borrower to Lender.
d. Notwithstanding anything contained in this Note or in the Agreement to
the contrary, in the event Borrower's employment with Lender is terminated,
whether such termination is voluntary or involuntary, this Note shall be due and
payable on the 30th day immediately following the effective date of such
termination. In the event this Note becomes payable pursuant to the terms of
this Section 3(d), Borrower at his option may elect to have Lender offset any
amounts owed to Lender by Borrower under this Note against any severance or
other payments to be made by Lender to Borrower as a result of Borrower's
termination of employment with Lender.
4. DEFAULT. Failure to pay this Note or any installment hereunder as it
becomes due, or failure of Borrower or any other person to perform (after the
expiration of any applicable cure period) any of the terms or provisions set
forth in the Agreement, or the occurrence of any default under the terms of the
Agreement, or the occurrence of any default under any other agreement between
Borrower and Lender shall, at the election of the holder hereof, without notice,
demand or presentment, which are hereby waived, mature the principal of this
Note and all interest then accrued, and the same shall at once become due and
payable and subject to the remedies of the holder hereof.
5. PREPAYMENT. Borrower may at any time prepay in whole or in part the
unpaid principal of this Note without premium or penalty, and the interest shall
immediately cease on any amounts so prepaid. Prepayments of principal shall be
applied in the inverse order of maturity.
6. WAIVER. Each surety, endorser, guarantor and any other party now or
hereafter liable for the payment of this Note in whole or in part ("Surety") and
Borrower hereby severally (a) waive grace, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, non-payment or dishonor,
notice of intent to accelerate, notice of acceleration and all other notices
(except as provided in the Agreement), filing of suit and diligence in
collecting this
<PAGE>
Note or enforcing any other security with respect to same, (b) agree to any
substitution, surrender, subordination, waiver, modification, change, exchange
or release of any security or the release of the liability of any parties
primarily or secondarily liable hereon, (c) agree that Lender is not required
first to institute suit or exhaust its remedies hereon against Borrower, any
Surety or others liable or to become liable hereon or to enforce its rights
against them or any security with respect to same or to join any of them in any
suit against any others of them, and (d) consent to any extension or
postponement of time of payment of this Note and to any other indulgence with
respect hereto without notice thereof to any of them. No failure or delay on the
part of Lender in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
7. ATTORNEYS' FEES. If this Note is not paid at maturity, regardless of how
such maturity may be brought about, or is collected or attempted to be collected
through the initiation or prosecution of any suit or through any probate,
bankruptcy or any other judicial proceedings, or is placed in the hands of an
attorney for collection, Borrower shall pay, in addition to all other amounts
owing hereunder, all actual expenses of collection, all court costs and
reasonable attorney's fees incurred by the holder hereof.
8. LIMITATION ON AGREEMENTS. All agreements between Borrower and Lender,
whether now existing or hereafter arising, are hereby limited so that in no
event shall the amount paid, or agreed to be paid to Lender for the use,
forbearance, or detention of money or for the payment or performance of any
covenant or obligation contained herein or in any other document evidencing,
securing or pertaining to this Note, exceed the Maximum Rate. If any
circumstance otherwise would cause the amount paid to exceed the Maximum Rate,
the amount paid or agreed to be paid to Lender shall be reduced to the Maximum
Rate, and if Lender ever receives interest which otherwise would exceed the
Maximum Rate, such amount which would be excessive interest shall be applied to
the reduction of the principal of this Note and not to the payment of interest,
or if such excessive interest otherwise would exceed the unpaid balance of
principal of this Note such excess shall be applied first to other indebtedness
of Borrower to Lender, and the balance, if any, shall be refunded to Borrower.
In determining whether the interest paid or agreed to be paid hereunder exceeds
the highest amount permitted by applicable law, all sums paid or agreed to be
paid to Lender for the use, forbearance or detention of the indebtedness of
Borrower to Lender shall, to the extent permitted by applicable law, (i) be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout such term, (ii) be
characterized as a fee, expense or other charge other than interest, and (iii)
exclude any voluntary prepayments and the effects thereof. The terms and
provisions of this paragraph shall control and supersede every other provision
of all agreements between Lender and Borrower in conflict herewith.
9. GOVERNING LAW AND VENUE. This Note and the rights and obligations of the
parties hereunder shall be governed by the laws of the United States of America
and by the laws of the State of Texas, and is performable in Dallas, Dallas
County, Texas. Chapter 15 of the Texas Credit Code (Tex. Rev. Civ. Stat. Ann.
art 5069.1501 et seq.) does not apply to this Note.
<PAGE>
10. BUSINESS DAY. If any action is required or permitted to be taken
hereunder on a Sunday, legal holiday or other day on which banking institutions
in the State of Texas are authorized or required to close (a "Non-Business
Day"), such action shall be taken on the next succeeding day which is not a Non-
Business Day, and, to the extent applicable, interest on the unpaid principal
balance shall continue to accrue at the applicable rate.
11. AGREEMENT. This Note is the Note referred to in the Agreement, and is
entitled to the benefits thereof and the security as provided for therein.
Reference is made to the Agreement for a statement of the rights and obligations
of Borrower, a description of the nature and extent of the security and the
rights of the parties in respect to such security, and a statement of the terms
and conditions under which the due date of this Note may be accelerated.
/s/ DANIEL F. BROWN
---------------------------------------
Daniel F. Brown
Address:
<PAGE>
EXHIBIT 10(qq)
PLEDGE AGREEMENT
PLEDGE AGREEMENT ("Pledge Agreement") made as of the 16th day of June, 1997,
between Daniel F. Brown ("Pledgor"), and CompuCom Systems, Inc., a Delaware
corporation ("Secured Party").
1. Definitions. In addition to the terms defined elsewhere in this Pledge
Agreement, the following terms shall have the following meanings for
purposes of this Pledge Agreement:
(a) The term "Event of Default" shall have the meaning ascribed thereto in
Section 9 of this Pledge Agreement.
(b) The term "Note" means and includes that certain Note, dated of even
date herewith, in the original principal amount of $661,251.00, which
Pledgor has executed, or is the process of executing payable to the
order of Secured Party, together with any and all concurrent or
subsequent extensions, amendments, or modifications thereto.
(c) The term "Obligations" means and includes all obligations of Pledgor
to Secured Party pursuant to the terms of the Note and this Pledge
Agreement.
(d) The term "Pledged Shares" means shares of common stock, par value $.01
per share, of Secured Party being purchased by Pledgor with a portion
of the proceeds of the Note pursuant to that certain Stock Option
Agreement dated July 14, 1987 between Machine Vision International
Corporation, a Michigan corporation and predecessor in interest of the
Company, between Pledgor and Secured Party.
2. Pledge. Upon the terms hereof, Pledgor hereby pledges and grants to
Secured Party a lien on and security interest (the "Security Interest") in
and to all of the following instruments and property of Pledgor (all of the
following being herein sometimes called the "Collateral"):
(a) The pledged shares together with all certificates,options, rights or
other distributions issued as an addition to, in substitution or in
exchange for, or on account of, any such shares (collectively, the
"Stock");
(b) All securities and other property, rights or interests of any
description at any time issued or issuable as an addition to, in
substitution or exchange for, with respect
Stock Pledge Agreement - Page 1
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to, incident to or in lieu of such shares described in Section 2(a)
hereof or with respect to, incident to or in lieu of the Collateral
(i) due to any dividend, stock-split, stock dividend or distribution
on dissolution, on partial or total liquidation, or other corporate
reorganization or for any other reason; (ii) in connection with a
reduction of capital, capital surplus or paid-in surplus; or (iii) in
connection with any spin-off, split-off, reclassification,
readjustment, merger, consolidation, sale of assets, combination of
shares or any other plan of distribution affecting the companies which
have issued the shares described in Section 2(a) hereof;
(c) Any and all proceeds, monies, income and benefits arising from or by
virtue of, and all dividends and distributions (cash or otherwise)
payable and/or distributable with respect to, all or any of the shares
or other securities and rights and interests described in clauses (a)
through (c) of this Section 2.
3. Obligations Secured. This Pledge Agreement and the Security Interest
granted hereby secure the prompt satisfaction of the Obligations.
4. Warranties. Pledgor represents and warrants that each of the following
statements is true and correct: (a) Pledgor is the legal and beneficial
owner of the Stock; (b) the Collateral is owned by Pledgor free of any
pledge, mortgage, hypothecation, lien, charge, encumbrance or security
interest or purchase right or option on the part of any third person in
such Collateral, except the Security Interest; (c) Pledgor has the full
power, authority and legal right to transfer and pledge the Collateral free
of any encumbrances and without obtaining the consent of any other person
or entity; and (d) upon delivery of the Collateral to Secured Party, this
Pledge Agreement will create a valid and perfected first priority lien
upon, and security interest in, the Collateral and the proceeds thereof,
securing the payment of the Obligations. The delivery at any time by
Pledgor to Secured Party of Collateral shall constitute a representation
and warranty by Pledgor under this Pledge Agreement that, with respect to
the Collateral and each item thereof, Pledgor is the owner of the
Collateral and the matters heretofore warranted in clauses (a) through (d)
of this Section 4 are true and correct.
5. Covenants. Pledgor covenants to do or not to do, as the case may be, each
of the following; provided, however, in the case of a negative covenant,
Pledgor will not undertake any of the proscribed activities without the
prior written consent of Secured Party: (a) from time to time to do all
other acts or things as Secured Party may reasonably request in order more
fully to evidence and perfect the Security Interest; (b) after the
occurrence of an Event of Default, to promptly pay to Secured Party the
amount of all court costs and reasonable attorneys' fees incurred by
Secured Party hereunder; and (c) except as otherwise provided herein, to
promptly deliver to Secured Party, in the exact form received, all
securities and other property described in Section 2(b) and Section 2(c)
hereof which come into the possession, custody or control of Pledgor.
Pledgor further
Stock Pledge Agreement - Page 2
<PAGE>
covenants and agrees that, without the prior written consent of Secured
Party, Pledgor shall not assign or transfer Pledgor's rights in the
Collateral, or create any other lien or security in or otherwise encumber
any of the Collateral, or permit any of the Collateral to ever be or become
subject to any lien, attachment, execution, sequestration, other legal or
equitable process, or any lien or encumbrance of any kind. Notwithstanding
anything contained in the preceding sentence to the contrary, Pledgor shall
be free to sell the Stock provided that Pledgor complies with all
applicable laws in effecting such sale and in the event of any such sale
the shares of Stock will be released from the Security Interest created
pursuant to this Pledge Agreement upon repayment to Secured Party of the
prorata loan amount attributable to such shares set forth in the Term Note
(appropriately adjusted to reflect stock splits, subdivisions, combinations
and similar transactions), in cash, for each share of Stock sold. All
assignments and endorsements by Pledgor shall be in such form and substance
as may be satisfactory to Secured Party. Should any covenant, duty or
agreement of Pledgor fail to be performed in accordance with its terms
hereunder, Secured Party may, but shall never be obligated to, perform or
attempt to perform such covenant, duty or agreement on behalf of Pledgor,
and any amount expended by Secured Party in such performance or attempted
performance shall become part of the Obligations, except to the extent
prohibited by applicable law, and Pledgor agrees to pay such amount
promptly to Secured Party.
6. Adjustments and Distributions Concerning Collateral. Should the Collateral,
or any part hereof, ever be converted in any manner by its issuer into
another type of property or any money or other proceeds ever be paid or
delivered to Pledgor as a result of Pledgor's rights in the Collateral,
then in any such event (except as provided in Section 7 hereof), all such
property, money and other proceeds shall immediately be and become part of
the Collateral, and Pledgor covenants to forthwith pay and deliver all such
property, money or other proceeds so received to Secured Party; and, if
Secured Party deems it necessary and so requests, to endorse properly or
assign any and all such other proceeds to Secured Party and to deliver to
Secured Party and all such other proceeds which require perfection by
possession under the Uniform Commercial Code of the State of Texas or other
appropriate jurisdiction (the "UCC"). With respect to any of such property
of a kind requiring an additional security agreement, financing statement
or other writing to perfect a security interest therein in favor of Secured
Party, Pledgor will forthwith execute and deliver to Secured Party whatever
Secured Party shall deem necessary or proper for such purpose.
7. Cash Dividends and Voting Rights. Unless an Event of Default has occurred
and shall not have been waived by Secured Party, Pledgor is entitled (a) to
exercise all voting rights with respect to the Collateral and (b) to
receive for his own use cash dividends on the Collateral. Upon the
occurrence of an Event of Default, Secured Party may exercise all voting
rights with respect to the Collateral subject to all applicable rules and
regulations
Stock Pledge Agreement - Page 3
<PAGE>
and may require any such cash dividends to be delivered to Secured Party as
additional Collateral hereunder or applied toward the satisfaction of the
Obligations.
8. Registration of Collateral in Name of Secured Party. Upon the occurrence
of an Event of Default, Secured Party, at its option, may have any or all
of the Collateral registered in its name or that of its nominee.
Immediately and without further notice, upon the occurrence of an Event of
Default, whether or not the Collateral has been registered in the name of
Secured Party or its nominee, Secured Party or its nominee shall have, with
respect to the Collateral, the right to exercise all voting rights and all
conversion, exchange, subscription or other rights, privileges or options
pertaining thereto including, without limitation, the right to exchange any
or all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, or upon the
exercise by such issuer of any right, privilege, or option pertaining to
any of the Collateral, and, in connection therewith, to deliver any of the
Collateral to any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it;
but Secured Party shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for any failure
to do so, delay in doing so, or depreciation in the value of the Collateral
by reason of doing so. Thereafter, at such time as (a) all Events of
Defaults have been cured, and (b) there exists no condition, event or act
which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default, then the right to exercise all voting
rights with respect to the Collateral shall revert to Pledgor.
9. Events of Default. The occurrence of any one or more of the following
shall constitute an Event of Default: (a) the failure of Pledgor to make
timely payment of any portion of the principal or interest of the Note or
any portion of the Obligations when due subject to any applicable cure
periods: (b) the failure of Pledgor to perform fully, faithfully and
promptly any material agreements, covenants and conditions contained in
this Pledge Agreement; (c) the levy against the Collateral, or any
substantial part thereof, or any execution, attachment, sequestration,
distraint warrant or other like or similar writ or the attachment to the
Collateral of any lien other than the Security Interest; (d) the entry of a
decree or order for relief by a court having jurisdiction in the premises
in respect of Pledgor in an involuntary case under the United States
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or appointing
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of Pledgor or of any substantial part of Pledgor's
property, or ordering the winding-up or liquidation of the affairs of
Pledgor and the continuance of any such decree or order unstayed and in
effect for a period of thirty (30) consecutive days; or (e) the
commencement by Pledgor of a voluntary case under the United States
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or
the consent, by
Stock Pledge Agreement - Page 4
<PAGE>
Pledgor to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Pledgor for any substantial part of Pledgor's property, or the
making by Pledgor of any assignment for the benefit of creditors, or the
inability of Pledgor generally to pay his debts as such debts become due,
or the taking of any action by Pledgor in furtherance of any of the
foregoing.
10. Remedies. Upon the occurrence of an Event of Default, Secured Party may
then exercise any and all rights to which it is entitled under the UCC or
otherwise. Pledgor hereby grants to Secured Party an irrevocable proxy
coupled with an interest to exercise as to such Collateral, upon the
occurrence of an Event of Default, all rights, powers and remedies of an
owner and all of the rights, powers and remedies hereinabove set forth, the
proxy herein granted to exist until all of the Obligations have been paid
and performed in full.
11. Application of Proceeds. The proceeds of any disposition of the Collateral
or other action by Secured Party shall be applied (a) first, to the cost
and expenses incurred in connection therewith or incidental thereto or to
the care or safekeeping of any of the Collateral or in any way relating to
the rights of Secured Party hereunder, including reasonable attorneys' fees
and legal expenses; (b) then, to the satisfaction of the Obligations in
such order and to such portions as Secured Party may elect; (c) then, to
the payment of any other amounts required by applicable law; and (d) then,
to Pledgor to the extent of any surplus proceeds. Secured Party shall be
under no duty to exercise or to withhold the exercise of any of the rights,
powers, privileges and options expressly or implicitly granted to Secured
Party in this Pledge Agreement, and shall not be responsible for any
failure to do so or delay in so doing.
12. Notification of Sale. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is
to be made, shall be sent to Pledgor and to any other person entitled under
the UCC to notice; provided that if any of the Collateral threatens to
decline speedily in value or is of the type customarily sold on a
recognized market, Secured Party may sell or otherwise dispose of the
Collateral without notification, advertisement, or other notice of any
kind. It is agreed that notice sent or given not less than five (5)
calendar days prior to the taking of the action to which the notice relates
is reasonable notification and notice for the purposes of this paragraph.
13. Satisfaction of Obligations and Release of Collateral. Upon the
satisfaction in full of the Obligations, and the satisfaction of all
additional costs and expenses of Secured Party as provided herein, this
Pledge Agreement shall terminate, and Secured Party shall deliver to
Pledgor, at Pledgor's expense, such of the Collateral as shall not have
been sold or otherwise applied pursuant to this Pledge Agreement which
Secured Party shall have in its possession. In addition and
notwithstanding any provision contained in this Pledge
Stock Pledge Agreement - Page 5
<PAGE>
Agreement to the contrary, Pledgor shall be entitled to obtain the release
of shares of Stock from the Security Interest created hereby by paying to
Secured Party the per share Purchase Price set forth in the Purchase
Agreement (appropriately adjusted to reflect stock splits, subdivisions,
combinations and similar transactions), in cash, for each share of Stock
which Pledgor desires be released from the terms hereof and upon receipt of
such payment, Secured Party will promptly release the applicable number of
shares of Stock to Pledgor subject, where applicable, to the terms of the
Purchase Option in the Purchase Agreement.
14. Notices. Any notice required or permitted by this Pledge Agreement shall
be deemed to have been given or made when deposited with a reputable
overnight delivery service, such as Federal Express, or in the United
States Mail, postage prepaid, certified mail, return receipt requested,
addressed to the parties at the addresses set forth opposite their
respective signatures below, or, if hand delivered, upon actual receipt.
15. Duties of Secured Party. Secured Party's duty with respect to any
Collateral now or hereafter in the possession of Secured Party is solely to
use reasonable care in the custody and preservation of the Collateral.
Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if the Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property, it being understood that Secured Party shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to
any Collateral or for informing Pledgor of such matters whether or not
Secured Party has or is deemed to have any knowledge of such matters.
Secured Party shall not be required to take any steps necessary to preserve
any rights in the Collateral against prior parties or to protect, perfect,
preserve or maintain any security interest given to secure the Collateral,
nor to invest any cash constituting Collateral in any account or security
or otherwise.
16. Indemnification. Pledgor hereby agrees to indemnify and to hold Secured
Party harmless from and against any loss (excluding any loss attributable
to a diminution in the value of the Stock), claim, demand or expense
(including attorneys' fees) by reason, or in any manner related to, the
Collateral, including any such claim as may arise by reason of any alleged
breach of warranty concerning the Collateral, by reason of the failure of
Pledgor to comply with any applicable state, federal or foreign statute,
rule, regulation, order or decree, or by reason of Secured Party's efforts
to enforce payment of the Obligations, including expenses incurred in
satisfying any applicable securities laws.
17. Expenses. Pledgor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Secured Party may incur in
connection with the custody or preservation of, or the sale of, collection
from or other realization upon, any of the
Stock Pledge Agreement - Page 6
<PAGE>
Collateral, the exercise or enforcement of any of the rights of Secured
Party hereunder, or the failure by Pledgor to perform or observe any of the
provisions hereof.
18. Security Interest Absolute. All rights of Secured Party and the pledge and
Security Interest hereunder, and all obligations of Pledgor hereunder,
shall be absolute and unconditional in all respects and shall not be
released, diminished, impaired, or affected for any reason, including
without limitation the occurrence of any one or more of the following
events: (a) the taking or accepting of any other security or assurance for
any or all of the Obligations; (b) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Obligations; (c)
any exchange, release, subordination, surrender, loss or nonperfection of
any other collateral at any time existing in connection with any or all of
the Obligations, or any release or amendment or waiver of or consent to
departure from any guaranty, or other security, for all or any of the
Obligations; (d) any neglect, delay, omission, failure, or refusal of
Secured Party to take or prosecute any action in connection with this
Pledge Agreement: (e) the insolvency or bankruptcy of Pledgor: or (f) any
other circumstance which might otherwise constitute a defense available to
a discharge of Pledgor in respect of the Obligations of Pledgor in respect
of this Pledge Agreement.
19. Waivers. Except as otherwise required by the terms hereof or by applicable
law, Pledgor hereby waives all notices, including but not limited to
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of Intent to accelerate, notice of acceleration and all
other notices.
20. Remedies Cumulative. The rights and remedies provided herein are
cumulative and are in addition to and not exclusive of any rights or
remedies provided by law, including, but without limitation, the rights and
remedies of a secured party under the UCC.
21. Amendment. This Pledge Agreement may be amended only by written instrument
signed by all parties.
22. Invalidity of Any Provision. The invalidity of any one or more phrases,
sentences, clauses, paragraphs or sections hereof shall not affect the
remaining portions of the Pledge Agreement, all of which are being inserted
conditionally on its being held legally valid. In the event that any one
or more of the phrases, sentences, clauses, paragraphs or sections
contained herein should be invalid, or should operate to render this Pledge
Agreement invalid, then this Pledge Agreement shall be construed as if such
invalid phrase or phrases, sentence or sentences, clause or clauses,
paragraph or paragraphs, or section or sections had not been inserted.
23. Assignment. This Pledge Agreement shall apply to, inure to the benefit of
and be binding upon and enforceable against the parties hereto and their
respective legal representatives,
Stock Pledge Agreement - Page 7
<PAGE>
successors and assigns, except that the rights and obligations of Pledgor
contained herein shall not be assignable.
24. Governing Law. The substantive laws of the State of Texas shall govern the
validity, construction, enforcement and interpretation of this Pledge
Agreement, unless the laws of another state or jurisdiction require the
application of the laws of such state or jurisdiction. This Pledge
Agreement is performable in Dallas County, Texas.
IN WITNESS WHEREOF, the parties have executed this Pledge Agreement as of
the date and year first above written.
/s/ DANIEL F. BROWN
-------------------------------------------
Daniel F. Brown
Address:
SECURED PARTY:
Address: COMPUCOM SYSTEMS, INC.
7171 Forest Lane By: /s/ M. LAZANE SMITH
Dallas, Texas 75230 ----------------------------------------
Its: Sr. VP Finance, CFO
Stock Pledge Agreement - Page 8
<PAGE>
EXHIBIT 10(rr)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated October 24, 1997 is made and entered into by and
between CompuCom Systems, a Delaware corporation ("Employer"), and Edward R.
Anderson, an executive employee of Employer ("Executive").
RECITALS
A. Executive is employed by Employer in an executive capacity and
Executive has agreed to continue as an employee of Employer pursuant to the
terms of this Agreement.
B. Employer desires that the Executive continue as an employee of Employer
in order to provide the necessary leadership and senior management skills that
are important to the success of Employer. Employer believes that retaining the
Executive's services as an employee of Employer and the benefits of his business
experience are of material importance to Employer and Employer's shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of Executive's continued employment by
Employer and the mutual promises and covenants contained herein the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive intend by
this Agreement to specify the terms and conditions of Executive's employment
relationship with Employer.
SECTION I. General Duties of Employer and Executive.
1.1. Employer agrees to employ Executive and Executive agrees to accept
employment by Employer and to serve Employer in an executive capacity upon the
terms and conditions set forth herein. The duties and responsibilities of
Executive shall include those described for the particular position held by
Executive while employed hereunder in the Bylaws of Employer or other documents
of Employer, and shall also include such other or additional duties, for
Employer, as may from time-to-time be assigned to Executive by the Board of
Directors of Employer or any duly authorized committee thereof. The executive
capacity that Executive shall hold while this Agreement is in effect shall be
that position as determined by the Board of Directors, or any duly authorized
committee thereof, from time to time in its sole discretion. While employed
hereunder, the initial position that Executive shall hold (until such time as
such position may be changed as aforesaid) shall be the position of President,
Chief Executive Officer.
1.2. While employed hereunder, Executive shall obey the lawful directions
of the Board of Directors of Employer, or any duly authorized committee thereof,
and shall use his best efforts to promote the interests of Employer and to
maintain and to promote the reputation thereof. While employed hereunder,
Executive shall devote his time, efforts, skills and attention to the affairs of
Employer in order that he shall faithfully perform his duties and obligations
hereunder and such as may be assigned to or vested in him by the Board of
Directors of Employer, or any duly authorized committee thereof.
<PAGE>
1.3. While this Agreement is in effect, Executive may from time to time
engage in any businesses or activities that do not compete directly and
materially with Employer, provided that such businesses or activities do not
materially interfere with his performance of the duties assigned to him in
compliance with this Agreement by the Board of Directors of Employer or any duly
authorized committee thereof. In any event, Executive is permitted to (i)
invest his personal assets as a passive investor in such form or manner as
Executive may choose in his discretion, (ii) participate in various charitable
efforts, and (iii) serve as a director or officer of any other entity or
organization that does not compete with Employer.
SECTION 2. Compensation and Benefits.
2.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$30,000. Any increases to such rate shall be at the discretion of the
Compensation Committee duly elected by the Board of Directors. The salary shall
be payable in equal bi-weekly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions applied
generally to employees of Employer for insurance and other employee benefit
plans. In addition, Executive shall be entitled to participate in the Company's
Management Incentive Compensation Plan ("MICP) at a rate of 120% of base salary.
This bonus will be subject to the parameters set forth by the Compensation
Committee each year and the amount of payment will be determined by such
Committee. In addition, for the initial three years of this Agreement, provided
extensions are made, Executive will receive a lump sum bonus of $175,000 each
year, subject to required payroll and withholding deductions, on May 15, 1998,
1999 and 2000, respectively.
2.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Executive shall be reimbursed for such
costs and expenses in accordance with Employer's normal expense reimbursement
policy.
2.3. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a guaranteed renewable term life insurance
policy having a death benefit of not less than $1 million. Unless prohibited by
any policy or plan under which such insurance is provided, Executive will have
the right to purchase at Executive's cost additional coverage under such policy
or plan. Employer will not permit, even in the event of termination of this
Agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
2.4. Executive shall have the right to participate in any additional
compensation, medical and dental insurance plan, 401(k) plan, other benefit,
life insurance or other plan or arrangement of Employer now or hereafter
existing for the benefit of executive officers of Employer.
<PAGE>
2.5. Executive shall be entitled to such vacation (in no event less than
three (3) weeks per year), holidays and other paid or unpaid leaves of absence
as consistent with Employer's normal policies or as otherwise approved by the
Board of Directors.
2.6. Executive agrees to submit to and Company agrees to pay for one
complete physical examination on an annual basis at the Cooper Clinic (or
similar medical clinic) in Dallas, Texas.
2.7. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a comprehensive long-term disability insurance
policy. Employer will not permit, even in the event of termination of this
agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
SECTION 3. Preservation of Business; Fiduciary Responsibility.
3.1. Executive shall use his best efforts to preserve the business and
organization of Employer, to keep available to Employer the services of present
employees and to preserve the business relations of Employer. Executive shall
not commit any act, or in any way assist others to commit any act, that would
injure Employer. So long as the Executive is employed by Employer, Executive
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon his service and office.
SECTION 4. Initial Term; Extensions of the Term.
4.1. The term of this Agreement shall commence on the effective date
hereof and shall end on October 24, 1999.
4.2. The term of this Agreement shall automatically be extended for
additional one-year periods commencing on October 24, 1999 and continuing each
year thereafter, unless Executive gives written notice to Employer on or before
September 24, 1998 and each year thereafter on September 24th, of his intention
not to extend this Agreement.
SECTION 5. Termination other than by Expiration of the Term. Employer or
Executive may terminate Executive's employment under this Agreement at any time,
but only on the following terms:
5.1. Executive may terminate his employment under this Agreement at any
time upon at least thirty (30) days prior written notice to Employer.
5.2. Employer may terminate Executive's employment under this Agreement
at any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of Employer that "due cause" exists for
the termination of the employment relationship. As used herein, the term "due
cause" shall mean any of the following events:
(i) any intentional misapplication by Executive of Employer's
funds, or any other act of dishonesty injurious to Employer committed by
Executive; or
<PAGE>
(ii) Executive's conviction of a crime involving moral turpitude;
or
(iii) Executive's use or possession of any controlled substance
or chronic abuse of alcoholic beverages; or
(iv) Executive's breach, non-performance or non-observance of any
of the terms of this Agreement if such breach, non-performance or non-
observance shall continue beyond a period of ten (10) business days
immediately after notice thereof by Employer to Executive; or
(v) any other action by the Executive involving willful and
deliberate malfeasance or gross negligence in the performance of
Executive's duties.
5.3. In the event Executive is incapacitated by accident, sickness or
otherwise so as to render Executive mentally or physically incapable of
performing the services required under SECTION 1 of this Agreement for a period
of one hundred eighty (180) consecutive business days, and such incapacity is
confirmed by the written opinion of two (2) practicing medical doctors licensed
by and in good standing in the state in which they maintain offices for the
practice of medicine, upon the expiration of such period or at any time
reasonably thereafter, or in the event of Executive's death, Employer may
terminate Executive's employment under this Agreement upon giving Executive or
his legal representative written notice at least thirty (30) days' prior to the
termination date. Executive agrees, after written notice by the Board of
Directors of Employer or a duly authorized committee or officer of Employer, to
submit to examinations by such practicing medical doctors selected by the Board
of Directors of Employer or a duly authorized committee or officer of Employer.
5.4. Employer may terminate Executive's employment under this Agreement
at any time for any reason whatsoever, even without "due cause," by giving a
written notice of termination to Executive, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
SECTION 6. Effect of Termination.
6.1. In the event the employment relationship is terminated (a) by
Executive upon thirty (30) days' written notice pursuant to SUBSECTION 5.1
hereof, (b) by Employer for "due cause" pursuant to SUBSECTION 5.2 hereof, or
(c) by Executive breaching this Agreement by refusing to continue his employment
and failing to give the requisite thirty (30) days' written notice, all
compensation and benefits shall cease as of the date of termination, other than:
(i) those benefits that are provided by retirement and benefit plans and
programs specifically adopted and approved by Employer for Executive that are
earned and vested by the date of termination, (ii) Executive's pro rata annual
salary through the date of termination, and (iii) those benefits required by law
to be made available to terminating employees.
6.2. If Executive's employment relationship is terminated pursuant to
SUBSECTION 5.3 hereof due to Executive's incapacity or death, Executive (or, in
the event of Executive's death, Executive's legal representative) will be
entitled to those benefits that are provided by
<PAGE>
retirement and benefits plans and programs specifically adopted and approved by
Employer for Executive that are earned and vested at the date of termination
and, even though no longer employed by Employer, shall continue to receive the
salary compensation (payable in the manner as prescribed in the second sentence
of SUBSECTION 2.1) for the remaining term of this Agreement.
6.3. If Employer (i) terminates the employment of Executive other than
pursuant to SUBSECTION 5.2 hereof for "due cause" or other than for a disability
or death pursuant to SUBSECTION 5.3 hereof, (ii) demotes the Executive to a
position below the level of the position described in SUBSECTION 1.1, or (iii)
decreases Executive's salary below the level or reduces the employee benefits
and perquisites below the level provided for by the terms of SECTION 2 hereof,
other than as a result of any amendment or termination of any employee and/or
executive benefit plan or arrangement, which amendment or termination is
applicable to all qualifying executives of Employer, then such action by
Employer, unless consented to in writing by Executive, shall be deemed to be a
constructive termination by Employer of Executive's employment (a "Constructive
Termination"). In the event of a Constructive Termination, the Executive shall
be entitled to receive, in a lump sum within ten (10) days after the date of the
Constructive Termination, an amount equal to the salary that would have been
paid for the remainder of the Agreement. The Company will also provide
outplacement assistance to Executive in an amount not to exceed $25,000, if so
desired by the Executive.
6.4. For purposes of this SECTION 6, the term "salary" shall mean the sum
of (i) the annual rate of compensation provided to Executive by Employer under
SUBSECTION 2.1 immediately prior to the Constructive Termination plus (ii) the
average annual cash bonuses or other cash incentive compensation paid to
Executive (based upon most recent position) by Employer for the two calendar
year period immediately preceding the year in which there shall occur a
Constructive Termination, excluding the lump sum bonus of $175,000 to be paid
for two (2) years described under SUBSECTION 2.1.
6.5. In the event of a Constructive Termination, all other rights and
benefits Executive may have under the employee and/or executive benefit plans
and arrangements of Employer generally shall be determined in accordance with
the terms and conditions of such plans and arrangements.
SECTION 7. Covenants of Noncompetition.
7.1. Executive acknowledges that he has received and/or will receive
specialized knowledge and training from Employer during the term of this
Agreement, and that such knowledge and training would provide an unfair
advantage if used to compete with Employer. In order to avoid such unfair
advantage, Executive agrees that while he is employed with Employer and for a
period equal to two (2) years after the date of a voluntary termination of
employment (the "Restricted Period"), he shall not, directly or indirectly,
individually or as an owner, lender, consultant, adviser, independent
contractor, employee, partner, officer, director or in any other capacity, alone
or in association with other persons or entities, own, assist, finance,
participate in or be employed by any business or other endeavor that is in any
way in competition with Employer in any business at the time the termination
occurs, including, but not limited to, computer resellers, service companies
providing the same services as
<PAGE>
CompuCom, and computer retail companies. Executive also agrees that, for the
Restricted Period, he will not, either directly or indirectly, solicit any
employee or other independent contractor of the Employer to terminate his
employment or contract with the Employer. In the event of a Constructive
Termination or termination due to change in control, Executive will not compete
for the same period of time for which payments are received in accordance with
SUBSECTION 6.3.
7.2. Executive represents and acknowledges to Employer that his
education, experience and/or abilities are such that he can obtain employment in
a non-competing business and that enforcement of the terms of this Agreement
through temporary and/or permanent injunctive relief will not prevent him from
earning a livelihood and will not cause an undue hardship upon him. Executive
hereby acknowledges that $10,000 of his monthly salary described in SUBSECTION
2.1 is paid by Employer in consideration for Executive's agreement to be bound
by the non-competition provisions of this Agreement.
SECTION 8. Change in Control.
8.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Employer occurs and, within six
months from the date of the Change in Control, the Executive voluntarily
terminates his employment under SUBSECTION 5.1, then the Executive, even though
no longer employed by the Employer, shall be entitled to all payments provided
in SUBSECTION 6.3, payable in a lump sum within thirty (30) days after the date
of termination.
8.2. If a Change of Control occurs during the course of this Agreement,
the Board of Directors will cause to vest, within ten (10) days of the effective
date of the Change of Control, all remaining unvested stock options, both
CompuCom and ClientLink, granted to Executive.
8.3. For the purposes of this Agreement, the term "Change in Control" of
the Employer shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended) other than any Employer employee stock ownership plan or the
Employer, becomes the beneficial owner (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Employer representing 25% or more of the combined voting power
of the Employer's then outstanding securities, (ii) the Board ceases to consist
of a majority of Continuing Directors (as defined below) or (iii) a person (as
defined in CLAUSE (i) above) acquires (or, during the 12-month period ending on
the date for the most recent acquisition by such person or group of persons, has
acquired) gross assets of Employer that have an aggregate market value greater
than or equal to over 50% of the fair market value of all of the gross assets of
Employer immediately prior to such acquisition or acquisitions. It is clearly
understood, however, that no change of control will be considered as having
occurred as long as Safeguard Scientifics, Inc. continues to maintain effective
control of the Company, evidenced by their ownership of more than 35% of the
outstanding common shares of the Company and/or the effective control of the
Board of Directors. It is also understood that the
<PAGE>
change of control provisions will not become effective if Executive is offered
and willingly accepts a position in a newly formed Company in the event a merger
occurs.
8.4. For purposes of this Agreement, a "Continuing Director" shall mean a
member of the Board of Directors who either (i) is a member of the Board of
Directors at the date of this Agreement or (ii) is nominated or appointed to
serve as a director by a majority of the then Continuing Directors.
8.5. Notwithstanding any other provision of this Agreement, if (a) there
is a change in the ownership or effective control of the Employer or (b) in the
ownership of a substantial portion of the assets of the Employer within the
meaning of Section 280G of the Internal Revenue Code ("Section 280G"), the
payments to be paid to the Executive in the nature of compensation to be
received by or for the benefit of the Executive and contingent upon such event
(the "Termination Payments") would create an "excess parachute payment" within
the meaning of Section 280G, then the Employer shall make the Termination
Payments in substantially equal installments, the first installment being due
within thirty (30) days after the date of termination and each subsequent
installment being due on January 31 of each year, such that the aggregate
present value of all Termination Payments, whether pursuant to this Agreement or
otherwise, will be as close as possible to two times the Executive's base salary
and average cash bonuses, within the meaning of Section 280G. It is the
intention of this SUBSECTION 8.5 to avoid excise taxes on the Executive under
Section 4999 of the Code and the disallowance of a deduction to the Employer
pursuant to Section 280G. However, if the Company makes an error which triggers
the excise tax, Executive will be entitled to receive a gross up to cover
incremental taxes owed due to such error.
SECTION 9. Inventions.
9.1. Any and all inventions, product, discoveries, improvements,
processes, formulae, manufacturing methods or techniques, designs or styles
(collectively, "Inventions") made, developed or created by Executive, alone or
in conjunction with others, during regular hours of work or otherwise, during
the term of Executive's employment with the Employer and for a period of two (2)
years thereafter that may be directly or indirectly related to the business of,
or tests being carried out by, the Employer, or any of its subsidiaries, shall
be promptly disclosed by Executive to Employer and shall be the Employer's
exclusive property.
9.2. Executive will, upon the Employer's request and without additional
compensation, execute any documents necessary or advisable in the opinion of the
Employer's counsel to direct the issuance of patents to the Employer with
respect to Inventions that are to be the Employer's exclusive property under
this SECTION 9 or to vest in the Employer title to such Inventions; the expense
of securing any patent, however, shall be borne by the Employer.
9.3. Executive will hold for the Employer's sole benefit any Invention
that is to be the Employer's exclusive property under this SECTION 9 for which
no patent is issued.
9.4. Executive grants to Employer a royalty-free, nonexclusive
irrevocable license for any Inventions developed prior to the employment with
the Company that he has not reserved that are used by Executive in the
performance of his duties for the Employer.
<PAGE>
Employee represents and warrants that any work produced by Executive will not,
to the best knowledge of Executive, infringe on any other person's or entity's
copyright or other proprietary rights, and Employee will hold the Employer
harmless from any claims and losses based on such infringements.
SECTION 10. No Violation. Executive represents that he is not bound by
any agreement with any former employer or other party that would be violated by
Executive's work for Employer.
SECTION 11. Confidential and Proprietary Information.
11.1. Executive acknowledges and agrees that he will not, without the
prior written consent of the Employer, at any time during the term of this
Agreement or any time thereafter, except as may be required by competent legal
authority or as required by the Employer to be disclosed in the course of
performing Executive's duties under this Agreement for the Employer, use or
disclose to any person, firm or other legal entity, any confidential records,
secrets or information related to the Employer or any parent, subsidiary or
affiliated person or entity (collectively, "Confidential Information").
Confidential Information shall include, without limitation, information about
the Employer's Inventions, customer lists, customer contracts, vendor contracts,
and non-public financial information. Executive acknowledges and agrees that
all Confidential Information of Employer and/or its affiliates that he has
acquired, or may acquire, were received, or will be received in confidence and
as a fiduciary of the Employer. Executive will exercise utmost diligence to
protect and guard such Confidential Information.
11.2. Executive agrees that he will not take with him upon the termination
of this Agreement, any document or paper, or any photocopy or reproduction or
duplication thereof, relating to any Confidential Information.
SECTION 12. Return of Employer's Property. Upon the termination of this
Agreement or whenever requested by Employer, Executive shall immediately deliver
to Employer all property in his possession or under his control belonging to
Employer, in good condition, ordinary wear and tear excepted.
SECTION 13. Injunctive Relief. Executive acknowledges that the breach, or
threatened breach, by the Executive of the provisions of this Agreement shall
cause irreparable harm to the Employer, which harm cannot be fully redressed by
the payment of damages to the Employer. Accordingly, the Employer shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an inunction enjoining or restraining Executive from any violation or
threatened violation of this Agreement.
<PAGE>
SECTION 14. Arbitration.
14.1. As concluded by the parties and as evidenced by the signatures of
the parties, any dispute between the parties arising out of any section of this
Agreement except SECTIONS 7, 9 and 11, will, on the written notice of one party
served on the other, be submitted to arbitration complying with and governed by
the provisions of the Texas General Arbitration Act, Articles 224 through 238-20
of the Texas Revised Civil Statutes.
14.2. Each of the parties will appoint one person as an arbitrator to hear
and determine the dispute and if they are unable to agree, then the two
arbitrators so chosen will select a third impartial arbitrator whose decision
will be final and conclusive upon the parties.
14.3. The expenses of such arbitration will be borne by the losing party
or in such proportion as the arbitrators decide.
14.4 A material or anticipatory breach of any section of this Agreement
shall not release either party from the obligations of this SECTION 14.
SECTION 15. Miscellaneous.
15.1. If any provision contained in this Agreement is for any reason held
to be totally invalid or unenforceable, such provision will be fully severable,
and in lieu of such invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in terms as may
be valid and enforceable.
15.2 All notices and other communications required or permitted hereunder
or necessary or convenient in connection herewith shall be in writing and shall
be deemed to have been given when mailed by registered mail or certified mail,
return receipt requested, as follows (provided that notice of change of address
shall be deemed given only when received):
if to Employer:
7171 Forest Lane
Dallas, Texas 75230
Attn: Chief Financial Officer
if to Executive:
or to such other names or addresses as Employer or Executive, as the case may
be, shall designate by notice to the other party hereto in the manner specified
in this SUBSECTION 15.2.
<PAGE>
15.3. This Agreement shall be binding upon and inure to the benefit of
Employer, its successors, legal representatives and assigns, and upon Executive,
his heirs, executors, administrators, representatives, legatees and assigns.
Executive agrees that his rights and obligations hereunder are personal to him
and may not be assigned without the express written consent of Employer.
15.4. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Executive
and Employer with respect to the subject matter of this Agreement. This
Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative of
Employer or by any written agreement unless signed by an officer of Employer who
is expressly authorized by Employer to execute such document.
15.5. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and Employer and Executive agree that the
state and federal courts situated in Dallas County, Texas shall have personal
jurisdiction over Employer and Executive to hear all disputes arising under this
Agreement. This agreement is to be at least partially performed in Dallas
County, Texas, and, as such, Employer and Executive agree that venue shall be
proper with the state or federal courts in Dallas County, Texas to hear such
disputes. In the event either Employer or Executive is not able to effect
service of process upon the other with respect to such disputes, Employer and
Executive expressly agree that the Secretary of State for the State of Texas
shall be an agent of Employer and/or the Executive to receive service of process
on behalf of Employer and/or the Executive with respect to such disputes.
15.6. Executive and Employer shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
15.7. The descriptive headings of the several sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
15.8. If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover reasonable attorneys' fees and costs of suit in addition to any other
relief awarded such prevailing party.
15.9. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
15.10 Executive acknowledges that Executive has had the opportunity to
read this Agreement and discuss it with advisors and legal counsel, if Executive
has so chosen. Executive also acknowledges the importance of this Agreement and
that Employer is relying on this Agreement in continuing an employment
relationship with Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
<PAGE>
EMPLOYER:
CompuCom Systems, Inc.
By: /s/ M. LAZANE SMITH
---------------------------
Its: SVP-Finance, CFO
--------------------------
EXECUTIVE:
/s/ EDWARD R. ANDERSON
------------------------------
Edward R. Anderson
<PAGE>
EXHIBIT 10(ss)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated October 24, 1997 is made and entered into by and
between CompuCom Systems, a Delaware corporation ("Employer"), and M. Lazane
Smith, an executive employee of Employer ("Executive").
RECITALS
A. Executive is employed by Employer in an executive capacity and
Executive has agreed to continue as an employee of Employer pursuant to the
terms of this Agreement.
B. Employer desires that the Executive continue as an employee of Employer
in order to provide the necessary leadership and senior management skills that
are important to the success of Employer. Employer believes that retaining the
Executive's services as an employee of Employer and the benefits of her business
experience are of material importance to Employer and Employer's shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of Executive's continued employment by
Employer and the mutual promises and covenants contained herein the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive intend by
this Agreement to specify the terms and conditions of Executive's employment
relationship with Employer.
SECTION I. General Duties of Employer and Executive.
1.1. Employer agrees to employ Executive and Executive agrees to accept
employment by Employer and to serve Employer in an executive capacity upon the
terms and conditions set forth herein. The duties and responsibilities of
Executive shall include those described for the particular position held by
Executive while employed hereunder in the Bylaws of Employer or other documents
of Employer, and shall also include such other or additional duties, for
Employer, as may from time-to-time be assigned to Executive by the Board of
Directors of Employer or any duly authorized committee thereof. The executive
capacity that Executive shall hold while this Agreement is in effect shall be
that position as determined by the Board of Directors, or any duly authorized
committee thereof, from time to time in its sole discretion. While employed
hereunder, the initial position that Executive shall hold (until such time as
such position may be changed as aforesaid) shall be the position of Sr. Vice
President Finance, Chief Financial Officer.
1.2. While employed hereunder, Executive shall obey the lawful directions
of the Board of Directors of Employer, or any duly authorized committee thereof,
and shall use her best efforts to promote the interests of Employer and to
maintain and to promote the reputation thereof. While employed hereunder,
Executive shall devote her time, efforts, skills and attention to the affairs of
Employer in order that she shall faithfully perform her duties and obligations
hereunder and such as may be assigned to or vested in her by the Board of
Directors of Employer, or any duly authorized committee thereof.
<PAGE>
1.3. While this Agreement is in effect, Executive may from time to time
engage in any businesses or activities that do not compete directly and
materially with Employer, provided that such businesses or activities do not
materially interfere with her performance of the duties assigned to her in
compliance with this Agreement by the Board of Directors of Employer or any duly
authorized committee thereof. In any event, Executive is permitted to (i)
invest her personal assets as a passive investor in such form or manner as
Executive may choose in her discretion, (ii) participate in various charitable
efforts, and (iii) serve as a director or officer of any other entity or
organization that does not compete with Employer.
SECTION 2. Compensation and Benefits.
2.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$16,667. Any increases to such rate shall be at the discretion of the
Compensation Committee duly elected by the Board of Directors. The salary shall
be payable in equal bi-weekly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions applied
generally to employees of Employer for insurance and other employee benefit
plans. In addition, Executive shall be entitled to participate in the Company's
Management Incentive Compensation Plan ("MICP) at a rate of 50% of base salary.
This bonus will be subject to the parameters set forth by the Compensation
Committee each year and the amount of payment will be determined by such
Committee.
2.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Executive shall be reimbursed for such
costs and expenses in accordance with Employer's normal expense reimbursement
policy.
2.3. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a guaranteed renewable term life insurance
policy having a death benefit of not less than $1 million. Unless prohibited by
any policy or plan under which such insurance is provided, Executive will have
the right to purchase at Executive's cost additional coverage under such policy
or plan. Employer will not permit, even in the event of termination of this
Agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
2.4. Executive shall have the right to participate in any additional
compensation, medical and dental insurance plan, 401(k) plan, other benefit,
life insurance or other plan or arrangement of Employer now or hereafter
existing for the benefit of executive officers of Employer.
2.5. Executive shall be entitled to such vacation (in no event less than
three (3) weeks per year), holidays and other paid or unpaid leaves of absence
as consistent with Employer's normal policies or as otherwise approved by the
Board of Directors.
<PAGE>
2.6. Executive agrees to submit to and Company agrees to pay for one
complete physical examination on an annual basis at the Cooper Clinic (or
similar medical clinic) in Dallas, Texas.
2.7. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a comprehensive long-term disability insurance
policy. Employer will not permit, even in the event of termination of this
agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
SECTION 3. Preservation of Business; Fiduciary Responsibility.
3.1. Executive shall use her best efforts to preserve the business and
organization of Employer, to keep available to Employer the services of present
employees and to preserve the business relations of Employer. Executive shall
not commit any act, or in any way assist others to commit any act, that would
injure Employer. So long as the Executive is employed by Employer, Executive
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon her service and office.
SECTION 4. Initial Term; Extensions of the Term.
4.1. The term of this Agreement shall commence on the effective date
hereof and shall end on October 23, 1999.
4.2. The term of this Agreement shall automatically be extended for
additional one-year periods commencing on October 24, 1999 and continuing each
year thereafter, unless Executive gives written notice to Employer on or before
September 24, 1998 and each year thereafter on September 24th, of her intention
not to extend this Agreement.
SECTION 5. Termination other than by Expiration of the Term. Employer or
Executive may terminate Executive's employment under this Agreement at any time,
but only on the following terms:
5.1. Executive may terminate her employment under this Agreement at any
time upon at least thirty (30) days prior written notice to Employer.
5.2. Employer may terminate Executive's employment under this Agreement at
any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of Employer that "due cause" exists for
the termination of the employment relationship. Executive retains the right to
challenge the "due cause" finding to the Board, which will require a 2/3
majority vote of the Board to enforce. As used herein, the term "due cause"
shall mean any of the following events:
(i) any intentional misapplication by Executive of Employer's
funds, or any other act of dishonesty injurious to Employer committed by
Executive; or
<PAGE>
(ii) Executive's conviction of a crime involving moral turpitude; or
(iii) Executive's use or possession of any controlled substance or
chronic abuse of alcoholic beverages in violation of the then Company
policy; or
(iv) Executive's breach, non-performance or non-observance of
any of the terms of this Agreement if such breach, non-performance or
non-observance shall continue beyond a period of ten (10) business
days immediately after notice thereof by Employer to Executive; or
(v) any other action by the Executive involving willful and
deliberate malfeasance or gross negligence in the performance of
Executive's duties that resulted in material harm to the Company.
5.3. In the event Executive is incapacitated by accident, sickness or
otherwise so as to render Executive mentally or physically incapable of
performing the services required under SECTION 1 of this Agreement for a period
of one hundred eighty (180) consecutive business days, and such incapacity is
confirmed by the written opinion of two (2) practicing medical doctors licensed
by and in good standing in the state in which they maintain offices for the
practice of medicine, upon the expiration of such period or at any time
reasonably thereafter, or in the event of Executive's death, Employer may
terminate Executive's employment under this Agreement upon giving Executive or
her legal representative written notice at least thirty (30) days' prior to the
termination date. Executive agrees, after written notice by the Board of
Directors of Employer or a duly authorized committee or officer of Employer, to
submit to examinations by such practicing medical doctors selected by the Board
of Directors of Employer or a duly authorized committee or officer of Employer.
5.4. Employer may terminate Executive's employment under this Agreement at
any time for any reason whatsoever, even without "due cause," by giving a
written notice of termination to Executive, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
SECTION 6. Effect of Termination.
6.1. In the event the employment relationship is terminated (a) by
Executive upon thirty (30) days' written notice pursuant to SUBSECTION 5.1
hereof, (b) by Employer for "due cause" pursuant to SUBSECTION 5.2 hereof, or
(c) by Executive breaching this Agreement by refusing to continue her employment
and failing to give the requisite thirty (30) days' written notice, all
compensation and benefits shall cease as of the date of termination, other than:
(i) those benefits that are provided by retirement and benefit plans and
programs specifically adopted and approved by Employer for Executive that are
earned and vested by the date of termination, (ii) Executive's pro rata annual
salary through the date of termination, and (iii) those benefits required by law
to be made available to terminating employees.
6.2. If Executive's employment relationship is terminated pursuant to
SUBSECTION 5.3 hereof due to Executive's incapacity or death, Executive (or, in
the event of Executive's death, Executive's legal representative) will be
entitled to those benefits that are provided by
<PAGE>
retirement and benefits plans and programs specifically adopted and approved by
Employer for Executive that are earned and vested at the date of termination
and, even though no longer employed by Employer, shall receive, in a lump sum
payment within thirty (30) days of the Executive's death or incapacity, the
salary compensation (payable in the manner as prescribed in the second sentence
of SUBSECTION 2.1) which would have been due for the remaining term of this
Agreement.
6.3. If Employer (i) terminates the employment of Executive other than
pursuant to SUBSECTION 5.2 hereof for "due cause" or other than for a disability
or death pursuant to SUBSECTION 5.3 hereof, (ii) demotes the Executive to a
position below the level of the position described in SUBSECTION 1.1, or (iii)
decreases Executive's salary below the level or reduces the employee benefits
and perquisites below the level provided for by the terms of SECTION 2 hereof,
other than as a result of any amendment or termination of any employee and/or
executive benefit plan or arrangement, which amendment or termination is
applicable to all qualifying executives of Employer, then such action by
Employer, unless consented to in writing by Executive, shall be deemed to be a
constructive termination by Employer of Executive's employment (a "Constructive
Termination"). In the event of a Constructive Termination, the Executive shall
be entitled to receive, in a lump sum within ten (10) days after the date of the
Constructive Termination, an amount equal to the salary that would have been
paid for the remainder of the Agreement. The Company will also provide
outplacement assistance to Executive in an amount not to exceed $25,000, if so
desired by the Executive.
6.4. For purposes of this SECTION 6, the term "salary" shall mean the sum
of (i) the annual rate of compensation provided to Executive by Employer under
SUBSECTION 2.1 immediately prior to the Constructive Termination plus (ii) the
average annual cash bonuses or other cash incentive compensation paid to
Executive by Employer (based upon Executive's most recent position) for the two
calendar year period immediately preceding the year in which there shall occur a
Constructive Termination.
6.5. In the event of a Constructive Termination, all other rights and
benefits Executive may have under the employee and/or executive benefit plans
and arrangements of Employer generally shall be determined in accordance with
the terms and conditions of such plans and arrangements.
SECTION 7. Covenants of Non-competition.
7.1. Executive acknowledges that she has received and/or will receive
specialized knowledge and training from Employer during the term of this
Agreement, and that such knowledge and training would provide an unfair
advantage if used to compete with Employer. In order to avoid such unfair
advantage, Executive agrees that while she is employed with Employer and for a
period of two (2) years after the date of termination of employment (the
"Restricted Period"), she shall not, directly or indirectly, individually or as
an owner, lender, consultant, adviser, independent contractor, employee,
partner, officer, director or in any other capacity, alone or in association
with other persons or entities, own, assist, finance, participate in or be
employed by any business or other endeavor that is in any way in competition
with Employer in any business at the time the termination occurs, including, but
not limited to, computer resellers, service companies providing the same
services as CompuCom, and
<PAGE>
computer retail companies. Executive also agrees that, for the Restricted
Period, she will not, either directly or indirectly, solicit any employee or
other independent contractor of the Employer to terminate her employment or
contract with the Employer. In the event of a Constructive Termination or
termination due to change in control, Executive will not compete for the same
period of time for which payments are received in accordance with SUBSECTION
6.3.
7.2. Executive represents and acknowledges to Employer that her education,
experience and/or abilities are such that she can obtain employment in a non-
competing business and that enforcement of the terms of this Agreement through
temporary and/or permanent injunctive relief will not prevent her from earning a
livelihood and will not cause an undue hardship upon her. Executive hereby
acknowledges that $5,000 of her monthly salary described in SUBSECTION 2.1 is
paid by Employer in consideration for Executive's agreement to be bound by the
non-competition provisions of this Agreement.
SECTION 8. Change in Control.
8.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Employer occurs and, within six
months from the date of the Change in Control, the Executive voluntarily
terminates her employment under SUBSECTION 5.1, then the Executive, even though
no longer employed by the Employer, shall be entitled to all payments provided
in SUBSECTION 6.3, payable in a lump sum within ten (10) days after the date of
termination.
8.2. If a Change of Control occurs during the course of this Agreement,
the Board of Directors will cause to vest, within ten (10) days of the effective
date of the Change of Control, all remaining unvested stock options (CompuCom
and ClientLink) granted to Executive.
8.3. For the purposes of this Agreement, the term "Change in Control" of
the Employer shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended) other than any Employer employee stock ownership plan or the
Employer or Safeguard Scientifics, Inc., becomes the beneficial owner (as such
term is used in Section 13(d) of the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Employer representing 25%
or more of the combined voting power of the Employer's then outstanding
securities, (ii) the Board ceases to consist of a majority of Continuing
Directors (as defined below) or (iii) a person (as defined in CLAUSE (i) above)
acquires (or, during the 12-month period ending on the date for the most recent
acquisition by such person or group of persons, has acquired) gross assets of
Employer that have an aggregate market value greater than or equal to over 50%
of the fair market value of all of the gross assets of Employer immediately
prior to such acquisition or acquisitions. It is clearly understood, however,
that no change of control will be considered as having occurred as long as
Safeguard Scientifics, Inc. continues to maintain effective control of the
Company, evidenced by their ownership of more than 35% of the outstanding common
shares of the Company and/or the effective control of the Board of
<PAGE>
Directors. It is also understood that in the event a merger involving the
Employer occurs, the change of control provisions will not become effective if
Executive is offered and willingly accepts a permanent position in the surviving
entity.
8.4. For purposes of this Agreement, a "Continuing Director" shall mean a
member of the Board of Directors who either (i) is a member of the Board of
Directors at the date of this Agreement or (ii) is nominated or appointed to
serve as a director by a majority of the then Continuing Directors.
8.5. Notwithstanding any other provision of this Agreement, if (a) there
is a change in the ownership or effective control of the Employer or (b) in the
ownership of a substantial portion of the assets of the Employer within the
meaning of Section 280G of the Internal Revenue Code ("Section 280G"), the
payments to be paid to the Executive in the nature of compensation to be
received by or for the benefit of the Executive and contingent upon such event
(the "Termination Payments") would create an "excess parachute payment" within
the meaning of Section 280G, then the Employer shall make the Termination
Payments in substantially equal installments, the first installment being due
within thirty (30) days after the date of termination and each subsequent
installment being due on January 31 of each year, such that the aggregate
present value of all Termination Payments, whether pursuant to this Agreement or
otherwise, will be as close as possible to two times the Executive's base salary
and average cash bonuses, within the meaning of Section 280G. It is the
intention of this SUBSECTION 8.5 to avoid excise taxes on the Executive under
Section 4999 of the Code and the disallowance of a deduction to the Employer
pursuant to Section 280G. However, if the Company makes an error which triggers
the excise tax, Executive will be entitled to receive a gross up to cover
incremental taxes owed due to such error.
SECTION 9. Inventions.
9.1. Any and all inventions, product, discoveries, improvements,
processes, formulae, manufacturing methods or techniques, designs or styles
(collectively, "Inventions") made, developed or created by Executive, alone or
in conjunction with others, during regular hours of work or otherwise, during
the term of Executive's employment with the Employer and for a period of two (2)
years thereafter that may be directly or indirectly related to the business of,
or tests being carried out by, the Employer, or any of its subsidiaries, shall
be promptly disclosed by Executive to Employer and shall be the Employer's
exclusive property.
9.2. Executive will, upon the Employer's request and without additional
compensation, execute any documents necessary or advisable in the opinion of the
Employer's counsel to direct the issuance of patents to the Employer with
respect to Inventions that are to be the Employer's exclusive property under
this SECTION 9 or to vest in the Employer title to such Inventions; the expense
of securing any patent, however, shall be borne by the Employer.
9.3. Executive will hold for the Employer's sole benefit any Invention
that is to be the Employer's exclusive property under this SECTION 9 for which
no patent is issued.
9.4. Executive grants to Employer a royalty-free, nonexclusive irrevocable
license for any Inventions developed prior to the employment with the Company
that he has not
<PAGE>
reserved that are used by Executive in the performance of his duties for the
Employer. Employee represents and warrants that any work produced by Executive
will not, to the best knowledge of Executive, infringe on any other person's or
entity's copyright or other proprietary rights, and Employee will hold the
Employer harmless from any claims and losses based on such infringements.
SECTION 10. No Violation. Executive represents that she is not bound by
any agreement with any former employer or other party that would be violated by
Executive's work for Employer.
SECTION 11. Confidential and Proprietary Information.
11.1. Executive acknowledges and agrees that she will not, without the
prior written consent of the Employer, at any time during the term of this
Agreement or any time thereafter, except as may be required by competent legal
authority or as required by the Employer to be disclosed in the course of
performing Executive's duties under this Agreement for the Employer, use or
disclose to any person, firm or other legal entity, any confidential records,
secrets or information related to the Employer or any parent, subsidiary or
affiliated person or entity (collectively, "Confidential Information").
Confidential Information shall include, without limitation, information about
the Employer's Inventions, customer lists, customer contracts, vendor contracts,
and non-public financial information. Executive acknowledges and agrees that
all Confidential Information of Employer and/or its affiliates that he has
acquired, or may acquire, were received, or will be received in confidence and
as a fiduciary of the Employer. Executive will exercise utmost diligence to
protect and guard such Confidential Information.
11.2. Executive agrees that she will not take with her upon the
termination of this Agreement, any document or paper, or any photocopy or
reproduction or duplication thereof, relating to any Confidential Information.
SECTION 12. Return of Employer's Property. Upon the termination of this
Agreement or whenever requested by Employer, Executive shall immediately deliver
to Employer all property in her possession or under her control belonging to
Employer, in good condition, ordinary wear and tear excepted.
SECTION 13. Injunctive Relief. Executive acknowledges that the breach, or
threatened breach, by the Executive of the provisions of this Agreement shall
cause irreparable harm to the Employer, which harm cannot be fully redressed by
the payment of damages to the Employer. Accordingly, the Employer shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an injunction enjoining or restraining Executive from any violation
or threatened violation of this Agreement.
<PAGE>
SECTION 14. Arbitration.
14.1. As concluded by the parties and as evidenced by the signatures of
the parties, any dispute between the parties arising out of any section of this
Agreement except SECTIONS 7, 9 and 11, will, on the written notice of one party
served on the other, be submitted to arbitration complying with and governed by
the provisions of the Texas General Arbitration Act, Articles 224 through 238-20
of the Texas Revised Civil Statutes.
14.2. Each of the parties will appoint one person as an arbitrator to hear
and determine the dispute and if they are unable to agree, then the two
arbitrators so chosen will select a third impartial arbitrator whose decision
will be final and conclusive upon the parties.
14.3. The expenses of such arbitration will be borne by the losing party
or in such proportion as the arbitrators decide.
14.4 A material or anticipatory breach of any section of this Agreement
shall not release either party from the obligations of this SECTION 14.
SECTION 15. Miscellaneous.
15.1. If any provision contained in this Agreement is for any reason held
to be totally invalid or unenforceable, such provision will be fully severable,
and in lieu of such invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in terms as may
be valid and enforceable.
15.2 All notices and other communications required or permitted hereunder
or necessary or convenient in connection herewith shall be in writing and shall
be deemed to have been given when mailed by registered mail or certified mail,
return receipt requested, as follows (provided that notice of change of address
shall be deemed given only when received):
if to Employer:
7171 Forest Lane
Dallas, Texas 75230
Attn: Chief Financial Officer
if to Executive:
or to such other names or addresses as Employer or Executive, as the case may
be, shall designate by notice to the other party hereto in the manner specified
in this SUBSECTION 15.2.
<PAGE>
15.3. This Agreement shall be binding upon and inure to the benefit of
Employer, its successors, legal representatives and assigns, and upon Executive,
her heirs, executors, administrators, representatives, legatees and assigns.
Executive agrees that her rights and obligations hereunder are personal to her
and may not be assigned without the express written consent of Employer.
15.4. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Executive
and Employer with respect to the subject matter of this Agreement. This
Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative of
Employer or by any written agreement unless signed by an officer of Employer who
is expressly authorized by Employer to execute such document.
15.5. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and Employer and Executive agree that the
state and federal courts situated in Dallas County, Texas shall have personal
jurisdiction over Employer and Executive to hear all disputes arising under this
Agreement. This agreement is to be at least partially performed in Dallas
County, Texas, and, as such, Employer and Executive agree that venue shall be
proper with the state or federal courts in Dallas County, Texas to hear such
disputes. In the event either Employer or Executive is not able to effect
service of process upon the other with respect to such disputes, Employer and
Executive expressly agree that the Secretary of State for the State of Texas
shall be an agent of Employer and/or the Executive to receive service of process
on behalf of Employer and/or the Executive with respect to such disputes.
15.6. Executive and Employer shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
15.7. The descriptive headings of the several sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
15.8. If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover reasonable attorneys' fees and costs of suit in addition to any other
relief awarded such prevailing party.
15.9. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
15.10 Executive acknowledges that Executive has had the opportunity to
read this Agreement and discuss it with advisors and legal counsel, if Executive
has so chosen. Executive also acknowledges the importance of this Agreement and
that Employer is relying on this Agreement in continuing an employment
relationship with Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
<PAGE>
EMPLOYER:
CompuCom Systems, Inc.
By: /s/ EDWARD R. ANDERSON
------------------------
Its: President and CEO
------------------------
EXECUTIVE:
/s/ M. LAZANE SMITH
-----------------------------
M. Lazane Smith
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 21
Subsidiaries of the Registrant
Exclusive of inactive subsidiaries, the Registrant as of March 16, 1998 had
the following subsidiaries:
Place of
Name Incorporation
---- -------------
CompuCom Properties, Inc. Delaware
The Computer Factory Inc. New York
ClientLink, Inc. Delaware
International Micronet Systems California
CSI Funding, Inc. Delaware
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CompuCom Systems, Inc.:
We consent to incorporation by reference in the Registration
Statements (No. 33-2304, No. 33-30175, No. 33-30056, No. 33-39914, No.
33-43275, No. 33-63307, No. 33-63309, No. 33-76832 and No. 33-85268) on
Form S-8 and the Registration Statements (No. 33-43367, No. 33-47002, No.
33-64341, No. 33-78746, No. 33-78756 and No. 333-12609) on Form S-3 of
CompuCom Systems, Inc. of our report dated January 27, 1998, related to
the consolidated balance sheets of CompuCom Systems, Inc. and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows and related schedule
for each of the years in the three-year period ended December 31, 1997,
which report appears in the December 31, 1997 annual report on Form 10-K
of CompuCom Systems, Inc.
KPMG PEAT MARWICK LLP
Dallas, Texas
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,456
<SECURITIES> 0
<RECEIVABLES> 179,813
<ALLOWANCES> 2,672
<INVENTORY> 197,958
<CURRENT-ASSETS> 382,435
<PP&E> 86,878
<DEPRECIATION> 23,519
<TOTAL-ASSETS> 462,590
<CURRENT-LIABILITIES> 147,266
<BONDS> 97,400
0
15,000
<COMMON> 461
<OTHER-SE> 194,739
<TOTAL-LIABILITY-AND-EQUITY> 462,590
<SALES> 1,699,268
<TOTAL-REVENUES> 1,949,802
<CGS> 1,523,034
<TOTAL-COSTS> 1,682,257
<OTHER-EXPENSES> 199,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,947
<INCOME-PRETAX> 58,658
<INCOME-TAX> 23,464
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,194
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.71
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
These Schedules contain restated financial information extracted from the
Consolidated Balance Sheets as of December 31, 1995 and 1996, March 31, 1996,
June 30, 1996, and September 30, 1996 and the Consolidated Statements of
Operations for the twelve months ended December 31, 1995 and 1996, three months
ended March 31, 1996, six months ended June 30, 1996, and nine months ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 4,249 4,320 4,238 4,273
4,290
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 267,305 379,872 269,197 330,287
342,118
<ALLOWANCES> 2,234 2,274 2,217 2,541
2,332
<INVENTORY> 196,531 233,464 231,178 212,066
253,944
<CURRENT-ASSETS> 468,002 618,890 504,407 546,452
602,199
<PP&E> 29,900 71,125 31,318 35,750
67,621
<DEPRECIATION> 11,647 16,817 12,806 14,097
15,053
<TOTAL-ASSETS> 508,704 692,985 544,251 587,966
673,643
<CURRENT-LIABILITIES> 243,047 276,766 254,072 251,464
272,125
<BONDS> 123,364 239,450 141,946 175,578
234,408
0 0 0 0
0
15,000 15,000 15,000 15,000
15,000
<COMMON> 441 449 444 447
448
<OTHER-SE> 122,900 155,649 128,842 141,522
146,385
<TOTAL-LIABILITY-AND-EQUITY> 508,704 692,985 544,251 587,966
673,643
<SALES> 1,334,442 1,816,504 377,983 845,800
1,295,750
<TOTAL-REVENUES> 1,441,597 1,995,191 413,334 922,089
1,420,570
<CGS> 1,193,513 1,635,653 339,814 760,558
1,164,420
<TOTAL-COSTS> 1,266,689 1,754,228 362,083 811,547
1,248,722
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 12,290 14,764 2,935 6,442
10,368
<INCOME-PRETAX> 34,335 50,616 9,603 30,160
38,401
<INCOME-TAX> 13,665 20,145 3,841 12,064
15,360
<INCOME-CONTINUING> 0 0 0 0
0
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 20,670 30,471 5,762 18,096
23,041
<EPS-PRIMARY> 0.54 0.66 0.13 0.40
0.50
<EPS-DILUTED> 0.45 0.61 0.12 0.36
0.46
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
These Schedules contains restated financial information extracted from the
Consolidated Balance Sheets as of March 31, 1997, June 30, 1997, and September
30, 1997 and the Consolidated Statements of Operation for the three months ended
March 31, 1997, six months ended June 30, 1997, and nine months ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 4,251 4,250 4,235
<SECURITIES> 0 0 0
<RECEIVABLES> 312,601 207,397 226,695
<ALLOWANCES> 2,425 2,479 2,557
<INVENTORY> 192,298 226,095 169,744
<CURRENT-ASSETS> 510,242 438,912 401,096
<PP&E> 75,163 83,171 89,635
<DEPRECIATION> 18,648 20,571 22,775
<TOTAL-ASSETS> 587,076 520,827 485,568
<CURRENT-LIABILITIES> 196,553 204,215 146,820
<BONDS> 207,615 125,644 137,198
0 0 0
15,000 15,000 15,000
<COMMON> 455 455 460
<OTHER-SE> 161,961 169,794 179,806
<TOTAL-LIABILITY-AND-EQUITY> 587,076 520,827 485,568
<SALES> 375,605 803,958 1,241,047
<TOTAL-REVENUES> 431,889 923,109 1,424,613
<CGS> 336,673 723,927 1,116,993
<TOTAL-COSTS> 372,411 798,669 1,232,049
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,245 6,670 10,709
<INCOME-PRETAX> 8,120 21,420 37,189
<INCOME-TAX> 3,248 8,568 14,875
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,872 12,852 22,314
<EPS-PRIMARY> 0.10 0.27 0.47
<EPS-DILUTED> 0.10 0.26 0.45
</TABLE>
