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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, 1999 Commission File Number 0-14371
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 the Nasdaq National Market) on
February 23, 2000 was approximately $88.5 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 February
23, 2000 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 February
23, 2000 was 48,412,446 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relative to the May 18, 2000 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
ITEM 1 BUSINESS
(A) GENERAL DEVELOPMENT OF THE BUSINESS
INTRODUCTION
Founded in 1987, CompuCom Systems, Inc., together with its subsidiaries
("CompuCom" or "the Company"), is a leading provider of technology management
services and information technology products 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.
Technology management services and products are sold through a direct sales
force to over 5,200 business customers nationwide.
To meet its customers' needs, CompuCom offers a variety of technology
management 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 95 and Windows 98. In
addition, CompuCom is an authorized dealer of major personal 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").
The Company has been profitable on a full year basis since its
inception and has achieved net revenue growth of 19% compounded over the past
five years. However, during 1998, the Company experienced a significant decline
in its level of profitability, recording its first quarterly net loss in the
fourth quarter 1998 as a result of a $16.4 million (pretax) restructuring
charge. During the first quarter of 1999, the Company recorded its first net
loss from operations, but returned to profitability during the second quarter of
1999. CompuCom believes the key to improving its net earnings performance is the
expansion of its higher margin services business, as well as focusing on
lowering its cost structure through expense control and participation in
programs designed to increase inventory turns. 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
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. In addition,
many of the Company's clients are enhancing their technology infrastructure to
implement and enhance their ability to communicate and transact business over
the Internet.
CompuCom operates primarily in three business segments - 1) sales of
computer products, 2) services - which include technology support services,
network integration and configuration, and 3) customized application programming
primarily through its majority-owned subsidiary ClientLink, Inc. In April 1999,
the Company completed the merger of ClientLink with E-Certify Corporation (the
"E-Certify merger"). The combined operations of ClientLink and E-Certify will be
conducted under the name E-Certify, Inc. The Company accounts for the ongoing
operation of E-Certify using the equity method. Separate business segment
information is presented for each of these segments.
RECENT DEVELOPMENTS
To implement its strategy to focus on the growth of the services
business, the Company hired J. Edward Coleman in December of 1999 as its chief
executive officer. Prior to joining CompuCom, Mr. Coleman was employed by
Computer Sciences Corporation as its Business Development Executive and Director
of Marketing from 1995 until joining the Company in 1999.
In May 1999, the Company purchased the Technology Acquisition Services
Division ("TASD acquisition") from ENTEX Information Services, Inc. ("ENTEX")
for approximately $137 million. As part of the acquisition, the Company hired
certain of ENTEX's national sales force located throughout major US markets, and
acquired its corporate account center personnel in Mason, Ohio.
During 1999, the Company continued its restructuring plan, implemented
in the fourth quarter of 1998, by closing 65 facilities and reducing the
Company's work force by 10%. Under this new business strategy, the Company
moved to a virtual office model, where its sales and service personnel are
equipped with remote communications tools, including internet access, pagers,
and cellular telephones, which enable them to remotely access and communicate
with the Company's systems.
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On April 13, 1999, the Company completed the merger of its majority-
owned subsidiary, ClientLink, Inc. ("ClientLink") with E-Certify Corporation
("E-Certify"). The combined operations of ClientLink and E-Certify will be
conducted under the name E-Certify, Inc.
FORWARD LOOKING STATEMENTS
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. Specifically, the ability
to grow product and service revenue may not continue; the improvement in service
margins may not continue; the ability to continue to decrease costs may not
continue; the Company may not be able to find additional ways to leverage costs
and reduce costs further; the expansion of the services business may not
continue or be as great as anticipated. Other factors that could cause actual
results to differ materially are: competitive pricing and supply, the impact of
the manufacturer's shift to direct fulfillment programs may be more significant
than anticipated, short-term interest rate fluctuations, general economic
conditions, employee turnover and possible future litigation, the impact of Y2K
and the related uncertainties may have on future revenue and earnings as well as
the risks and uncertainties set forth from time to time in the Company's other
public reports and filings and public statements. Recipients of this document
are cautioned to consider these risks and uncertainties and to not place undue
reliance on these forward-looking statements. See "General Description of
Business", "Competition", "Principal Suppliers" and "Dependence Upon Major
Vendors and Other Suppliers" 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.
ITEM 1(b) Financial Information about Operating Segments
Revenues from external customers, gross margin, operating earnings and
total assets for each segment of the Company's business for the three-year
period ended December 31, 1999 is contained in Footnote 6 to the Consolidated
Financial Statements titled "Segment Information" on page F-11 of this Form 10-K
and is incorporated herein by reference.
ITEM 1(c) Narrative Description of Business
GENERAL DESCRIPTION OF BUSINESS
CompuCom is a leading single-source provider of technology management
services and products designed to enhance the productivity of information
technology products primarily for Fortune 1000 clients. CompuCom markets its
product procurement, configuration, field engineering, network management,
remote help desk and technology management services primarily through its direct
sales force and service personnel. The Company focuses on meeting the business
objectives of large and medium corporate businesses, which accounted for the
majority of the Company's net revenue in 1999. However, no one customer
accounted for greater than 10% of such revenues in the sale of distributed
desktop computer products or services segments. Order backlog is not considered
to be a meaningful indicator of future business prospects due to the short order
fulfillment cycle.
CompuCom is authorized by various vendors to sell computer products
through its virtual, direct sales force located in or near major metropolitan
areas throughout the United States. Each geographic area typically includes
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 well as provide other technology
services the customer may require. As of December 31, 1999, the Company employed
approximately 220 full-time direct sales representatives who sell both services
and products. The Company's sales force is compensated with a base salary and
commissions based on net revenue, gross margin and other relevant factors.
CompuCom's corporate headquarters and operations campus is located in
Dallas, Texas. Essentially all the Company's financial and administrative
functions, including information services, service and sales support, help desk
services, human resources, product management, finance, executive management,
and one of the two corporate account centers, are located in the two buildings
that comprise this facility.
The Company has expanded and enhanced its use of information systems
for its internal operations as well as in providing services to its customers.
The Company's integrated information systems ("IS") utilize client/server,
distributed and Internet technologies. Internal systems are supported by a
proactively managed wide area network based on frame relay technology. During
1999, CompuCom deployed a virtual private network (VPN) capability that allows
its employees to remotely access CompuCom's systems using secure network
connections.
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To further enhance the quality and efficiency of its information
systems, CompuCom has implemented and continued to enhance its award winning,
state-of-the-art data warehouse. The data warehouse provides a repository of
information which increases the accessibility of summarized, historical
information about services, products, customer activity and vendors to both
customers and employees. The Company continues a strong commitment to the
utilization of Internet technology for both its internal use and its customers'
use. Increasing volumes of its data warehouse access and operational
transactions are conducted via Internet and Intranet web pages.
Through the use of CompuCom's information systems, its customers may
create custom configurations and price quotations from internet-based catalogs
and place orders over the Internet. Customers may look up information regarding
previously placed orders and check the status of product orders being processed
and shipped. In addition, its customers may also access help desk and service
dispatch information regarding problem tickets and work orders. CompuCom also
provides "datamarts" that allow its customers to obtain ongoing data downloads
of activity relating to assets, product catalogs, accounts payable tracking,
invoice history and order tracking.
CompuCom's information systems include support for electronic
"business-to-business" transactions with customers and suppliers using
electronic data interchange (EDI) technology. During 1999, CompuCom deployed
its first customer interface using Open Buying on the Internet (OBI) standards.
This technology allows a customer to create an order using CompuCom's Web
Services Internet pages, deliver the order to the customer's purchasing
systems for approval, and then submit the order over the Internet using
EDI-based data formats. CompuCom is currently working to extend its Web
Services offering to include XML (Extensible Markup Language) capabilities and
interfaces to commercial procurement engines such as Ariba and Commerce One.
All CompuCom employees are provided access to the Company's Intranet.
This capability provides rapid access to organization charts, policies,
procedures and reports. The Intranet is also used to communicate and distribute
information to employees about Company events and news.
During 1999, the Company continued the implementation of its airtime
system, through which field service engineers are able to directly report time
and activities from remote locations using special wireless communication
features. The use of this system helps ensure more timely and accurate reporting
of each engineer's hours spent on a work order or project.
COMPETITION
The Company's industry is characterized by intense competition,
primarily in the areas of price, product availability and breadth of services
and product line. The Company's marketing network competes for potential clients
with numerous service providers, resellers and distributors. Many established
original equipment manufacturers (including some of the Company's vendors),
direct marketers, systems integrators and resellers of distributed desktop or
networking products, including InaCom Corporation and Microage, Inc., compete
with the Company in the configuration and distribution of computer systems and
equipment. In addition, direct marketers have had a pricing advantage over
resellers such as CompuCom. To help combat the direct marketers' pricing
advantage, the Company and its major vendors have continued to focus on
developing and implementing strategies designed to reduce costs. 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 this consolidation will continue in 2000.
CompuCom also expects the major manufacturers of the products CompuCom resells
will continue to pursue a more direct selling model. As a result of both of
these factors, CompuCom may face fewer but larger and better-financed
competitors, possibly resulting in a reduction in product revenue. In the highly
fragmented computer services business, the Company competes with several larger
competitors (including some of the Company's vendors) in addition to other
corporate resellers pursuing service opportunities, and smaller computer
services companies. Some of these competitors have financial, technical,
manufacturing, sales, marketing and other resources that are substantially
greater than those of CompuCom. There can be no assurance the Company will be
able to continue to compete successfully with new or existing competition.
THE COMPANY'S EMPLOYEES
The Company employed approximately 5,000 full-time employees as of
December 31, 1999. The Company offers its full-time employees health, long-term
disability, dental and life insurance benefits and has a 401(k) plan and an
employee stock purchase plan for eligible employees. None of the employees is
covered by a collective bargaining agreement. The Company considers its
relations with employees to be good.
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SALE OF COMPUTER PRODUCTS SEGMENT
The Company provides procurement services for sophisticated
technologies consisting of personal computer products, networking products,
peripherals, software and management technology services to its customers. It is
an authorized dealer of Cisco, Compaq, HP, IBM, Intel, Microsoft, Novell, 3Com
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 integrates a variety of manufacturers' products into various
desktop and server 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, mobile
computing, WEB computing and network needs as opposed to manufacturers' direct
sales organizations which typically configure or market desktop, mobile
computing, WEB computing and network systems that include products only from
that particular manufacturer.
The Company provides product support to its customers primarily through
its two Corporate Account Centers ("CAC") located in Dallas, Texas and Mason,
Ohio. CAC 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 CAC is to
provide greater support to CompuCom's customers while allowing the direct sales
force to focus on soliciting new business and providing the necessary support
for customers' more complex service needs. At the end of 1999, the Company
employed approximately 685 CAC personnel.
During 1996, to meet customers' global business needs, CompuCom helped
form 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 computer products and technology management services
worldwide.
CompuCom's primary configuration and distribution center is located in
Paulsboro, New Jersey. The center is composed of two sites, one of 300,000
square feet and the other, opened in October 1999, of 148,000 square feet. In
addition, in April 1999 the Company began operating a 97,000 square foot
configuration and distribution center in Raleigh, North Carolina located near
IBM's manufacturing facility. This facility was expanded to 168,000 square feet
in September 1999. Also, in May 1999, the Company opened a 12,800 square foot
facility in Irvine, California located near the Toshiba manufacturing facility.
During 1999, the Company operated a 104,000 square foot facility in Stockton,
California until it was closed in May 1999, and a 78,000 square foot co-location
facility on the Compaq campus in Houston, Texas. In February 2000, the Company
closed its Houston co-location facility. The configuration and distribution
center personnel 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.
CompuCom's distribution, configuration, return merchandise and product
management 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 products and services being
delivered.
Principal Suppliers
A significant part of CompuCom's net revenues are derived from sales of
personal computer and networking 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. 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 non-renewal, 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 non-renewal, of any of those dealer agreements and believes
that its relationships with Compaq, IBM and HP are satisfactory.
The Company purchases products from IBM and HP at pricing levels that the
Company believes are the lowest prices available to those vendors' respective
resellers, with the exception of special bid pricing for specific large customer
accounts. The Company purchases the majority of its Compaq products from other
suppliers through Compaq's Distributor Alliance Program (DAP), which became
effective in August 1999. 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 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
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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 2000 or that the Company will continue to participate in any of
these programs at the same level as in 1999.
Sales of Compaq, IBM and HP products accounted for approximately 30%,
21% and 16%, respectively, of the Company's 1999 product revenues compared to
32%, 18% and 18%, respectively, in 1998 and 32%, 19% and 14%, respectively, in
1997.
Due to the rapid delivery requirements of its customers and to assure
itself of a sufficient allotment of products from suppliers, the Company
maintains inventory funded through its credit facilities and vendor credit.
CompuCom's major suppliers at times provide price protection programs that are
intended to reduce the risk of inventory devaluation by absorbing price declines
associated with aging product life cycles. However, the suppliers have reduced
the number of days price protection is generally in effect. CompuCom has
focused on ways to reduce its costs by reducing its inventory levels and
improving inventory turns. As part of this cost control focus, in February
2000, the Company closed its 78,000 square foot co-location facility in Houston,
Texas. CompuCom 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%. CompuCom did not incur significant restocking fees in 1999.
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 products that
render components unavailable or necessitate product allocations among
resellers. While certain shortages existed throughout 1999, the Company
believes the product availability issues are a result of the present dynamics of
the personal computer industry as a whole, which include shortened product life
cycles and increased frequency of new product introductions into the
marketplace. While the Company believes that product unavailability or product
allocations will not be materially disruptive to the Company due to the breadth
of alternative product lines available to it, there can be no assurance that
unexpected levels of such interruptions will not have a material adverse effect
on the Company's business.
The Company's product margins as a percentage of product revenue
decreased to 8.1% in 1999 as compared to 9.8% in 1998, due primarily to
heightened competition from direct marketers and other resellers. The Company
believes that gross margins will continue to be reactive to industry-wide
changes and pricing strategies. As a result, CompuCom anticipates further
decline in product gross margins in 2000. Future profitability will depend upon
the Company's ability to focus on and grow its services business profitably,
effectively manage inventory levels in response to changes in its major
suppliers' price protection and return programs, the Company's ability to
attract and retain quality services personnel while effectively managing the
utilization of those service personnel, and the Company's ability to respond to
increased competition from its suppliers' direct selling initiatives. Future
profitability also depends on the Company's increased focus on providing
technical service and support to customers, product demand, competition,
manufacturer product availability and pricing strategies, effective utilization
of vendor programs, as well as the Company's ability to reduce operating
expenses at a pace at least equal to the decline in product gross margin
percentages.
SERVICES SEGMENT
During 1999, net service revenue increased 16% from 1998 levels as a
result of the Company's continued efforts to increase sales of technology
management services to meet customer needs and to improve profitability. Service
revenue has grown at a compounded annual rate of 31% over the past five years
as a result of the Company's strategic efforts, which include: the development
of additional service offerings; additional training for its engineers; enhanced
management support to the services business; and more emphasis on sales of
services in the sales representatives compensation plan. In addition, the
Company emphasized the hiring of quality service personnel. To further enhance
its service growth, CompuCom 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, these engineers become a part of
the Company's billable workforce. The technology management services business is
an integral part of CompuCom's strategy to provide customers with value-added
service solutions to meet their technology needs.
Service revenue is primarily derived from field engineering, LAN/WAN
projects, consulting, configuration, help desk, asset tracking, network
management, and software management. CompuCom continues to focus on expanding
its presence in technology management. This commitment is reflected in the
increase in its service personnel. As of December 31, 1999, the Company
employed over 2,900 service personnel, including system engineers, network
engineers, configuration technicians 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.
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CompuCom currently maintains three configuration centers, one in each
of the Company's three configuration and distribution centers, located in
Paulsboro, New Jersey, Raleigh, North Carolina and Irvine, California. 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 CompuCom to meet increasing customer demand for advanced,
complex system and network configuration technologies.
CompuCom provides hardware maintenance services ranging from simple
desktop, mobile computing, and WEB computing repairs, installations, moves,
adds, and changes to complex network repairs, application setups and software
upgrades. These services 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.
The Company's 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 Paulsboro, N.J.
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 solution is tightly integrated with the Company's other service offerings.
CompuCom is committed to increasing its help desk customer's access to
information. During 1999, the Company expanded its Internet product procurement
capabilities with new support services information access. Beginning in early
2000, help desk customers' technical support staff and service management will
have the ability to access technical bulletins and service documents through the
use of the Internet.
CUSTOMIZED APPLICATION PROGRAMMING SEGMENT
Through its majority-owned subsidiary, ClientLink, located in Atlanta,
Georgia, the Company offered software application development services.
ClientLink designed, developed, and implemented enterprise-wide information
technology (IT) solutions for Fortune 500 companies. ClientLink's primary focus
was in development and support of client/server and Internet based applications.
This was accomplished through custom application development for critical
business functions and consulting and implementing IT support solutions. These
solutions were normally offered on a fixed-price and fixed-time frame basis.
ClientLink focused its marketing efforts on establishing and
maintaining relationships with Fortune 1000 companies in various industries with
intensive information access and processing needs, including telecommunications,
financial services, utilities, health care services, manufacturing, and retail.
On April 13, 1999, the Company completed the merger of ClientLink, Inc.
with E-Certify Corporation. The combined operations of ClientLink and E-Certify
are conducted under the name E-Certify, Inc. The Company accounts for the
ongoing operation of E-Certify, Inc. using the equity method.
ITEM 1(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company does not have any foreign operations nor does it engage in any
material export sales.
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ITEM 2 PROPERTIES
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. During March 1999, the Company completed a
sale/leaseback transaction for the entire headquarters facility. The lease is
for a 20-year period commencing in April 1999, with two five-year renewal
options. One of the buildings is an eight-story structure and contains executive
offices, a corporate account center, finance, purchasing, sales and service
support, facilities, marketing and human resources. An adjoining three-story
building contains the Company's information systems group and its remote help
desk and dispatch personnel.
Acquired as part of the 1999 TASD acquisition, the Company leases
42,500 square feet of office space in Mason, Ohio, which houses its second
corporate account center. The lease expires in July 2005 with a renewal option
for five years.
During 1999, the Company distributed products primarily from five
leased configuration and distribution 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. In addition to
warehousing space, this facility contains a state-of-the-art 90,000 square foot
configuration center, allowing CompuCom to meet increasing customer demand for
advanced complex system integration and network technologies. In October 1999,
the Company leased an additional 148,000 square feet in an adjacent building in
Paulsboro, New Jersey. The lease is for a five-year term, expiring in 2004, with
an early termination provision effective 2002. In March 1999, the Company
entered into a five-year lease with two five-year renewal options for 97,000
square feet of warehouse space in Raleigh, North Carolina near the IBM
manufacturing facility, which is used primarily for configuration, channel
assembly and distribution activities of IBM products. This warehouse space was
expanded to 168,000 square feet in September 1999. In March 1999, the Company
entered into a two-year lease, with a renewal option for an additional 18
months, for 12,800 square feet of warehouse space in Irvine, California near
Toshiba's manufacturing facility. This space is used primarily for
configuration, channel assembly and distribution activities of Toshiba products.
In May 1999, CompuCom closed its 104,000 square foot configuration and
distribution center in Stockton, California, upon the expiration of the lease.
In February 2000, the Company closed its 78,000 square foot co-location facility
located at Compaq's headquarters and manufacturing campus in Houston, Texas.
See Note 16 to the accompanying Notes to Consolidated Financial
Statements for additional information regarding lease costs.
ITEM 3 LEGAL PROCEEDINGS
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
None have been submitted in the fourth quarter 1999.
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK
The Company's common stock is listed on the Nasdaq National Market
(Symbol: CMPC). As of December 31, 1999, there were approximately 8,000
beneficial holders of the Company's common stock. The high and low sales prices
reported within each quarter for the years ended December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
High Low High Low
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
First quarter $5.63 $2.88 $9.75 $7.50
Second quarter 4.52 2.75 8.50 5.88
Third quarter 5.63 3.50 7.13 3.56
Fourth quarter 4.81 2.94 5.25 2.25
</TABLE>
The last sale price reported for the Company's common stock on February
23, 2000 was $3.875.
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.
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
Selected financial data for the Company is presented below:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------------------
Operating Results 1999 1998 1997 1996 1995
- ----------------- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues $2,911,889 $2,254,465 $1,949,802 $1,995,191 $1,441,597
Gross margin 314,150 283,960 267,545 240,963 174,908
Earnings before income taxes 18,977 668 * 58,658 ** 50,616 *** 34,335
Net earnings 11,574 401 * 35,194 ** 30,471 *** 20,670
Earnings/(loss) per common share:
Basic .22 (.01) * .75 ** .66 *** .54
Diluted .22 (.01) * .71 ** .61 *** .45
Balance Sheet Data
- ------------------
Total assets $ 498,052 $ 545,489 $ 462,590 $ 692,985 $ 508,704
Long-term debt 81,929 97,400 236,450 120,364
Convertible subordinated notes 3,000 3,000 3,000
Stockholders'equity 222,972 210,281 210,200 171,098 138,341
* Includes restructuring related charges of $16.4 million ($9.9 million, net of tax) or ($.21) per share
** Includes nonrecurring gains on prepayment of secured note related to sale of subsidiary in 1994 of $1.6 million
($1.0 million, net of tax) and gain on sale of Company's former headquarters of $4.0 million ($2.4 million, net
of tax) or $.07 per share
*** Includes nonrecurring gain on sale of securities of $8.7 million ($5.2 million, net of tax)
(Basic - $.12 per share, Diluted - $.10 per share)
</TABLE>
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS
The following table presents the Company's total revenue, gross margin
and gross margin percentage by revenue source. Operating expenses, financing
expenses, nonrecurring gains, income taxes and net earnings are shown as a
percentage of total net revenue for the three years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------
($ in millions)
<S> <C> <C> <C>
Revenue:
Product $ 2,608 $ 1,980 $ 1,699
Service 300 259 237
Other 4 15 14
-------------------------------------------------------
Total revenue $ 2,912 $ 2,254 $ 1,950
=======================================================
Gross margin:
Product $ 211 $ 194 $ 176
Service 101 83 85
Other 2 7 7
-------------------------------------------------------
Total gross margin $ 314 $ 284 $ 268
========================================================
Gross margin percentage:
Product 8.1% 9.8% 10.4%
Service 33.7% 32.0% 35.9%
Other 50.0% 46.7% 50.0%
--------------------------------------------------------
Total gross margin percentage 10.8% 12.6% 13.7%
--------------------------------------------------------
Operating expenses:
Selling 3.8% 4.9% 4.0%
Service 1.6% 2.4% 2.5%
General and administrative 3.1% 3.0% 3.1%
Depreciation and amortization 0.8% 0.7% 0.6%
Restructuring related charges 0.0% 0.7%
--------------------------------------------------------
Total operating expenses 9.3% 11.7% 10.2%
--------------------------------------------------------
Earnings from operations 1.5% 0.9% 3.5%
Interest (0.8%) (0.8%) (0.8%)
Nonrecurring gain 0.3%
--------------------------------------------------------
Earnings before income taxes 0.7% 0.1% 3.0%
Income taxes 0.3% 0.1% 1.2%
--------------------------------------------------------
Net earnings 0.4% 0.0% 1.8%
========================================================
</TABLE>
<PAGE>
OVERVIEW
On April 13, 1999, the Company completed the merger of its majority-
owned subsidiary, ClientLink, Inc. with E-Certify Corporation.
On May 10, 1999, the Company acquired the Technology Acquisition
Services Division ("TASD") of ENTEX Information Services, Inc.
On May 13, 1998, the Company acquired Computer Integration Corporation
("CIC") and on June 26, 1998, the Company acquired Dataflex Corporation
("Dataflex"), (collectively "the acquisitions").
On October 22, 1998 the Company's Board of Directors approved a
restructuring plan designed to reduce the Company's cost structure by closing
branch facilities and reducing the Company's workforce by approximately 10%. By
moving to a virtual office model, the Company retained local presence in all
existing geographic markets. As a result, the Company recorded a restructuring
charge in the fourth quarter of 1998 of $16.4 million (pretax), primarily
consisting of costs associated with the closing of certain facilities and
disposing of related fixed assets, as well as employee severance and benefits
related to the reduction in workforce. Of the $16.4 million (pretax),
approximately $2.3 million was paid through December 31, 1998.
During 1999, approximately $5.2 million was paid related to facilities
lease termination costs. At December 31, 1999, the remaining accrual of
approximately $1.2 million for these costs is not expected to differ
significantly from actual amounts to be paid. In addition, during 1999,
approximately $2.3 million was paid related to employee severance and related
benefits. As of December 31, 1999, the remaining employee severance and related
benefits accrual of approximately $560,000 relates to severance payments to a
former executive officer and are expected to be paid during 2000.
During 1999, approximately $2.9 million in non-cash charges were
incurred related to the disposal of assets associated with the closing of
facilities and approximately $1.8 million was paid primarily related to costs of
closing branch facilities, costs incurred to ship fixed assets to the Company's
Dallas headquarters and legal expenses. Both the disposal of assets and other
categories of the restructuring accrual are fully depleted as of December 31,
1999. Based on revised estimates during 1999, $133,000 of the severance related
accrual was reversed. Also, additional expenses related to the disposal of fixed
assets of approximately $295,000 and additional expenses for other charges of
approximately $225,000 were recorded during 1999.
1999 COMPARED TO 1998
Product revenue, which is primarily derived from the sale of desktop,
mobile computing, WEB computing, and network computer products to corporate
customers, increased approximately 31.7% to $2.6 billion in 1999 from $1.98
billion in 1998. This increase is primarily due to the TASD acquisition. The
increase in product revenues is primarily due to an approximately 27% increase
in desktop, laptop and server units shipped and increased software license
sales. Relative to 1998, the average sales price of units sold in 1999
stabilized. However, the Company expects the recent historical trend of
declining average sales prices to be a factor in the short term. Product gross
margin as a percentage of product revenue decreased to 8.1% in 1999 from 9.8% in
1998. This decrease is primarily due to heightened competition from direct
marketers and other corporate resellers and a reduction in the level of
manufacturer sponsored incentives. The Company expects to continue to
experience declining product gross margins in the short term.
Service revenue increased approximately 15.8% to $300 million in 1999
from $259 million in 1998. Service revenue is primarily derived from field
engineering, LAN/WAN projects, consulting, configuration, help desk, asset
tracking, network management 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 was primarily due to increases in field engineering, which is typically
driven in part by product unit sales volume, and the TASD acquisition. Service
gross margin as a percentage of service revenue increased to 33.7% in 1999 from
32.0% in 1998. This increase was primarily due to improved performance in field
engineering. In the short term, the Company expects its service gross margin
percentage to be consistent with its recent performance.
Operating expenses increased approximately 2.8% in 1999 as compared to
1998, primarily due to the TASD acquisition. As a percentage of revenue,
operating expenses were 9.3% in 1999 versus 11.7% in 1998. This decline is
primarily due to increased leverage of the Company's infrastructure resulting
from the TASD acquisition and its own cost reduction efforts.
Selling expense increased approximately $1.9 million in 1999 versus
1998. This increase is primarily due to the
<PAGE>
TASD acquisition, which resulted in an increase in sales and sales
support personnel, which was partially offset by the Company's own cost
reduction efforts. Although the TASD acquisition resulted in an increase in the
dollar amount of selling expense, selling expense as a percentage of revenue
declined to 3.8% in 1999 compared to 4.9% in 1998. Service expenses decreased
approximately $7.1 million in 1999 compared to 1998. This decrease is primarily
due to the Company's own cost reduction efforts and the E-Certify merger which
resulted in the Company no longer consolidating ClientLink in the Company's
financial statements. Consequently, ClientLink's operating expenses subsequent
to the E-Certify merger are not reflected as service expense. General and
administrative expense increased approximately $22.7 million in 1999 versus
1998. This increase is primarily due to expenditures to continue expansion of
the Company's electronic commerce capabilities as well as increases in
distribution and administrative personnel to support the Company's revenue
growth and expenses resulting from the TASD acquisition. General and
administrative expense, as a percentage of revenue, increased to 3.1% in 1999
compared to 3.0% for 1998. 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 approximately $6.0
million in 1999 compared to 1998. The increase primarily relates to amortization
of goodwill on two business combinations that were completed during the second
quarter of 1998, and the TASD acquisition completed during the second quarter of
1999.
Financing expense remained flat as a percentage of revenue but
increased approximately $4.5 million in 1999 compared to 1998. This increase was
primarily related to higher borrowing levels due to the TASD acquisition, as
well as an increase in the Company's 1999 effective interest rate to 7.7%
compared to 6.6% in 1998.
Primarily as a result of the factors discussed above, net earnings
increased approximately $11.2 million in 1999 compared to 1998.
1998 COMPARED TO 1997
Product revenue, which is primarily derived from the sale of desktop,
mobile computing, WEB computing, and network computer products to corporate
customers, increased approximately 16.5% to $1.98 billion in 1998 from $1.70
billion in 1997. The majority of the increase in product revenue was due to the
acquisitions, which contributed approximately $219 million in product revenue.
Excluding the acquisitions, product revenue for the Company increased
approximately 3.6% in 1998 compared to 1997. This increase in product revenues,
excluding the acquisitions, was primarily due to an increase in desktop, laptop,
and server units shipped and increased software sales. Excluding the
acquisitions, the Company shipped approximately 26% more of these units in 1998
compared to 1997. This increase was partially offset by a decrease in the
average sales price of units sold resulting from manufacturer price reductions.
Product gross margin as a percentage of product revenue decreased to 9.8% in
1998 from 10.4% in 1997. The decline in product gross margins was primarily due
to heightened competition from other corporate resellers and direct marketers.
Service revenue increased approximately 9.2% to $259 million in 1998
from $237 million in 1997. Service revenue is primarily derived from field
engineering, LAN/WAN projects, consulting, configuration, help desk, asset
tracking, network management 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 was primarily due to increases in field engineering, which is typically
driven in part by product unit sales volume, and the acquisitions. Excluding the
acquisitions, service revenue increased approximately 4.9%. Service gross margin
as a percentage of service net revenue decreased to 32.0% in 1998 compared to
35.9% in 1997. The decrease was primarily caused by lower billing per engineer
for the Company's service personnel, particularly in the systems engineering
group.
Operating expenses increased approximately 32.6% or approximately
$65.0 million for 1998 compared to the same prior year period. As a percentage
of net revenue, operating expenses increased to 11.7% in 1998 compared to 10.2%
in 1997. The percentage and dollar increases resulted primarily from increased
selling expenses and restructuring charges.
Selling expense increased approximately $30.1 million or approximately
38.1% in 1998 compared to 1997. As a percentage of net revenues, selling expense
increased to 4.9% in 1998 from 4.0% in 1997. These increases resulted from an
increase in the Company's sales force as a result of the acquisitions, the
hiring of additional sales representatives, and higher commission expense.
Service expense increased in absolute dollars in 1998 compared to 1997 primarily
due to the growth in the Company's service business and increased spending on
training as a result of an increase in the size of the Company's engineering
force. However, as a percentage of net revenues for 1998 compared to 1997,
service expense decreased slightly. General and administrative expense increased
in absolute dollars in 1998 compared to 1997 primarily due to expenditures to
broaden the Company's electronic commerce capabilities, costs related to the
Company's
<PAGE>
ongoing campus recruiting program and the integration of the acquisitions.
However, as a percentage of net revenues for 1998 compared to 1997, general and
administrative expense decreased slightly. 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 for 1998 both in
absolute dollars and as a percentage of net revenue when compared to 1997. The
increase in depreciation expense was associated with upgrading the Company's
hardware and software and increased depreciation as a result of the acquisitions
completed during 1998. Increased amortization expense was the result of an
increase in goodwill from the acquisitions completed during the second quarter
of 1998.
Financing expense increased approximately 25.4% for 1998 compared to
1997, primarily as a result of increased borrowings due to the acquisitions. The
Company's effective interest rate was 6.6% for 1998 compared to 6.7% in 1997.
The Company increased the availability in its working capital facility from $125
million to $165 million in June of 1998 to accommodate the acquisitions. The
interest rate on the working capital facility was subject to adjustment based on
certain performance criteria. The Company's effective interest rate was 7.5% at
December 31, 1998.
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 early payment of a secured note related to the 1994 sale of the
Company's former subsidiary, PC Parts Express, Inc. (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.
Primarily as a result of the factors discussed above, net earnings,
excluding the restructuring charge in 1998 and the nonrecurring gains in 1997,
decreased 68% to $10.3 million in 1998 from $31.8 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1999 was $96.7 million compared to
$164.2 million at December 31, 1998. This net decrease was primarily the result
of a decrease in accounts receivable and inventory, partially offset by an
increase in accounts payable. The decrease in accounts receivable is mainly due
to the sale of an additional $75 million of receivables under the securitization
facility. The proceeds from the sale were used to pay down the revolver. As a
result, there was a reduction in both accounts receivable and long-term debt.
The decrease in inventory is primarily due to the Company's effort to reduce its
risk associated with changes in its suppliers' price protection and return
programs through increasing its inventory turns. The Company increased its
inventory turns from 11.5 in 1998 to 18.5 in 1999. The Company's accounts
payable balance fluctuates relative to the timing of product receipts and the
mix of vendors.
The Company's liquidity has been negatively impacted by the dollar
volume of vendor rebate programs. Under these programs, the Company is required
to pay a higher initial price for product and claim a rebate to reduce the
price. The collection of these rebates can take several months. Due to these
programs, the Company's initial price for the product is often higher than the
sales price the Company can obtain from its customers. As of December 31, 1999,
these programs are a material factor in the Company's financing needs. As of
December 31, 1999 and 1998, the Company was owed approximately $66 million and
$64 million respectively, under these vendor rebate programs.
The Company's capital asset requirements are generally funded through
financing arrangements and internally generated funds. During 1999, the Company
increased the size of its credit facilities to finance the TASD acquisition. As
of December 31, 1999, the Company's financing arrangements consist of a $250
million securitization facility ("Securitization"), and a $200 million working
capital facility ("Revolver"). The term of both facilities is three years. As of
December 31, 1999, the Securitization was fully utilized. Availability under the
Revolver is subject to a borrowing base calculation. As of December 31, 1999,
availability under the Revolver was approximately $82 million with no
outstanding amounts. The Company's effective interest rate for 1999 was 7.7%.
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 $7 million in 1999 as compared to approximately $14 million in
1998. The majority of both the 1999 and 1998 expenditures were related to the
upgrading of Company hardware and software. The Company does not expect its
capital expenditure requirements in 2000 to be materially different from its
1999 expenditures.
YEAR 2000 COMPLIANCE
The Company has evaluated and adjusted all known date-sensitive systems
and equipment for Year 2000 compliance. The assessment, remediation and testing
phases of the Year 2000 project are complete. The project
<PAGE>
was divided into five areas of the Company's systems - its core information
systems and components, distributed desktop systems, non-IS systems, new
information systems purchases, and mergers and acquisitions. The Company's three
acquisitions in 1998 and the TASD acquisition in 1999 were integrated into
the Company and the major processes of the acquired systems were replaced
with the Company's core information systems and components prior to 2000.
Through 2000 the Company will continue to use a Year 2000 compliance software
package that generates audit reports on a regular basis to report any
noncompliant distributed desktop systems.
As part of its Year 2000 readiness assessment, the Company utilized
questionnaires to obtain verification from its vendors and suppliers that the
Company's hardware, software and tools that they supplied were Year 2000 ready.
By the end of June 1999, the Company upgraded or replaced any noncompliant
vendors and suppliers of hardware, software and tools then in use by the
Company. As a reseller of computer products, the Company only passes through to
its customers the applicable vendor's warranties; it generally makes no
warranties regarding Year 2000 compliance on any of the products it resells.
Company personnel performed virtually all of the compliance project.
The total estimated cost to assess, remediate and test for Year 2000 compliance
was approximately $1.4 million and was expensed as incurred.
Although the Company to date has not experienced any significant
problems associated with Year 2000 issues, the Company cannot be certain that
unexpected Year 2000 compliance problems of its products, computer systems or
the systems of its vendors, customers and service providers, will not occur. Any
such problems could have a material adverse affect on the Company's business,
financial condition or operating results.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
Securitization and Revolver. The Company utilizes its Securitization and
Revolver for its working capital and other borrowing needs. If the Company's
effective interest rate were to increase by 75 basis points (.75%), the
Company's annual financing expense would increase by approximately $2.3 million
based on the average outstandings under the Securitization and Revolver during
the twelve months ended December 31, 1999. The Company did not experience a
material impact from interest rate risk during 1999.
Currently, the Company does not enter into financial investments for
trading or other speculative purposes or to manage interest rate exposure.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedule filed with this
report appear on pages F-2 through F-24, and are listed on page F-1.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of February 23, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
J. Edward Coleman (1) 48 Chief Executive Officer
Thomas C. Lynch (2) 57 President and Chief Operating Officer
M. Lazane Smith (3) 45 Senior Vice President, Finance and Chief Financial Officer
David A. Loeser (4) 45 Senior Vice President, Human Resources
John F. McKenna (5) 36 Senior Vice President, Services
</TABLE>
(1) Mr. Coleman was hired as Chief Executive Officer on December 1, 1999.
Prior to joining the Company, he served as Business Development Executive
and Director of Marketing for Computer Sciences Corporation (CSC), from
March 1995 to December 1999. From 1993 until joining CSC, Mr. Coleman was
Executive Vice President of McCollister's Technical Services, Inc.(MTS).
Prior to joining MTS, Mr. Coleman spent 17 years with IBM Corporation,
including five years with IBM Credit Corporation serving as Vice
President and General Manager of Channel Financing.
(2) Mr. Lynch joined the Company as Executive Vice President and Chief
Operating Officer in October 1998. In 1999 he was promoted to President,
Chief Operating Officer. Prior to joining the Company, he served as
Senior Vice President of Safeguard Scientifics, Inc. from 1996 until
1998. Prior to his association with Safeguard, he was a Rear Admiral in
the United States Navy, serving on active duty for 31 years.
(3) 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.
(4) Mr. Loeser joined CompuCom in April 1999 as Senior Vice President of
Human Resources. Prior to joining CompuCom, Mr. Loeser served as Senior
Vice President of Human Resources for Quaker State, Inc. from 1996 to
1998. From 1994 to 1996, Mr. Loeser held the position of Senior Vice
President of Human Resources with Continental Airlines.
(5) Mr. McKenna joined the Company in January 1999 as Vice President, Managed
Desktop Services and was promoted to Senior Vice President, Services in
September 1999. Prior to joining CompuCom, Mr McKenna served as Senior
Vice President, Services for Oracle Corp. during 1998. From 1995 to 1998,
Mr. McKenna served as a Partner with Deloitte Consulting.
DIRECTORS
The Company incorporates by reference the information contained under
the caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement relative
to its May 18, 2000 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 18, 2000 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 "EXECUTIVE COMPENSATION AND OTHER ARRANGEMENTS" in its definitive
Proxy Statement relative to its May 18, 2000 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.
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under
the caption "STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND GREATER THAN
5% STOCKHOLDERS" in its definitive Proxy Statement relative to its May 18, 2000
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 "RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT AND OTHERS"
in its definitive Proxy Statement relative to its May 18, 2000 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.
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.
On July 26, 1999 the Company filed a Current Report on Form 8-K/A to
amend the Current Report on Form 8-K filed by the Company on May 25, 1999, to
announce its acquisition of certain assets of the Technology Acquisition
Services Division of ENTEX Information Services, Inc. The amendment was filed to
include financial statements that were not available at the time of filing the
initial report.
(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.
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2(a) Asset Purchase Agreement, dated as of May 10, 1999, by and between CompuCom Systems, Inc. and ENTEX
Information Services, Inc. (21) (Exhibit 2.1)
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 (14) (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)** Stock Option Grant Agreement between CompuCom Systems, Inc. and Thomas C. Lynch,
dated as of October 22, 1998 (19) (Exhibit 10.1)
4(h)** CompuCom Systems, Inc. Employee Stock Purchase Plan (16) (Appendix A)
4(i) Certificate of Designation dated March 31, 1994, establishing Series B Cumulative
Convertible Preferred Stock of CompuCom Systems, Inc. (8) (Exhibit 4(i))
4(j) Form of Stock Certificate evidencing Series B Cumulative Convertible
Preferred Stock, $.01 par value, of CompuCom Systems, Inc. (9) (Exhibit 4(h))
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 (11) (Exhibit 10.9)
10(c)** Amendment No. 1 to CompuCom Systems, Inc. 401(k) Matched Savings Plan, effective
January 1, 1998 (exhibits omitted) (17) (Exhibit 10.1)
10(d)** Amendment No. 2 to CompuCom Systems, Inc. 401(k) Matched Savings Plan, effective
January 26, 1998 (exhibits omitted) (17) (Exhibit 10.2)
10(e)** Amendment Three to CompuCom Systems, Inc. 401(k) Matched Savings Plan, effective
May 28, 1999 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10(f)** Amendment Four to CompuCom Systems, Inc. 401(k) Matched Savings Plan, dated
July 29, 1999, with attached Appendix A *
10(g)** Amendment Five to CompuCom Systems, Inc. 401(k) Matched Savings Plan, effective
December 30, 1999 *
10(h) 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) (15) (Exhibit 16(t))
10(i) Amendment #1 to Amended and Restated Credit Agreement, dated as of June 26, 1998, among
CompuCom Systems, Inc., certain lenders party hereto, and NationsBank of Texas, N.A., as
Administrative Lender (exhibits omitted) (18) (Exhibit 10.1)
10(j) CompuCom Receivables Master Trust I Pooling and Servicing Agreement, dated as of May 7, 1999, as
amended and restated as of August 20, 1999, between Norwest Bank Minnesota, National Association,
CompuCom Systems, Inc., and CSI Funding, Inc. (exhibits omitted)*
10(k) CompuCom Receivables Master Trust I Pooling and Servicing Agreement 1999-1 Supplement, dated as of May 7,
1999, as amended and restated as of August 20, 1999, among PNC Bank, National Association, Market Street
Capital Corporation, Norwest Bank Minnesota, National Association, CompuCom Systems, Inc., and CSI Funding,
Inc. (exhibits omitted) *
10(l) Inventory and Working Capital Financing Agreement, dated as of May 11, 1999, between IBM Credit
Corporation and CompuCom Systems, Inc. (22) (Exhibit 10.3)
10(m) Attachment A to Inventory and Working Capital Financing Agreement dated May 11, 1999
(22) (Exhibit 10.4)
10(n) Receivables Contribution and Sale Agreement dated May 7, 1999 between CompuCom Systems, Inc. and CSI
Funding, Inc. (exhibits omitted) *
10(o) Non-Competition, Referral and Non-Disclosure Agreement dated as of May 10, 1999, by and between CompuCom
Systems, Inc. and ENTEX Information Services, Inc. (21) (Exhibit 10.1)
10(p) 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(q) 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 (13) (Exhibit 10(r))
10(r) Agreement for Participation in the IBM Business Partner - PC, Authorized Assembler Program, dated
January 16, 1997 between IBM Corporation and CompuCom Systems, Inc. (15) (Exhibit 10(y))
10(s) 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 (15) (Exhibit 10(z))
10(t) U.S. Reseller Agreement, dated January 23, 1993, between Compaq Computer Corporation
and CompuCom Systems, Inc. (7) (Exhibit 10(l))
10(u) Software License Agreement, dated January 15, 1998, between Compaq Computer Corporation and
CompuCom Systems, Inc. (15) (Exhibit 10(bb))
10(v) Channel Installation Agreement for Microsoft Products, dated January 15, 1998, between Compaq
Computer Corporation and CompuCom Systems, Inc. (15) (Exhibit 10(cc))
10(w) U.S. Reseller Agreement, dated March 1, 1996, between Hewlett-Packard Company
and CompuCom Systems, Inc. (11) (Exhibit 10.8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10(x) U.S. Agreement for Authorized Reseller Participation in Channel Assembly Program, dated March 1,
1997, between Hewlett-Packard Company and CompuCom Systems, Inc. (15) (Exhibit 10(ee))
10(y) U.S. Agreement for Authorized Solutions Direct Resellers, dated August 12, 1999 between
Hewlett-Packard Company and CompuCom Systems, Inc. *
10(z) 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(aa) 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) (12) (Exhibit 10.8)
10(bb) Lease Agreement dated September 27, 1999, between CompuCom Systems, Inc. and Riggs & Company, a division of
Riggs Bank N.A., for premises at 1245 Forest Parkway, Paulsboro, New Jersey (exhibits omitted) *
10(cc) Industrial Lease Agreement, dated February 11, 1999, between Dames & Moore / Brookhill Durham I, LLC, as
lessor, and CompuCom Systems, Inc., as lessee, for premises at 2910 Weck Drive, Durham, North Carolina
(exhibits omitted) *
10(dd) Modification of Lease, dated October 1, 1999, between DMB Durham I, LLC, for premises at 2910 Weck Drive,
Durham, North Carolina *
10(ee) 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 (15) (Exhibit 10(jj))
10(ff) 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 (15) (Exhibit 10(kk))
10(gg) $7,840,000 Secured Promissory Note, dated December 30, 1997, from MacFarlan Realty Partners, L.L.C., to
CompuCom Systems, Inc. (15) (Exhibit 10(ll))
10(hh) Note Modification Agreement and Settlement Agreement, dated as of November 30, 1998, between MacFarlan
Realty Partners L.L.C. and CompuCom Systems, Inc. (20) (Exhibit 10(ee))
10(ii) Special Warranty Deed dated as of March 31, 1999, from CompuCom Systems, Inc., as grantor, to Delaware Comp
LLC, as grantee, for property located at 7171 Forest Lane, Dallas, Texas (exhibits omitted) *
10(jj) Lease Agreement dated as of March 31, 1999, between CompuCom Systems, Inc., as tenant, and Delaware
Comp LLC, as landlord, for premises located as 7171 Forest Lane, Dallas, Texas, including Exhibit D - Basic
Rent Payments (other exhibits omitted) *
10(kk) Contract of Sale between CompuCom Systems, Inc., as seller, and MCSi Realty Co., LLC, as purchaser for
property located at 4281 Olympic Boulevard, Erlanger, Kentucky, dated as of December 9, 1999
(exhibit omitted) *
10(ll)** $1,181,250 Amended and Restated Secured Term Note, dated February 12, 1997, from Edward R. Anderson to
CompuCom Systems, Inc. (13) (Exhibit 10(ff))
10(mm)** First Amendment, dated February 19, 1999, to Amended and Restated Secured Term Note from Edward
R. Anderson to CompuCom Systems, Inc. (20) (Exhibit 10(gg))
10(nn)** Pledge Agreement, dated August 31, 1994, between Edward R. Anderson and CompuCom
Systems, Inc. (9) (Exhibit 10(nn))
10(oo)** $661,251 Secured Term Note, dated June 16, 1997, from Daniel F. Brown to CompuCom Systems,
Inc. (15) (Exhibit 10(pp))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10(pp)** Pledge Agreement, dated June 16, 1997, from Daniel F. Brown and CompuCom Systems, Inc. (15) (Exhibit 10(qq))
10(qq)** $796,875 Secured Term Note, dated December 23, 1998, from Thomas C. Lynch to CompuCom
Systems, Inc. (20) (Exhibit 10(kk))
10(rr)** Pledge Agreement, dated December 23, 1998, between Thomas C. Lynch and CompuCom Systems,
Inc. (20) (Exhibit 10(ll))
10(ss)** $2,021,875 Secured Term Note, dated October 22, 1998, from Edward R. Anderson to
CompuCom Systems, Inc. (20) (Exhibit 10(mm))
10(tt)** Pledge Agreement, dated October 22, 1998, between Edward R. Anderson and CompuCom
Systems, Inc. (20) (Exhibit 10(nn))
10(uu)** Executive Employment Agreement, dated October 24, 1997, between M. Lazane Smith and CompuCom Systems,
Inc. (15) (Exhibit 10(ss))
10(vv) Executive Employment Agreement, dated November 1, 1999, between J. Edward Coleman and CompuCom Systems, Inc.*
10(ww)** Employment Separation Letter Agreement, dated January 18, 1999, between William Barry and
CompuCom Systems, Inc., with attached General Release and Agreement, and Employee Non-
Disclosure, Non-Solicitation and Non-Competition Agreement (20) (Exhibit 10(rr))
10(xx)** Employment Separation Letter Agreement, dated April 30, 1999, between Daniel F. Brown and
CompuCom Systems, Inc., with attached General Release and Agreement, and Employee Non-
Disclosure, Non-Solicitation and Non-Competition Agreement *
10(yy)** Employment Separation Letter Agreement, dated January 24, 2000, between John Lyons and
CompuCom Systems, Inc. *
21 List of Subsidiaries *
23 Consent of KPMG LLP *
27.1 Financial Data Schedule *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
---------------
* 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
exhibits 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 May 13, 1996 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
(12) Filed on November 12, 1996 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
(13) Filed on March 31, 1997 as an exhibit to the Annual Report on Form 10-K (No. 0-14371) and
incorporated herein by reference.
(14) Filed on April 9, 1997 as an exhibit to the 1997 Annual Meeting Proxy Statement and
incorporated herein by reference.
(15) Filed on March 31, 1998 as an exhibit to the Annual Report on Form 10-K (No. 0-14371) and
incorporated herein by reference.
(16) Filed on April 7, 1998 as an exhibit to the 1998 Annual Meeting Proxy Statement and
incorporated herein by reference.
(17) Filed on May 14, 1998 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
(18) Filed on August 14, 1998 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
(19) Filed on November 16, 1998 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
(20) Filed on March 31, 1999 as an exhibit to the Annual Report on Form 10-K (No. 0-14371) and
incorporated herein by reference.
(21) Filed on May 25, 1999 as an exhibit to the Current Report on Form 8-K (No. 0-14371) and
incorporated herein by reference.
(22) Filed on August 16, 1999 as an exhibit to the Quarterly Report on Form 10-Q (No. 0-14371) and
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
------------------------------------------
<S> <C>
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-24
</TABLE>
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, 1999 and 1998, 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,
1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 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 LLP
Dallas, Texas
February 14, 2000
F-2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1999 1998
------ --------- ---------
<S> <C> <C>
Current assets:
Cash $ 14,060 $ 4,526
Receivables, less allowance for doubtful accounts
of $5,095 in 1999 and $3,507 in 1998 218,522 262,380
Inventories 129,076 138,551
Deferred tax asset 1,507 6,718
Other 7,731 3,247
--------- ---------
Total current assets 370,896 415,422
Property and equipment:
Land, building and improvements 780 39,422
Furniture, fixtures and other equipment 56,536 57,703
Leasehold improvements 8,388 9,893
--------- ---------
65,704 107,018
Less accumulated depreciation and amortization (35,986) (35,014)
--------- ---------
Net property and equipment 29,718 72,004
Cost in excess of fair value of tangible net assets
purchased, less accumulated amortization 85,086 54,786
Other 12,352 3,277
--------- ---------
$ 498,052 $ 545,489
========= =========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 182,247 $ 160,524
Accrued liabilities 91,993 89,218
Current portion of long-term debt 1,500
--------- ---------
Total current liabilities 274,240 251,242
Long-term debt 81,929
Deferred income taxes 840 1,378
Other 659
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 48,016,950 shares in 1999
and 47,441,820 shares in 1998 480 474
Additional paid-in capital 72,765 70,380
Retained earnings 139,152 128,478
Notes receivable for the sale of stock (4,425) (4,051)
--------- ---------
Total stockholders' equity 222,972 210,281
--------- ---------
$ 498,052 $ 545,489
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Product $ 2,607,967 $ 1,980,578 $ 1,699,268
Service 300,105 258,806 237,042
Other 3,817 15,081 13,492
----------- ----------- -----------
Total revenue 2,911,889 2,254,465 1,949,802
----------- ----------- -----------
Cost of revenue:
Product 2,396,720 1,786,851 1,523,034
Service 198,921 175,451 151,894
Other 2,098 8,203 7,329
----------- ----------- -----------
Total cost of revenue 2,597,739 1,970,505 1,682,257
----------- ----------- -----------
Gross margin 314,150 283,960 267,545
Operating expenses:
Selling 111,178 109,322 79,188
Service 47,828 54,940 49,563
General and administrative 90,655 67,928 59,539
Depreciation and amortization 21,930 15,923 11,274
Restructuring charges 387 16,437
----------- ----------- -----------
Total operating expenses 271,978 264,550 199,564
----------- ----------- -----------
Earnings from operations 42,172 19,410 67,981
Financing expenses (23,195) (18,742) (14,947)
Nonrecurring gains 5,624
----------- ----------- -----------
Earnings before income taxes 18,977 668 58,658
Income taxes 7,403 267 23,464
----------- ----------- -----------
Net earnings $ 11,574 $ 401 $ 35,194
=========== =========== ===========
Earnings/(loss) per common share:
Basic $ .22 ($ .01) $ .75
Diluted $ .22 ($ .01) $ .71
Average common shares outstanding:
Basic 47,657 46,346 45,686
Diluted 48,274 46,346 50,034
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Notes Total
---------------------- ---------------------- Paid-in Retained Receivable for Stockholders'
Shares Amount Shares Amount Capital Earnings Sale of Stock Equity
---------- ---------- ---------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 5,128 5,140
Notes receivable for sale
of stock (332) (332)
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 66,094 128,977 (332) 210,200
Exercise of options 1,330,000 13 4,286 4,299
Notes receivable for sale
of stock (3,719) (3,719)
Preferred stock dividend (900) (900)
Net earnings 401 401
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1998 1,500,000 15,000 47,441,820 474 70,380 128,478 (4,051) 210,281
Exercise of options 575,130 6 2,385 2,391
Notes receivable for sale
of stock (374) (374)
Preferred stock dividend (900) (900)
Net earnings 11,574 11,574
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1999 1,500,000 $ 15,000 48,016,950 $ 480 $ 72,765 $ 139,152 ($ 4,425) $ 222,972
========== ========== ========== ========== ========== ========== ========== ==========
</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, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,574 $ 401 $ 35,194
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 21,930 15,923 11,274
Restructuring related charges 16,437
Deferred income taxes 4,637 (3,711) 1,527
Nonrecurring gains (5,624)
Changes in assets and liabilities, excluding effects from acquisitions:
Receivables 41,500 (13,050) 207,397
Inventories 101,744 68,745 35,506
Other current assets (1,795) 856 628
Accounts payable 31,660 23,950 (144,949)
Restructuring accrual (9,381) (2,349)
Accrued liabilities and other (7,369) (7,819) 12,970
----------- ----------- -----------
Net cash provided by operating activities 194,500 99,383 153,923
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (6,867) (14,330) (22,418)
Business acquisitions, net of cash acquired (141,253) (49,679)
Proceeds from sale of buildings 45,466 1,960
Proceeds from sale of securities 2,724
----------- ----------- -----------
Net cash used in investing activities (102,654) (64,009) (17,734)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under revolver 996,065 611,250 735,100
Repayment of revolver (1,079,494) (644,134) (875,061)
Issuance of common stock 2,017 1,480 4,808
Repayment of convertible debt (3,000)
Preferred stock dividend (900) (900) (900)
----------- ----------- -----------
Net cash used in financing activities (82,312) (35,304) (136,053)
----------- ----------- -----------
Net increase in cash 9,534 70 136
Cash at beginning of year 4,526 4,456 4,320
----------- ----------- -----------
Cash at end of year $ 14,060 $ 4,526 $ 4,456
=========== =========== ===========
Supplemental disclosure of cash flow information
Income taxes paid $ 824 $ 7,074 $ 16,078
Financing expenses paid 24,997 20,034 14,904
Supplemental disclosure of noncash financing activities
Receipt of note receivable on sale of building $ 7,800
</TABLE>
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 technology management
services and information technology products to large and
medium-sized corporate customers, as well as state and local
governmental agencies. The Company's services include field
engineering, LAN/WAN projects, consulting, configuration, help
desk, asset tracking and network management.
Principles of Consolidation
The consolidated financial statements include the
accounts of CompuCom Systems, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated. Minority interest expense for consolidated
subsidiaries is reflected in operating expense in the
Consolidated Statements of Operations. Minority interest
liability is reflected in other long-term liabilities in the
Consolidated Balance Sheets.
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
using 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 3 to 20 year
period. Accumulated amortization at December 31, 1999 and 1998
was $24,733,000 and $17,140,000, respectively.
The Company assesses the recoverability of goodwill
by determining whether the amortization of the asset balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not
achieved.
(continued)
F-7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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
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. Diluted earnings per common
share also assumes the exercise of all options with an
exercise price below the average market price of the Company's
stock for the year, at the later of the beginning of the year
or date of issuance, regardless of whether the options are
vested or not.
Financial Instruments
The Company's financial instruments, principally
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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed of
Long lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of long lived 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. Long lived 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
Comprehensive Income
The Financial Accounting Standards Board issued
Statement No. 130, "Reporting of Comprehensive Income", in
June of 1997. This Statement established standards for
reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements. The Company adopted the provisions of Statement
130 during 1998. For all periods presented, the Company's
comprehensive income is equal to the net earnings shown on the
Consolidated Statements of Operations.
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 1997 and 1998 consolidated
financial statements have been reclassified to conform to the
1999 presentation.
(2) Inventories
Inventory is comprised of product inventory and service parts.
At December 31, 1999 and 1998, total inventory was $129.1 million and
$138.6 million, respectively, net of inventory reserves of $10.4
million and $7.8 million as of the same dates. Gross product inventory
was $129.8 million and $136.1 million at December 31, 1999 and 1998,
respectively, and gross service parts inventory as of the same dates
was $9.7 million and $10.3 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 accrued on the note at an annual rate of 6.8%. The
note was secured by the Company's former headquarters building and was
due and payable in full on October 31, 1998, with accrued interest. In
November of 1998, the original note was modified such that accrued
interest was paid through November 30, 1998, and the maturity of the
note was extended to March 30, 1999, to be payable in full with accrued
interest from December, 1998 through March 30, 1999. The note and
accrued interest were paid in full on March 30, 1999. The note
receivable is included in receivables on the Consolidated Balance
Sheets as of December 31, 1998.
(4) Sale/leaseback on corporate headquarters building
During 1999, CompuCom sold its corporate headquarters building
in a sale/leaseback transaction for approximately $40 million.
Proceeds, net of transaction costs, of approximately $37 million were
used to pay down long-term debt. As part of the transaction, CompuCom
entered into a 20 year operating lease on the building. The book value
and associated depreciation on the building of approximately $38.6
million and $1.9 million, respectively, have been removed from the
accounts and the gain realized on the sale was not material.
(continued)
F-9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Restructuring Charge
On October 22, 1998, the Company's Board of Directors approved
a restructuring plan designed to reduce the Company's cost structure by
closing certain facilities and reducing the Company's workforce. As a
result, the Company recorded a restructuring charge in the fourth
quarter of 1998 in the amount of $16.4 million, primarily consisting of
costs associated with the closing of facilities and disposing of
related fixed assets as well as employee severance and benefits related
to the reduction in workforce. The entire $16.4 million charge is
reflected as a separate line in the Company's 1998 Consolidated
Statement of Operations. Of the total amount expensed in the fourth
quarter of 1998, approximately $2.3 million was paid through December
31, 1998. The following table provides a detail of the charges by
category as a roll forward of the restructuring accrual through
December 31, 1999:
<TABLE>
<CAPTION>
(Amounts in thousands)
Accrual at Cash Accrual at
12/31/1998 Payments Other (1) 12/31/1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Real estate buyouts $ 6,415 $ 5,175 $ - $ 1,240
Employee severance and related benefits 2,986 2,293 133 560
Disposal of assets, net of estimated
proceeds 2,907 2,907 -
Other 1,780 1,780 -
-------------- ------------- ------------- -------------
Total $ 14,088 $ 9,248 $ 3,040 $ 1,800
</TABLE>
/(1)/ Includes non-cash charges for the disposal of fixed assets and
adjustments for changes in estimates.
The $1.8 million and $14.1 million accrued at December 31,
1999 and 1998, respectively, are reflected in accrued liabilities on
the Company's Consolidated Balance Sheet.
Severance was determined based upon associates' years of
service as well as their level within the organization. The reduction
in workforce included 457 associates, of which 2 were executive
officers. The reduction in workforce included associates from the
following areas: sales, service, and general and administrative and
were located at the Company's branch facilities located throughout the
United States.
In addition to severance amounts paid, the Company accrued
certain employee benefits in accordance with certain severance
agreements. The remaining accrual at December 31, 1999 relates to
severance payments, which are to be made to a former executive officer
and are expected to be paid during 2000.
The amount accrued at December 31, 1998 for lease termination
costs was the estimated cost for 65 facilities throughout the country
to either fulfill the Company's obligation under a signed lease
contract, the net expense expected to be incurred to sublet certain
facilities, or the estimated amount to be paid to terminate the lease
contract before the end of its term. The Company consulted with a
professional real estate firm with knowledge of market rent rates in
all applicable markets where the Company had space. Assumptions were
used for market rent rates and the estimated amount of time to sublet
certain facilities. Payments, net of proceeds derived from subleases,
are being charged against the accrual as incurred. The remaining
accrual at December 31, 1999 relates to 16 leases that have not been
sublet or terminated. The facilities under these leases are idle.
Rental amounts have been charged against the accrual.
The amount accrued at December 31, 1998 for disposal of fixed
assets included an estimate of proceeds to be received from the sale
of those assets. The assets primarily consisted of furniture,
fixtures, and computer equipment. The Company transferred the majority
of those assets to its headquarters in Dallas for ultimate
disposition. Amounts charged against the accrual represent losses
incurred in the disposition of those assets. This category of the
restructuring accrual is fully depleted as of December 31, 1999.
(continued)
F-10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other restructuring charges primarily consist of amounts paid
in relation to closing the branch facilities, costs incurred to ship
fixed assets to the Company's headquarters in Dallas and estimated
legal expenses. This category of the restructuring accrual is fully
depleted as of December 31, 1999.
Based on revised estimates during 1999, $133,000 of the
severance related accrual was reversed. Also, additional expenses
related to the disposal of fixed assets of approximately $295,000 and
additional expenses for other charges of approximately $225,000 were
recorded during 1999 and are reflected in restructuring charges in the
1999 Consolidated Statement of Operations. The remaining restructuring
accrual at December 31, 1999 is expected to be adequate to cover
actual amounts paid. Any differences, if any, between the estimated
amounts and actual amounts paid will be reflected in operating
expenses in future periods.
(6) Segment Information
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which the Company has adopted in
the current year. Statement No. 131 requires the reporting of
information about operating segments determined by using the
"management approach," as opposed to the "industry approach" as was
previously required.
The Company previously defined its operations as three
distinct businesses - sales of computer products ("product");
services, which includes configuration, network integration, and
technology support; and customized application programming
("ClientLink"). ClientLink, a majority owned subsidiary of the Company
until April 1999, designed, developed, and implemented customized
information technology solutions for organizations with
mission-critical business processing needs. In April 1999, the Company
completed the merger of ClientLink with E-Certify Corporation,
retaining a minority investment in E-Certify, Inc. which is accounted
for using the equity method.
The Company measures segment earnings as operating earnings,
defined as income before restructuring charges, interest expense, and
income taxes. All significant inter-segment activity has been
eliminated. Business assets are the assets owned by or allocated to
each business. The "ClientLink, Inc." column for year ended December
31, 1999 contains its operating results until the April 1999 merger.
The "Other" column includes the Company's investment in E-Certify,
Inc. after the April 1999 merger, as well as all assets not
specifically allocated to a segment.
(continued)
F-11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Operating Results Product Service ClientLink, Other Total
- ----------------- ------- ------- ----------- ----- -----
Inc.
----
<S> <C> <C> <C> <C> <C>
(in thousands)
Net revenues $2,607,967 $ 300,105 $ 3,817 $ 0 $2,911,889
Gross margin 211,247 101,184 1,719 0 $ 314,150
Operating earnings/(loss)
excluding restructuring
charges 7,079 35,861 474 (855) $ 42,559
Restructuring charge $ 387
Financing expenses $ 23,195
-------------
Earnings before income taxes $ 18,977
Total assets $ 303,647 $ 35,522 $ 0 $ 158,883 $ 498,052
<CAPTION>
For the Year Ended December 31, 1998
Operating Results Product Service ClientLink, Other Total
- ----------------- ------- ------- ----------- ----- -----
Inc.
----
<S> <C> <C> <C> <C> <C>
(in thousands)
Net revenues $1,980,578 $ 258,806 $ 15,081 $ 0 $2,254,465
Gross margin 193,727 83,355 6,878 0 $ 283,960
Operating earnings excluding
restructuring charges 17,623 15,202 3,022 0 $ 35,847
Restructuring charges $ 16,437
Financing expenses $ 18,742
-------------
Earnings before income taxes $ 668
Total assets $ 339,778 $ 45,209 $ 3,007 $ 157,495 $ 545,489
<CAPTION>
For the Year Ended December 31, 1997
Operating Results Product Service ClientLink, Other Total
- ----------------- ------- ------- ----------- ----- -----
Inc.
----
<S> <C> <C> <C> <C> <C>
(in thousands)
Net revenues $1,699,268 $ 237,042 $ 13,492 $ 0 $1,949,802
Gross margin 176,234 84,952 6,359 0 $ 267,545
Operating earnings 39,121 26,292 2,568 0 $ 67,981
Financing expenses $ 14,947
Nonrecurring gains $ 5,624
-------------
Earnings before income taxes $ 58,658
Total assets $ 323,970 $ 38,215 $ 6,449 $ 93,956 $ 462,590
</TABLE>
(7) Financing Arrangements
The Company has financing arrangements which total $450
million, consisting of a $250 million receivable securitization
facility and a $200 million working capital facility.
(continued)
F-12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In May 1999, the Company replaced its previous receivables
securitization and working capital facility with a $175 million
receivables securitization facility ("Securitization") and a $225
million working capital facility ("Revolver"). Under the
Securitization, which has a term of three years and pricing based on a
designated short term interest rate plus an agreed upon spread, 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 that financial institution. As
collections reduce receivables balances sold, 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 Sheets and is included in the
net cash provided by operating activities in the Consolidated
Statement 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 totaled
$13.0 million and $10.8 million for 1999 and 1998, respectively. The
Company increased the Securitization to $250 million in September
1999. Amounts outstanding as sold receivables were $250 million and
$173.6 million at December 31, 1999 and December 31, 1998,
respectively. The designated short-term interest rate at December 31,
1999 was 6.26%.
The Revolver, which matures in May 2002, bears interest at a
rate of LIBOR plus an agreed-upon spread and is secured by a lien on
the Company's assets. Availability under the Revolver is subject to a
borrowing base calculation. As of December 31, 1999, availability
under the Revolver was approximately $82 million. Terms of the
Revolver limit the amounts available for capital expenditures and
dividends. The Revolver was reduced by $25 million in September 1999
and is scheduled to be reduced by an additional $25 million in May
2000. Both the Securitization and the Revolver require the Company to
maintain compliance with selected financial covenants and ratios. No
amounts were outstanding under the Revolver as of December 31, 1999.
The Company's weighted-average interest rate on borrowings was
approximately 7.7%, 6.6% and 6.7%, in 1999, 1998 and 1997,
respectively.
The Company capitalized interest costs of $1.0 million in 1997
as part of the refurbishment of its corporate headquarters and
operations campus. Construction was substantially completed in 1997.
(8) Accrued Liabilities
Accrued liabilities consist of the following as of December 31:
<TABLE>
<CAPTION>
(Amounts in thousands)
1999 1998
---------- ------------
<S> <C> <C>
Accrued payroll and payroll taxes $ 27,170 $ 21,754
Accrued cost of software and licenses 24,083 18,903
Accrued restructuring related charges 1,800 14,088
Accrued sales tax payable 9,642 7,812
Other 29,298 26,661
---------- ------------
Total $ 91,993 $ 89,218
========== ============
</TABLE>
(continued)
F-13
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes
The provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Current:
Federal $ 2, 401 $ 3,271 $ 19,422
State 365 707 2,211
Deferred, primarily federal 4,637 (3,711) 1,831
-------------- ------------- --------------
$ 7,403 $ 267 $ 23,464
============== ============= ==============
</TABLE>
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rates of 34% in 1999 and 1998 and 35% in
1997 to earnings before income taxes as a result of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- --------------
<S> <C> <C> <C>
Computed "expected" tax expense 6,452 227 20,530
State taxes, net of U.S. Federal
income tax benefit 401 (848) 1,989
Other, net 550 888 945
--------------- ------------- --------------
Actual income tax provision 7,403 267 23,464
=============== ============= ==============
Effective tax rate 39.0% 40.0% 40.0%
=============== ============= ==============
</TABLE>
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>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards $ 8,292 $ 7,564
Inventories, principally due to reserves and additional
costs inventoried for tax purposes 559 640
Accounts receivable, principally due to allowance for
doubtful accounts 1,784 1,228
Deferred revenue 1,723 0
Restructuring accrual 630 4,931
Other accrued expenses 3,765 4,123
------- -------
Deferred tax assets 16,753 18,486
------- -------
Deferred tax liabilities:
Intangible assets 3,823 1,767
Accelerated depreciation 2,657 3,575
Section 481a adjustment 1,310 1,966
Other 5,751 5,838
------- -------
Deferred tax liabilities 13,541 13,146
------- -------
Net deferred tax asset $ 3,212 $ 5,340
======= =======
</TABLE>
(continued)
F-14
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has available net operating loss carryforwards,
resulting from acquisitions, totaling approximately $21 million, which
expire in the years 2007 to 2012. The Company also has available
alternative minimum tax credit carryforwards of approximately $982,000,
which may be carried forward indefinitely. The utilization of these
pre-acquisition tax loss carryforwards and tax credits is limited to
approximately $2 million each year under Internal Revenue Code section
382.
(10) 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-dilution 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.
(11) 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. Under
the Directors Plan, nonemployee directors were initially granted 10,000
options 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. 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, 1997, and 1999 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 common stock on the date of grant.
Generally, options vest 20-25% each year and expire after 10 years
under the 1983 Plan, the 1984 Plan, and the 1993 Plan. After May 1996,
all options granted to nonemployee directors have been issued from the
1993 Plan. At December 31, 1999, approximately 7 million shares of
common stock are authorized for issuance under the Company's stock
option plans.
On October 22, 1998, the Company's Board of Directors approved
a measure enabling all employees who had been previously granted stock
options, with the exception of executive officers, the opportunity to
reprice the exercise price of their respective options to the Company's
stock price as of that date, which was $3.1875 per share. In exchange
for the repricing of options, those employees agreed to forfeit the
ability to exercise the options for one year, or until October 22,
1999. All vesting was kept intact. As a result, a total of 1.51 million
options with a weighted average exercise price of $6.76 per share were
repriced to $3.1875 per share. The Company accounted for this repricing
as a cancellation of old options and the issuance of new options.
(continued)
F-15
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On October 22, 1998, the Company's Board of Directors approved
a stock option grant agreement for 500,000 shares to a director and
officer of the Company. The option price was equal to the fair market
value of the Company's common stock on the date of grant.
Exercisability of the options was immediate, although vesting occurs at
25% per year. All 500,000 options were exercised on December 23, 1998.
These options were issued outside of the 1993 Plan.
In 1998, the Company created the CompuCom Systems, Inc.
Employee Stock Purchase Plan ("ESPP"). The ESPP provides eligible
Company employees the opportunity to purchase common stock of the
Company through accumulated payroll deductions. Participation in the
ESPP is for periods of six months, beginning on January 1 and July 1 of
each year. The first such period was July 1 (i.e., "the enrollment
date") through December 31, 1998 (i.e., "the exercise date"). The
exercise price, as defined, for each six month period, is equal to the
lower of 85% of the fair market value, as defined, of the Company's
common stock price on the enrollment date or the exercise date. Once
the shares have been purchased, each employee has the option of keeping
his shares or selling them at any time. For the six-month withholding
period from July 1 through December 31, 1998, employees purchased
approximately 193,000 shares on January 1, 1999 at $2.975 per share.
For the six-month withholding periods from January through June 30,
1999 and July 1 through December 31, 1999, employees purchased
approximately 159,000 shares at an average price of $3.43 and
approximately 183,000 shares at an average price of $3.50,
respectively, in January of 2000. A total of 1.0 million shares were
authorized for issuance under the ESPP.
The Company applies APB 25 and related interpretations in
accounting for its various fixed stock option plans and its stock
purchase plan. Had compensation cost been recognized consistent with
SFAS No. 123, the Company's net earnings/(loss) and earnings/(loss) per
share would have been reduced/(increased) to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings/(loss) As reported $ 11,574 $ 401 $ 35,194
Pro forma $ 10,229 ($2,161) $ 34,639
Basic earnings/(loss) per share As reported $ .22 ($ .01) $ .75
Pro forma $ .20 ($ .07) $ .74
Diluted earnings/(loss) per share As reported $ .22 ($ .01) $ .71
Pro forma $ .19 ($ .07) $ .69
</TABLE>
The per share weighted-average value of stock options issued
by the Company during 1999, 1998 and 1997 was $1.82 , $2.14, and $4.20,
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>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 59% 59% 63%
Average expected option life 5 years 5 years 5 years
Risk-free interest rate 5.2% to 6.4% 4.4% to 5.8% 5.9% to 6.8%
</TABLE>
The fair value of the employees' purchase rights granted in
1999 was $1.52. This estimation of fair value was based on the Black
Scholes model with the following assumptions for 1999: dividend yield
of 0%, expected volatility of 59%, expected life of 6 months, and a
risk-free interest rate of 5.5%.
(continued)
F-16
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pro forma net earnings reflect only options granted subsequent
to January 1, 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>
1999 1998 1997
------------------------- -------------------------- -------------------------
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 3,994 $ 4.16 4,009 $5.51 4,021 $3.96
Granted 1,920 3.57 3,458 3.91 1,642 7.07
Exercised (382) 1.65 (1,330) 3.17 (1,225) 2.39
Canceled (1,556) 4.91 (2,143) 6.89 (429) 5.82
------- ------- -------
Outstanding at end of year 3,976 $ 3.78 3,994 $4.16 4,009 $5.51
======= ======= =======
Options exercisable at year-end 1,114 $ 4.13 1,225 $3.97 1,343 $3.40
Shares available for future grant 3,008 436 1,190
</TABLE>
The following summarizes information about the Company's stock
options outstanding at December 31, 1999:
<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 87 2.9 $ 2.57 87 $ 2.57
3.19 - 3.19 2,405 8.4 3.19 651 3.19
3.25 - 4.38 1,040 8.7 3.80 118 3.54
4.63 - 10.80 438 7.0 7.14 254 7.20
12.50 - 12.50 6 6.4 12.50 4 12.50
----- -----
$ 1.00 - 12.50 3,976 8.2 $ 3.78 1,114 $ 4.13
===== =====
</TABLE>
(continued)
F-17
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) ClientLink / E-Certify Merger
On April 13, 1999, the Company completed the merger ("the
E-Certify merger") of its majority-owned subsidiary, ClientLink, Inc.
("ClientLink") with E-Certify Corporation. The combined operations of
ClientLink and E-Certify are conducted under the name E-Certify, Inc.
The Company has recorded its investment in E-Certify, Inc. at the net
carrying amount of its investment in ClientLink and is accounting for
the ongoing operation of E-Certify, Inc. using the equity method and as
such has condensed its net investment into a single investment account,
which is included in Other Non-current Assets as of December 31, 1999.
(13) Business Combinations
On May 10, 1999, the Company consummated the acquisition of
the TASD division of ENTEX Information Services, Inc ("the TASD
acquisition"). The total consideration given for the TASD acquisition
was approximately $137 million in cash. The TASD acquisition was
accounted for as a purchase and accordingly the consolidated financial
statements reflect the operations of the acquired entity since the
acquisition date. The purchase price has been allocated to identifiable
assets acquired and liabilities assumed based on their estimated fair
market value at the date of acquisition and the balance has
preliminarily been recorded as goodwill and is being amortized over 20
years on a straight-line basis. At the date of the acquisition, the
Company had plans to sell a distribution center located in Erlanger,
Kentucky ("Erlanger"). Accordingly, a portion of the purchase price was
allocated to the net realizable value of Erlanger. In conjunction with
this acquisition the Company provided for certain employee termination
costs of approximately $2.3 million primarily related to the closing of
this duplicate facility. Erlanger was sold in December of 1999 for
approximately $8.7 million. No gain or loss was recognized on the sale.
At December 31, 1999, the Company had terminated 370 employees related
to the closing of Erlanger and all related costs were paid out by
year-end. The Company does not expect to incur any additional costs
related to the closing of this facility in future periods. The initial
purchase price allocation is preliminary and may be adjusted upon
completion of the final valuation work.
During 1998, the Company consummated three business
combinations (collectively, "the 1998 acquisitions"). The total
consideration given for the 1998 acquisitions was approximately $49
million in cash. In addition, the Company assumed liabilities of
approximately $95 million, in aggregate. The 1998 acquisitions were
accounted for as purchases and accordingly the consolidated financial
statements reflect the operations of the acquired entities since the
respective acquisition dates.
The following unaudited proforma financial information
presents the combined results of operations as if the 1998 acquisitions
and the TASD acquisition had occurred as of the beginning of 1998,
after giving effect to certain adjustments, including amortization of
goodwill, increased financing expense on debt related to the
acquisitions, and related income tax effects. The proforma results do
not necessarily represent results which would have occurred if the 1998
acquisitions and the TASD acquisition had taken place on the basis
assumed above, nor are they indicative of the results of future
combined operations.
<TABLE>
<CAPTION>
(in thousands, except per share data)
1999 1998
---- ----
<S> <C> <C>
Revenue $3,531,629 $4,358,525
Net earnings / (loss) $4,530 $(23,937)
Diluted earnings / (loss) per share $0.08 $(0.54)
</TABLE>
(continued)
F-18
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Related Party Transactions
In 1994, the Company loaned an officer and director of the
Company $1,181,250 evidenced by a term note receivable. The proceeds of
the loan were used to purchase shares of the Company's common stock.
Interest on the note accrues at the rate of 6% per annum. Terms of the
note were amended in February 1999 such that principal and accrued
interest are due on October 22, 2001. The outstanding balance of the
note at December 31, 1999 and 1998 was $900,000, which is included in
notes receivable from the sale of stock on the Consolidated Balance
Sheets. In addition, in 1998, the Company loaned this individual
$2,021,875 evidenced by a term note receivable. Interest on this note
accrues at the rate of 5.1% per annum. Principal and interest are due
on August 22, 2003. The loan proceeds were used to exercise stock
options and the balance is included in notes receivable from the sale
of stock on the Consolidated Balance Sheets at December 31, 1999 and
1998. This officer is no longer employed by the Company. In January
2000, the individual transferred shares to the Company in satisfaction
of the outstanding balance on the notes.
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 is included in notes receivable from
the sale of stock, while the remainder of the loan is included in Other
Assets on the Consolidated Balance Sheets at December 31, 1999 and
1998. Principal on the note is due on June 17, 2000. In addition, in
1999, the Company loaned this individual $625,950 evidenced by a term
note receivable. Interest on the note accrues at the rate of 5.74% per
annum. Principal and accrued interest on the note is due on November
30, 2000. A portion of the loan proceeds was used to exercise stock
options. This portion of the loan is included in notes receivable from
the sale of stock, while the remainder of the loan is included in Other
Assets on the Consolidated Balance Sheets at December 31, 1999. This
officer is no longer employed by the Company. In connection with the
severance arrangement with this former officer, the Company modified
the terms of the original grant and as a result recorded compensation
expense of approximately $529,000 which is reflected in general and
administrative expense in the accompanying financial statements.
In 1998, the Company loaned an officer and director of the
Company $796,875 evidenced by a term note receivable. Interest on the
note accrues at the rate of 4.33% per annum and is payable upon
maturity of the note. The loan proceeds were used to exercise stock
options and are included in notes receivable from the sale of stock on
the Consolidated Balance Sheets at December 31, 1999 and 1998.
Principal on the note is due on December 31, 2001.
All of the loans are full recourse loans. In addition, the
Company has retained physical possession of the resulting stock
certificates.
The Company has transactions in the normal course of business
with Safeguard or affiliated companies. As of December 31, 1999
Safeguard owned approximately 50% of the Company's outstanding common
stock. The Company pays Safeguard a fee for providing certain
administrative, legal and financial services to the Company. General
and administrative expenses include charges from Safeguard of $600,000
in 1999, 1998, and 1997. In addition, during 1999, the Company incurred
consulting-related expenses of approximately $3.5 million from
affiliates of Safeguard.
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
common stock 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.
(continued)
F-19
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share," basic
earnings per common share have been computed based on net earnings
after preferred stock dividend requirements and the weighted average
number of common shares outstanding during each period. Diluted
earnings per common share assumes conversion of dilutive convertible
securities into common stock at the later of the beginning of the
period or date of issuance and includes the add-back of related
interest expense and/or dividends, as required. Earnings per common
share have been computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year ended December 31, 1999
-----------------------------------------------
Income Shares
(Numerator) (Denominator) EPS
----------------- ----------------- ----------
<S> <C> <C> <C>
Net earnings $ 11,574
Less: Preferred stock dividends (900)
--------
Basic EPS
Income available to common shareholders 10,674 47,657 $ .22
Effect of dilutive securities
Stock options 617
-------- ------
Diluted EPS
Income available + assumed conversions 10,674 48,274 $ .22
======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------------------------------
Income Shares
(Numerator) (Denominator) EPS
----------------- ----------------- ----------
<S> <C> <C> <C>
Net earnings $ 401
Less: Preferred stock dividends (900)
------
Basic EPS
Income available to common shareholders (499) 46,346 ($ .01)
------ ------
Diluted EPS
Income available + assumed conversions (499) 46,346 ($ .01)
====== ====== ======
</TABLE>
(continued)
F-20
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year ended December 31, 1997
-----------------------------------------------------------
Income Shares
(Numerator) (Denominator) EPS
----------------- ----------------- ----------
<S> <C> <C> <C>
Net earnings $35,194
Less: Preferred stock dividends (900)
-------
Basic EPS
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 EPS
Income available + assumed conversions 35,286 50,034 $ .71
======= ======= =======
</TABLE>
The Company has excluded 2,215,657; 4,239,657; and 150,325
shares from its calculations of diluted earnings per share in 1999,
1998 and 1997 respectively, as they are considered anti-dilutive.
(16) Leases
The Company has noncancelable operating leases for facilities
and equipment, which expire at various dates from 2000 to 2005, with
the exception of the operating lease on the Company's headquarters
facility, which expires in 2019. Total rental expense for operating
leases was $10.4 million, $11.2 million and $8.9 million in 1999, 1998
and 1997, respectively. Future minimum lease payments under
noncancelable operating leases as of December 31, 1999 are: $11.2
million - 2000; $9.3 million - 2001; $7.9 million - 2002; $7.2 million
- 2003; $5.4 million - 2004; and $56.1 million - thereafter. These
future minimum lease payments include the remaining obligations under
leases that are being abandoned as part of the restructuring (the
"Restructuring Leases"). The future minimum lease payments of the
Restructuring Leases are $1.1 million - 2000; $0.8 million - 2001; $0.6
million - 2002; and $0.5 million - 2003.
(17) Savings Plan
The Company modified its defined contribution plan (401(k)
Matched Savings Plan) ("the Plan") in 1999. Previously, the Plan
covered substantially all employees who had completed at least six
months of qualifying service and allowed participant contributions in
an amount between 1% and 10% of their eligible compensation. The
modified Plan allows employees to participate in the Plan on the first
day of employment and contribute up to 15% of eligible compensation.
The Company continues to match 50% of each participant's qualifying
contribution up to 4% of compensation, and an additional 25% of the
next 2% of the participant's qualifying contributions. Amounts expensed
relating to the Plan were $2.6 million, $2.4 million and $1.6 million
in 1999, 1998 and 1997, respectively.
(continued)
F-21
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) 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>
1999
Revenue:
Product $421,292 $728,043 $806,191 $652,441
Service 68,557 74,206 83,151 74,191
Other 3,471 346
------------- -------------- ------------- -------------
Net revenue 493,320 802,595 889,342 726,632
Gross margin:
Product $33,548 $56,537 $65,615 $55,547
Service 23,321 25,238 29,049 23,576
Other 1,602 117
------------- -------------- ------------- -------------
Total gross margin 58,471 81,892 94,664 79,123
Net earnings/(loss) ($2,289) $2,522 $6,508 $4,833
Earnings/(loss) per common share:
Basic (0.05) 0.05 0.13 0.10
Diluted (0.05) 0.05 0.13 0.10
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------- -------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1998
Revenue:
Product $ 376,778 $ 530,495 $ 531,640 $ 541,665
Service 57,173 63,237 67,756 70,640
Other 3,801 3,825 3,934 3,521
------------- -------------- ------------- -------------
Net revenue 437,752 597,557 603,330 615,826
Gross margin:
Product $ 43,880 $ 50,528 $ 49,586 $ 49,733
Service 18,414 19,865 22,040 23,036
Other 1,871 1,761 1,858 1,388
------------- -------------- ------------- -------------
Total gross margin 64,165 72,154 73,484 74,157
Net earnings/(loss) $ 3,843 $ 4,286 $ 1,063 ($ 8,791) *
Earnings/(loss) per common share:
Basic .08 .09 .02 (.19) *
Diluted .08 .09 .02 (.19) *
* Includes Restructuring charges related to reorganization of $9.9
million or ($.21) per share (Basic and Diluted)
</TABLE>
(continued)
F-22
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) 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 or results of operations, taken as a whole.
F-23
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Charge offs Period
---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Trade receivables-
Allowance for doubtful accounts
1997 $ 2,274 2,114 1,716 $ 2,672
1998 $ 2,672 1,856 1,021 $ 3,507
1999 $ 3,507 2,344 756 $ 5,095
Inventory reserves
1997 $ 8,934 14,844 13,854 $ 9,924
1998 $ 9,924 14,204 16,326 $ 7,802
1999 $ 7,802 17,885 15,319 $ 10,368
</TABLE>
F-24
<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: February 23, 2000
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: February 23, 2000
/s/ Harry Wallaesa /s/ Edwin L. Harper
- --------------------------- ----------------------
Harry Wallaesa Edwin L. Harper
Chairman of the Board and Director Director
/s/ J. Edward Coleman /s/ Delbert W. Johnson
- --------------------------- -----------------------
J. Edward Coleman Delbert W. Johnson
Chief Executive Officer Director
And Director
/s/ Thomas C. Lynch /s/ John D. Loewenberg
- --------------------------- ------------------------
Thomas C. Lynch John D. Loewenberg
President, Chief Operating Officer Director
And Director
/s/ Warren V. Musser /s/ Anthony J. Paoni
- --------------------------- ------------------------
Warren V. Musser Anthony J. Paoni
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.E
AMENDMENT THREE TO
COMPUCOM SYSTEMS, INC.
401(k) MATCHED SAVINGS PLAN
WHEREAS, effective January 1, 1988, CompuCom Systems, Inc. (the "Company")
established the CompuCom Systems, Inc. 401(k) Matched Savings Plan (the "Plan")
for the benefit of employees of the Company and its affiliated entities; and
WHEREAS, the Company amended and restated the Plan in its entirety,
effective as of May 1, 1996, adopted Amendment One to the Plan, effective as of
January 1, 1998, and adopted Amendment Two to the Plan, effective as of January
26, 1998; and
WHEREAS, the Company recently acquired certain assets from ENTEX
Information Services, Inc. and its affiliates ("ENTEX") as of May 10, 1999 (the
"Acquisition"), and as a result of the Acquisition certain former ENTEX
employees have become employees of the Company or its affiliates;
WHEREAS, the Company desires to amend the Plan to grant past service credit
for Plan eligibility purposes to the ENTEX employees who become employees of the
Company or its affiliates in connection with the Acquisition;
NOW, THEREFORE, pursuant to its authority under Section 19.1 of the Plan,
the Company amends the Plan, effective as of May 28, 1999, as follows:
1. The definition of "Eligibility Service" in Section 1.1 is amended by adding
the following at the end thereof:
In the case of any Employee who is a former employee of ENTEX Information
Services, Inc. or any of its affiliates ("ENTEX") and who became or becomes
an Employee in connection with the Employer's acquisition of certain ENTEX
assets on May 10, 1999, for purposes of determining such Employee's
Eligibility Service, such Employee's period of service shall include all
eligibility service credited or required to be credited for purposes of
determining eligibility under the ENTEX 401(k) Retirement Savings Plan.
<PAGE>
2. The definition of "Enrollment Date" in Section 1.1 is amended by adding the
following at the end thereof:
In addition, May 10, 1999 shall be an Entry Date for former ENTEX employees
who became Employees on May 10, 1999 in connection with the Company's
acquisition of certain ENTEX assets on May 10, 1999.
IN WITNESS WHEREOF, COMPUCOM SYSTEMS, INC. has caused this instrument to
be executed by its duly authorized officer on this 28 day of May, 1999.
-- ---
COMPUCOM SYSTEM, INC.
By: /s/ Daniel Celoni
-----------------------------------
Its: Treasurer
-----------------------------------
<PAGE>
EXHIBIT 10.F
AMENDMENT FOUR TO
COMPUCOM SYSTEMS, INC.
401(k) MATCHED SAVINGS PLAN
WHEREAS, effective January 1, 1988, CompuCom Systems, Inc. (the "Company")
established the CompuCom Systems, Inc. 401(k) Matched Savings Plan (the "Plan")
for the benefit of employees of the Company and its affiliates; and
WHEREAS, the Company amended and restated the Plan in its entirety
effective as of May 1, 1996, adopted Amendment One to the Plan effective as of
January 1, 1998, adopted Amendment Two to the Plan effective as of January 26,
1998, and adopted Amendment Three to the Plan effective as of May 28, 1999; and
WHEREAS, the Company recently acquired certain assets from ENTEX
Information Services, Inc. and its affiliates ("ENTEX") as of May 10, 1999 (the
"ENTEX Acquisition"), and in connection with the ENTEX Acquisition certain
former ENTEX employees have become employees of the Company (the "ENTEX
Acquisition Employees"), and some or all of the ENTEX Acquisition Employees have
become Plan participants;
WHEREAS, the Company desires to merge into the Plan the assets and benefit
liabilities of the ENTEX 401(k) Retirement Savings Plan (the "ENTEX 401(k)
Plan") attributable to the ENTEX Acquisition Employees and therefore must under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Internal Revenue Code of 1986, as amended (the "Code") amend the Plan to
provide the ENTEX Acquisition Employees with (i) credit for the service
<PAGE>
previously credited to them under the ENTEX 401(k) Plan, (ii) the higher of the
vested percentage that they had under the ENTEX 401(k) Plan or the vested
percentage that they would otherwise have under the Plan, and (iii) optional
forms of benefit required by ERISA and the Code to be protected with respect to
benefits accrued under the ENTEX 401(k) Plan;
NOW, THEREFORE, pursuant to its authority under Section 19.1 of the Plan,
the Company amends the Plan, effective as of the date of the merger into the
Plan of the portion of the ENTEX 401(k) Plan attributable to the ENTEX
employees, as follows:
1. The definition of "Vesting Service" in Section 1.1 is amended by adding the
following at the end thereof:
In the case of any Employee who is a former employee of ENTEX Information
Services, Inc. or any of its affiliates ("ENTEX") and who became or becomes
an Employee in connection with the Employer's acquisition of certain ENTEX
assets on May 10, 1999, for purposes of determining such Employee's vested
interest, such Employee's period of service shall include all service
credited or required to be credited for purposes of determining his or her
vested percentage under the ENTEX 401(k) Retirement Savings Plan (the
"ENTEX 401(k) Plan").
2. Section 6.11 of the Plan is amended by adding the following sentence at the
end thereof:
Notwithstanding the foregoing, a Participant whose account in the ENTEX
401(k) Plan is merged into the Plan as a consequence of the Company's May
10, 1999 acquisition of certain assets from ENTEX shall be 100% vested in
his or her Profit Sharing and Matching Contributions Sub-Accounts, as well
as in any other sub-account holding any portion of his or her benefit
originally accrued under the ENTEX 401(k) Plan.
3. The first sentence of Section 16.1 of the Plan is amended to read as
follows:
Distribution shall be made to a Participant, or, if the Participant has
died and the Participant's surviving spouse is the Participant's
Beneficiary, to the Participant's surviving spouse, in a single sum
payment.
-2-
<PAGE>
4. Section 16.1 of the Plan is amended by adding the following at the end
thereof:
Notwithstanding the foregoing, all optional forms of benefit under the
ENTEX 401(k) Plan required to be protected under Section 411(d)(6) of the
Code and the regulations thereunder shall be protected as set forth in
Appendix "A" to the Plan's Fourth Amendment.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officer on this 29th day of July, 1999.
COMPUCOM SYSTEMS, INC.
By: /s/ M Lazane Smith
-------------------------------
Its: Sr VP Finance/CFO
------------------------------
-3-
<PAGE>
APPENDIX "A" TO
FOURTH AMENDMENT TO
COMPUCOM SYSTEMS, INC.
401(k) MATCHED SAVINGS PLAN
The following optional forms of benefit not otherwise included under the
Plan have been identified as being included in the ENTEX 401(k) Plan and shall
be preserved. Such optional forms of benefit are preserved only for the portion
of a Participant's benefit attributable to his or her ENTEX 401(k) Plan benefit
that is merged into the Plan:
. Once a year withdrawals from Rollover Contributions Sub-Accounts, as
specified in Section 13.01 of the ENTEX 401(k) Retirement Savings Plan
(September 1, 1996 Restatement) (the "September 1, 1996, ENTEX 401(k)
Plan Document"), which read as follows:
13.01 - Withdrawals of Rollover Contributions
A Participant who is employed by an Employer or a Related Company may,
once each Plan Year, elect in writing, subject to the limitations and
conditions prescribed in this Article, to make a cash withdrawal from
his Rollover Contributions Sub-Account.
The referenced limitations and restrictions prescribed in ... Article
XIII of the September 1, 1996 ENTEX 401(k) Plan Document read as
follows:
13.04 - Limitations on Withdrawals Other than Hardship Withdrawals
Withdrawals made pursuant to this Article, other than hardship
withdrawals, shall be subject to the following conditions and
limitations:
A Participant must file a written withdrawal application with the
Administrator such number of days prior to the date as of which
it is to be effective as the Administrator shall prescribe.
Withdrawals may be made effective as soon as reasonably
practicable following the Administrator's receipt of the
Participant's directions.
A Participant who makes a non-hardship withdrawal from his
Rollover Contributions Sub-Account prior to attaining age
59 1/2 may not make a further withdrawal of Rollover
Contributions under this Article during the remainder of the Plan
Year in which the withdrawal is effective.
-4-
<PAGE>
. Once a year withdrawals by post-age 59 1/2 Participants from their
vested interests in their Employer Contributions Sub-Accounts, as
specified in Section 13.02 of the September 1, 1996 ENTEX 401(k) Plan
Document, which read as follows:
13.02 - Withdrawals of Employer Contributions
A Participant who is employed by an Employer or a Related Company and
has attained age 59 1/2 may, once each Plan Year, elect in writing,
subject to the limitations and conditions prescribed in this Article
to make a cash withdrawal from his vested interest in his Employer
Contributions Sub-Account. The maximum amount that a Participant may
withdraw pursuant to this Section shall be an amount ("X") determined
by the following formula:
X=P(AB+D)-D
For purposes of the formula:
P= The Participant's vested interest in his Employer
Contributions Sub-Account on the date distribution is to be
made.
AB= The balance of the Participant's Employer Contributions Sub-
Account as of the Valuation Date immediately preceding the
date distribution is to be made.
D= The amount of all prior withdrawals from the Participant's
Employer Contributions Sub-Account made pursuant to this
Section.
. Certain installment and term certain annuity distributions to
Participants as specified in section 16.02 of the September 1,
1996 ENTEX 401(k) Plan Document, which read as follows:
16.02 - Optional Form of Payment
A Participant, or his Beneficiary, as the case may be, may elect to
receive distribution in one of the following optional forms of
payment:
(a) Installment Payments - Distribution shall be made in a series of
installments over a period not exceeding the life expectancy of
the Participant, or the Participant's Beneficiary, if the
Participant has died, or a period not exceeding the joint life
and last survivor expectancy of the Participant and his
Beneficiary. Each installment shall be equal in amount except as
necessary
-5-
<PAGE>
to adjust for any changes in the value of the Participant's
Separate Account. The determination of life expectancies shall be
made on the basis of the expected return multiples in Table V and
VI of Section 1.72-9 of the Treasury regulations and shall be
calculated either once at the time installment payments begin or
annually for the Participant and/or his Beneficiary, if his
Beneficiary is his spouse, as determined by the Participant at
the time installment payments begin. Notwithstanding any other
provision of this Section to the contrary, a Participant may
elect to receive distribution of this Separate Account for
periods prior to the April 1 following the close of the calendar
year in which he attains age 70 1/2 in a series of installments
made pursuant to any formula elected by the Participant, without
regard to the life expectancies of the Participant and his
Beneficiary.
(b) Annuity Contract - Distribution shall be made through the
purchase of a single premium, nontransferable annuity contract
for such term certain and in such form as the Participant, or his
Beneficiary, if the Participant has died shall select, provided
however, that a Participant, or his Beneficiary, may not elect to
receive distribution of an annuity payable for a term certain
that exceeds his life expectancy. The terms of any annuity
contract purchased hereunder and distributed to a Participant, or
his Beneficiary, shall comply with the requirements of the Plan.
(c) A Participant may also elect a form of payment that was available
to him under another Plan from which assets were directly
transferred to this Plan, but only to the extent such form of
payment was available under such other Plan.
. Any optional forms of benefit preserved in the ENTEX 401(k) Plan
under the second sentence of the second paragraph of the September 1,
1996, ENTEX 401(k) Plan Document, which read a follows:
In addition, notwithstanding any other provision of the Plan to the
contrary, the forms of payment and other Plan provisions that were
available under the Plan immediately prior to the later of the
effective date of this amendment and restatement or the date this
amendment and restatement is adopted and that may not be eliminated
under Section 411(d)(6) of the Code shall continue to be available
to Participants who had an account under the Plan on the day
immediately preceding the later of the effective date or the date this
amendment and restatement is adopted.
-6-
<PAGE>
EXHIBIT 10.G
FIFTH AMENDMENT TO
COMPUCOM SYSTEMS, INC. 401(K)
MATCHED SAVINGS PLAN
WHEREAS, effective January 1, 1988, CompuCom Systems, Inc. (the "Company")
adopted the CompuCom Systems, Inc. 401(k) Matched Savings Plan (the "Plan"), for
the benefit of the employees of the Company and its affiliated entities; and
WHEREAS, the Company amended and restated the Plan, effective May 1, 1996,
and has subsequently amended the Plan four times; and
WHEREAS, the Company now desires to amend the Plan to change the Plan year,
to increase the amount of compensation that participants may elect to defer
under the Plan and of the related tax-deferred contributions, to change the
eligibility provisions with respect to tax-deferred contributions, and to make
certain other changes; and
WHEREAS, the Company has agreed to provide full vesting of Plan benefits
with respect to employees of ClientLink, Inc and ClientLink Acquisition, Inc.
transferred to E-Certify Corp. as part of an Agreement and Plan of Merger dated
April 13, 1999.
NOW, THEREFORE, the Sponsor amends the Plan as follows, effective December
30, 1999, except as otherwise provided herein:
1. Effective May 13, 1998, the definition of "Eligibility Service" in
section 1.1 of the Plan is amended by adding the following paragraph at the end
of such section:
"An Employee who is a former employee of Computer Integration Corp. who
became an Employee in connection with the Employer's acquisition of the
common stock of Computer Integration Corp. on May 13, 1998, shall receive
credit for purposes of Eligibility Service for all periods of service with
and as reported by Computer Integration Corp."
2. Effective June 27, 1998, the definition of "Eligibility Service" in
section 1.1 of the Plan is amended by adding the following paragraph at the end
of such section:
"An Employee who is a former employee of Dataflex Corporation who became an
Employee in connection with the Employer's acquisition of the common stock
of Dataflex Corporation on June 27, 1998, shall receive credit for purposes
of Eligibility Service for all periods of service with and as reported by
Dataflex Corporation."
3. The definition of "Highly Compensated Employee" in section 1.1 of the
Plan is amended by adding the following paragraph to the end of such section:
<PAGE>
"Effective January 1, 1997, "Highly Compensated Employee" means, as
determined pursuant to section 414(q) of the Code and the regulations
thereunder, any Employee of any employer required to be aggregated pursuant
to the aggregation rules of section 414(b), (c), (m) or (o) of the Code,
who (i) was a 5-percent owner (as defined in section 416(i) of the Code) at
any time during the Plan Year or the twelve-month period preceding the Plan
Year, or (ii) had compensation in excess of $80,000 (or such greater amount
as results from adjustment by the Secretary of the Treasury in the same
manner as under section 415(d) of the Code) for the twelve-month period
preceding the Plan Year or, effective for Plan Years beginning on or after
December 31, 1999, the calendar year beginning within such twelve month
period preceding the Plan Year."
4. Effective May 13, 1998, the definition of "Vesting Service" in Section
1.1 of the Plan is amended by adding the following paragraph at the end of such
section:
"An Employee who is a former employee of Computer Integration Corp. who
became an Employee in connection with the Employer's acquisition of the
common stock of Computer Integration Corp. on May 13, 1998, shall receive
credit for purposes of Vesting Service for all periods of service with and
as reported by Computer Integration Corp."
5. Effective June 27, 1998, the definition of "Vesting Service" in
Section 1.1 of the Plan is amended by adding the following paragraph at the end
of such section:
"An Employee who is a former employee of Dataflex Corporation who became an
Employee in connection with the Employer's acquisition of the common stock
of Dataflex Corporation on June 27, 1998, shall receive credit for purposes
of Vesting Service for all periods of service with and as reported by
Dataflex Corporation."
6. The definition of "Plan Year" in Section 1.1 of the Plan is deleted in
its entirety and the following substituted therefor:
A "Plan Year" means the 12-consecutive month period ending December 31.
Effective January 1, 1999, "Plan Year" shall mean the period beginning
January 1, 1999, and ending December 30, 1999. Effective December 31,
1999, "Plan Year" shall mean the 12-consecutive month period beginning each
December 31 and ending the following December 30.
<PAGE>
7. Section 3.1 is hereby amended by adding the following sentence at the
end of such section:
Effective for Plan Years beginning on or after December 31, 1999, each
Employee who was not an Eligible Employee immediately prior to such date
shall be an Eligible Employee for purposes of Tax-Deferred Contributions as
of the Enrollment Date coinciding with or next following the later of the
date such Employee first completes an Hour of Service or January 1, 2000.
8. Section 4.2 is hereby amended by deleting the first sentence of such
section and substituting the following therefor:
"The amount of Tax-Deferred Contributions to be made to the Plan on behalf
of an Eligible Employee by his Employer shall be an integral percentage of
his Compensation of not less than 1 percent nor more than 10 percent, or,
effective for Plan Years beginning on or after December 31, 1999, more
than 15 percent.
9. Section 6.1 is hereby amended by adding the following sentence at the
end of such section:
"Effective for the Plan Year ending December 30, 1999, the final
Contribution Period for Matching Contributions shall end December 30, 1999.
Effective for Plan Years beginning on or after December 31, 1999, the
Contributions Period for Matching Contributions shall be each calendar
quarter, provided that the first Contribution Period of each Plan Year
shall begin on December 31 and the last Contribution Period of each Plan
Year shall end on December 30."
10. Section 6.9 is hereby amended by adding the following sentence at the
end of such section:
"Notwithstanding anything herein to the contrary, effective for Plan Years
beginning on or after December 31, 1999, the Employer shall commit to a
contribution as of December 31 in an amount set by resolution prior to such
date to be allocated on behalf of those Eligible Employees and Employees
who subsequently become Eligible Employees who are actively employed on the
first day of the Plan Year (the "First Day Participants"). This
contribution shall be allocated to First Day Participants as Tax-Deferred
Contributions and Matching Contributions in accordance with the otherwise
applicable provisions of the Plan.
11. Section 7.13 is hereby amended by adding the following sentence at
the end of such section:
"For purposes of Sections 7.10, 7.11, and 7.12, the "limitation year" shall
be the Plan Year."
<PAGE>
12. Effective as of April 13, 1999, Section 6.11 of the Plan is amended
to add the following paragraph to the end of such section:
"Without limitation, any Employee of ClientLink, Inc. and ClientLink
Acquisition, Inc. transferred to E-Certify Corp. as part of an "Agreement
and Plan of Merger by and among ClientLink, Inc., ClientLink Acquisition,
Inc., CompuCom Systems Inc., and E-Certify Corp. dated as of April 13,
1999" shall have a 100% vested interest in his regular Profit-Sharing and
Matching Contributions Sub-Accounts."
IN WITNESS WHEREOF, the Sponsor has executed this instrument this 30 day of
--
December, 1999.
- --------
CompuCom Systems, Inc.
By: /s/ Daniel Celoni
--------------------------------------
Title: Treasurer
-----------------------------------
<PAGE>
EXHIBIT 10(J)
CSI FUNDING, INC.,
Transferor,
COMPUCOM SYSTEMS, INC.,
Servicer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Trustee
on behalf of the Certificateholders
COMPUCOM RECEIVABLES MASTER TRUST I
POOLING AND SERVICING AGREEMENT
Dated as of May 7, 1999
as amended and restated as of August 20, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
DEFINITIONS........................................................................................... 1
Section 1.01 Definitions......................................................................... 1
-----------
Section 1.02 Other Definitional Provisions....................................................... 1
-----------------------------
Section 1.03 Calculations and Payments........................................................... 2
-------------------------
ARTICLE II
CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES................................................... 2
Section 2.01 Conveyance of Receivables........................................................... 2
-------------------------
Section 2.02 Declaration of Trust; Acceptance by Trustee......................................... 3
-------------------------------------------
Section 2.03 Representations and Warranties of the Transferor Relating to the
----------------------------------------------------------------
Transferor.......................................................................... 3
----------
Section 2.04 Representations and Warranties of the Transferor Relating to the
----------------------------------------------------------------
Agreement and any Supplement and the Receivables; Reassignment of
-----------------------------------------------------------------
Receivables......................................................................... 7
-----------
Section 2.05 Covenants of the Transferor......................................................... 10
---------------------------
Section 2.06 Authentication of Certificates...................................................... 14
------------------------------
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES........................................................................................ 15
Section 3.01 Acceptance of Appointment and Other Matters Relating to the
-----------------------------------------------------------
Servicer............................................................................ 15
--------
Section 3.02 Servicing Compensation.............................................................. 18
----------------------
Section 3.03 Representations, Warranties and Covenants of the Servicer........................... 19
---------------------------------------------------------
Section 3.04 Records and Reports for the Trustee................................................. 24
-----------------------------------
Section 3.05 Annual Servicer's Certificate....................................................... 25
-----------------------------
Section 3.06 Annual Independent Public Accountants' Servicing Report............................. 25
-------------------------------------------------------
Section 3.07 Tax Treatment....................................................................... 26
-------------
Section 3.08 Notices to Transferor............................................................... 27
---------------------
Section 3.09 Dilution Factors.................................................................... 27
----------------
Section 3.10 Covenant to Maintain Privileges..................................................... 27
-------------------------------
ARTICLE IV
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS....................................................................... 27
Section 4.01 Rights of Certificateholders....................................................... 27
----------------------------
Section 4.02 Establishment of Collection Account................................................ 28
-----------------------------------
Section 4.03 Collections and Allocations........................................................ 29
---------------------------
Section 4.04 Daily Allocations of Collections Allocated to a Series............................. 31
------------------------------------------------------
Section 4.05 Determination of Interest Distributable on Investor Certificates................... 31
----------------------------------------------------------------
Section 4.06 Determination of Principal Distributable on Investor Certificates.................. 31
-----------------------------------------------------------------
Section 4.07 Distributions from Series Collection Sub-subaccounts............................... 32
----------------------------------------------------
Section 4.08 Funds Unrelated to Receivables..................................................... 32
------------------------------
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS................................................................................... 32
Section 5.01 Distributions...................................................................... 32
-------------
Section 5.02 Monthly Investor Certificateholders' Statement; Annual Tax
Statement.......................................................................... 32
---------
ARTICLE VI
THE CERTIFICATES..................................................................................... 33
Section 6.01 The Certificates................................................................... 33
----------------
Section 6.02 Authentication of Certificates..................................................... 34
------------------------------
Section 6.03 Registration of Transfer and Exchange of Certificates.............................. 34
-----------------------------------------------------
Section 6.04 Mutilated, Destroyed, Lost or Stolen Certificates.................................. 36
-------------------------------------------------
Section 6.05 Persons Deemed Owners.............................................................. 36
---------------------
Section 6.06 Appointment of Paying Agent........................................................ 37
---------------------------
Section 6.07 Access to List of Certificateholders' Names and Addresses.......................... 37
---------------------------------------------------------
Section 6.08 Authenticating Agent............................................................... 38
--------------------
Section 6.09 New Issuances...................................................................... 39
-------------
Section 6.10 Book-Entry Certificates............................................................ 40
-----------------------
Section 6.11 Notices to Clearing Agency......................................................... 41
--------------------------
Section 6.12 Definitive Certificates............................................................ 41
-----------------------
Section 6.13 Letter of Representations.......................................................... 42
-------------------------
ARTICLE VII
OTHER MATTERS RELATING
TO THE TRANSFEROR.................................................................................... 42
Section 7.01 Liability of the Transferor........................................................ 42
---------------------------
Section 7.02 Merger or Consolidation of, or Assumption of the Obligations of,
----------------------------------------------------------------
the Transferor........................................................................42
--------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.03 Limitation on Liability of the Transferor.......................................... 43
-----------------------------------------
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER...................................................................................... 43
Section 8.01 Liability of the Servicer.......................................................... 43
-------------------------
Section 8.02 Merger or Consolidation of, or Assumption of the Obligations of,
----------------------------------------------------------------
the Servicer....................................................................... 43
------------
Section 8.03 Limitation on Liability of the Servicer and Others................................. 44
--------------------------------------------------
Section 8.04 Servicer Indemnification of the Trust and the Trustee.............................. 44
-----------------------------------------------------
Section 8.05 The Servicer Not to Resign......................................................... 45
--------------------------
Section 8.06 Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Receivables........................................................................ 45
-----------
Section 8.07 Delegation of Duties............................................................... 46
--------------------
Section 8.08 Examination of Records............................................................. 46
----------------------
Section 8.09 Successor Servicer Indemnification of Transferor................................... 46
------------------------------------------------
ARTICLE IX
EARLY AMORTIZATION EVENTS ........................................................................... 46
Section 9.01 Early Amortization Events with Respect to Any Series............................... 46
----------------------------------------------------
Section 9.02 Additional Rights Upon the Occurrence of Certain Events............................ 48
-------------------------------------------------------
ARTICLE X
SERVICER DEFAULTS.................................................................................... 49
Section 10.01 Servicer Defaults.................................................................. 49
-----------------
Section 10.02 Trustee to Act; Appointment of Successor Servicer.................................. 51
-------------------------------------------------
Section 10.03 Notification to Certificateholders................................................. 53
----------------------------------
Section 10.04 Waiver of Past Defaults............................................................ 53
-----------------------
ARTICLE XI
THE TRUSTEE.......................................................................................... 53
Section 11.01 Duties of Trustee.................................................................. 53
-----------------
Section 11.02 Certain Matters Affecting the Trustee.............................................. 55
-------------------------------------
Section 11.03 Trustee Not Liable for Recitals in Certificates.................................... 57
-----------------------------------------------
Section 11.04 Trustee May Own Certificates, Etc.................................................. 57
----------------------------------
Section 11.05 The Servicer to Pay Trustee's (and Paying Agent's) Fees and
-----------------------------------------------------------
Expenses........................................................................... 58
--------
Section 11.06 Eligibility Requirements for Trustee............................................... 58
------------------------------------
Section 11.07 Resignation or Removal of Trustee.................................................. 58
---------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 11.08 Successor Trustee.................................................................. 59
-----------------
Section 11.09 Merger or Consolidation of Trustee................................................. 60
----------------------------------
Section 11.10 Appointment of Co-Trustee or Separate Trustee...................................... 60
---------------------------------------------
Section 11.11 Tax Returns........................................................................ 61
-----------
Section 11.12 Trustee May Enforce Claims Without Possession of Certificates...................... 62
-------------------------------------------------------------
Section 11.13 Suits for Enforcement.............................................................. 62
---------------------
Section 11.14 Rights of Certificateholders to Direct Trustee..................................... 62
----------------------------------------------
Section 11.15 Representations and Warranties of Trustee.......................................... 63
-----------------------------------------
Section 11.16 Maintenance of Office or Agency.................................................... 63
-------------------------------
Section 11.17 Statements, Certificates and Reports............................................... 63
------------------------------------
ARTICLE XII
TERMINATION.......................................................................................... 64
Section 12.01 Termination of Trust............................................................... 64
--------------------
Section 12.02 Optional Purchase and Series Termination Date of Investor Certificates
----------------------------------------------------------------------
of any Series...................................................................... 64
-------------
Section 12.03 Final Payment...................................................................... 65
-------------
Section 12.04 Transferor's Termination Rights.................................................... 66
-------------------------------
ARTICLE XIII
MISCELLANEOUS PROVISIONS............................................................................. 67
Section 13.01 Amendment.......................................................................... 67
---------
Section 13.02 Protection of Right, Title and Interest of Trust................................... 68
------------------------------------------------
Section 13.03 Limitation on Rights of Certificateholders......................................... 69
------------------------------------------
Section 13.04 Governing Law...................................................................... 70
-------------
Section 13.05 Notices............................................................................ 70
-------
Section 13.06 Severability of Provisions......................................................... 70
--------------------------
Section 13.07 Assignment......................................................................... 71
----------
Section 13.08 Certificates Nonassessable and Fully Paid.......................................... 71
-----------------------------------------
Section 13.09 Further Assurances................................................................. 71
------------------
Section 13.10 No Waiver; Cumulative Remedies..................................................... 71
------------------------------
Section 13.11 Counterparts....................................................................... 71
------------
Section 13.12 Third-Party Beneficiaries.......................................................... 71
-------------------------
Section 13.13 Actions by Certificateholders...................................................... 71
-----------------------------
Section 13.14 Merger and Integration............................................................. 72
----------------------
Section 13.15 Headings........................................................................... 72
--------
Section 13.16 Enhancement Providers.............................................................. 72
---------------------
Section 13.17 Schedules and Exhibits............................................................. 73
----------------------
Section 13.18 Assignment of Related Property..................................................... 73
------------------------------
Section 13.19 No Proceedings..................................................................... 73
--------------
Section 13.20 Texas Limited Liability Company Act................................................ 73
-----------------------------------
</TABLE>
iv
<PAGE>
Section 13.21 Rating Agencies...................................... 73
---------------
EXHIBITS
- --------
Exhibit 3.01(i) List of Post Office Boxes, Banks and Accounts
Exhibit 3.01(i)(D) Form of Lock-Box/Transfer Receipt Account Agreement
Exhibit 3.04(b) Form of Daily Report
Exhibit 3.04(c) Form of Settlement Statement
Exhibit 3.04(d) List of Data Fields
Exhibit 3.05 Form of Annual Servicer's Certificate
Exhibit 4.02(c) Collection Account, Collection Master Subaccount and
Transferor Collection Subaccount
Exhibit 6.01 Form of Transferor Certificate
Exhibit 6.03(d) Form of Transferee Representation Letter
ANNEX
- -----
Annex X Definitions
v
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of May 7, 1999 as
amended and restated as of August 20, 1999, is by and among CSI FUNDING, INC., a
Delaware corporation, as Transferor, COMPUCOM SYSTEMS, INC., a Delaware
corporation, as Servicer, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, as Trustee.
This Pooling and Servicing Agreement shall be applicable to the
maintenance of the Trust and the governance of the Transferor Certificate and,
upon the execution of any Supplement, shall apply also to the issuance of any
Series of Certificates issued thereby.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties, for the benefit of the
Certificateholders and for the benefit of any Enhancement Provider with respect
to any Series to the extent provided herein:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Annex X which is
-------
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
"Agreement" means this Pooling and Servicing Agreement as it may from
---------
time to time be amended, supplemented or otherwise modified in accordance with
the terms hereof, including by any Supplement.
Section 1.02 Other Definitional Provisions.
-----------------------------
(a) All terms defined in any Supplement or this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Annex X or
-------
therwise defined herein, and accounting terms partly defined in Annex X or
-------
otherwise defined herein, to the extent not defined, shall have the respective
meanings given to them under GAAP. To the extent that the definitions of
accounting terms herein or in Annex X are inconsistent with the meanings of such
-------
terms under GAAP, the definitions contained herein or in Annex X shall control.
-------
<PAGE>
(c) The agreements, representations and warranties of CompuCom in this
Agreement in its capacity as Servicer shall be deemed to be the agreements,
representations and warranties of CompuCom solely in such capacity.
(d) The words "hereof," "herein" and "hereunder" and words of similar
------ ------ ---------
import when used in this Agreement or any Supplement shall refer to such
Supplement or this Agreement, as the case may be, as a whole and not to any
particular provision of such Supplement or this Agreement, as the case may be;
and Section, Schedule and Exhibit references contained in this Agreement or any
Supplement are references to Sections, Schedules and Exhibits in or to this
Agreement or such Supplement unless otherwise specified.
(e) The word "including" (and with correlative meaning "include") means
--------- -------
including without limiting the generality of any description preceding such
term.
Section 1.03 Calculations and Payments. Unless otherwise specified
-------------------------
herein, expressions of a time of day refer to such time in New York, New York.
Except as otherwise specified in this Agreement or in a Supplement, amounts
payable hereunder shall be paid in immediately available funds. Whenever any
reference is made to an amount or time the determination or calculation of which
is governed by this Section 1.03, the provisions of this Section 1.03 shall be
------------ ------------
applicable to such determination or calculation, whether or not reference is
specifically made to this Section 1.03, unless some other method of
------------
determination or calculation is expressly specified in the particular provision.
ARTICLE II
CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES
Section 2.01 Conveyance of Receivables. By execution of this Agreement
-------------------------
the Transferor does hereby assign, transfer and otherwise convey to the Trust
from time to time, without recourse (except as specifically provided herein),
and without any other formal or other written instrument of assignment, all of
the Transferor's right, title and interest in, to and under (i) all Receivables
existing on the date of execution hereof and all Receivables thereafter
generated (but excluding Reconveyed Receivables), (ii) all Related Property,
(iii) all monies due or to become due with respect thereto and (iv) all
Collections and other proceeds (as defined in the UCC) of any of the foregoing.
Such property, together with (x) all monies relating to the Receivables on
deposit in the Collection Account and any other Series Accounts and (y) the
benefits of any Enhancements shall constitute the assets of the Trust (the
"Trust Assets"). Notwithstanding anything to the contrary in this Agreement, the
------------
Trust Assets shall not include proceeds (as defined in the UCC) of returned
inventory. The foregoing transfer, assignment and conveyance does not constitute
and is not intended to result in the creation, or an assumption by the Trust,
the Trustee, any Enhancement Provider or any Investor Certificateholder, of any
obligation of CompuCom, the Transferor or any other Person in connection with
the Receivables or under any
2
<PAGE>
agreement or instrument relating thereto, including any obligation to any
Obligors or any Affiliate of or other Person to whom the Servicer may delegate
servicing duties hereunder or insurers.
In connection with such transfer, the Transferor agrees to record and
file, at its own expense, any financing statements (and continuation statements
with respect to such financing statements when applicable) required to be filed
with respect to the Receivables now existing and hereafter created and the other
Trust Assets meeting the requirements of applicable state law in such manner and
in such jurisdictions as are necessary under the applicable UCC to perfect the
transfer and assignment of the Receivables and the other Trust Assets to the
Trust. The Trustee shall be under no obligation whatsoever to file such
financing or continuation statements or make any other filings under the UCC in
connection with such transfer.
Section 2.02 Declaration of Trust; Acceptance by Trustee.
-------------------------------------------
(a) In consideration of the premises and mutual covenants set forth
herein, the Trustee hereby declares that it holds and will hold as trustee in
trust under this Agreement all of its right, title and interest in, to and
under, and hereby acknowledges its acceptance on behalf of the Trust of all
right, title and interest in, to and under the property, now existing and
hereafter created, conveyed to the Trust pursuant to Section 2.01; to have and
------------
to hold such property unto the Trustee and its successors in trust under this
Agreement; in trust nevertheless, under and subject to the terms and conditions
set forth in this Agreement, for the benefit of all Certificateholders and
Enhancement Providers.
(b) It is intended by the Transferor that this Agreement constitute a
security agreement under the UCC (as defined in the UCC as in effect in the
State of New York). The Transferor hereby grants to the Trustee on the terms and
conditions of this Agreement a perfected first priority security interest in and
against all of the Transferor's right, title and interest in the Receivables and
the other Trust Assets, whether now owned or hereafter acquired, now existing or
hereafter created and wherever located for the purpose of securing the rights of
the Trustee for the benefit of the Certificateholders and Enhancement Providers
under this Agreement.
(c) The Trustee hereby agrees not to use any information it obtains
pursuant to this Agreement for any purpose unrelated to this Agreement or to
compete or assist any Person in competing with the Transferor or CompuCom in its
business; provided, however, that the Trustee shall not be prohibited from
-------- -------
acting as trustee or backup servicer in transactions similar in nature to
transactions contemplated hereunder.
Section 2.03 Representations and Warranties of the Transferor Relating
---------------------------------------------------------
to the Transferor. The Transferor (x) hereby represents and warrants, as of the
- -----------------
date of this Agreement and the Initial Closing Date and, with respect to any
Series, as of the date of any Supplement and the related Closing Date, unless
otherwise stated in such Supplement, and (y) shall be deemed to represent and
warrant on each day that any Receivable is transferred to the Trust, that:
3
<PAGE>
(a) Organization and Good Standing. The Transferor is a corporation
------------------------------
duly organized and validly existing in good standing under the laws of the State
of Delaware, and has full corporate power, authority and legal right to execute,
deliver and perform its obligations under the Receivables Contribution and Sale
Agreement, this Agreement, each Supplement and each other Transaction Document
to which it is, or is to be, a party, to execute and deliver to the Trustee
pursuant hereto the Certificates, to own its properties and to conduct its
business as such properties are presently owned and such business is presently
conducted.
(b) Due Qualification. The Transferor is duly qualified to do business
-----------------
and is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would render any Contract or any Receivable unenforceable by the
Transferor or the Trust or has had, or could reasonably be expected to have, a
Material Adverse Effect.
(c) Due Authorization. The execution, delivery and performance of the
-----------------
Receivables Contribution and Sale Agreement, this Agreement, each Supplement and
each other Transaction Document to which it is, or is to be, a party and the
execution and delivery to the Trustee of the Certificates by the Transferor and
the consummation of the transactions provided for in this Agreement, the
Receivables Contribution and Sale Agreement, each Supplement and each other
Transaction Document to which it is, or is to be, a party, have been duly
authorized by the Transferor by all necessary corporate action on the part of
the Transferor.
(d) Binding Obligation. Each of the Receivables Contribution and Sale
------------------
Agreement, this Agreement, each Supplement and each other Transaction Document
to which it is, or is to be, a party constitutes (or will, when executed and
delivered by the Transferor, constitute) the legal, valid and binding obligation
of the Transferor, enforceable against it in accordance with its terms, except
(x) the enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights, and (y) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(e) No Conflicts. The execution, delivery and performance of this
------------
Agreement, each Supplement, the Certificates, the Receivables Contribution and
Sale Agreement and each other Transaction Document to which it is, or is to be,
a party, the performance of the transactions contemplated by this Agreement,
each Supplement, the Receivables Contribution and Sale Agreement and each other
Transaction Document to which it is, or is to be, a party and the fulfillment of
the terms hereof and thereof by the Transferor, do not (i) contravene its
Certificate of Incorporation or By-Laws, (ii) violate any provision of, or
require any filing (except for the filings under the UCC required by this
Agreement, each of which has been duly made and is in full force and effect),
registration, consent or approval under, any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability
4
<PAGE>
to the Transferor, except for such filings, registrations, consents or approvals
as have already been obtained and are in full force and effect or which the
failure to obtain or accomplish has not had, and could not reasonably be
expected to have, a Material Adverse Effect, (iii) result in a breach of or
constitute a default or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Transferor is a party or by which it or its properties may be bound or affected
except those as to which a consent or waiver has been obtained and is in full
force and effect and an executed copy of which has been delivered to the Trustee
or which breach or default has not had, and could not reasonably be expected to
have, a Material Adverse Effect, or (iv) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Transferor other than as specifically contemplated
by this Agreement or the Receivables Contribution and Sale Agreement.
(f) Taxes. 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 due from the
Transferor or is contesting any such tax, assessment or other governmental
charge in good faith through appropriate proceedings, provided, that the
--------
Transferor is maintaining adequate reserves with respect thereto in accordance
with GAAP.
(g) No Proceedings. There are no proceedings or investigations pending or,
--------------
to the best knowledge of the Transferor, threatened against the Transferor,
before any Governmental Authority (i) asserting the invalidity of the
Receivables Contribution and Sale Agreement, this Agreement, any Supplement, the
Certificates or any other Transaction Document to which it is, or is to be, a
party, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement, any
Supplement, the Certificates, the Receivable Contribution and Sale Agreement or
any other Transaction Document to which it is, or is to be, a party, (iii)
seeking any determination or ruling that has had, or could reasonably be
expected to have, a Material Adverse Effect, or (iv) seeking to assert any tax
liability against the Trust under the United States Federal or any state income
tax systems.
(h) All Consents Required. All approvals, authorizations, consents, orders
---------------------
or other actions of any Person or of any Governmental Authority required to be
obtained by the Transferor in connection with the execution and delivery by the
Transferor of this Agreement, each Supplement, the Receivables Contribution and
Sale Agreement, the Certificates and each other Transaction Document to which it
is, or is to be, a party, the performance by the Transferor of the transactions
contemplated by this Agreement, each Supplement, the Receivables Contribution
and Sale Agreement and each other Transaction Document to which is, or it to be,
a party, and the fulfillment by the Transferor of the terms hereof and thereof,
have been obtained and are in full force and effect.
(i) Bona Fide Receivables. Each Receivable classified as an "Eligible
---------------------
Receivable" by the Transferor or the Servicer in any document or report
delivered hereunder satisfies the requirements of eligibility contained in the
definition of Eligible Receivable.
5
<PAGE>
(j) Place of Business. The principal place of business of the Transferor
-----------------
and its chief executive office (as that term is used in the UCC) is in Dallas,
Texas and the offices where the Transferor keeps its records concerning the
Receivables and related Contracts are in Dallas, Texas, or such other location
as chosen by the Transferor, provided that the Transferor has complied with
Section 2.05(d).
- ---------------
(k) Use of Proceeds. No proceeds of the issuance of any Certificate will
---------------
be used by the Transferor to acquire any security in a transaction that is
subject to sections 13 and 14 of the Securities Exchange Act of 1934, as
amended, or to purchase or carry any margin security.
(l) Lock-Box Banks and Accounts. The Lock-Box Banks are the only
---------------------------
institutions holding any accounts for the receipt of payments from Obligors in
respect of Receivables (subject to such changes as may be made from time to time
in accordance with Section 3.01(i)). All Obligors of the Receivables have been
----------------
instructed by invoice to make payments only to the Post Office Boxes or the Wire
Transfer Receipt Account and such instructions are in full force and effect.
(m) Early Amortization Event. As of the Initial Closing Date and each
------------------------
Closing Date, no Early Amortization Event, and no condition that with the giving
of notice and/or the passage of time would constitute an Early Amortization
Event (a "Prospective Early Amortization Event"), existed.
------------------------------------
(n) Not an Investment Company. Neither the Transferor nor the Trust is an
-------------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or the Transferor and the Trust are exempt from all provisions of
such Act.
(o) ERISA. No Plan maintained by the Transferor or any of its ERISA
-----
Affiliates has any "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or
not waived. The Transferor and each ERISA Affiliate of the Transferor has timely
made all contributions required to be made by it to any Plan and Multiemployer
Plan to which contributions are or have been required to be made during the
preceding five years by the Transferor or such ERISA Affiliate, and no event
requiring notice to the PBGC under Section 302(f) of ERISA has occurred and is
continuing or could reasonably be expected to occur with respect to any such
Plan, in any case, that could reasonably be expected to result, directly or
indirectly, in any Lien being imposed on the property of the Transferor or the
payment of any material amount to avoid such Lien. No Plan Event with respect to
the Transferor or any of its ERISA Affiliates has occurred or could reasonably
be expected to occur that could reasonably be expected to result, directly or
indirectly, in any Lien being imposed on the property of the Transferor or the
payment of any material amount to avoid such Lien.
The representations and warranties set forth in this Section 2.03 shall
------------
survive the transfer and assignment of the Receivables to the Trust, and
termination of the rights and obligations of
6
<PAGE>
the Servicer pursuant to Section 10.01. Upon discovery by the Transferor, the
-------------
Servicer or a Responsible Officer of the Trustee of a breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give written notice thereof to the others within three Business Days of
such discovery.
Section 2.04 Representations and Warranties of the Transferor Relating to
------------------------------------------------------------
the Agreement and any Supplement and the Receivables; Reassignment of
- ---------------------------------------------------------------------
Receivables.
- -----------
(a) Representations and Warranties. The Transferor (x) hereby represents
------------------------------
and warrants, as of the date of this Agreement and the Initial Closing Date with
respect to the Receivables created on or prior to, and outstanding on, such
dates, and (y) shall be deemed to represent and warrant on each day thereafter
that any Receivable is transferred to the Trust with respect to the Receivable
or Receivables transferred on such date, that:
(i) the Transferor is not insolvent;
(ii) the Transferor is the legal and beneficial owner of all right,
title and interest in and to each such Receivable, the Transferor has the
full right to transfer the Receivables to the Trust and each such
Receivable has been or will be transferred to the Trust free and clear of
any Lien;
(iii) all notices to or approvals, authorizations, consents, orders
or other actions of any Person or of any Governmental Authority required to
be obtained, effected or given in connection with the transfer of Trust
Assets to the Trust have been duly obtained, effected or given and are in
full force and effect, except where the failure to so obtain, effect or
give has not had, and could not reasonably be expected to have, a Material
Adverse Effect; and
(iv) (A) the Transferor has indicated and will continue to indicate
on its books and records (including any computer files) regarding such
Receivables that the Receivables are the property of the Trust and shall
maintain such records in a manner such that the Trust shall have a first
priority perfected interest in the Receivables and the other Trust Assets.
This Agreement either constitutes a valid transfer and assignment to the
Trust of all right, title and interest of the Transferor in and to the
Receivables now existing and hereafter created and in the Related Property
and all other Trust Assets, or constitutes a grant of a "security interest"
(as defined in the UCC) in such property to the Trust as provided in
Section 2.02(b), which, in the case of existing Receivables and the Related
---------------
Property and all monies due or to become due with respect thereto and the
proceeds thereof (other than proceeds (as such term is defined in the UCC)
of returned inventory) , is enforceable upon execution and delivery of this
Agreement, and which will be enforceable with respect to such Receivables
and such other property hereafter created and the proceeds thereof (other
than proceeds (as such term is defined in the UCC) of returned inventory)
upon such creation. The Receivables Contribution and Sale
7
<PAGE>
Agreement constitutes a valid sale or contribution to the Transferor of all
of the right, title and interest of CompuCom in and to the Receivables now
existing or hereafter created and in the Related Property and all monies
due or to become due with respect thereto (other than proceeds (as such
term is defined in the UCC) of returned inventory) and all proceeds (as
defined in the UCC) of each Receivable and the Related Property.
(B) Upon the filing of the financing statements described in Section
-------
2.01 and, in the case of the Receivables hereafter created and the proceeds
----
thereof (other than proceeds (as such term is defined in the UCC) of
returned inventory), upon the creation thereof, the Trust shall have a
first priority perfected security interest (as such term is defined in the
UCC) in such property free and clear of any Lien or interest of any Person,
except as otherwise contemplated by this Agreement. Except as otherwise
provided in this Agreement, neither the Transferor nor any Person claiming
through or under the Transferor has any claim to or interest in the
Collection Account or any Series Account. Notwithstanding anything to the
contrary in this Agreement, the Trust shall have no interest in, to and
under proceeds (as defined in the UCC) of returned inventory relating to
the Receivables.
(b) Notice of Breach. The representations and warranties set forth in this
----------------
Section 2.04 shall survive the transfer and assignment of the Trust Assets to
- ------------
the Trust. Upon discovery by the Transferor, the Servicer or a Responsible
Officer of the Trustee of a breach of any of the representations and warranties
set forth in this Section 2.04, the Person discovering such breach shall give
------------
written notice to the other parties hereto within three Business Days of such
discovery.
(c) Transfer Upon Breach of Warranty. In the event of a breach with
--------------------------------
respect to a Receivable of any of the representations and warranties set forth
in Section 2.03(i) or 2.04(a) (other than Section 2.04(a)(iv)(A)), and (I) as a
--------------- ------- -----------------------
result thereof such Receivable is an Ineligible Receivable, and the exclusion of
such Receivable from the Aggregate Eligible Unpaid Balance would cause the
Aggregate Eligible Unpaid Balance to be less than the Aggregate Target
Receivables Amount, or (II) such breach has a material adverse effect on the
Investors' Interest of any Series in any Receivable, in each case as determined
without regard to any Enhancement with respect to any Series, and such material
adverse effect continues for 30 days after the earlier to occur of the discovery
of such breach by the Transferor or the Servicer or receipt of written notice of
such breach by the Transferor or the Servicer, then the Transferor shall cause
such Receivable to be removed from the Trust (a "Reconveyed Receivable"),
---------------------
without the need of any formal or other instrument of assignment, prior to the
second Business Day next following (x) the day on which such Aggregate Target
Deficiency Amount exists or (y) such 30th day, as the case may be, by making or
causing to be made (on a pro rata basis based on their respective Target
Deficiency Amounts (if any)) a deposit in the Series Principal Collection Sub-
subaccount of each outstanding Series in immediately available funds in an
aggregate amount equal to the Transfer Deposit Amount for such Reconveyed
Receivable. Such deposit(s) shall be considered a payment in full of the
Reconveyed Receivable during the Settlement Period to which such
8
<PAGE>
payment relates and shall be allocated in accordance with Section 4.03. Upon the
------------
making of such a deposit in respect of a Reconveyed Receivable, the Trust shall
automatically and without further action be deemed to transfer, assign and
otherwise convey to or upon the order of the Transferor, without recourse,
representation or warranty, all the right, title and interest of the Trust in
and to such Reconveyed Receivable, all Related Property and Collections with
respect thereto and all proceeds thereof, and to release and terminate the
security interest granted pursuant to Section 2.02 to the extent it covers such
------------
property, without the need of any formal or other instrument of assignment. On
and after the date of such removal, any defined term herein or in any applicable
Supplement, the definition of which assumes that such Receivable is not a
Reconveyed Receivable, shall thereafter be computed on the basis of the
assumption that such Receivable is no longer a Trust Asset. Notwithstanding
anything to the contrary contained herein, the Trustee shall execute such
documents and instruments of transfer or assignment and UCC termination
statements as shall be prepared by the Transferor, and shall take such other
actions as shall reasonably be requested by the Transferor, at the Transferor's
expense, in connection with the conveyance of any Reconveyed Receivable pursuant
to this Section. The obligation of the Transferor to make a deposit in respect
of any Reconveyed Receivable as set forth in this Section shall constitute the
sole remedy respecting any breach of the representations and warranties set
forth in Section 2.03(i) or 2.04(a) (other than Section 2.04(a)(iv)(A)) with
--------------- ------- -----------------------
respect to such Receivable available to the Investor Certificateholders or the
Trustee on behalf of the Investor Certificateholders.
(d) Reassignment of Trust Portfolio. In the event of a breach of any of
-------------------------------
the representations and warranties set forth in Section 2.03(a), (b), (c), (d)
--------------- --- --- ---
or (e), or Section 2.04(a)(iv)(A), and the effect of such breach is materially
--- ----------------------
adverse to the interests of the Certificateholders of all Series (without regard
to any Enhancement with respect to any Series), any Control Party, by notice
then given in writing to the Transferor (with a copy thereof to the Rating
Agencies) (and to the Trustee and the Servicer if given by the
Certificateholders), may direct the Transferor to make the payment described in
the next sentence on or prior to the first Payment Date next succeeding 30 days
after receipt by the Transferor of such notice, or within such longer period as
may be specified in such notice, and the Transferor shall be obligated to make
such payment or cause such payment to be made on such Payment Date on the terms
and conditions set forth below; provided, however, that no such payment shall be
-------- -------
required to be made if, at such Payment Date, the representations and warranties
set forth in Section 2.03(a), (b), (c), (d), (e), and Section 2.04(a)(iv)(A),
--------------- --- --- --- --- ----------------------
shall be true and correct in all material respects as if made on such date. The
Transferor shall deposit in the Collection Master Subaccount on the date
permitted by the notice described in the preceding sentence an amount equal to
the sum of (w) the Aggregate Adjusted Invested Amount at the end of the day on
the Record Date preceding the date such deposit is to be made, less (x) (without
----
duplication) the aggregate principal amount on deposit in any subaccounts or
sub-subaccounts of the Collection Account, plus (y) (without duplication) an
----
amount equal to interest at the applicable Certificate Rate accrued but unpaid
on the Investor Certificates of each Series through such Record Date and (z) all
amounts then due and payable to any Enhancement Provider for each outstanding
Series under the applicable Enhancement Agreement. Notwithstanding anything to
the contrary in this Agreement, the entire
9
<PAGE>
amount deposited in the Collection Master Subaccount pursuant to the preceding
sentence shall be distributed to the Certificateholders on such Payment Date
pursuant to Section 12.03 and to any Enhancement Provider for each outstanding
-------------
Series, as applicable. Payment of such deposit amount into the Collection Master
Subaccount in immediately available funds shall otherwise be considered a
payment in full of all of the Receivables. The obligation of the Transferor to
make the payment specified in this Section 2.04(d) shall constitute the sole
---------------
remedy available to any of the Enhancement Providers, the Certificateholders or
the Trustee on behalf of the Certificateholders for a breach of the
representations and warranties contained in Section 2.03(a), (b), (c), (d), (e)
--------------- --- --- --- ---
or Section 2.04(a)(iv)(A).
----------------------
Section 2.05 Covenants of the Transferor.
---------------------------
During the term of this Agreement, and until (i) the Aggregate Invested
Amount is reduced to zero, (ii) the Investor Certificateholders shall have
received all accrued interest and all accrued discount on the applicable
Certificates, (iii) all amounts owed by the Transferor pursuant to this
Agreement have been paid and (iv) all commitments of the Investor
Certificateholders (if any) to provide funding have terminated, the Transferor
covenants and agrees as follows:
(a) Compliance with Laws, etc. The Transferor shall duly satisfy all
-------------------------
obligations on its part to be fulfilled under or in connection with the
Receivables, will maintain in effect all qualifications required under
Requirements of Law in order to properly purchase and convey the
Receivables and other Trust Assets and will comply in all material respects
with all Requirements of Law applicable to it.
(b) Preservation of Corporate Existence. The Transferor (i) shall
-----------------------------------
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and (ii) shall qualify
and remain qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such existence,
rights, franchises, privileges and qualification would, if not remedied,
have a Material Adverse Effect.
(c) Audits. At any time and from time to time during the Transferor's
------
regular business hours, on reasonable prior notice (unless an Early
Amortization Event has occurred, in which case no notice shall be required)
and for a purpose reasonably related to this Agreement, the Transferor
shall, in response to any request of the Trustee or any Enhancement
Provider, permit such Person, or its agents or representatives, (i) to
examine and make copies of and abstracts from all books, records and
documents (including computer tapes and disks) in the possession or under
the control of the Transferor relating to the Receivables, the Related
Property and the related Contracts and (ii) to visit the offices and
properties of the Transferor for the purpose of examining such materials
and to discuss matters relating to the Receivables or the Transferor's
performance hereunder with any of the officers or employees of the
Transferor having knowledge thereof. Any such examination or visit made
pursuant to this Section 2.05(c)
---------------
10
<PAGE>
shall be at the cost and expense of the party or parties making such
examination or visit except as otherwise provided in any Enhancement
Agreement and except as set forth in any Supplement.
(d) Continuous Perfection; Computer Records. The Transferor shall not
---------------------------------------
change its name, identity or structure in any manner which might make any
financing or continuation statement filed hereunder misleading within the
meaning of Section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless the Transferor shall have given the Trustee at
least 90 days' prior written notice thereof and shall have taken all action
60 days prior to making such change (or made arrangements to take such
action substantially simultaneously with such change if it is impossible to
take such action in advance) necessary or advisable to amend such financing
statement or continuation statement so that it is not misleading. The
Transferor shall not change its chief executive office or change the
location of its principal records concerning the Receivables, the Related
Property or the Collections from the locations specified in Section 2.03(j)
---------------
unless it has given the Trustee at least 30 days' prior written notice of
its intention to do so and has taken such action as is necessary or
advisable to cause the interest of the Trustee in the Receivables and the
other Trust Assets to continue to be perfected with the priority required
by this Agreement. The Transferor will at all times maintain its principal
executive office and any other office at which it maintains records
relating to the Receivables and the Related Property within the United
States of America. The Transferor will at all times, at its expense,
indicate on its books and records (including any computer files) that all
Receivables and Related Property have been transferred to the Trust
pursuant to this Agreement.
(e) Extension or Amendment of Receivables. Provided no Early
-------------------------------------
Amortization Event shall have occurred and be continuing, and subject to
Section 3.09, the Transferor shall only extend, amend or otherwise modify
------------
the terms of any Receivable, or amend, modify or waive any term or
condition of any Contracts related thereto, or permit the Servicer to do
any of the foregoing, in accordance with the Credit and Collection Policy.
(f) Reports. The Transferor shall furnish to the Trustee and to each
-------
Rating Agency as soon as possible and in any event within two Business Days
after the occurrence of each Early Amortization Event or the Transferor's
knowledge of a Prospective Early Amortization Event, the statement of one
of the officers of the Transferor primarily responsible for administering
the transactions contemplated by this Agreement setting forth the details
of such Early Amortization Event or Prospective Early Amortization Event
and the action taken, or which the Transferor proposes to take, with
respect thereto.
11
<PAGE>
(g) Certain Documentation. The Transferor shall cause the Servicer
---------------------
to maintain custody for the account of the Trust (to the extent of its
interest therein) of any document evidencing or securing a Receivable and
the related Contract.
(h) Assessments. The Transferor will promptly pay and discharge all
-----------
taxes, assessments, levies and other governmental charges imposed on it
which may adversely affect any of the Receivables or the Trust's rights
with respect thereto, or that otherwise could reasonably be expected to
have a Material Adverse Effect.
(i) Further Action. The Transferor shall, from time to time, execute
--------------
and deliver to the Trustee any instruments, financing or continuation
statements or other writings reasonably necessary or desirable to maintain
the perfection or priority of the Trustee's ownership or security interest
in the Receivables, the Related Property, the Collections and the other
Trust Assets under the UCC or other applicable law. The Transferor shall,
at the direction of the Servicer or the Trustee, from time to time, execute
and deliver to the Obligors on the Receivables any bills, statements and
letters or other writings necessary to carry out the terms and provisions
of this Agreement and to facilitate the collection of the Receivables.
(j) Additional Indebtedness. The Transferor shall not create, incur,
-----------------------
assume or suffer to exist any indebtedness (including any guaranty) or
expense (whether or not accounted for as a liability) except (i)
indebtedness hereunder, under the Receivables Contribution and Sale
Agreement or under the Investor Certificates, (ii) other expenses incurred
in the ordinary course of business, provided that in the case of any such
--------
indebtedness or expense, the Person to whom such indebtedness or expense
will be owing has delivered to the Transferor an undertaking that it will
not institute against, or join any other Person in instituting against, the
Transferor or the Trust any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal
or state bankruptcy or similar law, for one year and a day after all
Investor Certificates are paid in full; provided, further, that
-------- -------
notwithstanding anything to the contrary in this Agreement, the obligations
of the Transferor to the Certificateholders or any Enhancement Provider
shall be payable solely from the Trust Assets in accordance herewith and
that the Certificateholders and each Enhancement Provider shall not look to
any other property or assets of the Transferor in respect of such
obligations, and such obligations shall not constitute a claim against the
Transferor in the event that the Trust Assets are insufficient to pay in
full such obligations.
(k) No Transfer. The Transferor agrees that, except as contemplated
-----------
by this Agreement and the Receivables Contribution and Sale Agreement, it
(i) shall not sell, assign, pledge, convey or otherwise transfer any
Receivable (other than Reconveyed Receivables) or any interest therein or
any other Trust Asset, (ii) shall not grant, create, incur, or suffer to
exist any Lien on any Receivable or any interest therein or any other Trust
Asset, (iii) shall notify the Trustee and each Enhancement Provider
immediately
12
<PAGE>
upon becoming aware of any such Lien, and (iv) shall defend the interest of
the Trust in the Receivables and other Trust Assets against all claims of
other Persons claiming through the Transferor.
(l) No Other Business. The Transferor agrees to engage in no
-----------------
business other than the business contemplated hereunder and under the
Receivables Contribution and Sale Agreement, and activities necessary or
incidental thereto.
(m) Enforcement. The Transferor agrees to take all action necessary
-----------
and appropriate to enforce its rights and claims under the Receivables
Contribution and Sale Agreement. If, upon notice from the Trustee, the
Transferor does not take such necessary and appropriate action, then, at
the direction of any Control Party, the Trustee shall take such action.
(n) Separate Business. The Transferor will not permit its assets to
-----------------
be commingled with those of CompuCom or any Affiliate of CompuCom, the
Transferor shall maintain separate corporate records and books of account
from those of CompuCom and its Affiliates, and the Transferor shall conduct
its business from an office separate from that of CompuCom. The Transferor
will conduct its business solely in its own name and will cause CompuCom
and its Affiliates to not conduct their business in the name of the
Transferor so as not to mislead others as to the identity of the entity
with which those others are concerned. The Transferor will provide for its
own operating expenses and liabilities from its own funds, except that the
organizational expenses of the Transferor may be paid by CompuCom. Except
as contemplated by the purchase agreement, placement agency agreement or
underwriting agreement (or similar agreement) in respect of any Series
among the Transferor, CompuCom, and any initial purchaser, placement agent,
underwriters or any similar party referred to therein, the Transferor will
not hold itself out, or permit itself to be held out, as having agreed to
pay, or as being liable for, the debts of CompuCom or any of its
Affiliates, and the Transferor shall cause CompuCom and its Affiliates not
to hold themselves out, or permit themselves to be held out, as having
agreed to pay, or as being liable for, the debts of the Transferor. The
Transferor will maintain an arm's length relationship with CompuCom and its
Affiliates with respect to any transactions between the Transferor, on the
one hand, and CompuCom or its Affiliates, on the other.
(o) Corporate Documents; Other Corporate Matters. The Transferor
--------------------------------------------
shall not amend its Certificate of Incorporation or alter, amend or repeal
its Bylaws without the prior consent of the Requisite Holders and
satisfaction of the Rating Agency Condition. The Transferor shall not
perform the management or servicing of receivables. The Transferor's board
of directors will take into account the interests of the creditors of the
Transferor when taking any actions with respect to the Transferor.
13
<PAGE>
(p) ERISA. The Transferor shall promptly give the Trustee and each
-----
Enhancement Provider notice of the following events, as soon as possible
and in any event within 30 days after the Transferor or any of its ERISA
Affiliates knows or has reason to know thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan to
which the Transferor or any of its ERISA Affiliates contributed, or any
withdrawal from, or the termination, Reorganization or Insolvency of any
Multiemployer Plan to which the Transferor or any of its ERISA Affiliates
contributes or to which contributions have been required to be made by the
Transferor or such ERISA Affiliate during the preceding five years or (ii)
the institution of proceedings or the taking of any other action by the
PBGC or the Transferor or any of its ERISA Affiliates or any such
Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any such Plan or Multiemployer Plan.
(q) Receivables Contribution and Sale Agreement Notices, Waivers,
-------------------------------------------------------------
Etc. The Transferor shall promptly give the Trustee copies of any notices,
---
reports or certificates given or delivered to the Transferor under the
Receivables Contribution and Sale Agreement.
(r) Issuance of Capital Stock, etc. The Transferor shall not (i)
-------------------------------
issue any capital stock (except to CompuCom) or (ii) create any Subsidiary.
The Transferor shall not pay any dividends to CompuCom if such payment
would be prohibited under the General Corporation Law of the State of
Delaware, would result in an Early Amortization Event or would cause the
Transferor's tangible net worth to be less than the Required Net Worth.
Section 2.06 Authentication of Certificates. Pursuant to the request of
------------------------------
the Transferor, the Trustee has caused Certificates in authorized denominations
evidencing the entire beneficial ownership of the Trust to be duly authenticated
and delivered to or upon the order of the Transferor pursuant to Section 6.02.
------------
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.01 Acceptance of Appointment and Other Matters Relating to the
-----------------------------------------------------------
Servicer.
- --------
(a) CompuCom agrees to act, and is hereby appointed by the Trustee and the
Transferor to act, as the Servicer under this Agreement, and all
Certificateholders, including the Transferor, by their acceptance of the
Certificates consent to CompuCom acting as Servicer. The Servicer shall service
and administer the Receivables and shall collect payments due under the
Receivables in accordance with all Requirements of Law and in accordance with
its customary
14
<PAGE>
and usual servicing procedures for servicing receivables owned by it and
comparable to the Receivables (and in no event in accordance with lesser
standards than would be employed by a prudent institution in servicing
comparable receivables for its own account) and in accordance with the Credit
and Collection Policy, and shall have full power and authority, acting alone or
through any party properly designated by it hereunder, to do any and all things
in connection with such servicing and administration which it may deem necessary
or desirable. Without limiting the generality of the foregoing and subject to
Section 10.01, the Servicer is hereby authorized and empowered (i) to instruct
- -------------
the Trustee to make withdrawals and payments from the Collection Account and any
Series Account as set forth in this Agreement or any Supplement, (ii) to execute
and deliver, on behalf of the Trust for the benefit of the Certificateholders,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Receivables and, after the delinquency of any Receivable and to the extent
permitted under and in compliance with all Requirements of Law, to commence
enforcement proceedings with respect to such Receivable, and (iii) to make any
filings, reports, notices, applications, registrations with, and to seek any
consent or authorizations from, the Securities and Exchange Commission and any
state securities authority on behalf of the Trust as may be necessary or
advisable to comply with any federal or state securities or reporting
requirements or laws.
(b) The Servicer shall not, and no Successor Servicer shall, be obligated
to use separate servicing procedures, offices, employees or accounts for
servicing the Receivables from the procedures, offices, employees and accounts
used by the Servicer or such Successor Servicer, as the case may be, in
connection with servicing other receivables of the same type.
(c) The Servicer shall maintain fidelity bond coverage or coverage under
one or more umbrella policies insuring against losses through wrongdoing of its
officers and employees who are involved in the servicing of Receivables covering
such actions and in an amount equal to $10,000,000.
(d) Subject to the rights retained by the Trustee pursuant to Section
-------
10.01, each of the Transferor and the Trustee hereby appoints the Servicer to
- -----
enforce its respective rights and interest in and under the Receivables, the
related Contracts and the Related Property. CompuCom shall hold in trust and, if
CompuCom is not the Servicer, CompuCom shall promptly deliver to the Successor
Servicer, and the Successor Servicer shall hold in trust, for the Transferor and
the Trustee in accordance with their respective interests, any and all
documents, instruments and records (including computer tapes or disks) that
evidence or relate to Receivables.
(e) Provided no Early Amortization Event shall have occurred and be
continuing, subject to Section 3.09, the Servicer may, in accordance with the
------------
Credit and Collection Policy and at the direction of the Transferor, extend,
amend or otherwise modify the terms of any Receivable or amend, modify or waive
any term or condition of any Contract relating thereto. The Servicer may not
make any change to the Credit and Collection Policy (including changes in
15
<PAGE>
respect of credit approval criteria, extensions of payment terms, and aging and
write-off policies), unless the Rating Agency Condition is satisfied.
(f) Except as otherwise required by law, Dilution Factors and Collections
shall be applied to the Receivables to which they relate.
(g) The Servicer shall provide all reports and documentation required by
Section 3.04.
- ------------
(h) In the event that the Transferor is unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of this Agreement
(including by reason of any court of competent jurisdiction ordering that the
Transferor not transfer any additional Receivables to the Trust) then, in any
such event, (A) the Servicer agrees to allocate and pay to the Trust, after the
date of such inability, all Collections with respect to Receivables transferred
to the Trust prior to the occurrence of such event; and (B) the Servicer agrees
to have such amounts applied as Collections in accordance with Section 4.03. For
------------
the purpose of the immediately preceding sentence of this Section 3.01(h), the
---------------
Servicer shall treat the first received Collections with respect to the
Receivables as allocable to the Trust for the benefit of all Certificateholders
until the Trust shall have been allocated and paid Collections in an amount
sufficient to pay the aggregate amount of Receivables in the Trust as of the
date of occurrence of such event.
(i) (A) Invoices sent to Obligors in respect of the Receivables will
instruct the Obligors to send payments thereon by mail to the Post Office Boxes
or by wire transfer to the wire transfer receipt account identified on Exhibit
-------
3.01(i) (such wire transfer receipt account, together with any other wire
- -------
transfer receipt account permitted hereunder, being referred to collectively as
the "Wire Transfer Receipt Account"). Exhibit 3.01(i) hereto lists (x) post
----------------------------- ---------------
office boxes which Obligors are directed to send payments in respect of
Receivables (such post office boxes, together with any other post office boxes
permitted hereunder, being referred to collectively as the "Post Office Boxes"),
-----------------
(y) banks (such banks, together with any other bank holding a Lock-Box Account
in accordance with the terms hereof, being referred to collectively as the
"Lock-Box Banks") which remove checks representing Collections from the Post
--------------
Office Boxes and deposit the same in deposit accounts maintained at such banks
in the name of the Transferor (the "Lock-Box Accounts"), and (z) the banks at
-----------------
which the Wire Transfer Receipt Account is maintained (such banks, together with
any other bank holding the Wire Transfer Receipt Account, being referred to
collectively as the "Wire Transfer Receipt Account Bank"). All Collections on
----------------------------------
Receivables transmitted by Obligors to the Post Office Boxes rather than
directly to the Servicer or to the Wire Transfer Receipt Account will, pending
remittance to the Concentration Account, be held for the benefit of the Trust
and are and shall be transferred to the Concentration Account (or the Collection
Master Subaccount, if applicable) not later than the Business Day on which funds
are available following receipt thereof.
(B) The Transferor maintains at the bank identified in Exhibit 3.01(i)
---------------
(such bank, together with any other bank holding the Concentration Account in
accordance with the terms hereof, being referred to collectively as the
"Concentration Account Bank") a deposit account
--------------------------
16
<PAGE>
(the "Concentration Account") identified in Exhibit 3.01(i) into which funds
--------------------- ---------------
available for withdrawal from the Lock-Box Accounts are deposited on a daily
basis. Any payments on the Receivables made by Obligors directly to the Servicer
or to the Wire Transfer Receipt Account shall be deposited in the Concentration
Account not later than the Business Day following the date on which funds are
available. All Collections in the Concentration Account shall be held for the
benefit of the Trust and applied in accordance with Article IV.
----------
(C) The Servicer agrees that it will not change the foregoing method of
collection or its related instructions to Obligors except in accordance with
this Agreement.
(D) The Transferor has entered into letter agreements with each Lock-Box
Bank. Pursuant to such agreements and this Agreement, upon the occurrence and
during the continuance of an Early Amortization Event or a Servicer Default, the
Trustee at the direction of any Control Party shall have the right to change the
name in which such Lock-Box Accounts and Post Office Boxes are maintained and
assume control over amounts deposited in such Lock-Box Accounts and Post Office
Boxes by sending a specified form of notice (a "Lock-Box Notice") to the Lock-
---------------
Box Bank (and, if necessary, to the applicable Post Office branch), and to
direct that such amounts be remitted directly to the Collection Master
Subaccount. Each such letter agreement (as well as letter agreements entered
into with new Lock-Box Banks pursuant to Section 3.01(i)(E)) shall be in
------------------
substantially the form of Exhibit 3.01(i)(D), and the Transferor may amend,
------------------
supplement, restate or otherwise modify such letter agreements from time to time
with the prior written consent of each Control Party (each such letter
agreement, as amended, supplemented, restated or otherwise modified from time to
time, shall be referred to herein as a "Lock-Box Agreement").
------------------
The Transferor has entered into a letter agreement with the Wire Transfer
Receipt Account Bank. Pursuant to such agreement and this Agreement, upon the
occurrence and during the continuance of an Early Amortization Event or a
Servicer Default, the Trustee at the direction of any Control Party shall have
the right to change the name in which the Wire Transfer Receipt Account is
maintained and assume control over amounts deposited in the Wire Transfer
Receipt Account by sending a specified form of notice to the Wire Transfer
Receipt Account Bank, and to direct that such amounts be remitted directly to
the Collection Master Subaccount. Each such letter agreement (as well as letter
agreements entered into with new Wire Transfer Receipt Account Banks pursuant to
Section 3.01(i)(E)) shall be in substantially the form of Exhibit 3.01(i)(D),
- ------------------ ------------------
and the Transferor may amend, supplement, restate or otherwise modify such
letter agreements from time to time with the prior written consent of each
Control Party (each such letter agreement, as amended, supplemented, restated or
otherwise modified from time to time, shall be referred to herein as a "Wire
----
Transfer Receipt Account Agreement").
- ----------------------------------
(E) The Transferor may add or terminate any bank as a Lock-Box Bank, Wire
Transfer Receipt Account Bank or Concentration Account Bank from those listed in
Exhibit 3.01(i) hereto, or make any change in its instructions to Obligors
- ---------------
regarding payments of Collections, including in respect of Post Office Boxes (so
long as an Obligor remains instructed
17
<PAGE>
to make such payments to the Wire Transfer Receipt Account or a post office box
to which a Lock-Box Bank party to a Lock-Box Agreement has access), but in each
case only (i) upon 30 days' prior written notice from the Servicer to the
Trustee, the Transferor and any Enhancement Provider for each outstanding Series
and (ii) so long as no Early Amortization Event or Servicer Default shall have
occurred and be continuing. The Servicer shall give notice to the Trustee of the
name and address of each new Lock-Box Bank, Wire Transfer Receipt Account Bank
and Concentration Account Bank, which notice shall identify the related Lock-Box
Account, Wire Transfer Receipt Account, Concentration Account and Post Office
Box, as the case may be. The Transferor shall enter into a Lock-Box Agreement
with each new Lock-Box Bank and a Wire Transfer Receipt Account Agreement with
each new Wire Transfer Receipt Account Bank, and shall deliver to the Trustee
and any Enhancement Provider for each outstanding Series a copy of the executed
Lock-Box Agreement or Wire Transfer Receipt Account Agreement, as the case may
be, prior to instructing any Obligors to make payment to such new Lock-Box Bank
or Wire Transfer Receipt Account Bank.
Section 3.02 Servicing Compensation.
----------------------
(a) As compensation for its servicing activities hereunder and
reimbursement for its expenses as set forth in the immediately following
paragraph, the Servicer shall be entitled to receive a servicing fee prior to
the termination of the Trust pursuant to Section 12.01 (the "Servicing Fee"),
------------- -------------
payable on the dates specified in the applicable Supplement, equal to the
product of (i) one-twelfth, (ii) the weighted average Servicing Fee Percentage
(based upon the Servicing Fee Percentage for each Series and the Invested Amount
thereof), and (iii) the daily average Aggregate Unpaid Balance of Receivables in
the Trust with respect to the related Accrual Period. The share of the Servicing
Fee allocable to each Series with respect to any date of payment generally shall
be equal to the product of (i) one-twelfth, (ii) the applicable Servicing Fee
Percentage for such Series and (iii) the Invested Amount of such Series as of
the date of determination for such payment as specified in the applicable
Supplement. The remainder of the Servicing Fee, which shall be allocable to the
Transferor as Holder of the Transferor Certificate, shall be paid by the
Transferor from Collections allocated to the Transferor's Interest, and in no
event shall the Trust, the Trustee, any Enhancement Provider or the Investor
Certificateholders be liable for the share of the Servicing Fee to be paid by
the Transferor. Any Servicing Fees shall be payable to the Servicer solely
pursuant to the terms of, and to the extent amounts are available for payment as
provided in, Article IV and each Supplement.
----------
(b) In the event a Successor Servicer is appointed pursuant to Section
-------
10.02, the Servicing Fee Percentage with respect to each Series with respect to
- -----
such Successor Servicer shall be equal to the Servicing Fee Percentage with
respect to such Series in effect immediately prior to the appointment of such
Successor Servicer or, if higher, the current market rate for servicing
receivables similar in nature to the Receivables; provided, however, that the
-------- -------
servicing fees attributable to CompuCom as Servicer and to another Person as
Successor Servicer may be bifurcated and distributed in the manner provided in
the related Supplement.
18
<PAGE>
(c) The Servicer's expenses include expenses related to enforcement of the
Receivables, the amounts due to the Trustee pursuant to Section 11.05, the
-------------
reasonable fees and disbursements of independent accountants, the amounts due to
the Lock-Box Banks and the Wire Transfer Receipt Account Banks, all other
expenses incurred by the Servicer in connection with its activities hereunder,
and all other fees and expenses of the Trust not expressly stated herein to be
for the account of the Certificateholders; provided that in no event shall the
--------
Servicer be liable for any federal, state or local income or franchise tax, or
any interest or penalties with respect thereto, assessed on the Trust, the
Trustee or the Certificateholders except as expressly provided herein. In the
event that the Servicer fails to pay the amounts due to the Trustee pursuant to
Section 11.05, the Trustee shall be entitled to deduct and receive such amounts
- -------------
from the Servicing Fee, prior to the payment thereof to the Servicer. The
Servicer shall be required to pay expenses for its own account and shall not be
entitled to any payment or reimbursement therefor other than the Servicing Fee.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
---------------------------------------------------------
CompuCom as initial Servicer, and any Successor Servicer by its appointment
hereunder, hereby represents, warrants and covenants (except that no
representation, warranty or covenant is made by any Successor Servicer with
respect to paragraphs (l) and (t) below), in the case of the initial Servicer,
-------------- ---
as of the date of this Agreement and the Initial Closing Date and, with respect
to any Series as of the date of any Supplement and the related Closing Date, and
in the case of any Successor Servicer, as of the date of its appointment:
(a) Organization and Good Standing. The Servicer is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has full corporate power as a corporation
organized under the laws of its state of incorporation and authority
granted by its board of directors, any committees thereof and otherwise
granted or permitted by applicable law to execute, deliver and perform its
obligations under this Agreement, each Supplement and each other
Transaction Document to which it is, or is to be, a party, and has the
legal right to execute, deliver and perform its obligations under this
Agreement, each Supplement and each other Transaction Document to which it
is, or is to be, a party and to own its property and conduct its business
as such properties are presently owned and as such business is presently
conducted.
(b) Due Qualification. The Servicer is duly qualified to do
-----------------
business and is in good standing as a foreign corporation (or is exempt
from such requirements), and has obtained all necessary licenses and
approvals in Texas and in each jurisdiction in which the failure to be so
qualified, to be in good standing or to obtain such license or approval has
had, or could reasonably be expected to have, a Material Adverse Effect.
(c) Due Authorization. The execution, delivery and performance of
-----------------
this Agreement, each Supplement and each other Transaction Document to
which it is, or is to be, a party, and the consummation of the transactions
provided in this Agreement, each
19
<PAGE>
Supplement and each other Transaction Document to which it is, or is to be,
a party, have been duly authorized by the Servicer by all necessary
corporate action on the part of the Servicer.
(d) Binding Obligation. Each of this Agreement, each Supplement
------------------
and each other Transaction Document to which it is, or is to be, a party
constitutes (or will, when executed and delivered by the Servicer,
constitute) legal, valid and binding obligations of the Servicer,
enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in
effect, relating to the enforcement of creditors' rights in general and,
with respect to any Successor Servicer which is a national banking
association, the rights of creditors of national banks under United States
law and except as such enforceability may be limited by general principles
of equity (whether considered in a proceeding at law or in equity).
(e) No Violation. The execution and delivery of this Agreement,
------------
each Supplement and each other Transaction Document to which it is, or is
to be, a party by the Servicer, and the performance of the transactions
contemplated by this Agreement, each Supplement and each other Transaction
Document to which it is, or is to be, a party and the fulfillment of the
terms hereof and thereof applicable to the Servicer, will not conflict
with, violate, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or both) a default
under, or require any consent, approval or registration under, any
Requirement of Law applicable to the Servicer or any material indenture,
contract, agreement, mortgage, deed of trust or other instrument to which
the Servicer is a party or by which it is bound.
(f) No Proceeding. There are no proceedings or investigations,
-------------
pending or, to the best knowledge of the Servicer, threatened against the
Servicer before any Governmental Authority (i) seeking to prevent the
issuance of the Certificates or the consummation of any of the transactions
contemplated by this Agreement or any Supplement or any other Transaction
Document, or (ii) seeking any determination or ruling that has had, or
could reasonably be expected to have, a Material Adverse Effect.
(g) Compliance with Requirements of Law. The Servicer shall (i)
-----------------------------------
duly satisfy all material obligations on its part to be fulfilled under or
in connection with the Receivables and the Related Property; (ii) maintain
in effect all qualifications to do business required under Requirements of
Law in order to service properly the Receivables and the Related Property;
and (iii) comply in all material respects with all Requirements of Law
applicable to the Receivables and in connection with servicing the
Receivables and the Related Property the failure to comply with which has
had, or could reasonably be expected to have, a Material Adverse Effect.
20
<PAGE>
(h) No Rescission or Cancellation. The Servicer shall not permit
-----------------------------
any rescission or cancellation of a Receivable or a Contract except (i) as
ordered by a court of competent jurisdiction or other Governmental
Authority or otherwise required by a Requirement of Law or (ii) in the
ordinary course of its business in accordance with the Credit and
Collection Policy.
(i) Year 2000 Problem. The Servicer (a) has reviewed the areas
-----------------
within its business and operations which could be adversely affected by,
and has developed or is developing a program to address on a timely basis,
the Year 2000 Problem and (b) has made appropriate inquiries as to the
effect the Year 2000 Problem will have on its material suppliers and
customers. Based on such review, program and inquiries, the Servicer
reasonably believes that the "Year 2000 Problem" will not have a Material
Adverse Effect.
(j) All Consents Required. All approvals, authorizations,
---------------------
consents, orders or other actions of any Person or of any Governmental
Authority required in connection with the execution and delivery by the
Servicer of this Agreement, each Supplement and each other Transaction
Document to which it is, or is to be, a party, the performance by the
Servicer of the transactions contemplated by this Agreement, each
Supplement and each other Transaction Document to which it is, or is to be,
a party and the fulfillment by the Servicer of the terms hereof and
thereof, have been obtained or have been completed and are in full force
and effect, except for those approvals, authorizations, consents, orders or
other actions the failure to obtain or accomplish has not had, and could
not reasonably be expected to have, a Material Adverse Effect.
(k) Credit and Collection Policy. The Servicer, (i) except as
----------------------------
otherwise permitted in Section 3.01(e) and subject to Section 3.09, shall
--------------- ------------
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, in any manner which would have a material adverse effect on the
interests of the Certificateholders (without regard to any Enhancement) or
any Enhancement Provider or the Trust, including extending the due dates,
or impairing the collectibility of the Receivables and (ii) shall comply in
all material respects with the Credit and Collection Policy in regard to
each Receivable and the related Contract.
(l) No Change in Ability to Service. With respect to the initial
-------------------------------
Servicer only, since the Initial Closing Date there has been no material
adverse change in the ability of the Servicer to service and collect the
Receivables and the Related Property.
(m) Modification of Systems. The Servicer agrees, promptly after
-----------------------
the replacement or any material modification of any computer, automation or
other operating systems (in respect of hardware or software) used to
provide the Servicer's services as
21
<PAGE>
Servicer or to make any calculations or reports hereunder, to give notice
of any such replacement or modification to the Trustee.
(n) Business Days. No later than January 1 of each year, the
-------------
Servicer shall furnish the Trustee with a list of days other than Saturday
and Sunday on which the office of the Servicer listed in Section 13.05
-------------
shall be closed during the immediately succeeding year, except that with
respect to the calendar year 1999, the Servicer shall furnish such list to
the Trustee on or before the Initial Closing Date.
(o) Keeping of Records and Books of Account. The Servicer shall
---------------------------------------
maintain and implement administrative and operating procedures (including
the ability to recreate records evidencing the Receivables in the event of
the destruction of the originals thereof), and keep and maintain all
documents, books, computer records and other information, reasonably
necessary or advisable for the collection of all the Receivables and the
Related Property. Such documents, books and computer records shall reflect
all facts giving rise to the Receivables and the Related Property, all
payments and credits with respect thereto, and the computer records shall
indicate the contribution and sale of Receivables by the Seller to the
Transferor, by the Transferor to the Trust, and, in all cases, the
interests of the Trust in the Receivables.
(p) Performance and Compliance with Contracts. The Servicer shall
-----------------------------------------
or, if CompuCom is no longer the Servicer, CompuCom shall 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.
(q) No Servicer Default. No Servicer Default has occurred and is
-------------------
continuing.
(r) No Early Amortization Event. No Early Amortization Event has
---------------------------
occurred and is continuing.
(s) No Lien. None of the Lock-Box Accounts, the Wire Transfer
-------
Receipt Account or the Concentration Account is subject to any Lien except
for (i) rights of the banks holding such accounts under the applicable
agreements (including the Lock-Box Agreements), and (ii) the rights of the
Trustee under any Lock-Box Agreement or Wire Transfer Receipt Account
Agreement.
(t) Financial Condition. The consolidated balance sheets of
-------------------
CompuCom and its consolidated Subsidiaries as at December 31, 1998, and the
related statements of earnings, shareholders' equity and cash flows of
CompuCom and its consolidated Subsidiaries for the fiscal year then ended,
certified by KPMG, LLP, fairly present the consolidated financial
condition, business and operations of CompuCom and its consolidated
Subsidiaries as at such dates and the consolidated results of the
operations of
22
<PAGE>
CompuCom and its consolidated Subsidiaries for the periods ended on such
dates, all in accordance with GAAP consistently applied.
(u) Accurate Reports. No Settlement Statement or Daily Report or
----------------
other information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by or on behalf of the Servicer to the
Trustee, in connection with this Agreement was or will be inaccurate in any
material respect as of the date it was or will be dated or as of the date
so furnished, or contained or will contain any material misstatement of
fact or omitted or will omit to state a material fact or any fact necessary
to make the statements contained therein not materially misleading.
In the event there is any breach of any of the representations, warranties
or covenants of the Servicer contained in Section 3.03(g), (h), (k) or (p) with
--------------- --- --- ---
respect to any Receivable and as a result thereof, such Receivable has been
charged off as uncollectible or the proceeds of any such Receivable are not
available to the Trust, then upon the expiration of 30 days from the earlier to
occur of the discovery of any such event by the Servicer or receipt by the
Servicer of written notice of such event given by the Trustee (such notice to be
given within three Business Days of the discovery thereof by a Responsible
Officer of the Trustee), the Servicer shall accept the transfer of all the
Receivables as to which such event relates on the terms and conditions set forth
below; provided, however, that no such removal shall be required to be made with
-------- -------
respect to a Receivable if, within such 30-day period, such representations,
warranties or covenants with respect to such Receivable shall be true and
correct, or shall have been complied with, in all material respects. The
Servicer shall accept the transfer of a Receivable and the Related Property and
all monies due or to become due with respect thereto by making or causing to be
made a deposit into the Concentration Account (or Collection Master Subaccount,
if applicable) in immediately available funds on or prior to the Determination
Date following the Settlement Period during which such obligation arises in an
amount equal to the Transfer Deposit Amount for such Receivables, which deposit
shall be allocated in accordance with Section 4.03. Upon each such transfer of a
------------
Receivable to the Servicer, the Trustee shall automatically and without further
action be deemed to transfer, assign and otherwise convey to or upon the order
of the Servicer, without recourse, representation or warranty, all right, title
and interest of the Trust in and to such Receivable, the Related Property and
all monies due or to become due with respect thereto and all proceeds thereof,
and to release and terminate the security interest granted pursuant to Section
-------
2.02(b) to the extent it covers such property; and such Receivable shall be
- -------
treated by the Trustee as collected in full as of the Settlement Period to which
such Transfer Deposit Amount relates. The Trustee shall execute such documents
and instruments of transfer or assignment as shall be prepared by the Servicer,
and shall take such other actions as shall be reasonably requested by the
Servicer, at the Servicer's expense, to effect the conveyance of any Receivable
pursuant to this Section. The obligation of the Servicer to accept the transfer
of any such Receivables, the Related Property and all monies due or to become
due shall constitute the sole remedy respecting any breach of the
representations, warranties and covenants set forth in Section 3.03(g), (h), (k)
--------------- --- ---
or (p) available to Certificateholders or the Trustee on behalf of
---
Certificateholders.
23
<PAGE>
Section 3.04 Records and Reports for the Trustee.
-----------------------------------
(a) Daily Records. Upon reasonable prior notice by the Trustee, the
-------------
Servicer shall make available at an office of the Servicer selected by the
Servicer for inspection by the Trustee on a Business Day during the Servicer's
normal business hours a record setting forth (i) the Collections on each
Receivable and (ii) the amount of Receivables for the Business Day preceding the
date of the inspection. The Servicer shall, at all times, maintain its computer
files with respect to the Receivables in such a manner so that the Receivables
may be specifically identified and, upon reasonable prior request of the
Trustee, shall make available to the Trustee at an office of the Servicer
selected by the Servicer on any Business Day during the Servicer's normal
business hours any computer programs necessary to make such identification.
(b) Daily Report.
------------
(i) On each Business Day, the Servicer shall prepare, or, if
CompuCom is not the Servicer, CompuCom shall cooperate with the Successor
Servicer in preparing, a completed Daily Report (which shall include
directions regarding allocation of Collections as described in Article IV
----------
of this Agreement).
(ii) The Servicer shall deliver to the Trustee the Daily Report by
12:00 noon (New York City time) on each Business Day with respect to
activity in the Receivables for the prior Business Day.
(iii) Upon discovery of any error or receipt of notice of any error
in any Daily Report, the Servicer, the Transferor and the Trustee shall
arrange to confer and shall agree upon any adjustments necessary to correct
any such errors. Until correction of such error, the Servicer or the
Trustee, as the case may be, shall retain all Collections (or such lesser
amount as the Trustee and the Servicer shall agree to be necessary to cover
any error) in the Collection Account. Unless the Trustee has received
actual notice of any error in a Daily Report, the Trustee may rely on such
Daily Report for all purposes hereunder.
(c) Settlement Statement. On each Determination Date, the Servicer shall,
--------------------
or if CompuCom is not the Servicer, the Successor Servicer shall with
information provided by CompuCom prior to 10:00 a.m. (New York City time) on
such day, deliver to the Trustee, the Paying Agent, each Enhancement Provider
and the Rating Agencies the Settlement Statement for the related Settlement
Period.
(d) On each Determination Date, the Servicer shall deliver to the Trustee
a computer tape or disk, in form and substance satisfactory to the Trustee,
containing the information and data fields set forth on the attached Exhibit
3.04(d) (the "Monthly Tape"). In addition, the Trustee may request the delivery
------------
of such Monthly Tape on an interim basis. The Trustee shall have no obligation
to verify the contents of any Monthly Tape it receives.
24
<PAGE>
Section 3.05 Annual Servicer's Certificate. The Servicer will deliver to
-----------------------------
the Trustee and each Enhancement Provider on or before April 30 of each calendar
year, beginning with April 30, 2000, an Officer's Certificate substantially in
the form of Exhibit 3.05 (or such other form as reasonably requested by any
------------
Agent under any Series Supplement) stating that (a) a review of the activities
of the Servicer during the preceding fiscal year of the Servicer and of its
performance under this Agreement and each Supplement was made under the
supervision of the officer signing such certificate and (b) to the best of such
officer's knowledge, based on such review, the Servicer has in all material
respects fully performed or has caused to be fully performed all of its
obligations under this Agreement and each Supplement throughout such year, or,
if there has been a default in the performance of any such obligation,
specifying each such default known to such officer and the nature and status
thereof.
Section 3.06 Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
(a) On or before April 30 of each calendar year, beginning with April 30,
2000, the Servicer shall cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer or the
Transferor) to furnish a report (which report shall cover the period from
December 31 of the prior calendar year to and including December 31 of the
current calendar year) to the Trustee, each Enhancement Provider and each Rating
Agency to the effect that they have applied certain procedures agreed upon with
the Servicer and reviewed certain documents and records relating to the
servicing of Receivables with respect to the Servicer's compliance with the
terms and conditions set forth in Sections 3.04, 3.05, 4.02, 4.03, 4.04, 4.06,
------------- ---- ---- ---- ---- ----
4.07 and 12.01 of this Agreement (including any Supplement amending or
- ---- -----
superseding those Sections with respect to a Series), which report shall include
all findings of such accountants.
(b) On or before April 30 of each calendar year, beginning with April 30,
2000, the Servicer shall cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer or the
Transferor), or other Person acceptable to each Control Party, to furnish a
report to the Trustee and each Enhancement Provider to the effect that they have
compared the mathematical calculations of each amount set forth in the
Settlement Statements forwarded by the Servicer pursuant to Section 3.04(c)
---------------
during the period covered by such report (which shall be the period from
December 31 of the prior calendar year to and including December 31 of the
current calendar year) with the Servicer's computer reports which were the
source of such amounts and that on the basis of such comparison, such
accountants have found that such amounts are in agreement, except for such
exceptions as they believe to be immaterial and such other exceptions as shall
be set forth in such statement. The Servicer shall promptly forward a copy of
such report to each Rating Agency.
(c) In the event such independent public accountants require the Trustee
to agree to the procedures to be performed by such firm in any of the reports
required to be prepared pursuant to this Section 3.06, the Servicer shall direct
------------
the Trustee, in writing to so agree; it being understood and agreed that the
Trustee will deliver such letter of agreement in conclusive
25
<PAGE>
reliance upon the direction of the Servicer, and the Trustee has not made any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
Section 3.07 Tax Treatment. The Transferor has entered into this
-------------
Agreement, and the Investor Certificates have been (or will be) issued, with the
intention that such Investor Certificates will qualify under applicable tax law
as indebtedness of the Transferor, secured by the Receivables. The Transferor,
the Servicer, each Investor Certificateholder by acceptance of its Investor
Certificate and each Certificate Owner by acquiring an interest in an Investor
Certificate agrees to treat, and to take no action inconsistent with the
treatment of, the Investor Certificates (or beneficial interest therein) as
indebtedness of the Transferor, for purposes of federal, state and local income
or franchise taxes and for any other tax imposed on or measured by income. In
accordance with the foregoing, the Transferor agrees that it will report its
income for such federal, state, and local income or franchise taxes, or for
purposes of any other taxes on or measured by income, on the basis that it is
the owner of the Receivables. Each Investor Certificateholder and each Holder of
the Transferor Certificate, by acceptance of its Certificate, and each
Certificate Owner, by acquisition of a beneficial interest in an Investor
Certificate, agree to be bound by the provisions of this Section 3.07. Nothing
------------
contained in the foregoing or elsewhere in this Agreement shall, however, be
deemed to prohibit the Transferor from making any election that may in the
future be available to it under the Internal Revenue Code to have the Trust or
any Series treated as a "financial asset securitization investment trust" (or
similar entity), so long as prior to the effectiveness of that election the
Transferor delivers to the Trustee an Opinion of Counsel to the effect that the
election (a) will not cause the Trust to be classified, for Federal income tax
purposes, as an association (or publicly traded partnership) taxable as a
corporation and (b) will not cause or constitute an event in which gain or loss
would be recognized by any Investor Certificateholder.
Section 3.08 Notices to Transferor. The Servicer shall deliver or make
---------------------
available to the Transferor each certificate and report required to be prepared,
forwarded or delivered pursuant to Sections 3.04, 3.05 and 3.06.
------------- ---- ----
Section 3.09 Dilution Factors. If the Unpaid Balance of any Eligible
----------------
Receivable is adjusted by the Servicer for any Dilution Factors (which Dilution
Factors shall only be determined in accordance with the Credit and Collection
Policy), the Aggregate Eligible Unpaid Balance with respect to the Business Day
following the Business Day on which such adjustment takes place will be reduced
by the amount of the adjustment. In the event that such adjustment would cause
the Aggregate Eligible Unpaid Balance to be less than the Aggregate Target
Receivables Amount, the Transferor shall make or cause to be made by the close
of business on the Business Day following the day on which such adjustment
occurs a deposit in immediately available funds, (on a pro rata basis based on
the respective Target Deficiency Amounts of each Series, if any), in an
aggregate amount equal to such deficiency into the Series Principal Collection
Sub-subaccount for each outstanding Series (such deposit being referred to as a
"Dilution Factor Payment").
-----------------------
26
<PAGE>
Section 3.10 Covenant to Maintain Privileges. The Servicer shall maintain
-------------------------------
all of its rights, powers and privileges material to the collectibility of the
Receivables.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.01 Rights of Certificateholders. Each Series shall evidence an
----------------------------
interest in the Trust Assets representing the right to receive Collections and
other amounts at the times and in the amounts specified in this Article IV to be
----------
deposited in the Collection Account or Series Accounts or paid to or on behalf
of the Investor Certificateholders (such interest for each Series, collectively,
the "Investors' Interest"). The Transferor Certificate shall represent the
-------------------
remaining interest in the Trust Assets, including the right to receive
Collections and other amounts at the times and in the amounts specified in this
Article IV to be paid to or on behalf of the Holder of the Transferor
- ----------
Certificate (the "Transferor's Interest"); provided, however, that such
--------------------- -------- -------
certificate shall not represent any interest in the Collection Account (except
to the extent provided in this Agreement) and neither the Transferor nor the
Servicer shall have the right to withdraw funds from the Collection Account or
to receive funds on deposit therein except as and when provided by this
Agreement.
Section 4.02 Establishment of Collection Account.
-----------------------------------
(a) The Collection Account. The Trustee, for the benefit of
----------------------
Certificateholders and the Enhancement Providers (if any), shall establish and
maintain or shall cause to be established and maintained with an Eligible
Institution in the name of the Trustee, on behalf of the Trust, a segregated
trust account (the "Collection Account"), bearing a designation clearly
------------------
indicating that the funds deposited therein are held for the benefit of the
Certificateholders and the Enhancement Providers (if any). The Collection
Account (and any subaccounts and sub-subaccounts thereof) shall be under the
sole dominion and control of the Trustee for the benefit of the
Certificateholders and the Enhancement Providers (if any). If, at any time, the
institution holding the Collection Account (and any subaccounts and sub-
subaccounts thereof) ceases to be an Eligible Institution, the Trustee shall
within 10 Business Days of a Responsible Officer learning of such event
establish a new Collection Account meeting the conditions specified above with
an Eligible Institution, transfer any cash and/or any investments to such new
Collection Account and from the date such new Collection Account is established,
it shall be the "Collection Account." Neither the Transferor nor the Servicer,
nor any Person claiming by, through or under the Transferor or Servicer, shall
have any right, title or interest in, or any right to withdraw any amount from,
the Collection Account (and any subaccounts and sub-subaccounts thereof) except
to the extent provided in this Agreement. Pursuant to the authority granted to
the Servicer pursuant to Section 3.01(a), the Servicer shall have the revocable
---------------
power to instruct the Trustee to make withdrawals and payments from the
Collection Account (and any subaccounts and
27
<PAGE>
sub-subaccounts thereof) for the purposes of carrying out the Servicer's, and,
where applicable, the Trustee's duties hereunder. The Trustee shall divide the
Collection Account into subaccounts and sub-subaccounts. The first of such
subaccounts shall be a subaccount established for the benefit of
Certificateholders of all Series (the "Collection Master Subaccount"). The
----------------------------
Trustee shall also establish individual subaccounts of the Collection Account
for each outstanding Series (each, respectively, a "Series Collection
-----------------
Subaccount" and, collectively, the "Series Collection Subaccounts") and for the
- ---------- -----------------------------
Transferor (the "Transferor Collection Subaccount"). For administrative purposes
--------------------------------
only, the Trustee shall establish or cause to be established for each Series, so
long as such Series is an outstanding Series, sub-subaccounts of the Series
Collection Subaccount with respect to such Series (respectively, the "Series
------
Principal Collection Sub-subaccount" and "Series Non-Principal Collection Sub-
- ----------------------------------- ------------------------------------
subaccount"). The Trustee may also establish for each Series any additional
- ----------
Series Collection Sub-subaccounts which are set forth in the related Supplement.
(b) Administration of the Collection Account. Funds on deposit in the
----------------------------------------
Collection Account (and any subaccounts or sub-subaccounts thereof) shall, at
the direction of the Servicer, be invested by the Trustee in Eligible
Investments that will mature, or that are payable or redeemable upon demand of
the holder thereof, so that such funds will be available on or before the
Payment Date next following the date of the Trust's investment therein (other
than investment earnings and amounts deposited pursuant to Article XII, which
-----------
shall at the direction of the Servicer be invested by the Trustee in Eligible
Investments that will mature on or before the Business Day next following the
date of the Trust's investment therein). All interest and investment earnings
(net of losses and investment expenses) ("Investment Earnings") on funds in the
-------------------
Collection Account (and any subaccounts or sub-subaccounts thereof) shall be
paid by the Trustee to the Transferor on each Payment Date, unless an Early
Amortization Event shall have occurred and be continuing, in which event such
Investment Earnings shall be retained in the Collection Account and be treated
as Collections. Any request by the Servicer to invest funds on deposit in the
Collection Account (and any subaccounts or sub-subaccounts thereof) shall be in
writing and shall certify that the requested investment is an Eligible
Investment which matures at or prior to the time required hereby. If the Trustee
does not receive written direction from the Servicer, any such amounts on
deposit shall be invested in investments of the type described in clause (iv) of
the definition of Eligible Investments. The Trustee shall maintain possession of
the negotiable instruments or securities, if any, evidencing the Eligible
Investments described in clause (a) of the definition thereof from the time of
----------
purchase thereof until maturity. The Servicer will have the revocable power to
instruct the Trustee to make withdrawals and payments from the Collection
Account (and any subaccounts or sub-subaccounts thereof) for the purpose of
carrying out the Servicer's or the Trustee's duties under this Agreement.
Neither the Transferor nor the Servicer shall deposit any of their funds in the
Collection Account (and any subaccounts or sub-subaccounts thereof) at any time
except for funds unconditionally required to be paid on account of the purchase
price of Certificates or Receivables pursuant to this Agreement or as specified
in any Supplement.
28
<PAGE>
(c) Identification of Collection Account, the Collection Master
-----------------------------------------------------------
Subaccount and the Transferor Collection Subaccount. Exhibit 4.02(c) identifies
- --------------------------------------------------- ---------------
the Collection Account, the Collection Master Subaccount and the Transferor
Collection Subaccount by setting forth the account number of each such account,
the account designation of each such account and the name and location of the
institution with which each such account has been established. Each Supplement
shall identify the Series Collection Subaccounts and Series Collection Sub-
subaccounts for the related Series.
Section 4.03 Collections and Allocations.
---------------------------
(a) Collections and Transfers. (i) The Servicer will allocate, pay or
-------------------------
deposit all Collections with respect to the Receivables for each Business Day as
described in this Article IV. Except as provided in any Supplement with respect
----------
to any Series, no later than the Business Day following the receipt of any
Collections, the Servicer shall deposit such Collections into the Concentration
Account (or Collection Master Subaccount, if applicable) and shall allocate and
transfer such Collections as indicated below.
(ii) On each Business Day (each such Business Day, a "Deposit Date") the
------------
Servicer (or the Trustee, in accordance with written directions from the
Servicer) shall allocate and transfer from Collections on deposit in the form of
available funds in the Concentration Account (or Collection Master Subaccount,
if applicable): (a) to the respective Series Collection Subaccount of each
outstanding Series, (A) during the Revolving Period of such Series, an amount
equal to the lesser of (1) the product of (x) the Invested Percentage for such
Series and (y) such Collections and (2) the sum of the Accrued Expense Amount,
any Miscellaneous Deficiency and Expense Amount and any Target Deficiency Amount
with respect to such Series for such Business Day and (B) during the
Amortization Period or the Early Amortization Period of such Series, the lesser
of (1) the product of (x) the Invested Percentage for such Series and (y) such
Collections and (2) the sum of the Accrued Expense Amount, any Miscellaneous
Deficiency and Expense Amount and the Controlled Amortization Amount or the
Target Receivables Amount, as applicable, with respect to such Series for such
Business Day, and (b) to the Transferor Collection Subaccount (or, at the
election of the Transferor by notice to the Servicer and the Trustee, to the
Series Principal Collection Sub-subaccount of another Series) the remaining
funds, if any, on deposit in the Concentration Account (or Collection Master
Subaccount, if applicable) on such date after giving effect to transfers to be
made pursuant to clause (a) of this subsection (a)(ii). If the amount
---------- ------------------
transferred under this subsection (a)(ii) to the Series Collection Subaccounts
------------------
is less than the amount required to be so transferred under this subsection
----------
(a)(ii), any funds on deposit in the Concentration Account (or Collection Master
- -------
Subaccount, if applicable) shall be allocated by the Trustee (in accordance with
the written directions received pursuant to Section 3.04 above) pro rata to each
------------
outstanding Series based on their respective Invested Percentages in an
aggregate amount not to exceed the amount of such deficiency and the funds so
allocated shall be transferred to the respective Series Collection Subaccounts.
29
<PAGE>
(b) Certain Allocations Following an Early Amortization Event. (i) If, on
---------------------------------------------------------
any Determination Date, an Early Amortization Event has occurred and is
continuing with respect to any outstanding Series and at such Determination Date
a Revolving Period is still in effect with respect to any other outstanding
Series (a "Special Allocation Determination Date"), then the Servicer shall make
-------------------------------------
the following calculations:
(A) determine the amount (the "Allocable Charged-Off Amount") equal
----------------------------
to the excess, if any, of (I) the aggregate Unpaid Balance of all
Receivables that became Writeoffs during the related Settlement Period over
(II) the aggregate amount of Recoveries received during the related
Settlement Period; or
(B) determine the amount (the "Allocable Recoveries Amount") equal to
---------------------------
the excess, if any, of (I) the aggregate amount of Recoveries received
during the related Settlement Period over (II) the aggregate Unpaid Balance
of Receivables that became Writeoffs during the related Settlement Period.
(ii) If, on any Special Allocation Determination Date, any of the
Allocable Charged-Off Amount or the Allocable Recoveries Amount is greater than
zero for the related Settlement Period, the Trustee shall (in accordance with
written directions received pursuant to Section 3.04 above) make (A) a pro rata
------------
allocation to each outstanding Series (based on the Invested Percentage for such
Series) of a portion (as determined in clause (iii) below) of each such positive
------------
amount and (B) an allocation to the Transferor Certificate of the remaining
portion of each such positive amount.
(iii) With respect to each portion of the Allocable Charged-Off Amount and
the Allocable Recoveries Amount which is allocated to an outstanding Series
pursuant to this Section 4.03(b), the Trustee shall apply each such amount to
---------------
such Series in accordance with the related Supplement for such Series.
(c) Allocations for the Transferor Certificate. On each Business Day,
------------------------------------------
after making all allocations required pursuant to Section 4.03(a), the Trustee
---------------
shall (in accordance with the written direction of the Servicer) transfer to the
Transferor the amounts on deposit in the Transferor Collection Subaccount.
(d) Allocation and Application of Funds. Pursuant to Section 3.04, the
----------------------------------- ------------
Servicer shall direct the Trustee in writing to apply all Collections with
respect to the Receivables as described in this Article IV and in the Supplement
----------
with respect to each outstanding Series. The Servicer shall direct the Trustee
in writing to pay Collections to the Transferor to the extent such Collections
are transferred to the Transferor Collection Subaccount and as otherwise
provided in Article IV. Notwithstanding anything in this Agreement or any
----------
Supplement to the contrary, to the extent that the Trustee receives any Daily
Report prior to 12:00 noon, New York City time,
30
<PAGE>
on any Business Day, the Trustee shall make any applications of funds required
thereby on the same Business Day and otherwise on the next succeeding Business
Day.
Section 4.04 Daily Allocations of Collections Allocated to a Series. Daily
------------------------------------------------------
allocations of the portion of Collections allocated to the Series Collection
Subaccount of each Series shall be made in the manner set forth in the related
Supplement.
Section 4.05 Determination of Interest Distributable on Investor
---------------------------------------------------
Certificates. The determination of the amount of interest distributable with
- ------------
respect to the Investor Certificates of any Series shall be made in the manner
set forth in the related Supplement.
Section 4.06 Determination of Principal Distributable on Investor
----------------------------------------------------
Certificates. The determination of the amount of principal distributable with
- ------------
respect to the Investor Certificates of any Series shall be made in the manner
set forth in the related Supplement.
Section 4.07 Distributions from Series Collection Sub-subaccounts. The
----------------------------------------------------
distribution of amounts on deposit in the Series Collection Sub-subaccounts of
any Series shall be made in the manner set forth in the related Supplement.
Section 4.08 Funds Unrelated to Receivables. In the event that the Trustee
------------------------------
shall have received amounts in respect of payments made by any Person on an
obligation of a customer of CompuCom or other obligation which has not been
transferred to the Trust, the Trustee shall, as soon as practicable and as
instructed in the most recently delivered Daily Report or Settlement Statement,
forward such amounts, in the manner specified in writing by CompuCom, to
CompuCom or such other Person as CompuCom designates and, pending the forwarding
of such amounts, hold such amounts in trust for CompuCom or such other Person
designated by CompuCom. The Trustee will, if requested in writing by CompuCom,
acknowledge and confirm the foregoing to any Person designated by CompuCom.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Section 5.01 Distributions. On each Payment Date, the Paying Agent shall
-------------
distribute (in accordance with the Settlement Statement delivered by the
Servicer to the Trustee on the preceding Determination Date pursuant to Section
-------
3.04(c)) to each Investor Certificateholder of any Series on the preceding
- -------
Record Date (other than as provided in Section 2.04(d) or in Section 12.03(b)
--------------- ----------------
hereof respecting a final distribution) such Investor Certificateholder's pro
---
rata share (based on the aggregate Undivided Interests represented by Investor
- ----
Certificates of such Series held by such Investor Certificateholder) of amounts
on deposit in the Collection Account (or other applicable Series Accounts
specified in the applicable Supplement) as are payable to the
31
<PAGE>
Investor Certificateholders of such Series pursuant to Article IV. Such
----------
distribution shall be made by check mailed to each Certificateholder or, if so
stated in any Supplement, by wire transfer to each Certificateholder so
qualified as stated therein, except that to the extent that Investor
Certificates of a Series are registered in the name of Cede & Co., the nominee
registrar for The Depository Trust Company, such distribution to Investor
Certificateholders shall be made in immediately available funds to The
Depository Trust Company. All payments on account of principal and interest to
Certificateholders of any Series shall be made from amounts on deposit in the
Collection Account or other applicable Series Accounts specified in the
applicable Supplement.
Section 5.02 Monthly Investor Certificateholders' Statement; Annual Tax
----------------------------------------------------------
Statement.
---------
(a) On each Payment Date, the Paying Agent shall forward to each Investor
Certificateholder of each Series the Settlement Statement received by the Paying
Agent pursuant to Section 3.04(c).
---------------
(b) On or before January 31 of each calendar year, beginning with
calendar year 2000, the Servicer shall deliver to the Paying Agent, which shall
thereupon furnish to each Person who at any time during the preceding calendar
year was a Certificateholder, a statement prepared by the Servicer containing
the information which is required to be contained in the regular monthly report
to Investor Certificateholders as set forth in Section 5.02(a), aggregated for
---------------
such calendar year or the applicable portion thereof during which such person
was a Certificateholder, together with such other information as is required to
be provided by an issuer of indebtedness under the Code and such other customary
information as the Servicer deems necessary or desirable to enable the
Certificateholders to prepare their tax returns. Such obligation of the Servicer
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Paying Agent pursuant to this
Agreement or pursuant to any requirements of the Code as from time to time in
effect. Upon the written request of any Investor Certificateholder, the Trustee
shall provide such Investor Certificateholder with information necessary for
such Investor Certificateholder to complete its federal tax returns with respect
to its investment in the Certificates issued hereunder.
ARTICLE VI
THE CERTIFICATES
Section 6.01 The Certificates. The Investor Certificates of each Series
----------------
shall be substantially in the form attached as an exhibit to the applicable
Supplement, and the Transferor Certificate shall be substantially in the form of
Exhibit 6.01 hereto, and shall, upon issuance pursuant hereto or to Section
- ------------ -------
6.09, be executed and delivered by the Transferor to the Trustee for
- ----
authentication and redelivery as provided in Section 6.02. Investor Certificates
------------
shall be issued in the minimum denominations or commitment amounts or commitment
percentages indicated in
32
<PAGE>
the related Supplement. The Transferor Certificate shall be issued in one
certificate to the Transferor. Each Certificate shall be executed by manual or
facsimile signature on behalf of the Transferor by its Chairman of the Board,
its President, its Vice Chairman of the Board or any Vice President.
Certificates bearing the signature of the individual who was, at the time when
such signature was affixed, authorized to sign on behalf of the Transferor or
the Trustee shall not be rendered invalid, notwithstanding that such individual
has ceased to be so authorized prior to the authentication and delivery of such
Certificates or does not hold such office at the date of such Certificates. No
Certificate shall be entitled to any benefit under this Agreement or any
applicable Supplement, or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication substantially in the form provided
for herein executed by or on behalf of the Trustee by the manual signature of a
duly authorized signatory, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
Section 6.02 Authentication of Certificates. Contemporaneously with the
------------------------------
initial assignment and transfer of the Receivables, whether now existing or
hereafter created and the other components of the Trust to the Trust, the
Trustee shall authenticate and deliver the Transferor Certificate to the
Transferor and, upon the execution of any Supplement and the satisfaction of the
conditions provided in Section 6.09, shall authenticate and deliver the Series
------------
of Investor Certificates to be issued thereunder as provided in Section 6.09.
------------
The Certificates of each Series shall be duly authenticated by or on behalf of
the Trustee as provided for herein and in the applicable Supplement, (x) in
authorized denominations equal to (in the aggregate) the Initial Invested Amount
of such Series or (y) in authorized maximum commitment amounts or commitment
percentages, in each case as specified in such Supplement. As provided in any
Supplement, Investor Certificates of any Series may be issued and sold pursuant
to an effective registration statement under the Securities Act, or pursuant to
an exemption therefrom, and may be delivered in book-entry form as provided in
Sections 6.11 through 6.12. Further, if any such Series is sold pursuant to an
- ------------- ----
exemption from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act or its substantial equivalent (the "Private Placement
-----------------
Exemption") as stated in the applicable Supplement, the Certificates of such
- ---------
Series may only be transferred as provided in Section 6.03(d).
---------------
Section 6.03 Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
(a) The Trustee shall cause to be kept at the office or agency to be
maintained by a transfer agent and registrar (which may be the Trustee) (the
"Transfer Agent and Registrar") a register (the "Certificate Register") in
---------------------------- --------------------
which, subject to such reasonable regulations as it may prescribe, the Transfer
Agent and Registrar shall provide for the registration of each Series of the
Investor Certificates and the Transferor Certificate and of transfers and
exchanges of such Certificates as herein provided. The Trustee is hereby
initially appointed Transfer Agent and Registrar for the purpose of registering
each Series of Investor Certificates and of registering transfers and exchanges
of the Investor Certificates as herein provided. The Trustee shall be
33
<PAGE>
permitted to resign as Transfer Agent and Registrar upon 30 days' written notice
to the Transferor and the Servicer; provided, however, that such resignation
-------- -------
shall not be effective and the Trustee shall continue to perform its duties as
Transfer Agent and Registrar until the Servicer has appointed a successor
Transfer Agent and Registrar acceptable to the Transferor. The Trustee shall
register the Transferor Certificate in the name of the Transferor.
Upon surrender for registration of transfer of any Investor Certificate of
a Series at any office or agency of the Transfer Agent and Registrar maintained
for such purpose, the Transferor shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more Investor Certificates of such Series in authorized
denominations (or commitment percentages or commitment amounts) evidencing the
same aggregate Undivided Interests; provided, however, that any Investor
-------- -------
Certificate of any Series sold pursuant to the Private Placement Exemption shall
satisfy the conditions provided in Section 6.03(d) prior to such registration of
---------------
transfer.
At the option of an Investor Certificateholder, Investor Certificates of a
Series may be exchanged for one or more Investor Certificates of such Series of
authorized denominations evidencing the same aggregate Undivided Interests, upon
surrender of the Investor Certificates to be exchanged at any office or agency
of the Transfer Agent and Registrar maintained for such purpose. Whenever any
Investor Certificates are so surrendered for exchange, the Transferor shall
execute, and the Trustee shall authenticate and deliver, the Investor
Certificates which the Investor Certificateholder making the exchange is
entitled to receive. Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form reasonably satisfactory to the Trustee and the
Transfer Agent and Registrar duly executed by the Certificateholder thereof or
its attorney duly authorized in writing.
No service charge shall be imposed for any registration of transfer or
exchange of Investor Certificates, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any transfer or exchange of
Investor Certificates.
All Investor Certificates surrendered for registration of transfer or
exchange shall be canceled by the Transfer Agent and Registrar and disposed of
in a manner satisfactory to the Trustee or retained by the Trustee in accordance
with its standard retention policy.
(b) Neither the Transferor Certificate nor any interest represented
thereby shall be sold, transferred, assigned, exchanged, pledged or otherwise
conveyed.
(c) The Transfer Agent and Registrar will maintain at its expense in
Minneapolis, Minnesota, an office or offices or agency or agencies where
Certificates may be surrendered for registration of transfer or exchange.
34
<PAGE>
(d) Unless otherwise specified in the related Supplement, until such time
as the Trustee shall receive an Officer's Certificate of the Transferor
certifying that a Series of Investor Certificates has been registered under the
Securities Act and qualified under all applicable state securities laws, neither
the Trustee nor the Transfer Agent and Registrar shall register a transfer of
any Investor Certificates of such Series or any interest therein unless such
transfer is to be made in a transaction that does not require such registration
or qualification. Unless otherwise specified in the related Supplement, until
such time as such Series of Investor Certificates shall be registered pursuant
to a registration statement filed under the Securities Act, such Series of
Investor Certificates shall bear a legend to the effect set forth in the
preceding sentence. Unless otherwise specified in the related Supplement, in the
event that registration of a transfer is to be made in reliance upon an
exemption of the transfer from the Securities Act, the Trustee shall require, in
order to assure compliance with the Securities Act and the Investment Company
Act of 1940, as amended, the transferee to deliver to the Trustee and the
Transferor an Opinion of Counsel reasonably satisfactory to the Transferor and
the Trustee that such transfer may be made pursuant to an exemption from the
Securities Act and applicable state securities laws and would not subject the
Trust to the registration requirements of the Investment Company Act of 1940, as
amended. Any such Opinion of Counsel shall be obtained at the expense of the
prospective transferor or transferee, and not at the expense of the Trustee or
the Transferor, and shall be delivered to the Trustee and the Transferor prior
to or contemporaneously with any such transfer. Neither the Transferor nor the
Trustee shall be obligated to register any Series of Investor Certificates under
any state securities laws or under the Securities Act or to take any other
action not otherwise required under this Agreement to permit the transfer of
such Series without registration.
Notwithstanding anything to the contrary contained herein, in no event
shall an Investor Certificate of any Series be transferred to a Benefit Plan,
unless permitted pursuant to the related Supplement. Each Holder of an Investor
Certificate of any such Series, by its acceptance thereof, represents and
warrants that it is not a Benefit Plan and is not acquiring or holding its
Investor Certificates by, with or on behalf of plan assets of any Benefit Plan,
unless permitted pursuant to the related Supplement. By acquiring any interest
in an Investor Certificate, the applicable Certificate Owner or Owners shall be
deemed to have represented and warranted that it or they are not Benefit Plans
and are not acquiring such interest by, with or on behalf of plan assets of any
Benefit Plan, unless permitted pursuant to the related Supplement.
In connection with any transfer of an Investor Certificate, unless
otherwise specified in the related Supplement, each transferee shall execute and
deliver to the Trustee a representation letter substantially in the form of
Exhibit 6.03(d).
- ---------------
Section 6.04 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
-------------------------------------------------
mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the
Transfer Agent and Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any such Certificate and (b) there is delivered to
the Transfer Agent and Registrar, the Trustee and the Transferor such security
or indemnity as may be required by them to save each of them harmless,
35
<PAGE>
then, in the absence of notice to the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Transferor shall execute and the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and aggregate Undivided Interest, if applicable. In connection with the
issuance of any new Certificate under this Section 6.04, the Trustee or the
------------
Transfer Agent and Registrar may require the payment by the Certificateholder of
a sum sufficient to cover any tax or other expenses (including the fees and
expenses of the Trustee and Transfer Agent and Registrar) connected therewith.
Any duplicate Certificate issued pursuant to this Section 6.04 shall constitute
------------
complete and indefeasible evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
Section 6.05 Persons Deemed Owners. Prior to due presentation of a
---------------------
Certificate for registration of transfer, the Trustee, the Paying Agent, the
Transfer Agent and Registrar and any agent of any of them may treat the Person
in whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for all
------------
other purposes whatsoever, and neither the Trustee, the Paying Agent, the
Transfer Agent and Registrar nor any agent of any of them shall be affected by
any notice to the contrary; provided, however, that in determining whether the
-------- -------
holders of the requisite Undivided Interests have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by the Transferor, the Servicer or any Affiliate thereof, shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates which a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Certificates so owned which have been pledged in good faith shall not be
disregarded and may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Transferor, the Servicer or an
affiliate (as defined above) thereof.
Section 6.06 Appointment of Paying Agent. The Paying Agent shall be the
---------------------------
Trustee or shall (i) have a rating by Moody's of at least P-1 or satisfy the
Rating Agency Condition and (ii) have a rating by Standard & Poor's of at least
A-1 or satisfy the Rating Agency Condition and (iii) be approved by the
Servicer, and shall be a depositary institution organized under the laws of the
United States or any one of the states thereof, including the District of
Columbia. The Paying Agent shall make distributions to Certificateholders from
the Collection Account and Series Accounts as contemplated by Section 5.01. Any
------------
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions referred to above.
The Trustee may revoke such power and remove any Paying Agent if the Trustee
determines in its sole discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement in any material respect. The Paying
Agent shall initially be the Trustee. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Trustee, the Servicer
and the Transferor; provided, however, that such resignation shall not be
-------- -------
effective and the Paying Agent shall continue to perform its duties until the
Trustee has appointed, and such appointment has been accepted by, a successor
Paying Agent. The Trustee
36
<PAGE>
shall cause the resigning Paying Agent and each successor Paying Agent to
execute and deliver to the Trustee an instrument in which such resigning or
successor Paying Agent or additional Paying Agent shall agree with the Trustee
that, as Paying Agent, such resigning or successor Paying Agent or additional
Paying Agent will hold all sums, if any, held by it for payment to the
Certificateholders in trust for the benefit of the Certificate holders entitled
thereto until such sums shall be paid to such Certificateholders. The Paying
Agent shall return all unclaimed funds to the Trustee and upon removal shall
also return all funds in its possession to the Trustee. The provisions of
Sections 11.01, 11.02 and 11.03 shall apply to the Paying Agent in its role as
- -------------- ----- -----
Paying Agent.
Section 6.07 Access to List of Certificateholders' Names and Addresses. The
---------------------------------------------------------
Trustee shall furnish or instruct the Transfer Agent and Registrar to furnish to
the Servicer or the Paying Agent, within five Business Days after receipt by the
Trustee of a request therefor from the Servicer or the Paying Agent,
respectively, in writing, a list in such form as the Servicer or the Paying
Agent may reasonably require, of the names and addresses of the
Certificateholders. If Holders of Investor Certificates of any Series or Holders
representing Undivided Interests in the Trust aggregating not less than 5% of
the Invested Amount of the Investor Certificates of any Series (the
"Applicants") apply in writing to the Trustee, and such application states that
----------
the Applicants desire to communicate with other Investor Certificateholders of
any Series with respect to their rights under this Agreement or under the
Investor Certificates and is accompanied by a copy of the communication which
such Applicants propose to transmit, then the Trustee, after having been
indemnified to its reasonable satisfaction by such Applicants for its costs and
expenses, shall afford or shall instruct the Transfer Agent and Registrar to
afford such Applicants access during normal business hours to the most recent
list of Certificateholders held by the Trustee, within five Business Days after
the receipt of such application. Such list shall be as of a date no more than 30
days prior to the date of receipt of such Applicants' request. Every
Certificateholder agrees with the Trustee that neither the Trustee, the Transfer
Agent and Registrar, nor any of their respective agents shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Certificateholders hereunder, regardless of the sources
from which such information was derived.
Section 6.08 Authenticating Agent.
--------------------
(a) The Trustee may appoint one or more authenticating agents with respect
to the Certificates which shall be authorized to act on behalf of the Trustee in
authenticating the Certificates in connection with the issuance, delivery,
registration of transfer, exchange or repayment of the Certificates. Whenever
reference is made in this Agreement to the authentication of Certificates by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication on behalf of the Trustee by an authenticating
agent and a certificate of authentication executed on behalf of the Trustee by
an authenticating agent. Each authenticating agent must be acceptable to the
Transferor.
37
<PAGE>
(b) Any institution succeeding to all or substantially all of the
corporate agency business of an authenticating agent shall continue to be an
authenticating agent without the execution or filing of any paper or any further
act on the part of the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Transferor. The Trustee may at
any time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to the Transferor. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
an authenticating agent shall cease to be acceptable to the Trustee or the
Transferor, the Trustee promptly may appoint a successor authenticating agent.
Any successor authenticating agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an authenticating agent.
No successor authenticating agent shall be appointed unless acceptable to the
Trustee and the Transferor.
(d) The Servicer agrees to pay, on behalf of the Trust, to each
authenticating agent from time to time reasonable compensation for its services
under this Section 6.08.
------------
(e) The provisions of Sections 11.01, 11.02 and 11.03 shall be applicable
-------------- ----- -----
to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.08, the
------------
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Certificates referred to in the Pooling and Servicing
Agreement.
--------------------------
as Authenticating Agent
for the Trustee,
by
--------------------------
Authorized Signatory
Section 6.09 New Issuances. (a) The Transferor may from time to time direct
-------------
the Trustee, on behalf of the Trust, to issue one or more new Series of Investor
Certificates pursuant to one or more Supplements. The Investor Certificates of
all outstanding Series shall be equally and ratably entitled as provided herein
to the benefits of this Agreement without preference, priority or distinction,
all in accordance with the terms and provisions of this Agreement and the
38
<PAGE>
applicable Supplement except, with respect to any Series or Class, as provided
in the related Supplement.
(b) On or before the Series Issuance Date relating to any new Series, the
parties hereto will execute and deliver a Supplement which will specify the
Principal Terms of such new Series. The terms of such Supplement may modify or
amend the terms of this Agreement solely as applied to such new Series. The
obligation of the Trustee to issue the Investor Certificates of such new Series
and to execute and deliver the related Supplement is subject to the satisfaction
of the following conditions:
(i) on or before the fifth Business Day immediately preceding the
Series Issuance Date, the Transferor shall have given the Trustee, the
Servicer, each Rating Agency and each Enhancement Provider written notice
of such issuance and the Series Issuance Date (the "Issuance Notice");
---------------
(ii) the Transferor shall have delivered to the Trustee the related
Supplement, in form reasonably satisfactory to the Trustee, executed by
each party hereto other than the Trustee;
(iii) the Transferor shall have delivered to the Trustee the form of
any Enhancement relating to such Series, if any, and any related
Enhancement Agreement executed by each of the parties thereto, other than
the Trustee;
(iv) if any of the Certificates are then rated, the Rating Agency
Condition shall have been satisfied with respect to such issuance;
(v) such issuance will not result in the occurrence of an Early
Amortization Event and the Transferor shall have delivered to the Trustee
and any Enhancement Provider a certificate of a Vice President or more
senior officer, dated the Series Issuance Date, to the effect that the
Transferor reasonably believes that such issuance will not result in the
occurrence of an Early Amortization Event and is not reasonably expected to
result in the occurrence of an Early Amortization Event at any time in the
future;
(vi) the Transferor shall have delivered to the Trustee a Tax
Opinion, an enforceability opinion, a security interest opinion and a true
sale/substantive consolidation opinion, each dated the Series Issuance
Date, with respect to such issuance; and
(vii) the Aggregate Eligible Unpaid Balance shall not be less than the
Aggregate Target Receivables Amount, in each case as of the Series Issuance
Date and after giving effect to such issuance.
39
<PAGE>
Upon satisfaction of the above conditions, the Trustee shall execute the
Supplement and issue to the Transferor the Investor Certificates of such Series
for execution and redelivery to the Trustee for authentication. Without limiting
the generality of the foregoing, the Trustee will hold any Enhancement provided
pursuant to any Supplement only on behalf of each Series (or related Class) to
which such Enhancement relates.
Section 6.10 Book-Entry Certificates. If and to the extent provided in any
-----------------------
Supplement, the Investor Certificates of any Series, upon original issuance,
will be issued in the form of one or more typewritten Certificates representing
the Book-Entry Certificates, to be delivered to The Depository Trust Company,
the initial Clearing Agency, by, or on behalf of, the Transferor. The Investor
Certificates of such Series represented by Book-Entry Certificates shall
initially be registered on the Certificate Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Certificate Owner with
respect to such Book-Entry Certificates will receive a Definitive Certificate
representing such Certificate Owner's interest in the Investor Certificates,
except as provided in Section 6.12. Unless and until certificated, fully
------------
registered Investor Certificates (the "Definitive Certificates") have been
-----------------------
issued to Certificate Owners pursuant to Section 6.12:
------------
(i) the provision of this Section 6.10 shall be in full force and
------------
effect;
(ii) the Transferor, the Servicer, the Paying Agent, the Transfer
Agent and Registrar and the Trustee may deal with the Clearing Agency and
the Clearing Agency Participants for all purposes (including the making of
distributions on the Investor Certificates) as the authorized
representatives of the Certificate Owners;
(iii) to the extent that the provisions of this Section 6.10 conflict
------------
with any other provisions of this Agreement, the provisions of this Section
-------
6.10 shall control; and
----
(iv) the rights of Certificate Owners shall be exercised only through
the Clearing Agency and the Clearing Agency Participants and shall be
limited to those established by law and agreements between such Certificate
Owners and the Clearing Agency and/or the Clearing Agency Participants.
Unless and until Definitive Certificates are issued pursuant to Section
-------
6.12, the initial Clearing Agency will make book-entry transfers among the
----
Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Investor Certificates to such Clearing Agency
Participants.
Section 6.11 Notices to Clearing Agency. Whenever notice or other
--------------------------
communication to the Investor Certificateholders of any Series delivered as
provided in Section 6.10 is required under this Agreement, unless and until
------------
Definitive Certificates shall have been issued to Certificate Owners pursuant to
Section 6.12, the Trustee, the Servicer and the Paying Agent shall give all such
- ------------
notices and communications specified herein to be given to applicable Holders of
the Investor Certificates of such Series to the Clearing Agency.
40
<PAGE>
Section 6.12 Definitive Certificates. If (i)(A) the Transferor advises the
-----------------------
Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Book-Entry
Certificates, and (B) the Trustee or the Transferor is unable to locate a
qualified successor, (ii) the Transferor, at its option, advises the Trustee in
writing that, with respect to any Series, it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence of a Servicer
Default, Certificate Owners representing beneficial interests aggregating more
than 50% of the Invested Amount of each affected Series then issued and
outstanding represented by Book-Entry Certificates advise (x) the Trustee and
(y) the Clearing Agency through the Clearing Agency Participants in writing that
the continuation of a book-entry system through the Clearing Agency is no longer
in the best interests of the Certificate Owners of such Series, then the Trustee
shall notify the Clearing Agency, and shall request the Clearing Agency to
notify all Certificate Owners, of the availability through the Trustee of
Definitive Certificates of such Series to Certificate Owners of such Series
requesting the same. Upon surrender to the Trustee of Investor Certificates of
such Series represented by Book-Entry Certificates by the Clearing Agency
accompanied by registration instructions from such Clearing Agency for
registration, the Trustee shall authenticate and deliver Definitive Certificates
of such Series in respect of such Book-Entry Certificates. Neither the
Transferor, the Transfer Agent and Registrar nor the Trustee shall be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Certificates of any Series, all references herein to obligations with
respect to such Series imposed upon or to be performed by the Clearing Agency
shall be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Certificates, and the Trustee shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
Section 6.13 Letter of Representations. Notwithstanding anything to the
-------------------------
contrary in this Agreement or any Supplement, the parties hereto shall comply
with the terms of each Letter of Representations.
ARTICLE VII
OTHER MATTERS RELATING
TO THE TRANSFEROR
Section 7.01 Liability of the Transferor. The Transferor shall be liable
---------------------------
for each obligation, covenant, representation and warranty of the Transferor
arising under or related to this Agreement or any Supplement and shall be liable
only to such extent.
41
<PAGE>
Section 7.02 Merger or Consolidation of, or Assumption of the Obligations
------------------------------------------------------------
of, the Transferor.
- ------------------
42
<PAGE>
(a) The Transferor shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person unless:
(i) the corporation formed by such consolidation or into which the
Transferor is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Transferor substantially as an entirety
shall be, if the Transferor is not the surviving entity, organized and
existing under the laws of the United States of America or any state or the
District of Columbia, and, if the Transferor is not the surviving entity,
shall expressly assume, by an agreement supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the
performance of every covenant and obligation of the Transferor hereunder;
(ii) the Transferor shall have delivered to the Trustee and each
Enhancement Provider an Officer's Certificate of the Transferor and an
Opinion of Counsel, each stating that such consolidation, merger,
conveyance or transfer complies with this Section 7.02 and that all
------------
conditions precedent herein provided for relating to such transaction have
been complied with;
(iii) if any of the Certificates are then rated, the Rating Agency
Condition shall have been satisfied with respect to such action; and
(iv) each Control Party shall have consented to such action.
(b) The obligations of the Transferor hereunder shall not be assignable
nor shall any Person succeed to the obligations of the Transferor hereunder
except in each case in accordance with the provisions of Section 7.02(a).
---------------
Section 7.03 Limitation on Liability of the Transferor. The Transferor and
-----------------------------------------
any director or officer or employee or agent of the Transferor may rely in good
faith on any document of any kind prima facie properly executed and submitted by
----- -----
any Person respecting any matters arising hereunder. Each of the Trustee and the
Servicer agrees that the obligations of the Transferor to the Trustee, the
Servicer, the Certificateholders and the Trust hereunder, including the
obligation of the Transferor in respect of indemnities pursuant hereto, shall be
payable solely from the Trust Assets in accordance with the provisions of this
Agreement and any Supplement and that the Trustee, the Servicer, the
Certificateholders and the Trust shall not look to any other property or assets
of the Transferor in respect of such obligations and that such obligations shall
not constitute a claim against the Transferor in the event that the Transferor's
assets are insufficient to pay in full such obligations.
43
<PAGE>
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.01 Liability of the Servicer. The Servicer shall be liable under
-------------------------
this Agreement only to the extent of the obligations specifically undertaken by
the Servicer in its capacity as Servicer.
Section 8.02 Merger or Consolidation of, or Assumption of the Obligations
------------------------------------------------------------
of, the Servicer.
- ----------------
(a) The Servicer shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Servicer substantially as an entirety
shall be a corporation organized and existing under the laws of the United
States of America or any State or the District of Columbia, and, if the
Servicer is not the surviving entity, such corporation shall qualify as an
Eligible Servicer and shall expressly assume, by an agreement supplemental
hereto executed and delivered to the Trustee in a form satisfactory to the
Trustee, the performance of every covenant and obligation of the Servicer
hereunder; and
(ii) the Servicer has delivered to the Trustee an Officer's
Certificate of the Servicer stating that such consolidation, merger,
conveyance or transfer complies with this Section 8.02 and that all
------------
conditions precedent herein provided for relating to such transaction have
been complied with and an Opinion of Counsel with respect to the
enforceability of the assumption agreement referred to above. The Servicer
shall promptly notify each Rating Agency following the occurrence of any
transaction covered by this Section 8.02.
------------
(b) Change in Control Notice. The Servicer shall provide the Trustee and
------------------------
the Agent pursuant to any Series Supplement with 30 days written notice prior to
Safeguard Scientifics, Inc. ceasing to own voting securities of Servicer
entitled to cast at least 25% of the total votes entitled to be cast by the
Servicer's equity holders.
Section 8.03 Limitation on Liability of the Servicer and Others. The
--------------------------------------------------
Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on any document of any kind prima facie properly executed and
----- -----
submitted by any Person respecting any matters arising hereunder. The Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Receivables in
accordance with this Agreement or any Supplement. The Servicer may undertake any
legal
44
<PAGE>
action which it may deem necessary or desirable for the benefit of
Certificateholders with respect to this Agreement and any Supplement and the
rights and duties of the parties hereto and thereto and the interest of the
Certificateholders hereunder and thereunder.
Section 8.04 Servicer Indemnification of the Trust and the Trustee. The
-----------------------------------------------------
Servicer shall indemnify and hold harmless the Trustee (and its respective
directors, officers, employees and agents) and the Trust, for the benefit of the
Certificateholders and the Enhancement Providers, from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any acts
or omissions of the Servicer pursuant to this Agreement or any Supplement,
including any judgment, award, settlement, reasonable attorneys' fees and other
costs or expenses incurred in connection with the defense of any actual action,
proceeding or claim; provided, however, that the Servicer shall not indemnify
-------- -------
the Trustee or the Trust if such acts or omissions were attributable to fraud,
gross negligence, breach of fiduciary duty or willful misconduct by the Trustee;
and provided, further, that the Servicer shall not indemnify the Trust or the
-------- -------
Investor Certificateholders (x) for any liabilities, costs or expenses of the
Trust with respect to any action taken by the Trustee at the request of any
Investor Certificateholder or (y) with respect to any federal, state or local
income or franchise taxes or any other taxes imposed on or measured by income
(or any interest or penalties or additions with respect thereto) required to be
paid by the Trust or the Investor Certificateholders in connection herewith to
any taxing authority, or (z) with respect to any liabilities, losses, costs or
expenses incurred by any Certificateholder in the Investor Certificates of any
Series as a result of defaults or other losses with respect to the Receivables
as a result of the creditworthiness of the Obligors. Subject to Sections 8.01
-------------
and 10.02(b), any indemnification pursuant to this Section shall be had only
--------
from the assets of the Servicer. The provisions of such indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof. The provisions of this Section shall survive the resignation or removal
of the Trustee and the termination of the Trust.
Section 8.05 The Servicer Not to Resign. The Servicer shall not resign from
--------------------------
the obligations and duties hereby imposed on it except upon determination that
(i) the performance of its duties hereunder is no longer permissible under
applicable law, regulation or order and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties hereunder
permissible under applicable law, regulation or order. Any such determination
permitting the resignation of the Servicer shall be evidenced as to clause (i)
----------
above by an Opinion of Counsel to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a Successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 10.02 hereof; provided, that if within one hundred
------------- --------
twenty (120) days of the date that the Servicer notifies the Trustee of its
resignation in accordance with this Section 8.05 the Trustee does not receive
------------
any bids from Eligible Servicers in accordance with Section 10.02(c) to act as
----------------
Successor Servicer, then the Trustee shall automatically be appointed Successor
Servicer in accordance with Section 10.02.
-------------
Section 8.06 Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Receivables. The Servicer shall provide to the Trustee and its representatives
- -----------
access to the
45
<PAGE>
documents, books, computer records and other information regarding the
Receivables and the other Trust Assets, such access being afforded without
charge but only (i) upon reasonable request (it being understood that if a
Servicer Default has occurred and is continuing, no advance notice shall be
required), (ii) during normal business hours, (iii) subject to the Servicer's
normal security and confidentiality procedures and (iv) at the offices of the
Servicer in Dallas, Texas. Nothing in this Section 8.06 shall derogate from the
------------
obligation of the Transferor, the Trustee or the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors and
the failure of the Servicer to provide access as provided in this Section 8.06
------------
as a result of such obligation shall not constitute a breach of this Section
-------
8.06.
- ----
Section 8.07 Delegation of Duties. In the ordinary course of business, the
--------------------
Servicer may at any time delegate any duties hereunder to any Person who agrees
to conduct such duties in accordance with the Credit and Collection Policy and
this Agreement or any Supplement. Any delegation shall not relieve the Servicer
of its liability and responsibility with respect to such duties and shall not
constitute a resignation within the meaning of Section 8.05 hereof.
------------
Section 8.08 Examination of Records. The Transferor and the Servicer shall,
----------------------
prior to the sale or transfer to a third party of any receivable, contract or
invoice held in its custody, examine its computer and other records to determine
that such receivable, contract or invoice is not part of the Trust Assets.
Section 8.09 Successor Servicer Indemnification of Transferor. In the event
------------------------------------------------
of a Service Transfer, the Successor Servicer will indemnify and hold harmless
the Transferor for any losses, claims, damages and liabilities of the Transferor
arising from the fraud, negligence, breach of fiduciary duty or willful
misconduct of such Successor Servicer.
ARTICLE IX
EARLY AMORTIZATION EVENTS
Section 9.01 Early Amortization Events with Respect to Any Series. If any
----------------------------------------------------
one of the following events shall occur at such time as there shall be at least
one outstanding Investor Certificate:
(i) failure on the part of the Seller, the Transferor, the Trust or
the Servicer to make any payment or deposit required by the terms of this
Agreement, any Supplement or the Receivables Contribution and Sale
Agreement on or before two Business Days after the date such payment or
deposit is required to be made herein or therein (after giving effect to
any other grace periods specified herein or therein);
(ii) failure on the part of the Transferor or the Seller,
respectively, duly to observe or perform in any material respect any other
covenants or agreements of the
46
<PAGE>
Transferor or the Seller, as the case may be, set forth in this Agreement,
any Supplement, the Receivables Contribution and Sale Agreement or any
other Transaction Document, which continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Transferor, the Seller
(if applicable) and the Trustee by any Control Party; provided, however,
-------- -------
that an Early Amortization Event pursuant to this Section 9.01(ii) shall
----------------
not be deemed to have occurred hereunder with respect to any Series if the
Transferor has accepted the transfer of the related Receivable, or all of
such Receivables, if applicable, in accordance with Section 2.04(c) during
---------------
such 30-day period (or such longer period as each Control Party may
specify, not to exceed an additional 30 days) in accordance with the
provisions hereof;
(iii) any representation or warranty made by the Transferor in this
Agreement or any Supplement (or the Seller in the Receivables Contribution
and Sale Agreement) or any information required to be delivered by the
Transferor (or the Seller, if applicable) to the Trustee shall prove to
have been incorrect in any material respect when made, and which continues
to be incorrect in any material respect for a period of 30 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor (or the Seller, if
applicable) and the Trustee by any Control Party; provided, however, that
-------- -------
an Early Amortization Event pursuant to this Section 9.01(iii) shall be
-----------------
deemed not to have occurred hereunder if the Transferor has accepted the
transfer of the related Receivable, or all of such Receivables, if
applicable, in accordance with Section 2.04(c) during such 30-day period
---------------
(or such longer period as each Control Party may specify, not to exceed an
additional 30 days) in accordance with the provisions hereof;
(iv) (a) the Seller or the Transferor voluntarily seeks, consents to
or acquiesces in the benefit or benefits of any Debtor Relief Law or
becomes a party to (or is made the subject of) any proceeding provided for
by any Debtor Relief Law, other than as creditor or claimant, and in the
event such proceeding is involuntary, the petition instituting the same is
not dismissed within 60 days of its filing; or (b) the Transferor shall
become unable for any reason to transfer Receivables to the Trust in
accordance with the provisions of this Agreement, or (c) the Seller shall
become unable for any reason to sell Receivables to the Transferor in
accordance with the provisions of the Receivables Contribution and Sale
Agreement, or (d) the Seller shall elect to no longer sell Receivables to
the Transferor pursuant to the Receivables Contribution and Sale Agreement
by delivery to the Trustee of a notice to that effect, such notice to take
effect on the Business Day after the day of receipt by the Trustee;
(v) the Trust or the Transferor shall be required to register as an
"investment company" within the meaning of the Investment Company Act of
1940, as amended;
47
<PAGE>
(vi) this Agreement, any Supplement or the Receivables Contribution
and Sale Agreement shall cease to be in full force and effect except in
accordance with the terms thereof;
(vii) the security interest of the Trustee in the Trust Assets shall
cease to be effective or shall cease to be a first priority perfected
security interest; or
(viii) the occurrence of a Servicer Default;
then,
(a) in the case of any event described in any of subparagraphs (i), (ii),
----------------- ----
(iii) or (viii), after the expiration of any applicable grace period set forth
- ----- ------
in such subparagraphs, any Control Party by notice then given in writing to the
Transferor, the Trustee and the Servicer may declare that an Early Amortization
Event has occurred with respect to the particular Series for which such Person
is the Control Party as of the date of such notice, and
(b) in the case of any event described in any of subparagraphs (iv), (v),
------------------ ---
(vi) or (vii) an Early Amortization Event with respect to all Series shall occur
- ---- -----
without any notice or other action on the part of any Control Party immediately
upon the occurrence of such event.
Section 9.02 Additional Rights Upon the Occurrence of Certain Events.
-------------------------------------------------------
(a) If the Seller or the Transferor voluntarily or involuntarily (i)
seeks, consents to or acquiesces in the benefit or benefits of any Debtor Relief
Law or becomes a party to (or is made the subject of) any proceeding provided
for by any Debtor Relief Law, other than as a creditor or claimant, or (ii) goes
into liquidation or any other Person shall be appointed as a bankruptcy trustee
or receiver or conservator of the Seller or the Transferor, on the day of any
event described in clause (i) or clause (ii) of this Section 9.02(a) (the
---------- ----------- ---------------
"Appointment Date") (x) if such event relates to the Seller, the Seller will
----------------
immediately cease to sell or contribute Receivables to the Transferor or the
Trust under the Receivables Contribution and Sale Agreement, and promptly give
notice to the Trustee of such appointment; (y) if such event relates to the
Seller or the Transferor, the Transferor shall immediately cease to transfer
Receivables to the Trust and shall promptly give notice to the Trustee of such
event; and (z) notwithstanding any other provision of this Agreement, if such
event relates to the Transferor, this Agreement and the Trust shall terminate
and the Receivables shall be liquidated as provided herein unless the requisite
Investor Certificateholders (and, if applicable, each Enhancement Provider)
shall give the Trustee the instructions described below.
Notwithstanding any cessation of the transfer to the Trust of additional
Receivables, Receivables transferred to the Trust prior to the occurrence of
such event and Collections in respect of such Receivables whenever created,
accrued in respect of such Receivables, shall continue to be a part of the
Trust. Within 15 days of the day on which a Responsible Officer of
48
<PAGE>
the Trustee first receives written notice of the occurrence of the Appointment
Date with respect to the Transferor, the Trustee shall send written notice to
the Investor Certificateholders of all Series and to each Enhancement Provider
describing the provisions of this Section 9.02. Unless within 75 days from the
------------
day written notice pursuant to the preceding sentence is sent by the Trustee the
Trustee shall have received (i) written instructions of Investor
Certificateholders representing Undivided Interests aggregating more than 50% of
the Invested Amount of each Series (or if any Series has more than one Class, of
each Class of such Series) and, if any Control Party is an Enhancement Provider,
written instructions from such Enhancement Provider, in each case to the effect
that the Person(s) giving such notice disapprove of the sale, disposition or
liquidation of the Receivables, or (ii) an Opinion of Counsel addressed to the
Trustee to the effect that any such sale, disposition or liquidation is
prohibited by law, the Trustee shall proceed after such 75 days to sell, dispose
of, or otherwise liquidate the Receivables in a commercially reasonable manner
and, to the best of its ability, on commercially reasonable terms, which shall
include the solicitation of competitive bids. In the event that the Trustee
shall have been instructed pursuant to the preceding sentence not to sell,
dispose or liquidate any portion of the Receivables allocable to such Series,
then the Trust shall continue to receive Receivables in respect of such Series
pursuant to the terms of this Agreement and the related Supplements. The Trustee
may obtain, and shall be fully protected in relying on, a prior determination
from such bankruptcy trustee or receiver or conservator that the terms and
manner of any proposed sale, disposition or liquidation hereunder are
commercially reasonable. The provisions of Sections 9.01 and 9.02 shall not be
------------- ----
deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the
Receivables pursuant to subsection (a) above, net of all reasonable expenses
--------------
incurred by the Trustee in connection with such sale, disposition or
liquidation, which shall be paid to the Trustee from such proceeds, shall be
treated as Collections of the Receivables and shall be allocated in accordance
with the provisions of Section 4.03 and the applicable Supplements.
------------
Notwithstanding anything in this Agreement to the contrary, this Section
-------
9.02 shall not limit the obligations of any Enhancement Provider to make
- ----
payments in respect of the applicable Series in a timely manner and, to the
extent required, in accordance with the applicable Enhancement Agreement.
ARTICLE X
SERVICER DEFAULTS
Section 10.01 Servicer Defaults. If any one of the following events (a
-----------------
"Servicer Default") shall occur and be continuing:
----------------
(a) failure by the Servicer to make any payment, transfer or deposit or to
give instructions or to give notice to the Trustee to make such payment,
transfer or deposit on or
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before the date occurring five days after the date such payment, transfer or
deposit or such instruction or notice is required to be made or given, as the
case may be, under the terms of this Agreement or any Supplement;
(b) failure on the part of the Servicer duly to observe or perform any
covenants or agreements of the Servicer set forth in this Agreement or any
Supplement which failure continues unremedied for a period of 30 days after (x)
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by any Control Party or (y) the
date on which the Servicer has actual knowledge of such failure;
(c) any representation, warranty or certification made by the Servicer in
this Agreement, any Supplement or in any certificate delivered pursuant to this
Agreement or any Supplement shall prove to have been incorrect when made in any
material respect which inaccuracy continues unremedied for a period of 30 days
after (x) the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by any Control Party or
(y) the date on which the Servicer has actual knowledge of such failure; or
(d) the Servicer shall voluntarily seek, consent to or acquiesce in the
benefit or benefits of any Debtor Relief Law or becomes a party to (or be made
the subject of) any proceeding provided for under any Debtor Relief Law, other
than as creditor or claimant, and in the event such proceeding is involuntary,
the petition instituting same is not dismissed within 60 days of its filing; or
the Servicer shall assign its duties under this Agreement, except as permitted
by this Agreement;
then, in the event of any Servicer Default, so long as the Servicer Default
shall not have been remedied, the Requisite Holders by notice then given in
writing to the Servicer and the Transferor (with a copy thereof to each Rating
Agency) and to the Trustee (a "Termination Notice"), may terminate all of the
------------------
rights and obligations of the Servicer as Servicer under this Agreement and in
and to the Receivables and the proceeds thereof.
After receipt by the Servicer of a Termination Notice, and on the date that
a Successor Servicer shall have been appointed pursuant to Section 10.02:
-------------
(x) all authority and power of the Servicer under this Agreement and each
Supplement shall pass to and be vested in a Successor Servicer (a "Service
-------
Transfer"); and, without limiting the generality of the foregoing, the Trustee
- --------
is hereby authorized and empowered (upon the failure of the Servicer to
cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-
fact or otherwise, all documents and other instruments upon the failure of the
Servicer to execute or deliver such documents or instruments, and to do and
accomplish all other acts or things necessary or appropriate to effect the
purposes of such Service Transfer; and
(y) the Servicer agrees to cooperate with the Trustee, the Transferor and
such Successor Servicer in effecting the termination of the responsibilities and
rights of the Servicer to conduct
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servicing hereunder, including the transfer to such Successor Servicer of all
authority of the Servicer to service the Receivables and the Related Property
provided for under this Agreement, including all authority over all Collections
which shall on the date of transfer be held by the Servicer for deposit, or
which have been deposited by the Servicer in the Collection Account, or which
shall thereafter be received with respect to the Receivables and the Related
Property, and in assisting the Successor Servicer; and without limiting the
generality of the foregoing, the Servicer shall assist and cooperate with the
Successor Servicer in transferring all material and data (other than software)
used by the Servicer and necessary to service the Receivables effectively in
accordance with the terms of this Agreement.
The Servicer, at its expense, will license to the Trustee all computer
software used by the Servicer and necessary to service the Receivables
effectively in accordance with the terms of this Agreement, to the extent
permitted by the underlying agreements if such software is licensed from an
unrelated third party, provided that such license shall not take effect unless a
--------
Servicer Default has occurred and is continuing. The Servicer shall use its best
efforts, so long as a Servicer Default shall have occurred and be continuing, to
obtain sublicenses of all third-party computer software used by the Servicer and
necessary to service the Receivables effectively in accordance with the terms of
this Agreement.
To the extent that compliance with this Section 10.01 shall require the
-------------
Servicer to disclose to the Successor Servicer or the Trustee information of any
kind which the Servicer reasonably deems to be confidential, the Successor
Servicer and the Trustee shall enter into such customary licensing and
confidentiality agreements as the Servicer shall reasonably deem necessary to
protect its interest.
The Servicer shall immediately notify the Trustee in writing of any
Servicer Default. In connection with any Service Transfer, all Transition Costs
and reasonable costs and expenses (including attorneys' fees) incurred in
connection with amending this Agreement to reflect such succession as Successor
Servicer pursuant to this Section 10.01 and Section 10.02 shall be paid by the
------------- -------------
Servicer upon presentation of reasonable documentation of such costs and
expenses. To the extent not promptly paid by the Servicer, such Transition Costs
shall be paid in accordance with Section 4.03(a)(ii).
-------------------
Section 10.02 Trustee to Act; Appointment of Successor Servicer.
-------------------------------------------------
(a) On and after the receipt by the Servicer of a Termination Notice
pursuant to Section 10.01, the Servicer shall continue to perform all servicing
-------------
functions under this Agreement and any Supplement until the date specified in
the Termination Notice or as otherwise specified by the Trustee in writing or,
if no such date is specified in such Termination Notice, or as otherwise
specified by the Trustee, until a date mutually agreed upon by the Servicer and
Trustee. After the giving of a Termination Notice, the Trustee shall as promptly
as possible appoint an Eligible Servicer satisfactory to each Control Party as a
successor servicer (the "Successor Servicer"), provided that (i) if any of the
------------------ --------
Certificates are then rated, the Rating
51
<PAGE>
Agency Condition shall have occurred with respect to such appointment and (ii)
such Successor Servicer shall have accepted its appointment by a written
assumption and agreement to perform all of the duties, obligations and
liabilities of the Servicer hereunder in a form acceptable to the Trustee. In
the event that a Successor Servicer has not been appointed or has not accepted
its appointment at the time when the Servicer ceases to act as Servicer, or upon
the occurrence of the events specified in Section 8.05, the Trustee without
------------
further action shall automatically be appointed the Successor Servicer. The
Trustee may delegate any of its servicing obligations to an Affiliate. The
Trustee may employ subservicers with respect to its servicing obligations
provided that the Trustee shall remain responsible for its obligations as
Successor Servicer. Notwithstanding the foregoing, the Trustee shall, if it is
legally unable to act as Successor Servicer or desires that a Person other than
itself be appointed as Successor Servicer pursuant to this Section 10.02(a),
----------------
petition a court of competent jurisdiction to appoint as Successor Servicer an
Eligible Servicer. The Trustee shall promptly give notice to each Rating Agency
and each Enhancement Provider of the appointment of a Successor Servicer upon
such appointment.
(b) Upon its appointment, the Successor Servicer shall be the successor in
all respects to the Servicer with respect to servicing functions under this
Agreement and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof, and all references in this Agreement and any Supplement to the Servicer
shall be deemed to refer to the Successor Servicer except for the references in
Sections 3.03 (to the extent provided therein), 8.04 and 11.05 which shall
- ------------- ---- -----
continue to refer to CompuCom.
(c) Prior to any Service Transfer, the Trustee will seek to obtain bids
from Eligible Servicers and shall be permitted to appoint any Eligible Servicer
satisfactory to each Control Party submitting such a bid as a Successor Servicer
for servicing compensation not in excess of the Servicing Fee permitted for a
Successor Servicer pursuant to Section 3.02. In the event that the Trustee fails
------------
to obtain a satisfactory bid from an Eligible Servicer, then the Transferor
shall have the option, in accordance with and upon satisfaction of the terms of
Section 12.02(a), to purchase each Series of Investor Certificates.
- ----------------
(d) All authority and power granted to the Successor Servicer under this
Agreement shall automatically cease and terminate upon termination of the Trust
pursuant to Section 12.01, and shall pass to and be vested in the Transferor
-------------
and, without limiting the generality of the foregoing, the Transferor is hereby
authorized and empowered to execute and deliver, on behalf of the Successor
Servicer, as attorney-in-fact or otherwise, all documents and other instruments,
and to do and accomplish all other acts or things necessary or appropriate to
effect the purposes of such transfer of servicing rights. The Successor Servicer
agrees to cooperate with the Transferor in effecting the termination of the
responsibilities and rights of the Successor Servicer to conduct servicing of
the Receivables and the Related Property, including all authority over
Collections then held by the Successor Servicer or which shall thereafter be
received by the Successor Servicer. The Successor Servicer shall promptly
transfer its electronic records relating to the Receivables to the Transferor in
such electronic form as the Transferor may reasonably request and shall promptly
transfer all other records, correspondence and documents to the
52
<PAGE>
Transferor in the manner and at such times as the Transferor shall reasonably
request. To the extent that compliance with this Section 10.02 shall require the
-------------
Successor Servicer to disclose to the Transferor information of any kind which
the Successor Servicer deems to be confidential, the Transferor shall be
required to enter into such customary licensing and confidentiality agreements
as the Successor Servicer shall deem necessary to protect its interests.
Section 10.03 Notification to Certificateholders. Upon the occurrence of
----------------------------------
any Servicer Default, the Servicer shall give prompt written notice thereof to
the Trustee and each Enhancement Provider and, upon receipt of such written
notice, the Trustee shall give notice to each Rating Agency and the Investor
Certificateholders at their respective addresses appearing in the Certificate
Register. Upon any termination or appointment of a Successor Servicer pursuant
to this Article X, the Trustee shall give prompt written notice thereof to the
---------
Investor Certificateholders at their respective addresses appearing in the
Certificate Register.
Section 10.04 Waiver of Past Defaults. A Control Party may waive any
-----------------------
default by the Servicer or the Transferor in the performance of their
obligations hereunder and its consequences, except a default in the failure to
make any required deposits or payments of interest or principal with respect to
any Series of Certificates, with respect to the Series for which such Person is
the Control Party. Upon any such waiver of a past default, such default shall
cease to exist, and any default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived. The Servicer shall promptly notify each Rating
Agency of any such waiver promptly after the granting of such waiver.
ARTICLE XI
THE TRUSTEE
Section 11.01 Duties of Trustee. (a) The Trustee, prior to the occurrence
-----------------
of a Servicer Default of which a Responsible Officer of the Trustee has
knowledge and after the curing of all Servicer Defaults which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If to the knowledge of a Responsible Officer of the
Trustee a Servicer Default has occurred (which has not been cured or waived),
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement or any Supplement, as the case may be, 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 prudent person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement or any Supplement, shall
53
<PAGE>
examine them to determine whether they substantially conform to the requirements
of this Agreement or any Supplement. The Trustee shall give prompt written
notice to each Control Party of any material lack of conformity of any such
instrument to the applicable requirements of this Agreement or any Supplement
discovered by the Trustee which would entitle any Control Party to take any
action pursuant to this Agreement or any Supplement.
(c) Subject to Section 11.01(a), no provision of this Agreement or any
----------------
Supplement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; provided, however, that:
-------- -------
(i) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(ii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with, unless otherwise specified herein, the direction of the
Transferor, the Servicer, any Enhancement Provider or any Control Party
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement or any Supplement;
(iii) The Trustee shall not be charged with knowledge of any failure
by the Servicer to comply with the obligations of the Servicer referred to
in clause (a), (b) or (c) of Section 10.01, or of the occurrence of any
---------- --- --- -------------
Early Amortization Event, unless a Responsible Officer of the Trustee
obtains actual knowledge of such failure or the Trustee receives written
notice of such failure from the Servicer, any Enhancement Provider or any
Holders of Investor Certificates evidencing Undivided Interests aggregating
not less than 10% of the Invested Amount of any Series adversely affected
thereby; and
(iv) Prior to the occurrence of a Servicer Default of which a
Responsible Officer has knowledge, and after the curing or waiver of such
Servicer Defaults that may have occurred, the duties and obligations of the
Trustee shall be determined solely by the express provisions of this
Agreement and any Supplements, the Trustee shall not be liable except for
the performance of such duties and obligations as shall be specifically set
forth in this Agreement and any Supplement, no implied covenants or
obligations shall be read into this Agreement or any Supplement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and, if specifically required to be
furnished pursuant to any provision of this Agreement or any Supplement,
conforming to the requirements of this Agreement or such Supplement.
54
<PAGE>
(d) The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement or any Supplement shall in
any event require the Trustee to perform, or be responsible for the manner of
performance of, any obligations of the Servicer under this Agreement or any
Supplement except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges of,
the Servicer in accordance with the terms of this Agreement or any Supplement.
(e) Except for actions expressly authorized by this Agreement or any
Supplement, the Trustee shall take no action reasonably likely to impair the
interests of the Trust in any Receivable now existing or hereafter created or to
impair the value of any Receivable now existing or hereafter created.
(f) Except as specifically provided in this Agreement or any Supplement,
the Trustee shall have no power to vary the corpus of the Trust.
(g) If, to the knowledge of a Responsible Officer of the Trustee, the
Paying Agent or the Transfer Agent and Registrar shall fail to perform any
obligation, duty or agreement in the manner or on the day required to be
performed by the Paying Agent or the Transfer Agent and Registrar, as the case
may be, under this Agreement, the Trustee shall be obligated as soon as possible
after such Responsible Officer obtains knowledge thereof and receives
appropriate records, if any, to perform such obligation, duty or agreement in
the manner so required.
(h) Except as specifically otherwise provided in this Agreement, any
action, suit or proceeding brought in respect of one or more particular Series
shall have no effect on the Trustee's rights, duties and obligations hereunder
with respect to any one or more Series not the subject of such action, suit or
proceeding.
Section 11.02 Certain Matters Affecting the Trustee. Except as otherwise
-------------------------------------
provided in Section 11.01:
-------------
(a) The Trustee may rely on and shall be protected in acting on, or
in refraining from acting in accordance with, any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document believed by it to be genuine and to have
been signed or presented to it pursuant to this Agreement or any Supplement
by the proper party or parties.
(b) The Trustee may consult with counsel and other experts deemed
appropriate by the Trustee and any advice from such counsel or Opinion of
Counsel or written advice from such other experts shall be full and
complete authorization and
55
<PAGE>
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such advice or Opinion of
Counsel.
(c) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement or any Supplement, or to
institute, conduct or defend any litigation hereunder or in relation hereto
or any Supplement, at the request, order or direction of any Person or
Persons, pursuant to the provisions of this Agreement or any Supplement,
unless such Person or Persons shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby; nothing contained herein shall, however,
relieve the Trustee of the obligation, upon the occurrence of a Servicer
Default (which has not been cured) of which a Responsible Officer has
knowledge, to exercise such of the rights and powers vested in it by this
Agreement or any Supplement, and to 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 prudent person's own affairs.
(d) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement or any Supplement.
(e) The Trustee shall not be bound to make any investigation into the
facts of matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing so to do by a
Control Party or the Holders of Investor Certificates evidencing Undivided
Interests aggregating more than 50% of the Invested Amount of any Series
which could be adversely affected if the Trustee does not perform such
acts; provided, however, that if the payment within a reasonable time to
-------- -------
the Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation shall be, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to
it by the terms of this Agreement, the Trustee may require reasonable
indemnity against such cost, expense or liability as a condition to so
proceeding. The reasonable expense of every such examination shall be paid
by the Servicer or, if paid by the Trustee, shall be reimbursed by the
Servicer upon demand.
(f) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or custodians, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or
custodian appointed with due care by it hereunder.
(g) Except as may be required by Section 11.01(a) hereof, the Trustee
----------------
shall not be required to make any initial or periodic examination of any
documents or records related to the Receivables for the purpose of
establishing the presence or absence of
56
<PAGE>
defects, the compliance by the Transferor or the Servicer with their
representations and warranties or for any other purpose.
(h) The right of the Trustee to perform any discretionary act
enumerated in this Agreement or any Supplement shall not be construed as a
duty, and the Trustee shall not be answerable for other than its negligence
or willful misconduct in the performance of any such act.
(i) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement or any Supplement.
Section 11.03 Trustee Not Liable for Recitals in Certificates. The Trustee
-----------------------------------------------
assumes no responsibility for the correctness of the recitals contained herein
and in the Certificates (other than the certificate of authentication on the
Certificates). Except as set forth in Section 11.15, the Trustee makes no
-------------
representations as to the validity or sufficiency of this Agreement or any
Supplement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document. The Trustee shall
not be accountable for the use or application by the Transferor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Transferor in respect of the Receivables or
deposited in the Collection Account or other accounts now or hereafter
established to effectuate the transactions contemplated herein and in accordance
with the terms hereof.
The Trustee shall have no duty to conduct any affirmative investigation as
to the occurrence of any condition requiring the repurchase of any Receivable by
the Transferor or the Servicer pursuant to this Agreement or any Supplement or
the eligibility of any Receivable for purposes of this Agreement or any
Supplement. The Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder (unless the Trustee shall have become the Successor Servicer) or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Supplement.
Section 11.04 Trustee May Own Certificates, Etc. Each of the Trustee, the
---------------------------------
Transferor, the Servicer, and each of such Person's respective Affiliates in its
individual or any other capacity may become the owner or pledgee of Investor
Certificates; provided, that any Investor Certificates so held shall not be
--------
entitled to participate in any decisions made or instructions given to the
Trustee by the Certificateholders as a group. The Trustee (and its Affiliates)
may enter into banking and trustee relationships with the Transferor and the
Servicer, and may deal with the Transferor and the Servicer (and their
respective Affiliates) in banking and trustee transactions, with the same rights
as it would have if it were not the Trustee.
Section 11.05 The Servicer to Pay Trustee's (and Paying Agent's) Fees and
-----------------------------------------------------------
Expenses. The Servicer covenants and agrees to pay to the Trustee (and the
- --------
Paying Agent if applicable)
57
<PAGE>
from time to time, and the Trustee (and the Paying Agent if applicable) shall be
entitled to receive, reasonable compensation as set forth in a fee letter
between the Servicer and the Trustee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by it in the execution of the trust hereby created and
in the exercise and performance of any of the powers and duties hereunder or
under any Supplement of the Trustee (or the Paying Agent if applicable), and,
subject to Section 8.04, the Servicer will pay or reimburse the Trustee (and the
------------
Paying Agent if applicable) upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee (or the Paying Agent
if applicable) in accordance with any of the provisions of this Agreement or any
Supplement (including the reasonable fees and expenses of its agents and
counsel) except as set forth in a fee letter between the Servicer and the
Trustee any such expense, disbursement or advance as may arise from its fraud,
gross negligence, breach of fiduciary duty or willful misconduct and except as
provided in the following sentence. If the Trustee is appointed Successor
Servicer pursuant to Section 10.02, the provisions of this Section 11.05 shall
------------- -------------
not apply to expenses, disbursements and advances made or incurred by the
Trustee in its capacity as Successor Servicer, which shall be covered out of the
Servicing Fee. The provisions of this paragraph and Sections 8.04 and 8.09 shall
------------- ----
survive the termination of the Trust and the resignation or removal of the
Trustee.
Section 11.06 Eligibility Requirements for Trustee. The Trustee hereunder
------------------------------------
shall at all times be a corporation organized and doing business under the laws
of the United States or any state thereof, including the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $250,000,000 and be rated at least P1 by Moody's
or at least A-1 by Standard & Poor's or be approved by the Rating Agency and
subject to supervision or examination by Federal or state authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section 11.06, the combined capital and surplus of such
-------------
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 11.06, the Trustee shall resign immediately in the manner and with the
- -------------
effect specified in Section 11.07.
-------------
Section 11.07 Resignation or Removal of Trustee.
---------------------------------
(a) The Trustee may at any time resign and be discharged from the trust
hereby created by giving written notice thereof to the Transferor and the
Servicer. Upon receiving such notice of resignation, the Servicer (with the
consent of each Control Party, which consent shall not be unreasonably withheld)
shall promptly appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning
58
<PAGE>
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 11.06 hereof and shall fail to resign after
-------------
written request therefor by the Servicer, or if at any time the Trustee shall be
legally unable to act, or shall be adjudged a bankrupt or insolvent, or if a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Servicer may remove the Trustee with the consent of each Control Party, which
consent shall not be unreasonably withheld, appoint a successor trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(c) Any resignation or removal of the Trustee and appointment of successor
trustee pursuant to any of the provisions of this Section 11.07 shall not become
-------------
effective until acceptance of appointment by the successor trustee as provided
in Section 11.08 hereof.
-------------
Section 11.08 Successor Trustee.
-----------------
(a) Any successor trustee appointed as provided in Section 11.07 hereof
-------------
shall execute, acknowledge and deliver to the Transferor and to its predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder and under any Supplement with like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to the successor
trustee all documents or copies thereof, at the expense of the Servicer, and
statements held by it hereunder; and the Transferor and the predecessor Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor trustee all such rights, powers, duties and obligations. The Servicer
shall immediately give notice to the Rating Agency upon the appointment of a
successor trustee.
(b) No successor trustee shall accept appointment as provided in this
Section 11.08 unless at the time of such acceptance such successor trustee shall
- -------------
be eligible under the provisions of Section 11.06 hereof.
-------------
(c) Upon acceptance of appointment by a successor trustee as provided in
this Section 11.08 hereof, such successor trustee shall mail notice of such
-------------
succession hereunder to all Certificateholders at their addresses as shown in
the Certificate Register.
Section 11.09 Merger or Consolidation of Trustee. Any Person into which the
----------------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person
59
<PAGE>
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 11.06 hereof,
-------------
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
(a) Notwithstanding any other provisions of this Agreement or any
Supplement, at any time, for the purpose of meeting any legal requirements of
any jurisdiction in which any part of the Trust may at the time be located, the
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust, or any part thereof, and, subject
to the other provisions of this Section 11.10, such powers, duties, obligations,
-------------
rights and trusts as the Trustee may consider necessary or desirable. No co-
trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 11.06 and no notice to
-------------
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 11.08 hereof. Any such appointment of a co-
-------------
trustee shall not relieve the Trustee of its duties under this Agreement.
(b) Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the Trust
Assets or any portion thereof in any such jurisdiction) shall be exercised
and performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) No trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) The Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each
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of them. Every instrument appointing any separate trustee or co-trustee shall
refer to this Agreement and the conditions of this Article XI. Each separate
----------
trustee and co-trustee, upon its acceptance of the trusts conferred, shall be
vested with the estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement or any Supplement, specifically
including every provision of this Agreement or any Supplement relating to the
conduct of, affecting the liability of, or affording protection to, the Trustee.
Every such instrument shall be filed with the Trustee and a copy thereof given
to the Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect to this
Agreement or any Supplement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.11 Tax Returns. No federal income tax return shall be filed on
-----------
behalf of the Trust unless either (i) the Trustee or the Servicer shall receive
an Opinion of Counsel based on a change in applicable law occurring after the
date hereof that the Code requires such a filing or (ii) the Internal Revenue
Service shall determine that the Trust is required to file such a return. In the
event the Trust shall be required to file tax returns, the Servicer shall
prepare or shall cause to be prepared any tax returns required to be filed by
the Trust and shall remit such returns to the Trustee for signature at least
five days before such returns are due to be filed; the Trustee shall promptly
sign such returns and deliver such returns after signature to the Servicer and
such returns shall be filed by the Servicer. Subject to the responsibilities of
the Trustee set forth in Section 5.02(b), the Servicer in accordance with
---------------
Section 5.02(b) shall also prepare or shall cause to be prepared all tax
- ---------------
information required by law to be distributed to Investor Certificateholders.
The Trustee, upon request, will furnish the Servicer with all such information
known to the Trustee as may be reasonably required in connection with the
preparation of all tax returns of the Trust, and shall, upon request, execute
such returns. In no event shall the Trustee, the Servicer or the Transferor be
liable for any liabilities, costs or expenses of the Trust, the Investor
Certificateholders or the Certificate Owners arising out of the application of
any tax law, including federal, state or local income or excise taxes or any
other tax imposed on or measured by income (or any interest, penalty or addition
with respect thereto or arising from a failure to comply therewith).
Section 11.12 Trustee May Enforce Claims Without Possession of
------------------------------------------------
Certificates. All rights of action and claims under this Agreement or any
- ------------
Supplement or the Certificates may be prosecuted and enforced by the Trustee
without the possession of any of the Certificates or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee. Any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and
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advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Certificateholders in respect of which such judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default of which a
---------------------
Responsible Officer has knowledge shall occur and be continuing, the Trustee, in
its discretion may, subject to the provisions of Article X, proceed to protect
---------
and enforce its rights and the rights of the Certificateholders under this
Agreement or any Supplement by suit, action or proceeding in equity or at law or
otherwise, whether for the specific performance of any covenant or agreement
contained in this Agreement or any supplement or in aid of the execution of any
power granted in this Agreement or any Supplement or for the enforcement of any
other legal, equitable or other remedy as the Trustee, being advised by counsel,
shall deem most effectual to protect and enforce any of the rights of the
Trustee or the Certificateholders. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Certificateholder any plan of reorganization, arrangement, adjustment or
composition affecting the Certificates or the rights of any holder thereof, or
authorize the Trustee to vote in respect of the claim of any Certificateholder
in any such proceeding.
Section 11.14 Rights of Certificateholders to Direct Trustee. The Holders
----------------------------------------------
of Investor Certificates evidencing Undivided Interests aggregating more than
50% of the Invested Amount of any Series with respect to matters affecting the
related Series, or the Holders of Certificates aggregating together more than
50% of the Undivided Interests of each Series affected by such matter with
respect to matters affecting more than one Series (unless with respect to any
Series another Person is designated as the Control Party with respect to that
Series in the applicable Supplement, in which case such Control Party shall have
the right to direct with respect to such Series) shall have the right to direct
the time, method and place at or by which the Trustee conducts any proceeding
for any remedy available to the Trustee, or exercises any such trust or power
conferred upon the Trustee; provided that to the extent that the Trustee fails
--------
to make a demand for payment pursuant to or under any Enhancement Agreement then
any Holder of an Investor Certificate shall have the right to direct the Trustee
to make such demand for payment; provided, however, that, subject to Section
-------- ------- -------
11.01, the Trustee shall have the right to decline to follow any such direction
- -----
if the Trustee being advised by counsel determines that the action so directed
may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Responsible Officers of the Trustee, determine that the
proceedings so directed would be illegal or involve it in personal liability;
and provided, further, that nothing in this Agreement or any Supplement shall
-------- -------
impair the right of the Trustee to take any action deemed proper by the Trustee
and which is not inconsistent with such direction of the Certificateholders.
Section 11.15 Representations and Warranties of Trustee. The Trustee
-----------------------------------------
represents and warrants, as of the Initial Closing Date and, with respect to any
Series, as of the related Closing Date, that:
(i) The Trustee is a national banking association organized, existing
and in good standing under the laws of the United States of America;
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(ii) The Trustee has full power, authority and right to execute,
deliver and perform this Agreement, and has taken all necessary action to
authorize the execution, delivery and performance by it of this Agreement;
(iii) This Agreement has been duly executed and delivered by the
Trustee;
(iv) The Trustee is not required to obtain, other than those that
have already been obtained, any authorization, consent, approval, exemption
or license from, or to file any registration with, any Governmental
Authority, as a condition to the validity of, or for the execution and
delivery of, this Agreement, or to the performance by the Trustee of its
obligations under this Agreement; and
(v) This Agreement constitutes the legal, valid and binding
obligation of the Trustee, enforceable in accordance with its terms
(subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally).
Section 11.16 Maintenance of Office or Agency. The Trustee will maintain at
-------------------------------
its expense in Minneapolis, Minnesota, an office or offices or agency or
agencies where notices and demands to or upon the Trustee in respect of the
Certificates and this Agreement may be served. The Trustee initially appoints
the Corporate Trust Office as its office for such purposes. The Trustee will
give prompt written notice to the Servicer and to Certificateholders of any
change in the location of the Certificate Register or any such office or agency.
Section 11.17 Statements, Certificates and Reports. A copy of this
------------------------------------
Agreement, any Supplement, and each statement, certificate and report furnished
to the Trustee pursuant to this Agreement shall be provided without charge to
any Certificateholder requesting the same in a writing to the Trustee addressed
to the Corporate Trust Office.
ARTICLE XII
TERMINATION
Section 12.01 Termination of Trust. (a) The respective obligations and
--------------------
responsibilities of the Transferor, the Servicer and the Trustee created hereby
(other than the obligation of the Trustee to make payments to Certificateholders
as hereafter set forth) shall terminate, except with respect to the duties
described in Sections 8.04, 11.05 and 12.03(b), upon the earlier of (i) the
------------- ----- --------
Business Day after the day on which the Aggregate Invested Amount is zero and
all amounts owing to each Enhancement Provider for all outstanding Series under
the related Supplements and Enhancement Agreements have been paid, all other
amounts owing under this Agreement, any Supplement, any Enhancement Agreement or
any other Transaction Document have been paid and all commitments of any
Investor Certificateholder shall have been terminated (unless
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the parties hereto shall have agreed that the Final Trust Termination Date
pursuant to this clause (i) shall be deemed not to have occurred until a later
------
date); (ii) the expiration of 21 years from the death of the last survivor of
the descendants of Bruce Springsteen living on the date of this Agreement; and
(iii) the time provided in Section 9.02 (the "Final Trust Termination Date").
------------ ----------------------------
(b) If on the Determination Date in the month immediately preceding the
month in which the Final Trust Termination Date occurs (after giving effect to
all transfers, withdrawals, deposits and drawings to occur on such date and the
payment of principal on any Series of Investor Certificates to be made on the
related Payment Date pursuant to Section 4.06) the Invested Amount of any Series
------------
would be greater than zero, the Servicer on behalf of the Trust shall sell in a
commercially reasonable manner within 30 days of such Determination Date all of
the Receivables and the Related Property. The proceeds of such sale, net of all
reasonable expenses of the Trustee incurred in connection with such sale, which
shall be paid to the Trustee from such proceeds, shall be treated as Collections
of the Receivables and shall be allocated in accordance with Section 4.03.
------------
During such 30-day period, the Servicer shall continue to collect Collections on
the Receivables and allocate such payments in accordance with the provisions of
Section 4.03.
- ------------
Section 12.02 Optional Purchase and Series Termination Date of Investor
---------------------------------------------------------
Certificates of any Series.
- --------------------------
(a) If and as provided in any Supplement, the Transferor may, but shall
not be obligated to, retire any Series of Investor Certificates in accordance
with the terms of such Supplement, unless such purchase would result in an Early
Amortization Event with respect to any other Series.
(b) All principal or interest with respect to any Series of Investor
Certificates shall be due and payable no later than the Series Termination Date
with respect to such Series. Unless otherwise provided in a Supplement (e.g.,
providing for Enhancement to cover payment of such principal and interest), in
the event that the Invested Amount of any Series of Certificates is greater than
zero on its Series Termination Date, the Servicer will use its best efforts to
sell or cause to be sold in a commercially reasonable manner, and pay the
proceeds (net of all reasonable expenses of the Trustee incurred in connection
with such sale, which shall be paid to the Trustee from such proceeds), to the
extent necessary, to all Certificateholders of such Series pro rata, in final
payment of all principal of and accrued interest on such Series of Certificates,
an amount of Receivables and Related Property up to the Target Receivables
Amount of such Series calculated as of the related Series Termination Date, at
the close of business on such date; but in no event shall the amount of
Receivables and Related Property sold cause the Aggregate Eligible Unpaid
Balance to be less than the Aggregate Target Receivables Amount. Any proceeds of
such sale in excess of such principal and interest paid and such expenses of the
Trustee shall be paid first in respect of any amounts owing to any Enhancement
-----
Provider for such Series and second to the Transferor. Upon payment of the
------
proceeds of such sale as provided in this Section 12.02(b), all principal of and
----------------
accrued interest on such Series shall be deemed for all purposes to have been
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<PAGE>
paid in full. Upon such Series Termination Date, or (if applicable) on the first
Payment Date following the sale of Receivables and Related Property called for
above in this Section 12.02(b), with respect to the applicable Series of
----------------
Certificates, final payment of all amounts allocable to any Investor
Certificates of such Series shall be made in the manner provided in Section
-------
12.03.
- -----
Section 12.03 Final Payment.
-------------
(a) Written notice of any termination, specifying the Payment Date upon
which the Investor Certificateholders of any Series may surrender their
Certificates for payment of the final distribution with respect to such Series
and cancellation, shall be given (subject to at least ten days' prior notice
from the Servicer to the Trustee) by the Trustee to the Investor
Certificateholders of such Series mailed not later than the fifth day of the
month of such final distribution specifying (i) the Payment Date (which shall be
the Payment Date in the month in which the deposit is made pursuant to Section
-------
2.04(d) or 12.02(a)) upon which final payment of or such Investor Certificates
- ------- ---------
will be made upon presentation and surrender of such Certificates at the office
or offices therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Investor Certificates at the office or offices therein specified. The Servicer's
notice to the Trustee in accordance with the preceding sentence shall be
accompanied by an Officer's Certificate setting forth the information specified
in Section 5.02(a), as applicable, covering the period during the then current
---------------
calendar year through the date of such notice and setting forth the date of such
final distribution. The Trustee shall give such notice to the Transfer Agent and
Registrar and the Paying Agent at the time such notice is given to such
Certificateholders.
(b) Notwithstanding the termination of the Trust pursuant to Section
-------
12.01(a) or the occurrence of the Series Termination Date with respect to any
- --------
Series in connection with Section 12.02, all funds then on deposit in the
-------------
Collection Account and related Series Accounts shall continue to be held in
trust for the benefit of the Certificateholders and the Paying Agent or the
Trustee shall pay such funds to the Certificateholders upon surrender of their
Certificates. In the event that all of the Investor Certificateholders of all,
or the applicable, Series, shall not surrender their Certificates for
cancellation within six months after the date specified in the above-mentioned
written notice, the Trustee shall give a second written notice to the remaining
Investor Certificateholders, upon receipt of the appropriate records from the
Transfer Agent and Registrar to surrender their Certificates for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice all, or the applicable Investor Certificates of such
Series shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Investor Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds in the
Collection Account held for the benefit of such Investor Certificateholders.
65
<PAGE>
(c) The payments specified in this Section 12.02 shall be made in respect
-------------
of a Certificate only upon presentation and surrender of such Certificate for
payment and cancellation in accordance with the terms of this Agreement. All
Certificates surrendered for payment of the final distribution with respect to
such Certificates and cancellation, shall be canceled by the Transfer Agent and
Registrar and be disposed of in a manner satisfactory to the Trustee. Upon the
termination of the Trust, the Transferor shall return the Transferor Certificate
to the Trustee, and the Trustee shall dispose of such Certificates in a manner
satisfactory to the Trustee.
Section 12.04 Transferor's Termination Rights. Upon the termination of the
-------------------------------
Trust pursuant to this Article XII and the surrender of the Transferor
-----------
Certificate, the Trustee shall assign, transfer and otherwise convey to the
Transferor or its designee (without recourse, representation or warranty) all
right, title and interest of the Trust in and to the Receivables and the other
Trust Assets, whether then existing or thereafter created, all moneys due or to
become due with respect thereto, and all proceeds thereof except for amounts
held by the Trustee pursuant to Section 12.03(b), and release and terminate the
----------------
security interest granted pursuant to Section 2.02. The Trustee shall execute
------------
and deliver such instruments of transfer and assignment, and UCC termination
statements, in each case prepared by the Transferor and without recourse,
representation or warranty, as shall be reasonably requested by the Transferor
to vest in the Transferor or its designee all right, title and interest which
the Trust had in the Receivables and other Trust Assets and to evidence the
release and termination of such security interest.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 Amendment.
---------
(a) This Agreement (including any Supplement) may be amended from time to
time by the Servicer, the Transferor and the Trustee, but without the consent of
any of the Certificateholders, to cure any ambiguity, to correct or supplement
any provisions herein or therein which may be inconsistent with any other
provisions herein or therein or to add any other provisions with respect to
matters or questions raised under this Agreement (including any Supplement)
which shall not be inconsistent with the provisions of this Agreement (including
any Supplement). In connection with such amendment, an officer of the Servicer
shall deliver a certificate that the requirements for such amendment pursuant to
this Section are satisfied.
(b) This Agreement (including any Supplement) may also be amended or the
provisions thereof waived from time to time by the Servicer, the Transferor and
the Trustee, without the consent of any of the Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement (including any Supplement) or of modifying
in any manner the rights of the Certificateholders of any Series then issued and
outstanding including the addition, modification or elimination of such
provisions as
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<PAGE>
may be necessary or advisable in order to enable all or a portion of the Trust
to qualify as, and to permit an election to be made to cause the Trust to be
treated as, a "financial asset securitization investment trust" as described in
the provisions of (s)(s) 860H through 860L of the Internal Revenue Code;
provided, however, that (i) the Servicer shall have provided an Officer's
- -------- -------
Certificate to the Trustee to the effect that such amendment will not materially
and adversely affect the interests of the Certificateholders of any outstanding
Series (or 100% of the Class of Certificateholders so affected shall have
consented); (ii) such amendment shall not, as evidenced by an Opinion of
Counsel, cause the Trust to be characterized for Federal income tax purposes as
an association taxable as a corporation or otherwise have any material adverse
impact on the Federal income taxation characterization of any outstanding Series
of Certificates or any Certificate Owner; (iii) the Rating Agency Condition
shall have been satisfied with respect to such amendment; and (iv) the
Transferor shall have delivered an Opinion of Counsel to the Trustee to the
effect that such amendment shall not materially and adversely affect the
interests of the Certificateholders of any Series.
(c) This Agreement (including any Supplement) may also be amended or the
provisions thereof waived from time to time by the Transferor, the Servicer and
the Trustee with the consent of the Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 66-2/3% of the principal amount of
all Series adversely affected for the purpose of adding any provisions to,
changing in any manner or eliminating any of the provisions of this Agreement
(including any Supplement) or of modifying in any manner the rights of
Certificateholders of any Series then issued and outstanding. No such amendment
or waiver, however, may (i) reduce in any manner the amount of or delay the
timing of, distributions required to be made on such Series, (ii) change the
definition or the manner of calculating interest in respect of any Certificate
of such Series, or (iii) reduce the aforesaid percentage of Undivided Interests
the Holders of which are required to consent to any such amendment or waiver, in
each case without the consent of all Certificateholders of all Series adversely
affected. In connection with such amendment, an officer of the Servicer shall
deliver a certificate that the requirements for such amendment pursuant to this
Section are satisfied.
(d) Promptly after the execution of any amendment or waiver in respect of
this Agreement, the Trustee shall furnish written notification of the substance
of such amendment to the Enhancement Provider for each outstanding Series and
each Investor Certificateholder (or, with respect to an amendment or waiver of a
Supplement, to each Enhancement Provider and to the Holders of the Certificates
of the related Series), and the Servicer shall furnish written notification of
the substance of such amendment or waiver to each Rating Agency.
(e) It shall not be necessary for the consent of the Investor
Certificateholders under this Section 13.01 to approve the particular form of
-------------
any proposed amendment or waiver, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents and
of evidencing the authorization of the execution thereof by the Persons required
to consent under Section 13.01 shall be subject to such reasonable requirements
-------------
as the Trustee may prescribe.
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<PAGE>
(f) The Trustee may, but shall not be obligated to, enter into any such
amendment or waiver which affects the Trustee's own rights, duties or immunities
under this Agreement, any Supplement or otherwise.
Section 13.02 Protection of Right, Title and Interest of Trust.
------------------------------------------------
(a) The Servicer shall cause this Agreement, any Supplement, all
amendments hereto or thereto and/or all financing statements and continuation
statements and any other necessary documents covering the Certificateholders and
the Trustee's right, title and interest to the Trust Assets to be promptly
recorded, registered and filed, and at all times to be kept recorded, registered
and filed, all in such manner and in such places as may be required by law fully
to preserve and protect the right, title and interest of the Trustee hereunder
to all property comprising the Trust Assets. The Servicer shall deliver to the
Trustee file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. The Transferor shall cooperate fully with the
Servicer in connection with the obligations set forth above and will execute any
and all documents reasonably required to fulfill the intent of this Section
-------
13.02(a). In the event that the Servicer fails to file such financing or
- --------
continuation statements, then the Trustee shall have the right, but not the
obligation, to file the same on behalf of the Transferor.
(b) The Servicer will give the Trustee and each Enhancement Provider for
each outstanding Series prompt written notice of any relocation of any office
from which it services Receivables or keeps records concerning the Receivables
or of its principal place of business or chief executive office and whether, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall file such financing
statements or amendments as may be necessary to perfect or to continue the
perfection of the Trust's ownership or security interest in the Receivables and
the other Trust Assets. The Servicer will at all times maintain each office from
which it services Receivables and the Related Property and its principal
executive office within the United States of America.
(c) If at any time the Servicer is no longer CompuCom, the Transferor
shall deliver to the Successor Servicer powers-of-attorney such that such
Successor Servicer may perform the obligations set forth in Sections 13.02(a)
-----------------
and 13.02(b).
--------
Section 13.03 Limitation on Rights of Certificateholders.
------------------------------------------
(a) The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor shall such death or incapacity
entitle such Certificateholders' legal representatives or heirs to claim an
accounting or to take any action or commence any proceeding in any court for a
partition or winding up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
68
<PAGE>
(b) No Certificateholder shall have any right to vote (except as
specifically provided in this Agreement or any Supplement) or in any manner
otherwise control the operation and management of the Trust, or the obligations
of the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association;
nor shall any Certificateholder be under any liability to any third person by
reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.
(c) No Certificateholder shall have any right by virtue of any provisions
of this Agreement or any Supplement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless,
subject to the rights of each Control Party provided in this Agreement, the
Holders of Investor Certificates evidencing Undivided Interests in the Trust
aggregating more than 50% of the Invested Amount of any Series which may be
materially adversely affected but for the institution of such suit, action or
proceeding shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Certificateholders shall have any right in any manner whatever by
virtue or by availing itself or themselves of any provisions of this Agreement
or any Supplement to affect, disturb or prejudice the rights of the
Certificateholders of any other of the Certificates, or to obtain or seek to
obtain priority over or preference to any other such Certificateholder, or to
enforce any right under this Agreement or any Supplement, except in the manner
herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 13.03, each and every Certificateholder and the Trustee shall be
- -------------
entitled to such relief as can be given either at law or in equity.
Section 13.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.05 Notices. All demands, notices, instructions and
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered , if sent by facsimile transmission or five
days after mailing by certified or registered mail, return receipt requested,
(a) in the case of the Servicer, to CompuCom Systems, Inc., 7171 Forest Lane,
Dallas, Texas 75230, Attention: Treasurer; (b) in the case of the Trustee, to
the Corporate Trust Office; (c) in the case of the Transferor, to CSI Funding,
Inc., 7171 Forest Lane, Dallas, Texas 75230, Attention: Treasurer; (d) in the
case of any Enhancement Provider, at the address set forth
69
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in the related Enhancement Agreement; or, as to each such Person, at such other
address as shall be designated by such Person in a written notice to each other
party. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Certificateholder as shown in the Certificate Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Certificateholder receives such notice.
Section 13.06 Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement 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 and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or rights of the Certificateholders thereof.
Section 13.07 Assignment. Notwithstanding anything to the contrary
----------
contained herein, except as provided in Section 8.02 or 8.05, this Agreement,
------------ ----
including any Supplement, may not be assigned by the Servicer without the prior
consent of each Control Party.
Section 13.08 Certificates Nonassessable and Fully Paid. It is the
-----------------------------------------
intention of the parties to this Agreement that the Investor Certificateholders
shall not be personally liable for obligations of the Trust, that the interests
in the Trust represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and that
Certificates upon authentication thereof by the Trustee pursuant to Sections
--------
2.07 and 6.02 are and shall be deemed fully paid.
- ---- ----
Section 13.09 Further Assurances. The Transferor and the Servicer 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 Trustee more fully
to effect the purposes of this Agreement, including the execution of any
financing statements or continuation statements relating to the Receivables and
the other Trust Assets for filing under the provisions of the UCC of any
applicable jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Certificateholders or any party hereto,
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 privileges provided by law.
Section 13.11 Counterparts. This Agreement and any Supplement may be
------------
executed in two or more counterparts (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.
70
<PAGE>
Section 13.12 Third-Party Beneficiaries. This Agreement and any Supplement
-------------------------
will inure to the benefit of and be binding upon the parties hereto, and, in
addition, shall inure to the benefit of the Certificateholders and their
respective successors and permitted assigns and to the extent provided herein
and in any Supplement, to the Control Party and any Enhancement Provider for any
outstanding Series. Except as otherwise provided in this Article XIII, no other
------------
Person will have any right or obligation hereunder.
Section 13.13 Actions by Certificateholders.
-----------------------------
(a) Wherever in this Agreement or any Supplement, a provision is made that
an action may be taken or a notice, demand or instruction given by Investor
Certificateholders, such action, notice or instruction may be taken or given by
any Investor Certificateholder of any Series, unless such provision requires a
specific percentage of Investor Certificateholders of a certain Series or all
Series.
(b) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Certificateholder shall bind such Certificateholder and every
subsequent holder of such Certificate issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or omitted to be done by the Trustee or the Servicer in reliance thereon,
whether or not notation of such action is made upon such Certificate.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement or any Supplement to be given or
taken by Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders in
person or by an agent duly appointed in writing; and except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, when required, to the Transferor
or the Servicer. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
or any Supplement and conclusive in favor of the Trustee, the Transferor and the
Servicer, if made in the manner provided in this Section.
(d) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(e) The Trustee may require such additional proof of any matter referred
to in this Section as it shall deem necessary.
Section 13.14 Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement sets 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. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
71
<PAGE>
Section 13.15 Headings. The headings herein are for purposes of reference
--------
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
Section 13.16 Enhancement Providers. Notwithstanding anything to the
---------------------
contrary in this Agreement or any Supplement, an Enhancement Provider shall have
rights under this Agreement and any Supplement (including the right to grant or
withhold consents) only if such Enhancement Provider is then providing
Enhancement for a Series (and no Enhancement Provider Default shall have
occurred and be continuing relating to such Enhancement) or any amounts are
owing to such Enhancement Provider under the applicable Enhancement Agreement.
Section 13.17 Schedules and Exhibits. The schedules and exhibits attached
----------------------
hereto and referred to herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
Section 13.18 Assignment of Related Property. (a) Notwithstanding the
------------------------------
Transferor's assignment of the Related Property hereunder, the Transferor shall
nevertheless be permitted to give all consents, requests, notices, directions,
approvals, extensions or waivers, if any, which are required by the specific
terms of the Receivables Contribution and Sale Agreement to be given by it to
CompuCom. The assignment of the Related Property hereunder shall not relieve the
Transferor or CompuCom from the performance of any term, covenant, condition or
agreement on the part of the Transferor or CompuCom to be performed or observed
under or in connection with the Receivables Contribution and Sale Agreement.
(b) The Transferor agrees to exercise any and all rights, remedies, powers
and privileges lawfully available to the Transferor under or in connection with
the Receivables Contribution and Sale Agreement, including the transmission of
notices of default on the part of the Transferor thereunder and the institution
of legal or administrative actions or proceedings to compel or secure
performance by CompuCom of its obligations under the Receivables Contribution
and Sale Agreement. The Transferor will not amend, waive or terminate any of the
terms of the Receivables Contribution and Sale Agreement without the prior
written consent of each Control Party.
(c) The Transferor agrees to give the Trustee and each Control Party
prompt written notice of any default on the part of CompuCom under the
Receivables Contribution and Sale Agreement that comes to the Transferor's
attention.
Section 13.19 No Proceedings. The Trustee, CompuCom, the Servicer and any
--------------
Successor Servicer each hereby agrees that it will not institute against the
Transferor, or join any other Person in instituting against the Transferor, any
proceeding under any Debtor Relief Law so long as any Investor Certificates
shall be outstanding or there shall not have elapsed one year plus one day since
the last day on which any such Investor Certificates shall have been
outstanding.
72
<PAGE>
Section 13.20 Texas Limited Liability Company Act. The Trustee agrees that
-----------------------------------
it shall not cause or permit the Trust to elect to procure a certificate of
authority pursuant to the Texas Limited Liability Company Act.
Section 13.21 Rating Agencies. At any time that none of the Certificates
---------------
are rated, each provision hereof requiring notice to the Rating Agencies or that
the Rating Agency Condition be satisfied shall be of no force or effect.
73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
CSI FUNDING, INC.,
as Transferor
By:____________________________
Name:__________________________
Title:_________________________
S-1
<PAGE>
COMPUCOM SYSTEMS, INC.,
as Servicer
By:____________________________
Name:__________________________
Title:_________________________
S-2
<PAGE>
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:_____________________________
Name: Joseph Nardi
Title: Corporate Trust Officer
S-3
<PAGE>
Exhibit 10(K)
- --------------------------------------------------------------------------------
CSI FUNDING, INC.,
as Transferor,
COMPUCOM SYSTEMS, INC.
as Servicer,
PNC BANK, NATIONAL ASSOCIATION
as Agent,
MARKET STREET CAPITAL CORPORATION
as Initial Series 1999-1
Certificateholder,
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
on behalf of the Certificateholders
__________________
SERIES 1999-1 SUPPLEMENT
Dated as of May 7, 1999
as amended and restated as of August 20, 1999
to
COMPUCOM RECEIVABLES MASTER TRUST I
POOLING AND SERVICING AGREEMENT
Dated as of May 7, 1999
as amended and restated as of August 20, 1999
__________________
VARIABLE FUNDING ACCOUNTS RECEIVABLE TRUST CERTIFICATES
SERIES 1999-1
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DESIGNATION OF CERTIFICATES; PURCHASE AND SALE
OF THE SERIES 1999-1 INVESTOR CERTIFICATES
SECTION 1.1 Designation........................................................................ 1
-----------
SECTION 1.2 The Series 1999-1 Certificates..................................................... 1
------------------------------
SECTION 1.3 Purchases of Interests in the Series 1999-1 Certificates........................... 2
--------------------------------------------------------
SECTION 1.4 Delivery........................................................................... 2
--------
SECTION 1.5 Procedure for Initial Issuance and for Increasing Each Series
-------------------------------------------------------------
1999-1 Certificateholder's Invested Amount......................................... 2
------------------------------------------
SECTION 1.6 Procedure for Decreasing Each Series 1999-1 Certificateholder's
---------------------------------------------------------------
Invested Amount.................................................................... 3
---------------
SECTION 1.7 Reductions of the Commitments...................................................... 4
-----------------------------
SECTION 1.8 Interest; Commitment Fee, Etc...................................................... 4
------------------------------
SECTION 1.9 Certificate Rate Limitation........................................................ 6
---------------------------
ARTICLE II
AGREEMENT MODIFICATIONS
SECTION 2.1 Agreement Modifications............................................................ 6
-----------------------
ARTICLE III
DISTRIBUTIONS AND REPORTS
SECTION 3.1 Distributions..................................................................... 16
-------------
SECTION 3.2 Reports, Statements and Notices................................................... 16
-------------------------------
ARTICLE IV
CHANGE IN CIRCUMSTANCES
SECTION 4.1 Requirements of Law............................................................... 18
-------------------
SECTION 4.2 Taxes............................................................................. 20
-----
SECTION 4.3 Indemnity......................................................................... 22
---------
SECTION 4.4 Limitation........................................................................ 23
----------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS......... 27
Section 4.01 Rights of Certificateholders......................................... 27
----------------------------
Section 4.02 Establishment of Collection Account.................................. 28
-----------------------------------
Section 4.03 Collections and Allocations.......................................... 29
---------------------------
Section 4.04 Daily Allocations of Collections Allocated to a Series............... 31
------------------------------------------------------
Section 4.05 Determination of Interest Distributable on Investor Certificates..... 31
----------------------------------------------------------------
Section 4.06 Determination of Principal Distributable on Investor Certificates.... 31
----------------------------------------------------------------
Section 4.07 Distributions from Series Collection Sub-subaccounts................. 32
----------------------------------------------------
Section 4.08 Funds Unrelated to Receivables....................................... 32
------------------------------
ARTICLE V
DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS.................................... 32
Section 5.01 Distributions........................................................ 32
-------------
Section 5.02 Monthly Investor Certificateholders' Statement; Annual Tax
----------------------------------------------------------
Statement............................................................ 32
---------
ARTICLE VI
THE CERTIFICATES................................................................... 33
Section 6.01 The Certificates..................................................... 33
----------------
Section 6.02 Authentication of Certificates....................................... 34
------------------------------
Section 6.03 Registration of Transfer and Exchange of Certificates................ 34
-----------------------------------------------------
Section 6.04 Mutilated, Destroyed, Lost or Stolen Certificates.................... 36
-------------------------------------------------
Section 6.05 Persons Deemed Owners................................................ 36
---------------------
Section 6.06 Appointment of Paying Agent.......................................... 37
---------------------------
Section 6.07 Access to List of Certificateholders' Names and Addresses............ 37
---------------------------------------------------------
Section 6.08 Authenticating Agent................................................. 38
--------------------
Section 6.09 New Issuances........................................................ 39
-------------
Section 6.10 Book-Entry Certificates.............................................. 40
-----------------------
Section 6.11 Notices to Clearing Agency........................................... 41
--------------------------
Section 6.12 Definitive Certificates.............................................. 41
-----------------------
Section 6.13 Letter of Representations............................................ 42
-------------------------
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR........................................... 42
Section 7.01 Liability of the Transferor......................................... 42
--------------------------
Section 7.02 Merger or Consolidation of, or Assumption of the Obligations of,
----------------------------------------------------------------
the Transferor...................................................... 42
--------------
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 8.12 Limitation of Payments by Transferor.............................................. 34
------------------------------------
SECTION 8.13 No Bankruptcy Petition............................................................ 34
----------------------
SECTION 8.14 The Trustee....................................................................... 34
-----------
SECTION 8.15 Consent to Jurisdiction........................................................... 35
-----------------------
SECTION 8.16 Credit Agreements................................................................. 35
-----------------
ARTICLE IX
DEFINITIONS
SECTION 9.1 Definitions....................................................................... 35
-----------
</TABLE>
SCHEDULES
Schedule 1 Commitments
Schedule 2 List of Trust Accounts
Schedule 3 Initial Invested Amount
EXHIBITS
Exhibit A Form of Notice of Increase
Exhibit B Form of Notification of Obligors
Exhibit C Form of Commitment Transfer Supplement
Exhibit D Form of Series 1999-1 Investor Certificate
iii
<PAGE>
Section 11.08 Successor Trustee........................................59
-----------------
Section 11.09 Merger or Consolidation of Trustee.......................60
----------------------------------
Section 11.10 Appointment of Co-Trustee or Separate Trustee............60
---------------------------------------------
Section 11.11 Tax Returns..............................................61
-----------
Section 11.12 Trustee May Enforce Claims Without Possession of
------------------------------------------------
Certificates......................................................62
------------
Section 11.13 Suits for Enforcement....................................62
---------------------
Section 11.14 Rights of Certificateholders to Direct Trustee...........62
----------------------------------------------
Section 11.15 Representations and Warranties of Trustee................63
-----------------------------------------
Section 11.16 Maintenance of Office or Agency..........................63
-------------------------------
Section 11.17 Statements, Certificates and Reports.....................63
------------------------------------
ARTICLE XII
TERMINATION............................................................64
Section 12.01 Termination of Trust.....................................64
--------------------
Section 12.02 Optional Purchase and Series Termination Date of Investor
---------------------------------------------------------
Certificates of any Series........................................64
--------------------------
Section 12.03 Final Payment............................................65
-------------
Section 12.04 Transferor's Termination Rights..........................66
-------------------------------
ARTICLE XIII
MISCELLANEOUS PROVISIONS...............................................67
Section 13.01 Amendment................................................67
---------
Section 13.02 Protection of Right, Title and Interest of Trust.........68
------------------------------------------------
Section 13.03 Limitation on Rights of Certificateholders...............69
------------------------------------------
Section 13.04 Governing Law............................................70
-------------
Section 13.05 Notices..................................................70
-------
Section 13.06 Severability of Provisions...............................70
--------------------------
Section 13.07 Assignment...............................................71
----------
Section 13.08 Certificates Nonassessable and Fully Paid................71
-----------------------------------------
Section 13.09 Further Assurances.......................................71
------------------
Section 13.10 No Waiver; Cumulative Remedies...........................71
------------------------------
Section 13.11 Counterparts.............................................71
------------
Section 13.12 Third-Party Beneficiaries................................71
-------------------------
Section 13.13 Actions by Certificateholders............................71
-----------------------------
Section 13.14 Merger and Integration...................................72
----------------------
Section 13.15 Headings.................................................72
--------
Section 13.16 Enhancement Providers....................................72
---------------------
Section 13.17 Schedules and Exhibits...................................73
----------------------
Section 13.18 Assignment of Related Property...........................73
------------------------------
Section 13.19 No Proceedings...........................................73
--------------
Section 13.20 Texas Limited Liability Company Act......................73
-----------------------------------
iv
<PAGE>
(b) The Series 1999-1 Certificates shall, upon issue, be executed and
delivered by the Transferor to the Trustee for authentication and redelivery as
provided in Section 1.4 hereof and Section 6.01 of the Agreement.
----------- ------------
SECTION 1.3 Purchases of Interests in the Series 1999-1 Certificates.
--------------------------------------------------------
(a) Initial Purchase. Subject to the terms and conditions of this Supplement,
----------------
the Initial Series 1999-1 Certificateholder hereby agrees (A) to purchase on the
Issuance Date a Series 1999-1 Certificate in an amount equal to the Initial
Invested Amount and (B) to maintain the Invested Amount of its Series 1999-1
Certificate during the Revolving Period, subject to decrease during the
Revolving Period, in accordance with the provisions of this Supplement. Payments
by the Initial Series 1999-1 Certificateholder in respect of its Series 1999-1
Certificate shall be made in immediately available funds on the Issuance Date to
the Agent for payment to the Transferor.
(b) Maximum Invested Amount. Notwithstanding anything to the contrary
-----------------------
contained in this Supplement, at no time shall the Invested Amount of any Series
1999-1 Certificateholder exceed such Series 1999-1 Certificateholder's
Commitment at such time.
SECTION 1.4 Delivery. On the Issuance Date, the Transferor shall sign
--------
on behalf of the Trust and shall deliver to the Trustee pursuant to Section 6.01
------------
of the Agreement, and the Trustee, upon receipt, shall so authenticate the
initial Series 1999-1 Certificate in the name of the Initial Series 1999-1
Certificateholder and with a Commitment Percentage of 100% and deliver such
Series 1999-1 Certificate to the Initial Series 1999-1 Certificateholder. The
Trustee shall mark on its books the actual Invested Amount of each Series 1999-1
Certificateholder outstanding on any date of determination, which, absent
manifest error, shall constitute prima facie evidence of such outstanding
----- -----
Invested Amount from time to time.
SECTION 1.5 Procedure for Initial Issuance and for Increasing Each
------------------------------------------------------
Series 1999-1 Certificateholder's Invested Amount. (a) Subject to Section 1.5(b)
- ------------------------------------------------- --------------
of this Supplement, on the Issuance Date, the Initial Series 1999-1
Certificateholder agrees to purchase a Series 1999-1 Certificate in accordance
with Section 1.3(a) of this Supplement and on any Payment Date during the
--------------
Revolving Period, each Series 1999-1 Certificateholder agrees that the Series
1999-1 Aggregate Invested Amount may be increased by increasing pro rata based
upon Commitment Percentage each Series 1999-1 Certificateholder's Invested
Amount (an "Increase"), up to an amount, with respect to each such Series 1999-1
--------
Certificateholder, not exceeding such Series 1999-1 Certificateholder's
Commitment, upon the request of the Servicer or the Transferor on behalf of the
Trust (each date on which an increase in the Series 1999-1 Aggregate Invested
Amount occurs hereunder being herein referred to as the "Increase Date"
-------------
applicable to such Increase); provided, however, that the Servicer or the
-------- -------
Transferor, as the case may be, shall have given the Agent irrevocable written
notice (effective upon receipt) (with a copy thereof to the Trustee and, as
applicable, the Transferor or the Servicer), substantially in the form of
Exhibit A hereto, of such request no later than two Business Days prior to such
- ---------
Increase Date. Such notice shall state (x) the Issuance Date or the Increase
Date, as the case may be which, in the case of an
2
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of May 7, 1999 as amended
and restated as of August 20, 1999, is by and among CSI FUNDING, INC., a
Delaware corporation, as Transferor, COMPUCOM SYSTEMS, INC., a Delaware
corporation, as Servicer, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, as Trustee.
This Pooling and Servicing Agreement shall be applicable to the maintenance
of the Trust and the governance of the Transferor Certificate and, upon the
execution of any Supplement, shall apply also to the issuance of any Series of
Certificates issued thereby.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties, for the benefit of the
Certificateholders and for the benefit of any Enhancement Provider with respect
to any Series to the extent provided herein:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Annex X which is
-------
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
"Agreement" means this Pooling and Servicing Agreement as it may from time
---------
to time be amended, supplemented or otherwise modified in accordance with the
terms hereof, including by any Supplement.
Section 1.02 Other Definitional Provisions.
-----------------------------
(a) All terms defined in any Supplement or this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto to thereto, accounting terms not defined in Annex X or
-------
otherwise defined herein, and accounting terms partly defined in Annex X or
-------
otherwise defined herein, to the extent not defined, shall have the respective
meanings given to them under GAAP. To the extent that the definitions of
accounting terms herein or in Annex X are inconsistent with the meanings of such
-------
terms under GAAP, the definitions contained herein or in Annex X shall control.
-------
<PAGE>
(c) The agreements, representations and warranties of CompuCom in this
Agreement in its capacity as Servicer shall be deemed to be the agreements,
representations and warranties of CompuCom solely in such capacity.
(d) The words "hereof," "herein" and "hereunder" and words of similar
------ ------ ---------
import when used in this Agreement or any Supplement shall refer to such
Supplement or this Agreement, as the case may be, as a whole and not to any
particular provision of such Supplement or this Agreement, as the case may be;
and Section, Schedule and Exhibit references contained in this Agreement or any
Supplement are references to Sections, Schedules and Exhibits in or to this
Agreement or such Supplement unless otherwise specified.
(e) The word "including" (and with correlative meaning "include") means
--------- -------
including without limiting the generality of any description preceding such
term.
Section 1.03 Calculations and Payments. Unless otherwise specified herein,
-------------------------
expressions of a time of day refer to such time in New York, New York. Except as
otherwise specified in this Agreement or in a Supplement, amounts payable
hereunder shall be paid in immediately available funds. Whenever any reference
is made to an amount or time the determination or calculation of which is
governed by this Section 1.03, the provisions of this Section 1.03 shall be
------------ ------------
applicable to such determination or calculation, whether or not reference is
specifically made to this Section 1.03, unless some other method of
------------
determination or calculation is expressly specified in the particular provision.
ARTICLE II
CONVEYANCE OR RECEIVABLES; ISSUANCE OF CERTIFICATES
Section 2.01 Conveyance of Receivables. By execution of this Agreement the
-------------------------
Transferor does hereby assign, transfer and otherwise convey to the Trust from
time to time, without recourse (except as specifically provided herein), and
without any other formal or other written instrument of assignment, all of the
Transferor's right, title and interest in, to and under (i) all Receivables
existing on the date of execution hereof and all Receivables thereafter
generated (but excluding Reconveyed Receivables), (ii) all Related Property,
(iii) all monies due or to become due with respect thereto and (iv) all
Collections and other proceeds (as defined in the UCC) of any of the foregoing.
Such property, together with (x) all monies relating to the Receivables on
deposit in the Collection Account and any other Series Accounts and (y) the
benefits of any Enhancements shall constitute the assets of the Trust (the
"Trust Assets"). Notwithstanding anything to the contrary in this Agreement, the
------------
Trust Assets shall not include proceeds (as defined in the UCC) of returned
inventory. The foregoing transfer, assignment and conveyance does not constitute
and is not intended to result in the creation, or an assumption by the Trust,
the Trustee, any Enhancement Provider or any Investor Certificateholder, of any
obligation of CompuCom, the Transferor or any other Person in connection with
the Receivables or under any
2
<PAGE>
Payment Date, of the Monthly Interest Amount for the Series 1999-1
Certificates payable on such Payment Date with respect to the related
Accrual Period.
(b) The Trustee (acting at the written direction of the Servicer,
pursuant to a Settlement Statement or otherwise) shall pay to the Agent, for the
account of the Initial Series 1999-1 Certificateholder a commitment fee (the
"Commitment Fee") with respect to each Accrual Period, on each Payment Date in
--------------
an amount equal to the product of (A) the Commitment Fee Percentage, times (B)
the daily average Liquidity Commitment Amount during the Accrual Period, times
(C) a fraction the numerator of which is the number of days in the related
Accrual Period and the denominator of which is three hundred sixty. The
"Commitment Fee" with respect to any other Series 1999-1 Certificateholder shall
--------------
mean the amount described in a fee letter among such Series 1999-1
Certificateholder, the Transferor and the Agent. To the extent that on any
Payment Date funds distributed to the Agent pursuant to Section 4.07(b)(iii) of
--------------------
the Agreement as set forth in this Supplement are insufficient to pay the
Commitment Fee due on such date, the Trustee shall pay the Agent the amount of
any such deficiency out of funds otherwise distributable to the Transferor
pursuant to Section 4.03(a)(ii) of the Agreement until such Commitment Fee is
-------------------
paid in full.
(c) The Trustee (acting at the written direction of the Servicer,
pursuant to a Settlement Statement or otherwise) shall pay to the Agent for the
pro rata account of the Series 1999-1 Certificateholders in accordance with
- --- ----
their Commitment Percentages a program fee (the "Program Fee") with respect to
-----------
each Accrual Period, on each Payment Date in an amount equal to the product of
(A) the Program Fee Percentage, times (B) the daily average Series 1999-1
Aggregate Invested Amount during such Accrual Period, times (C) a fraction the
numerator of which is the number of days in the related Accrual Period and the
denominator of which is three hundred sixty. To the extent that on any Payment
Date funds distributed to the Agent pursuant to Section 4.07(b)(ii) of the
-------------------
Agreement as set forth in this Supplement are insufficient to pay the Program
Fee due on such date, the Trustee shall pay the Agent the amount of any such
deficiency out of funds otherwise distributable to the Transferor pursuant to
Section 4.03(a)(ii) of the Agreement until such Program Fee is paid in full.
- -------------------
(d) Calculations of the Alternate Base Rate under this Supplement shall
be made on the basis of a 365-day (or, where applicable, a 366-day) year. CP
Rates, Eurodollar Rates, Commitment Fees and Program Fees shall be calculated on
the basis of a 360-day year for actual days elapsed. Each determination of the
Certificate Rate, the Commitment Fee and the Program Fee (and the components
thereof) by the Agent shall be conclusive and binding upon each of the parties
hereto in the absence of manifest error.
(e) In the event, and on each occasion, that on the day two Business
Days prior to the commencement of any Accrual Period when not funding at the CP
Rate the Agent shall have determined that dollar deposits in the principal
amounts of the related LIBOR Rate Tranche are not generally available in the
London interbank market, or that the rates at which such dollar deposits are
being offered will not adequately and fairly reflect the cost to any Series
1999-1
5
<PAGE>
Certificateholder or Program Support Provider of making or maintaining such
LIBOR Rate Tranche during such Accrual Period, or that reasonable means do not
exist for ascertaining the Eurodollar Rate, the Agent shall, as soon as
practicable thereafter, give written or telecopy notice of such determination to
the Transferor, the Servicer and the Series 1999-1 Certificateholders. In the
event of any such determination, until the Agent shall have advised the
Transferor, the Servicer and the Series 1999-1 Certificateholders that the
circumstances giving rise to such notice no longer exist, any LIBOR Rate Tranche
shall be deemed to be a Prime Rate Tranche. Each such determination by the Agent
hereunder shall be conclusive absent manifest error.
SECTION 1.9 Certificate Rate Limitation. Notwithstanding anything herein
---------------------------
to the contrary, if at any time any Certificate Rate, together with all fees,
charges and other amounts which are treated as interest on the Series 1999-1
Certificates, under applicable law (collectively the "Charges"), shall exceed
-------
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
------------
charged, taken, received or reserved by the Series 1999-1 Certificateholders in
accordance with the terms hereof, then such Certificate Rate, together with all
Charges payable in respect of the Series 1999-1 Certificates, shall be limited
to the Maximum Rate and, to the extent lawful, such Certificate Rate and Charges
that would have been payable in respect of the Series 1999-1 Certificates, but
were not payable as a result of the operation of this Section, shall be
cumulated and the Certificate Rate and Charges payable to such Series 1999-1
Certificateholders in respect of other periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall have
been received by such Series 1999-1 Certificateholders.
ARTICLE II
AGREEMENT MODIFICATIONS
SECTION 2.1 Agreement Modifications.
The following terms of the Agreement are hereby modified only with respect
to this Supplement and the Series 1999-1 Investor Certificates as follows:
Section 2.05(c) is modified to add the phrase ", the Agent" after the
phrase "any request of the Trustee" where it appears therein. The cost and
expense of the Agent or its agents or representatives incurred in connection
with any visit or examination described in Section 2.05(c) shall be the
responsibility of the Transferor.
Section 3.01(e) is modified to add the phrase "and the Series 1999-1
Certificateholders consent thereto" immediately before the period at the end of
the second sentence thereof.
Section 3.03 is modified by adding the following new paragraph (v)
immediately after paragraph (u) thereof:
6
<PAGE>
(v) No Material Adverse Change. Since December 31, 1998 there has
--------------------------
been no material adverse change in CompuCom's financial condition,
business, properties or operations.
Section 3.04(a) is modified to add the phrase "or the Agent" after the
phrase "the Trustee" each place it appears in the first and second sentences
thereof.
Article III is modified by adding the following new Section 3.11 to the end
-----------
thereof:
Section 3.11 Program Costs. So long as CompuCom is the Servicer, the
-------------
Servicer shall pay from its servicing compensation all Program Costs as they
arise.
Section 4.02 is modified to add the following:
------------
(d) Establishment of Trust Accounts. (i) The Trustee shall cause to
-------------------------------
be established and maintained in the name of the Trustee, on behalf of the
Trust, (x) for the benefit of the Series 1999-1 Certificateholders and (y) for
the benefit, subject to the prior and senior interest of the Series 1999-1
Certificateholders, of the holder of the Transferor Certificate, (A) a
subaccount of the Collection Account (the "Series 1999-1 Collection
------------------------
Subaccount"), which subaccount is the Series Collection Subaccount with respect
- ----------
to Series 1999-1; (B) two subaccounts of the Series 1999-1 Collection
Subaccount: (1) the Series 1999-1 Principal Collection Sub-subaccount, and (2)
the Series 1999-1 Non-Principal Collection Sub-subaccount (respectively, the
"Series 1999-1 Principal Collection Sub-subaccount" and the "Series 1999-1 Non-
------------------------------------------------- ------------------
Principal Collection Sub-subaccount"); (C) a subaccount of the Series 1999-1
- -----------------------------------
Principal Collection Sub-subaccount (the "Series 1999-1 Principal Collection
----------------------------------
Subordinated Sub-subaccount"); and (D) a subaccount of the Series 1999-1 Non-
- ---------------------------
Principal Collection Sub-subaccount (the "Series 1999-1 Accrued Interest Sub-
-----------------------------------
subaccount"). The subaccounts and sub-subaccounts established pursuant to this
- ----------
Section 4.02(d)(i) and listed on Schedule 2 attached to the Supplement with
- ------------------ ----------
respect to Series 1999-1 shall be referred to collectively as the "Trust
-----
Accounts". Each Trust Account shall bear a designation indicating that the funds
- --------
deposited therein are held for the benefit of the Persons (and for each such
Person, to the extent) set forth in clauses (x) and (y) above. The Trustee, on
----------- ---
behalf of the Series 1999-1 Certificateholders, shall possess all right, title
and interest in all funds from time to time on deposit in, and all Eligible
Investments credited to, the Trust Accounts and in all proceeds thereof. The
Trust Accounts shall be under the sole dominion and control of the Trustee for
the exclusive benefit of the Persons (and, for each such Person to the extent)
set forth in clauses (x) and (y) above.
----------- ---
(ii) All Eligible Investments in the Trust Accounts shall be held by the
Trustee, on behalf of the Series 1999-1 Certificateholders, for the exclusive
benefit of the Persons (and, for each such Person, to the extent) set forth in
clauses (x) and (y) of Section 4.02(d)(i) above. Funds on deposit in a Trust
- ----------- --- ------------------
Account shall, at the direction of the Servicer, be invested together with funds
held in other Trust Accounts. After giving effect to any distribution to the
Transferor pursuant to Section 4.04(c), amounts on deposit and available for
---------------
investment in the Trust Accounts shall be
7
<PAGE>
invested by the Trustee at the written direction of the Servicer in Eligible
Investments that mature, or that are payable or redeemable upon demand of the
holder thereof, so that funds will be available on or prior to the Business Day
immediately preceding the related Payment Date. If the Trustee does not receive
written direction from the Servicer, any such amounts on deposit shall be
invested in the investments described in subclause (iv) of the definition of
Eligible Investments.
Section 4.03(a)(i) is modified in its entirety to read as follows:
------------------
(i) The Servicer will allocate, pay or deposit all Collections with
respect to the Receivables for each Business Day as described in this Article
-------
IV. Except as provided below, no later than the Business Day following the
- --
receipt of any Collections (or, in the case of checks received directly by the
Servicer, two Business Days after receipt), the Servicer shall deposit (or cause
to be deposited) such Collections into the Concentration Account and shall
allocate and transfer such Collections as required by Section 4.03(a)(ii) below.
-------------------
In the event a Servicer Default or an Early Amortization Event shall have
occurred, the Servicer shall cause (unless the Control Party and the Servicer
shall have agreed in writing that the Servicer need not comply with this
sentence for the period or periods set forth in such agreement) all Collections
to be remitted directly (without deposit into the Concentration Account) to the
Collection Master Subaccount within two Business Days after receipt of such
Collections.
Section 4.04 is modified in its entirety to read as follows:
------------
Section 4.04. Daily Allocations. (a) The portion of Collections allocated
-----------------
to the Series 1999-1 Investor Certificates pursuant to this Article IV shall be
----------
allocated and distributed as set forth in this Article IV by the Trustee based
----------
solely on the information provided it by the Servicer in the Daily Report (upon
which the Trustee may conclusively rely unless otherwise notified by the Control
Party).
(b)(i) On each Business Day, (x) an amount equal to the Accrued Expense
Amount for such day shall be transferred by the Trustee from the Series 1999-1
Collection Subaccount to the Series 1999-1 Non-Principal Collection Sub-
subaccount and (y) an amount equal to the Monthly Interest Amount for such day
shall be transferred by the Trustee from the Series 1999-1 Non-Principal
Collection Sub-subaccount to the Series 1999-1 Accrued Interest Sub-subaccount.
(ii) Following the transfers pursuant to clause (i) above, on each Business
----------
Day any remaining funds on deposit in the Series 1999-1 Collection Subaccount
shall be transferred by the Trustee to the Series 1999-1 Principal Collection
Sub-subaccount.
(c)(i) On each Business Day during the Revolving Period (including Payment
Dates), after giving effect to all allocations of Collections on such Business
Day, amounts on deposit in the Series 1999-1 Principal Collection Sub-subaccount
shall (but only to the extent that the Trustee has received a Daily Report which
reflects the receipt of the Collections on deposit
8
<PAGE>
therein) be distributed as indicated on the Daily Report by the Trustee in the
following order of priority: (A) to be retained in the Series 1999-1 Principal
Collection Sub-subaccount to the extent the Series 1999-1 Target Receivables
Amount exceeds the Series 1999-1 Allocated Receivables Amount; (B) to any
Successor Servicer, any Additional Servicing Fee due and arising; (C) to the
Series 1999-1 Certificateholders to the extent of any Commitment Fees and
Program Fees that were accrued and unpaid as of the previous Payment Date; (D)
if CompuCom is not the Servicer, to the payment of all accrued and unpaid
Program Costs; (E) to the Agent to the extent of any accrued and unpaid Article
IV Costs; and (F) subject to the last sentence of Section 4.04(d), (x) to the
---------------
Transferor in accordance with the directions contained in the Daily Report or
(y) at the election of the Transferor by written notice to the Servicer, the
Agent and the Trustee, (A) to be retained in the Series 1999-1 Principal
Collection Sub-subaccount, an amount specified in such notice (which amount may
be distributed at the direction of the Transferor) or (B) to the Series
Principal Collection Sub-subaccount of another Series.
(ii) On each Business Day during the Early Amortization Period (including
Payment Dates) (after giving effect to all allocations of Collections on such
Business Day and transfers pursuant to Sections 4.04(d) and (e)), amounts on
---------------- ----
deposit in the Series 1999-1 Principal Collection Sub-subaccount shall (but only
to the extent that the Trustee has received a Daily Report which reflects the
receipt of the Collections on deposit therein) be distributed as indicated on
the Daily Report by the Trustee in the following order of priority: (A) to be
retained in the Series 1999-1 Principal Collection Sub-subaccount, an amount up
to the Series 1999-1 Aggregate Invested Amount; (B) to any Successor Servicer,
any Additional Servicing Fee due and arising; and (C) the remainder of such
funds shall be distributed by the Trustee in accordance with clauses (B) through
-----------
(E) of Section 4.04(c)(i) above.
- --- ------------------
(d) On each Business Day during the Early Amortization Period (including
Payment Dates), the Trustee shall transfer from the Series 1999-1 Principal
Collection Sub-subaccount to the Series 1999-1 Principal Collection Subordinated
Sub-subaccount out of amounts deposited into the Series 1999-1 Principal
Collection Sub-subaccount (prior to any withdrawal pursuant to Section 4.04(c)
---------------
above) the product of (i) the Series 1999-1 Subordinated Percentage and (ii) the
amount of funds deposited into the Series 1999-1 Principal Collection Sub-
subaccount on such day (other than funds transferred to the Series 1999-1
Principal Collection Sub-subaccount pursuant to Section 4.04(e) below). Upon
---------------
termination of the Early Amortization Period, amounts remaining on deposit in
the Series 1999-1 Principal Collection Subordinated Sub-subaccount shall be
transferred to the Series 1999-1 Principal Collection Sub-subaccount to the
extent of the Adjusted Invested Amount and the remainder shall be distributed in
accordance with clauses (B) through (E) of Section 4.04(c)(i) above. The Trustee
----------- --- ------------------
shall not distribute any funds from the Series 1999-1 Principal Collection Sub-
subaccount and the Series 1999-1 Principal Collection Subordinated Sub-
subaccount to the Transferor (x) if any Prospective Early Amortization Event has
occurred and is continuing or (y) during the Early Amortization Period until the
Adjusted Invested Amount has been reduced to zero and all other amounts owing
under this Supplement have been paid in full.
9
<PAGE>
Agreement constitutes a valid sale or contribution to the Transferor of all
of the right, title and interest of CompuCom in and to the Receivables now
existing or hereafter created and in the Related Property and all monies
due or to become due with respect thereto (other than proceeds (as such
term is defined in the UCC) of returned inventory) and all proceeds (as
defined in the UCC) of each Receivable and the Related Property.
(B) Upon the filing of the financing statements described in Section
-------
2.01 and, in the case of the Receivables hereafter created and the proceeds
----
thereof (other than proceeds (as such term is defined in the UCC) of
returned inventory), upon the creation thereof, the Trust shall have a
first priority perfected security interest (as such term is defined in the
UCC) in such property free and clear of any Lien or interest of any Person,
except as otherwise contemplated by this Agreement. Except as otherwise
provided in this Agreement, neither the Transferor nor any Person claiming
through or under the Transferor has any claim to or interest in the
Collection Account or any Series Account. Nothwithstanding anything to the
contrary in this Agreement, the Trust shall have no interest in, to and
under proceeds (as defined in the UCC) of returned inventory relating to
the Receivables.
(b) Notice of Breach. The representations and warranties set forth in this
----------------
Section 2.04 shall survive the transfer and assignment of the Trust Assets to
- ------------
the Trust. Upon discovery by the Transferor, the Servicer or a Responsible
Officer of the Trustee of a breach of any of the representations and warranties
set forth in this Section 2.04, the Person discovering such breach shall give
------------
written notice to the other parties hereto within three Business Days of such
discovery.
(c) Transfer Upon Breach of Warranty. In the event of a breach with
--------------------------------
respect to a Receivable of any of the representations and warranties set forth
in Section 2.03(i) or 2.04(a) (other than Section 2.04(a)(iv)(A)), and (I) as a
--------------- ------- -----------------------
result thereof such Receivable is an Ineligible Receivable, and the exclusion of
such Receivable from the Aggregate Eligible Unpaid Balance would cause the
Aggregate Eligible Unpaid Balance to be less than the Aggregate Target
Receivables Amount, or (II) such breach has a material adverse effect on the
Investors' Interest of any Series in any Receivable, in each case as determined
without regard to any Enhancement with respect to any Series, and such material
adverse effect continues for 30 days after the earlier to occur of the discovery
of such breach by the Transferor or the Servicer or receipt of written notice of
such breach by the Transferor or the Servicer, then the Transferor shall cause
such Receivable to be removed from the Trust (a "Reconveyed Receivable"),
---------------------
without the need of any formal or other instrument of assignment, prior to the
second Business Day next following (x) the day on which such Aggregate Target
Deficiency Amount exists or (y) such 30th day, as the case may be, by making or
causing to be made (on a pro rata basis based on their respective Target
Deficiency Amounts (if any)) a deposit in the Series Principal Collection
Sub-subaccount of each outstanding Series in immediately available funds in an
aggregate amount equal to the Transfer Deposit Amount for such Reconveyed
Receivable. Such deposit(s) shall be considered a payment in full of the
Reconveyed Receivable during the Settlement Period to which such
8
<PAGE>
Section 4.07 is modified in its entirety to read as follows:
------------
Section 4.07 Distributions. (a) On each Payment Date, the Servicer shall
-------------
direct the Trustee to distribute (and the Trustee shall distribute) to the
Series 1999-1 Certificateholders, from amounts on deposit in the Series 1999-1
Accrued Interest Sub-subaccount to the extent funds are available, an amount
equal to the sum of (i) the Monthly Interest Amount payable on such Payment Date
less any portion of such Monthly Interest Amount resulting from an increase in
the Eurodollar Rate because of an increase in the Eurodollar Rate Reserve
Percentage, plus (ii) the amount of any Monthly Interest Amount previously due
----
but not distributed to the Series 1999-1 Certificateholders on a prior Payment
Date less any portion of such Monthly Interest Amount resulting from an increase
in the Eurodollar Rate because of an increase in the Eurodollar Rate Reserve
Percentage, plus (iii) the amount of any Additional Interest for such Payment
----
Date and any Additional Interest previously due but not distributed to the
Series 1999-1 Certificateholders on a prior Payment Date; plus (iv) any portion
----
of the Monthly Interest Amount in clauses (i) or (ii) above which is not payable
pursuant to such clauses because such amount results from an increase in the
Eurodollar Rate because of an increase in the Eurodollar Rate Reserve
Percentage; provided, however, that during the Early Amortization Period or if
-------- -------
the Series 1999-1 Allocated Receivables Amount is less than the Series 1999-1
Target Receivables Amount, no amounts will be distributed pursuant to clauses
-------
(iii) or (iv) until repayment in full of the Series 1999-1 Aggregate Invested
- -------------
Amount and all amounts payable pursuant to clauses (i) and (ii) above have been
paid.
(b) On each Payment Date, the Servicer shall direct the Trustee to apply
(and the Trustee shall apply) funds on deposit in the Series 1999-1 Non-
Principal Collection Sub-subaccount after the distributions referred to in
Section 4.07(a) on such Payment Date in the following order of priority to the
- ---------------
extent funds are available:
(i) an amount equal to the Monthly Trustee Fee shall be paid to
the Trustee;
(ii) an amount equal to the Servicing Fee for the Accrual Period
ending on such Payment Date shall be paid to the Servicer (less any amount
payable to the Trustee pursuant to this Agreement or to a Lock-Box Bank or
Wire Transfer Receipt Account Bank on account of customary fees and
returned items which shall be paid to the Trustee or any Lock-Box Bank or
Wire Transfer Receipt Account Bank); provided, that if CompuCom is the
--------
Servicer, the amounts required to be paid pursuant to clauses (ii) through
-------
(v) below shall be paid prior to the Servicing Fee;
---
(iii) an amount equal to the lesser of (a) Transition Costs and (b)
$100,000 shall be paid to any Successor Servicer;
(iv) an amount equal to the Program Fee for the Accrual Period
ending on such Payment Date, plus any portion of the Program Fee previously
due but not distributed to the Agent, shall be paid to the Agent;
11
<PAGE>
(v) an amount equal to the Commitment Fee for the Accrual Period
ending on such Payment Date, plus any portion of the Commitment Fee
previously due but not distributed to the Agent, shall be paid to the
Agent; and
(vi) an amount equal to the Transition Costs not paid pursuant to
subsection (iii) above shall be paid to any Successor Servicer;
provided, however, (A) during the Early Amortization Period, no funds shall be
- -------- -------
applied pursuant to clauses (iv) through (vi) above until repayment in full of
------------ ----
the Series 1999-1 Aggregate Invested Amount and (B) during the Revolving Period,
no funds shall be applied pursuant to clauses (ii) through (vi) above unless the
------------ ----
Series 1999-1 Allocated Receivables Amount equals or exceeds the Series 1999-1
Target Receivables Amount.
Any remaining amount on deposit in the Series 1999-1 Non-Principal
Collection Sub-subaccount not applied pursuant to clauses (i) through (vi) above
----------- ----
shall be deposited in the Transferor Collection Subaccount; provided, however,
-------- -------
that during the Early Amortization Period or if the Series 1999-1 Allocated
Receivables Amount is less than the Series 1999-1 Target Receivables Amount,
such remaining amounts shall be deposited in the Series 1999-1 Principal
Collection Sub-subaccount for distribution in accordance with Section
-------
4.07(c)(ii) below.
- -----------
(c)(i) On each Payment Date during the Revolving Period, the Servicer shall
direct the Trustee to apply (and the Trustee shall apply) amounts on deposit in
the Series 1999-1 Principal Collection Sub-subaccount in accordance with Section
-------
4.04(c)(i);
- ----------
(ii) On each Payment Date during the Early Amortization Period, the Trustee
will apply amounts retained on deposit in the Series 1999-1 Principal Collection
Sub-subaccount pursuant to Section 4.04(c)(ii) as of the last day of the related
-------------------
Settlement Period in the following order of priority:
(1) an amount equal to the Series 1999-1 Monthly Principal Payment for
such Payment Date shall be distributed to the Series 1999-1
Certificateholders;
(2) an amount equal to the Additional Servicing Fee, if any, due and
arising shall be distributed to the Successor Servicer; and
(3) the remaining amount on deposit in the Series 1999-1 Principal
Collection Sub-subaccount as of the last day of the related Settlement
Period shall be applied in accordance with clauses (B) through (E) of
----------- ---
Section 4.04(c)(i).
------------------
Article III is amended by adding the following section at the end thereof:
-----------
Section 7.04 Liabilities. The Transferor agrees to pay, directly to the
-----------
injured party, subject to the next sentence, the entire amount of any losses,
claims, damages or liabilities (other than those incurred by a 1999-1
Certificateholder as a result of defaults on the Receivables and
12
<PAGE>
shall be at the cost and expense of the party or parties making such examination
or visit except as otherwise provided in any Enhancement Agreement and except as
set forth in any Supplement.
(d) Continuous Perfection; Computer Records. The Transferor shall not
---------------------------------------
change its name, identity or structure in any manner which might make any
financing or continuation statement filed hereunder misleading within the
meaning of Section 9-402(7) of the UCC (or any other then applicable provision
of the UCC) unless the Transferor shall have given the Trustee at least 90 days'
prior written notice thereof and shall have taken all action 60 days prior to
making such change (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or advisable to amend such financing statement or
continuation statement so that it is not misleading. The Transferor shall not
change its chief executive office or change the location of its principal
records concerning the Receivables, the Related Property or the Collections from
the locations specified in Section 2.03(j) unless it has given the Trustee at
---------------
least 30 days' prior written notice of its intention to do so and has taken such
action as is necessary or advisable to cause the interest of the Trustee in the
Receivables and the other Trust Assets to continue to be perfected with the
priority required by this Agreement. The Transferor will at all times maintain
its principal executive office and any other office at which it maintains
records relating to the Receivables and the Related Property within the United
States of America. The Transferor will at all times, at its expense, indicate on
its books and records (including any computer files) that all Receivables and
Related Property have been transferred to the Trust pursuant to this Agreement.
(e) Extension or Amendment of Receivables. Provided no Early Amortization
-------------------------------------
Event shall have occurred and be continuing, and subject to Section 3.09, the
------------
Transferor shall only extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Contracts
related thereto, or permit the Servicer to do any of the foregoing, in
accordance with the Credit and Collection Policy.
(f) Reports. The Transferor shall furnish to the Trustee and to each
-------
Rating Agency as soon as possible and in any event within two Business Days
after the occurrence of each Early Amortization Event or the Transferor's
knowledge of a Prospective Early Amortization Event, the statement of one of the
officers of the Transferor primarily responsible for administering the
transactions contemplated by this Agreement setting forth the details of such
Early Amortization Event or Prospective Early Amortization Event and the action
taken, or which the Transferor proposes to take, with respect thereto.
11
<PAGE>
1999-1 Allocated Receivables Amount is less than the Series 1999-1 Target
Receivables Amount for one Business Day and Majority Series 1999-1
Certificateholders affirmatively vote to cause the Amortization Period to
commence or (iii) the Series 1999-1 Allocated Receivables Amount is less
than the Series 1999-1 Target Receivables Amount for one to five Business
Days and Series 1999-1 Certificateholders having, in the aggregate, more
than 66.67% of the Aggregate Commitment Amount do not vote to continue the
Revolving Period notwithstanding such event within ten Business Days of the
occurrence of such event;
(xi) CompuCom shall cease to own all of the outstanding capital
stock of the Transferor, free and clear of all Liens, other than a Lien
arising under the Credit Agreement;
(xii) the Series 1999-1 Aggregate Invested Amount is not paid in
full on the Scheduled Maturity Date;
(xiii) the average of the Sales-Based Default Ratios as of the three
most recent Determination Dates shall exceed 7%;
(xiv) a Purchase Termination Event shall occur and be continuing;
(xv) any event that has had, or could reasonably be expected to
have, a Material Adverse Effect shall occur and, solely in the case of a
material adverse effect described in clause (i) of the definition thereof
----------
with respect to CompuCom, such circumstance has continued for more than 90
days;
(xvi) the Series 1999-1 Certificates are not rated at least "AA" by
S&P on or before August 31, 1999; or
(xvii) the Delinquency Ratio as of any Cut-Off Date shall exceed 10%;
provided, however, that if the Aggregate Eligible Unpaid Balance is at
-------- -------
least 142% of the Series 1999-1 Target Receivables Amount on such Cut-Off
Date, the circumstance described in this subparagraph (xvii) for such Cut-
Off Date shall not constitute an Early Amortization Event; or
(xviii) the average of the Delinquency Ratios as of the three most
recent Determination Dates shall not exceed 15%.
In clause (a) of Section 9.01, the phrase "subparagraphs (i), (ii) or
---------- ------------ ----------------- ----
(iii)" is deleted and the phrase "subparagraphs (i), (ii), (iii), (viii), (ix),
- ----- ----------------- ---- ----- ------ ----
(x), (xi), (xiii), (xiv), (xv), (xvi), and (xvii)" is substituted therefor.
- --- ---- ------ ----- ---- ----- ------
In clause (b) of Section 9.01, the phrase "subparagraphs (iv), (v), (vi) or
---------- ------------ ------------------ --- ----
(vii)" is deleted and the phrase "subparagraphs (iv), (v), (vi), (vii), or
- ----- ------------------ --- ---- -----
(xviii)" is substituted therefor.
- -------
14
<PAGE>
The following new clause (c) is hereby added to Section 9.01:
---------- ------------
(c) in the case of any event described in subparagraph (xii), an Early
------------------
Amortization Event with respect to Series 1999-1 shall occur without any notice
or other action on the part of any Control Party or any Certificateholder
immediately upon the occurrence of such event.
Article X is hereby modified as follows:
---------
Section 10.01 is hereby modified by deleting "or" after the semicolon at
-------------
the end of clause (c), and adding the following new clauses (e), (f) and (g):
---------- ---------------- ---
(e) if, while CompuCom is the Servicer, at the end of the most recent
fiscal quarter of CompuCom its Tangible Net Worth is less than the sum of
(a) $120,000,000, plus (b) 75% of cumulative Consolidated Net Income for
the period beginning on the Closing Date for the Series 1999-1 and ending
on the date of calculation (provided that if Consolidated Net Income is
less than zero for any Fiscal Year, or for the completed portion of the
then-current Fiscal Year, Consolidated Net Income for such Fiscal Year or
portion shall be deemed to be zero) plus (c) 100% of the net cash proceeds
received by CompuCom after the Closing Date for the Series 1999-1 as a
result of any offering of equity securities (or securities convertible into
or exchangeable for equity securities) plus (d) an amount equal to the
Tangible Net Worth of any Person that becomes a Subsidiary of CompuCom
after the Closing Date for the Series 1999-1 or any Person (other than
CompuCom or a Subsidiary) is merged with or consolidated with or into
CompuCom or any Subsidiary after the Closing Date for the Series 1999-1 or
any Person substantially all of the assets of which were acquired by
CompuCom or any Subsidiary after the Closing Date for the Series 1999-1, in
each case to the extent the purchase price paid therefor by CompuCom or the
applicable Subsidiary is paid in equity securities of CompuCom or any
Subsidiary.
(f) A default shall have occurred and be continuing under the Credit
Agreement or any instrument or agreement evidencing, securing or providing
for the issuance of indebtedness for borrowed money in excess of $1,000,000
of, or guaranteed by, CompuCom or any Subsidiary thereof, which default is
a payment default or if unremedied, uncured, or unwaived (with or without
the passage of time or the giving of notice or both) would permit
acceleration of the maturity of such indebtedness and such default shall
have continued unremedied, uncured or unwaived for a period long enough to
permit such acceleration; or any default under any agreement or instrument
relating to the purchase of receivables of CompuCom or any Subsidiary
thereof (other than this Agreement), if the effect of such default is to
terminate, or permit the termination of, the commitment of any party to
such agreement or instrument to purchase receivables or the right of
CompuCom or such Subsidiary to reinvest in receivables the principal amount
paid by any party to such agreement or instrument for an interest in
receivables.
(g) if CompuCom breaches the covenants of Section 8.16 hereof.
15
<PAGE>
Section 10.01 is further modified to add the following after the last
-------------
paragraph thereof:
Notwithstanding anything to the contrary in this Agreement, during the
continuance of an Early Amortization Event, the Control Party shall have the
right (i) to deliver a Termination Notice and designate as a Successor Servicer
a party of the Control Party's choice, which Successor Servicer shall be
approved by the Trustee, which approval shall not be unreasonably withheld, and
(ii) to instruct the Trustee to take other actions acceptable to the Control
Party in respect to the servicing of the Receivables, including (x) notification
of Obligors, in substantially the form attached hereto as Exhibit B, and (y)
---------
after consultation with CompuCom, initiation of lawsuits against Obligors solely
with respect to Receivables which have not been paid for at least 90 days after
the Due Date for such Receivables.
ARTICLE III
DISTRIBUTIONS AND REPORTS
SECTION 3.1 Distributions. The Trustee shall distribute to the Agent by
-------------
wire transfer an amount equal to the amount to be distributed to the Series
1999-1 Certificateholders as contemplated by Section 5.01 of the Agreement by
------------
11:00 a.m. (New York City time) on each Payment Date in accordance with Section
-------
8.4 hereof.
- ---
SECTION 3.2 Reports, Statements and Notices. In addition to their
-------------------------------
obligations under the Agreement, the Transferor and the Servicer agree as
follows:
(a) Daily Reports. If requested by the Agent, the Servicer shall
-------------
provide the Agent with a Daily Report on the same day that it provides the
same to the Trustee in accordance with Section 3.04(b)(ii) of the
-------------------
Agreement. The Agent shall make copies of the Daily Report available to
the Series 1999-1 Certificateholders at their reasonable request at the
Agent's office in Pittsburgh, Pennsylvania.
(b) Monthly Settlement Statements. The Servicer shall provide the
-----------------------------
Agent and each Rating Agency with a Settlement Statement on the same day
that it provides the same to the Trustee in accordance with Section 3.04(c)
---------------
of the Agreement. The Agent shall forward a copy of each Settlement
Statement to any Series 1999-1 Certificateholder upon request by such
Series 1999-1 Certificateholder.
(c) Early Amortization Event/Distribution of Principal Notices.
----------------------------------------------------------
Upon the occurrence of an Early Amortization Event with respect to Series
1999-1, the Transferor or the Servicer, as the case may be, shall give
prompt written notice thereof to the Trustee, each Rating Agency and the
Agent within one Business Day of obtaining knowledge thereof. As promptly
as reasonably practicable after its receipt of notice of the occurrence of
any Early Amortization Event with respect to Series 1999-1, the Agent shall
give notice thereof to each Series 1999-1 Certificateholder. In addition,
two Business Days preceding each day on which a distribution of principal
is to be made
16
<PAGE>
during the Early Amortization Period, the Servicer shall provide to the
Agent and each Rating Agency and shall direct the Agent to send notice to
each Series 1999-1 Certificateholder, which notice shall set forth the
amount of principal to be distributed on the related date to the Series
1999-1 Certificateholders with respect to the outstanding Series 1999-1
Certificates.
(d) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within 46 days after the end of each of the first three quarters of
each fiscal year CompuCom will furnish to the Agent and the Trustee (unless
the following information is readily available on-line, in which case no
copies need to be delivered unless requested by the Agent or the Trustee)
copies of the financial statements of CompuCom and its Subsidiaries
prepared on a consolidated basis, consisting of at least a balance sheet as
at the close of such quarter and statements of earnings for such quarter
and for the period from the beginning of the fiscal year to the close of
such quarter, in each case in conformity with GAAP (except for footnote
disclosures) and fairly presenting the consolidated financial position and
results of operations of CompuCom and its Subsidiaries for such period,
duly certified by the principal financial officer of CompuCom.
(e) Annual Financial Statements. As soon as available and in any
---------------------------
event within 91 days after the end of each fiscal year CompuCom will
furnish to the Agent and the Trustee (unless the following information is
readily available on-line, in which case no copies need to be delivered
unless requested by the Agent or the Trustee) copies of the audited
financial statements of CompuCom and its Subsidiaries prepared on a
consolidated basis, consisting of at least a balance sheet of CompuCom and
its Subsidiaries for such year and statements of earnings for such fiscal
year, in each case in conformity with GAAP and fairly presenting the
consolidated financial position and results of operations of CompuCom and
its Subsidiaries for such period, together with the report of its
independent auditors on such financial statements.
(f) Annual Holders' Tax Statement. On or before January 31 of each
-----------------------------
calendar year, beginning with calendar year 2000, the Trustee shall deliver
to the Paying Agent, which shall thereupon furnish to each Person who at
any time during the preceding calendar year was a Series 1999-1
Certificateholder, a statement prepared by the Servicer containing the
information as specified in Section 5.02(b) of the Agreement.
---------------
(g) Litigation. Each of Transferor and CompuCom will furnish to the
----------
Agent, as soon as possible and in any event within three Business Days of
Transferor's or CompuCom's actual knowledge thereof, notice of (i) any
litigation, investigation or proceeding which may exist at any time which
could be reasonably expected to have a Material Adverse Effect and (ii) any
material adverse development in previously disclosed litigation.
17
<PAGE>
(h) Change in Credit and Collection Policy. Each of the Transferor
--------------------------------------
and CompuCom will furnish to the Agent, prior to its effective date, notice
of any material change in the Credit and Collection Policy.
(i) Other Information. Each of Transferor and CompuCom will furnish
-----------------
to the Agent copies of all other notices, requests and information
furnished to the Trustee under the Agreement and such other information
respecting the Receivables or the condition or operations, financial or
otherwise, of CompuCom or the Transferor or any of its Affiliates as the
Agent may from time to time reasonably request.
ARTICLE IV
CHANGE IN CIRCUMSTANCES
SECTION 4.1 Requirements of Law. (a) Notwithstanding any other
-------------------
provision herein, if after the Issuance Date the adoption of or any change in
any law or in the interpretation or application thereof or compliance by any
Series 1999-1 Certificateholder or other Affected Party with any request or
directive (whether or not having the force of law) from any central bank or
other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Series 1999-1 Certificateholder or other
Affected Party to any tax of any kind whatsoever with respect to the
Transaction Documents or change the basis of taxation of payments to any
Series 1999-1 Certificateholder or other Affected Party in respect thereof
(except for Non-Excluded Taxes covered by Section 4.2 of this Supplement
-----------
and changes in the rate of taxes on the overall or branch net income of
such Series 1999-1 Certificateholder or franchise taxes assessed in lieu of
a tax on overall or branch net income of such Series 1999-1
Certificateholder);
(ii) shall impose, modify or deem applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Series 1999-1 Certificateholder or other Affected Party;
and the result of any of the foregoing is to increase the cost to such Series
1999-1 Certificateholder or other Affected Party by an amount which such Series
1999-1 Certificateholder or other Affected Party deems to be material, of
making, converting into, continuing or maintaining any portion of the Invested
Amount, or providing funding or any commitment under any Program Support
Agreement or to reduce any amount receivable hereunder or under any Program
Support Agreement in respect thereof, then, in any such case, the Trustee will
pay to such Series 1999-1 Certificateholder or such other Affected Party, as the
case may be, upon written demand, from amounts otherwise distributable to the
Transferor pursuant to Section 4.03(a)(ii) of the Agreement or pursuant to
-------------------
Section 4.04(c)(i) of this
- ------------------
18
<PAGE>
Supplement, such additional amount or amounts as will compensate such Series
1999-1 Certificateholder or such other Affected Party, as the case may be, for
such additional costs incurred or reduced amount receivable.
(b) If any Series 1999-1 Certificateholder or other Affected Party shall
have determined after the Issuance Date that the adoption of or any change in
any law, rule, regulation or guideline regarding capital adequacy or in the
interpretation, administration or application thereof, or compliance by such
Series 1999-1 Certificateholder or other Affected Party or any corporation
controlling such Series 1999-1 Certificateholder or other Affected Party with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
shall or would have the effect of reducing the rate of return on such Series
1999-1 Certificateholder's, such other Affected Party's or such corporation's
capital as a consequence of its obligations hereunder or under any Program
Support Agreement to a level below that which such Series 1999-1
Certificateholder, such other Affected Party or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Series 1999-1 Certificateholder's, such other Affected Party's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Series 1999-1 Certificateholder or such other Affected Party to be
material, then from time to time, the Trustee shall promptly pay to such Series
1999-1 Certificateholder or such other Affected Party, as the case may be, upon
written demand, from amounts otherwise distributable to the Transferor pursuant
to Section 4.03(a)(ii) of the Agreement or pursuant to Section 4.04(c)(i) of
------------------- ------------------
this Supplement, such additional amount or amounts as will compensate such
Series 1999-1 Certificateholder or such other Affected Party, as the case may
be, for such reduction.
(c) If any Series 1999-1 Certificateholder or other Affected Party becomes
entitled to claim any additional amounts pursuant to Section 4.1(a) or (b)
-------------- ---
above, it shall promptly notify the Transferor (with a copy to the Agent) of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this Section 4.1 submitted by such Series
-----------
1999-1 Certificateholder or such other Affected Party to the Transferor (with a
copy to the Agent and the Trustee) shall be conclusive in the absence of
manifest error. The agreements in this Section 4.1 shall survive the
-----------
termination of this Supplement and the Agreement and the payment of all amounts
payable hereunder.
(d) Failure or delay on the part of any Series 1999-1 Certificateholder or
other Affected Party to demand compensation for any increased costs or reduction
in amounts receivable or reduction in return on capital shall not constitute a
waiver of such Person's right to demand such compensation. The protection of
this Section 4.1 shall be available to each Series 1999-1 Certificateholder and
-----------
each other Affected Party regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or conditions which shall have occurred or been imposed.
SECTION 4.2 Taxes. (a) All payments under this Supplement to the Agent
-----
or to any Series 1999-1 Certificateholder shall be made free and clear of, and
without deduction or
19
<PAGE>
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority ("Taxes"), excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Agent or any Series 1999-1
Certificateholder as a result of a present or former connection between the
Agent or such Series 1999-1 Certificateholder and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Agent or such Series 1999-1 Certificateholder having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Supplement). If any such non-excluded Taxes ("Non-Excluded Taxes") are required
------------------
to be withheld from any amounts payable to the Agent or any Series 1999-1
Certificateholder hereunder, the amounts so payable to the Agent or such Series
1999-1 Certificateholder shall be increased by the Transferor to the extent
necessary to yield to the Agent or such Series 1999-1 Certificateholder (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Supplement; provided,
--------
however, that the Transferor shall not be required to increase any such amounts
- -------
payable to any Series 1999-1 Certificateholder that is not created in or
organized under the laws of the United States of America or a state thereof if
such Series 1999-1 Certificateholder fails to comply with the requirements of
paragraph (c) of this Section 4.2. Whenever any Non-Excluded Taxes are paid by
- ------------- -----------
the Transferor as promptly as possible thereafter the Transferor shall send to
the Agent for its own account or for the account of such Series 1999-1
Certificateholder, as the case may be, a certified copy of an original official
receipt received by the Transferor showing payment thereof. If the Transferor
fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Transferor shall indemnify the Agent and the Series
1999-1 Certificateholders for any incremental taxes, interest or penalties that
may become payable by the Agent or any Series 1999-1 Certificateholder as a
result of any such failure; such indemnification shall be paid promptly by the
Transferor upon receipt of a written demand from the Agent or any such Series
1999-1 Certificateholder from amounts otherwise distributable to the Transferor
pursuant to Section 4.03(a)(ii) of the Agreement or pursuant to Section
------------------- -------
4.04(c)(i) of this Supplement. The agreements in this Section 4.2 shall survive
- ---------- -----------
the termination of this Supplement and the payment of the Series 1999-1
Aggregate Invested Amount and all other amounts payable hereunder.
(b) The Transferor will indemnify the Agent or any Series 1999-1
Certificateholder for the full amount of Non-Excluded Taxes (including any Non-
Excluded Taxes imposed on amounts payable under this Section 4.2, but excluding
-----------
any Non-Excluded Taxes imposed with respect to any Series 1999-1
Certificateholder not organized under the laws of the United States of America
or a state thereof if such Series 1999-1 Certificateholder fails to comply with
the requirement of paragraph (c) of this Section 4.2) paid by the Agent or such
-----------
Series 1999-1 Certificateholder and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto; such indemnification
shall be paid promptly by the Trustee upon receipt of a written demand therefor
from the Agent or any such Series 1999-1 Certificateholder from amounts
otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the
-------------------
Agreement or pursuant to Section 4.04(c)(i) of this Supplement.
------------------
20
<PAGE>
(c) Each Series 1999-1 Certificateholder will, prior to the date on which
the first interest payment on the Series 1999-1 Certificate is due to such
holder:
(i) deliver to the Transferor and the Agent (A) if such Series 1999-
1 Certificateholder is created in or organized under the laws of a
jurisdiction outside the United States, two duly completed copies of United
States Internal Revenue Service Form 1001 or new Form W-8BEN or Internal
Revenue Service Form 4224 or new Form W-8ECI, or successor applicable form,
as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be, before the first Interest
Payment Date (or in the case of an Acquiring Series 1999-1
Certificateholder or an Initial Assignee, the date on which it acquires its
interest);
(ii) deliver to the Transferor and the Agent two further copies of
any such form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it
to the Transferor; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Transferor or
the Agent or as may be required to confirm the availability of any
applicable exemption from United States Federal, state or local withholding
taxes;
unless in any such case any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Series 1999-1
Certificateholder from duly completing and delivering any such form with respect
to it and such Series 1999-1 Certificateholder so advises the Transferor and the
Agent. Each Series 1999-1 Certificateholder so organized or incorporated shall
be deemed to have certified at the time it first becomes a Series 1999-1
Certificateholder, and thereafter to the extent provided by law, (i) in the case
of a Form 1001 or new Form W-8BEN or Form 4224 or new Form W-8ECI, that it is
entitled to receive payments under the Agreement and this Supplement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Series 1999-1
Certificateholder or a Participant pursuant to Section 8.9 of this Supplement
-----------
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms and statements required pursuant to this Section 4.2, provided
-----------
that in the case of a Participant such Participant shall furnish all such
required forms and statements to the Series 1999-1 Certificateholder from which
the related participation shall have been purchased.
(d) Notwithstanding anything to the contrary herein, each of the Agent,
Servicer, Transferor or transferring Series 1999-1 Certificateholder shall be
entitled to withhold any amount that it determines in its sole discretion is
required to be withheld pursuant to Section 1446 of the Code and such amount
shall be deemed to have been paid for all purposes of the Agreement.
21
<PAGE>
(e) Each Series 1999-1 Certificateholder and each beneficial owner
of Series 1999-1 Certificates agrees that, with respect to all taxes set forth
in Section 3.07 of the Agreement, it will report its interest in the Series
------------
1999-1 Certificates in a manner consistent with the intended characterization as
debt referred to in Section 3.07 of the Agreement.
------------
(f) Each Participant which has complied with the provisions of
Section 8.9(c) hereof shall be deemed to be a Series 1999-1 Certificateholder
- --------------
for purposes of this Section 4.2.
-----------
SECTION 4.3 Indemnity. The Transferor and the Servicer severally agree
---------
to indemnify each Series 1999-1 Certificateholder and each other Affected Party
and to hold each Series 1999-1 Certificateholder and each other Affected Party
harmless from any loss or expense which such Series 1999-1 Certificateholder or
such other Affected Party may sustain or incur as a consequence of (a) default
by the Transferor in drawing down the Increase Amount after the Transferor has
given irrevocable notice requesting the same in accordance with the provisions
of this Supplement or (b) default by the Transferor in making any prepayment in
connection with a Decrease after the Transferor has given irrevocable notice
thereof in accordance with the provisions of Section 1.6 of this Supplement or
-----------
(c) the making of a prepayment of any portion of the Series 1999-1 Aggregate
Invested Amount on any day other than a Payment Date regardless of cause
(including commencement of the Early Amortization Period or issuance of a Series
subsequent to Series 1999-1). Such indemnification may include an amount equal
to the amount of interest which would have accrued on the amount so prepaid or
not so borrowed for the period from the date of such prepayment or of such
failure to borrow to the last day of the Accrual Period in each case at the
applicable rate of interest provided for herein; provided that any payments made
--------
by the transferor pursuant to this Section shall be made the Trustee promptly
upon receipt of a written demand from such Series 1999-1 Certificateholder) or
other Affected Person from amounts otherwise distributable to the Transferor
pursuant to Section 4.03(a)(ii) of the Agreement or pursuant to Section
------------------- -------
4.04(c)(i) of this Supplement; provided, further that to the extent that any
- ---------- --------
Series 1999-1 Certificateholder actually earns interest on the amount so prepaid
during such Accrual Period and the Transferor pays the foregoing amount, such
Series 1999-1 Certificateholder shall turn over such earned interest to the
Transferor. This covenant shall survive the termination of this Supplement and
the payment of all amounts payable hereunder. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by any
Series 1999-1 Certificateholder or other Affected Person to the Transferor, the
Servicer, the Agent and the Trustee shall be conclusive absent manifest error.
SECTION 4.4 Limitation. The obligations of the Transferor under this
----------
Article IV shall be limited by Section 8.12 of this Supplement.
- ---------- ------------
22
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
23
<PAGE>
SECTION 5.1 Representations and Warranties of the Transferor and the
--------------------------------------------------------
Servicer. The Transferor and the Servicer each hereby represents and warrants to
- --------
the Trustee, the Agent and each of the Series 1999-1 Certificateholders that
each and every of their respective representations and warranties contained in
the Agreement is true and correct in all material respects as of the Issuance
Date and as of the date of each Increase, it being understood and agreed that,
notwithstanding any other provision hereof, any limitation of remedies set forth
in the Agreement with respect to any breach of any such representations and
warranties are incorporated by reference herein.
SECTION 5.2 Obligations Unaffected. The obligations of the Transferor and
----------------------
the Servicer to the Agent and the Series 1999-1 Certificateholders under this
Supplement shall not be affected by reason of any invalidity, illegality or
irregularity of any of the Receivables or any sale of any of the Receivables.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions Precedent to Effectiveness of Supplement. This
---------------------------------------------------
Supplement will become effective on the date (the "Effective Date") on which the
--------------
following conditions precedent have been satisfied:
(a) Documents. The Agent shall have received (i) an original
---------
counterpart of this Supplement executed by the other parties hereto and
(ii) a photocopy of the other Transaction Documents executed by the parties
thereto.
(b) Corporate Documents; Corporate Proceedings of the Transferor and
----------------------------------------------------------------
Servicer. The Agent shall have received from the Transferor and the
--------
Servicer complete copies of:
(i) the certificate of incorporation including all amendments
thereto, of such Person, certified as of a recent date by the
Secretary of State of Delaware;
(ii) a certificate of the Secretary or Assistant Secretary of
such Person dated the Issuance Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of such Person, as
in effect on the Issuance Date and at all times since a date prior to
the date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of the resolutions in
form and substance reasonably satisfactory to the Agent, of the Board
of Directors of such Person or committees thereof authorizing the
execution, delivery and performance of the Transaction Documents to
which it is a party and the transactions contemplated thereby, and
that such resolutions have not been amended, modified, revoked or
rescinded and are in full force and effect, (C) that
24
<PAGE>
the certificate of incorporation of such Person has not been amended
since the date of the last amendment thereto shown on the certificate
of good standing (or its equivalent) furnished pursuant to clause (c)
----------
below and (D) as to the incumbency and specimen signature of each
officer executing this Supplement or any other document delivered in
connection herewith on behalf of such Person; and
(iii) a certificate of another officer as the incumbency and
specimen signature of the Secretary or Assistant Secretary executing
the certificate pursuant to clause (ii) above.
-----------
(c) Good Standing Certificates. The Agent shall have received copies
--------------------------
of certificates of good standing, dated as of a recent date from the
Secretary of State or other appropriate authority, with respect to each of
the Transferor and the Servicer in Delaware and Texas.
(d) Filings, Registrations and Recordings. Any documents (including,
-------------------------------------
without limitation, financing statements) required to be filed in order (i)
to perfect the sale of the Receivables by CompuCom to the Transferor
pursuant to the Receivables Contribution and Sale Agreement and (ii) to
create, in favor of the Trustee, a perfected ownership/security interest in
the Trust Assets under the Agreement with respect to which an
ownership/security interest may be perfected by a filing under the UCC or
other comparable statute shall, in each case, have been properly prepared
and executed for immediate filing or have been filed in each necessary
public office and such filings are the only filings required in order to
perfect the sale of the Receivables to the Transferor under the Receivables
Contribution and Sale Agreement or to the Trust under the Agreement, as the
case may be, in such jurisdictions. The Agent shall have received evidence
reasonably satisfactory to it of each such filing, registration or
recordation and reasonably satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
(e) Lien Searches. The Agent shall have received the results of a
------------
recent search by a Person satisfactory to the Agent, of UCC and other
filings with respect to the Transferor and CompuCom.
(f) Legal Opinions. The Agent shall have received opinions of counsel
--------------
to the Transferor and the Servicer, dated the Issuance Date, as to
corporate, tax, bankruptcy, perfection and other matters in form and
substance reasonably acceptable to the Agent and its counsel.
(g) Fee Letter. The Agent shall have received the Fee Letter duly
----------
executed by the Transferor and CompuCom, and any fees required to be paid
on or before the Issuance Date shall have been paid in full.
25
<PAGE>
(h) Liquidity Agreement. The Liquidity Loan Agreement shall have been
-------------------
duly executed and delivered by the parties thereto.
(i) Settlement Statement. A Settlement Statement as of April 30,
--------------------
1999, or the most recently available if April 30, 1999 data is not reasonably
available.
(j) Terminations. Executed terminations/reconveyances evidencing
------------
release/relinquishment of all prior creditors and Enterprise Funding Corp. of
all interest in the Receivables and other Trust Assets.
ARTICLE VII
THE AGENT
SECTION 7.1 Appointment. Each Series 1999-1 Certificateholder hereby
-----------
irrevocably designates and appoints the Agent as the agent of such Series 1999-1
Certificateholder under this Supplement and each such Series 1999-1
Certificateholder irrevocably authorizes the Agent, in such capacity, to take
such action on its behalf under the provisions of this Supplement and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of this Supplement, together with such other powers as are
reasonably incidental thereto. Each Series 1999-1 Certificateholder hereby
irrevocably designates and appoints the Agent to receive any payments relating
to the Series 1999-1 Certificates on its behalf. Notwithstanding any provision
to the contrary elsewhere in this Supplement, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Series 1999-1 Certificateholder, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Supplement or otherwise exist against the Agent.
SECTION 7.2 Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Supplement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel (who may be counsel for the Transferor or the
Servicer), independent public accountants and other experts selected by it
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
SECTION 7.3 Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with the Agreement or this Supplement (x) with the
consent or at the request of the Majority Series 1999-1 Certificateholders or
(y) in the absence of its own gross negligence or willful misconduct or (ii)
responsible in any manner to any of the Series 1999-1 Certificateholders for any
statements, representations or warranties made by the Transferor, CompuCom, the
Servicer or any officer thereof contained in this Supplement or any other
Transaction Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the
26
<PAGE>
Agent under or in connection with, this Supplement or any other Transaction
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Supplement or any other Transaction Document or for any
failure of the Transferor, CompuCom or the Servicer to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Series 1999-1 Certificateholder to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Supplement or any other Transaction Document, or to inspect the properties,
books or records of the Transferor, CompuCom or the Servicer.
SECTION 7.4 Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any Certificate, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Transferor or the Servicer), independent accountants
and other experts selected by the Agent and shall not be liable for any action
taken or omitted to be taken by it in good faith in accordance with the advice
of such counsel, accountants or experts. The Agent may deem and treat the payee
of any Certificate as the owner thereof for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Supplement or any other Transaction Document unless it shall
first receive such advice or concurrence of the Majority Series 1999-1
Certificateholders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Series 1999-1 Certificateholders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Supplement and the
other Transaction Documents in accordance with a request of the Majority Series
1999-1 Certificateholders, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Series 1999-1
Certificateholders.
SECTION 7.5 Notice of Servicer Default or Early Amortization Event or
---------------------------------------------------------
Prospective Early Amortization Event. The Agent shall not be deemed to have
- ------------------------------------
knowledge or notice of the occurrence of any Servicer Default with respect to
the Servicer or any Early Amortization Event or Prospective Early Amortization
Event hereunder unless the Agent has received written notice from a Series 1999-
1 Certificateholder, the Transferor or the Servicer referring to the Agreement
or this Supplement, describing such Servicer Default or Early Amortization Event
or Prospective Early Amortization Event and stating that such notice is a
"notice of a Servicer Default with respect to the Servicer" or a "notice of an
Early Amortization Event or Prospective Early Amortization Event", as the case
may be. In the event that the Agent receives such a notice, the Agent shall give
notice thereof to the Series 1999-1 Certificateholders, the Trustee, the
Transferor and the Servicer. Subject to the provisions of the Agreement, the
Agent shall take such action with respect to such Servicer Default or Early
Amortization Event or Prospective Early Amortization Event as shall be
reasonably directed by the Majority Series 1999-1 Certificateholders, provided
--------
that unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action,
27
<PAGE>
with respect to such Servicer Default or Early Amortization Event or Prospective
Early Amortization Event as it shall deem advisable in the best interests of the
Series 1999-1 Certificateholders.
SECTION 7.6 Non-Reliance on Agent and Other Series 1999-1
---------------------------------------------
Certificateholders. Each Series 1999-1 Certificateholder expressly acknowledges
- ------------------
that neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Agent hereinafter taken, including any review of the
affairs of the Transferor, CompuCom or the Servicer, shall be deemed to
constitute any representation or warranty by the Agent to any Series 1999-1
Certificateholder. Each Series 1999-1 Certificateholder represents to the Agent
that it has, independently and without reliance upon the Agent or any other
Series 1999-1 Certificateholder, and based on such documents and information as
it has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Transferor, CompuCom and the Servicer and made its own
decision to enter into this Supplement. Each Series 1999-1 Certificateholder
also represents that it will, independently and without reliance upon the Agent
or any other Series 1999-1 Certificateholder, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Supplement and the other Transaction Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Transferor, CompuCom and the Servicer. Except for notices, reports and other
documents expressly required to be furnished to the Series 1999-1
Certificateholders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Series 1999-1 Certificateholder with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Transferor,
CompuCom or the Servicer which may come into the possession of the Agent or any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 7.7 Indemnification. The Series 1999-1 Certificateholders agree to
---------------
indemnify the Agent in its capacity as such (to the extent not reimbursed by the
Transferor and the Servicer and without limiting the obligation of the
Transferor and the Servicer to do so), ratably according to their respective
Commitment Percentages in effect on the date on which indemnification is sought
(or, if indemnification is sought after the Commitment Termination Date, ratably
in accordance with their Commitment Percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of, the Commitments,
this Supplement any of the other Transaction Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Series 1999-1
Certificateholder shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful
28
<PAGE>
misconduct. The agreements in this Section shall survive the payment of all
amounts payable hereunder.
SECTION 7.8 Agent in Its Individual Capacity. The Agent and its Affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Transferor, the Servicer, CompuCom or any of their Affiliates
as though the Agent were not the Agent hereunder. With respect to any Series
1999-1 Certificate held by the Agent, the Agent shall have the same rights and
powers under this Supplement and the other Transaction Documents as any Series
1999-1 Certificateholder and may exercise the same as though it were not the
Agent, and the terms "Series 1999-1 Certificateholder" and "Series 1999-1
Certificateholders" shall include the Agent in its individual capacity.
SECTION 7.9 Successor Agent. The Agent may resign as Agent upon 10 days'
---------------
notice to the Series 1999-1 Certificateholders. If the Agent shall resign as
Agent under this Supplement, then the Majority Series 1999-1 Certificateholders
shall appoint from among the Series 1999-1 Certificateholders a successor agent
for the Series 1999-1 Certificateholders, which successor agent shall be
approved by the Transferor, the Control Party and the Servicer (which approval
shall not be unreasonably withheld). Each such successor agent shall succeed to
the rights, powers and duties of the Agent, and the term "Agent" means such
successor agent effective upon such appointment and approval, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any other
Person. After any retiring Agent's resignation as Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Supplement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Ratification of Agreement. As supplemented by this Supplement,
-------------------------
the Agreement is in all respects ratified and confirmed and the Agreement as so
supplemented by this Supplement shall be read, taken and construed as one and
the same instrument.
SECTION 8.2 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO ITS CONFLICT OF LAWS PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 8.3 Further Assurances. Each of the Transferor, the Servicer and
------------------
the Trustee agrees, from time to time, to do and perform any and all acts and to
execute any and all further instruments reasonably requested by the Agent (i)
more fully to effect the purposes of this Supplement, including in the case of
the Transferor and the Servicer, the execution of any UCC
29
<PAGE>
financing statements or similar documents or notices or continuation statements
relating to the Receivables and the other Trust Assets for filing under the
provisions of the UCC of any applicable jurisdiction; and (ii) to facilitate the
transfer of the Series 1999-1 Certificate by the Initial Certificateholder to
Market Street Funding Corporation, and the confirmation of outstanding
commercial paper ratings by the Rating Agencies, including, in the case of the
Transferor and the Servicer, the execution and delivery of such opinions,
certificates or other documents as may reasonably by requested by the Initial
Certificateholder.
SECTION 8.4 Payments. Each payment to be made hereunder to the Agent shall
--------
be made on the required payment date in lawful money of the United States and in
immediately available funds to such account or accounts as the Agent shall
designate in writing to the Trustee. On each Payment Date or other date
specified herein, the Agent shall remit in like funds to each Series 1999-1
Certificateholder its applicable pro rata share (based on each such Series 1999-
1 Certificateholder's Invested Amount) of each such payment received by the
Agent for the account of the Series 1999-1 Certificateholders (it being
understood that pursuant to the Agreement as set forth in this Supplement,
certain payments may be made to a particular Series 1999-1 Certificateholder
rather than pro rata to all Series 1999-1 Certificateholders).
SECTION 8.5 Costs and Expenses; Claims Against the Transferor. The
-------------------------------------------------
Transferor and the Servicer agree severally to pay all reasonable out-of-pocket
costs and expenses of the Agent (including, without limitation, reasonable fees
and disbursements of counsel to the Agent) in connection with (i) the
preparation, execution and delivery of this Supplement and amendments or waivers
of any Transaction Documents and (ii) the enforcement by the Agent of the
obligations and liabilities of the Transferor and the Servicer under the
Agreement or this Supplement (unless such enforcement is finally denied on the
merits by a court having jurisdiction over such matter). Any payments required
to be made by the Transferor pursuant to this Section, any payment of Commitment
Fees, Program Fees, any costs or expenses incurred in connection with any visit
or examination described in Section 2.05(c), any Additional Servicing Fee, and
any amounts payable pursuant to Section 7.04 shall be made solely from funds
available to the Transferor which are not otherwise needed to be applied to the
payment of any amounts pursuant to the Agreement or any Supplement and shall not
constitute a claim against the Transferor to the extent that insufficient funds
exist to make such payment.
SECTION 8.6 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Trustee, the Agent or any Series 1999-1
Certificateholder, 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 privileges provided by law.
SECTION 8.7 Severability. If any provision hereof is void or unenforceable
------------
in any jurisdiction, such voidness or unenforceability shall not affect the
validity or enforceability of (i)
30
<PAGE>
such provision in any other jurisdiction or (ii) any other provision hereof in
such or any other jurisdiction.
SECTION 8.8 Notices. (a) All notices, requests and demands to or upon any
-------
party hereto to be effective shall be given (i) in the case of the Transferor,
the Servicer and the Trustee, in the manner set forth in Section 13.05 of the
-------------
Agreement and (ii) in the case of the Agent and each Series 1999-1
Certificateholder, in writing (including a confirmed transmission by telecopy),
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given or made when delivered by hand or three days after being deposited in
the mail, postage prepaid, one Business Day after being sent by overnight
courier or, in the case of telecopy notice, when received, (A) in the case of
the Agent and the Initial Series 1999-1 Certificateholder, at their respective
addresses set forth in Schedule 8.8; or (B) to such other address as may be
------------
hereafter notified by the respective parties hereto.
(b) All instructions given by the Servicer to the Trustee pursuant to this
Supplement shall be in writing, and may be included in a Daily Report or
Settlement Statement.
SECTION 8.9 Successors and Assigns. (a) This Supplement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that neither the Transferor nor the Servicer may
assign or transfer any of its rights under this Supplement without the prior
written consent of the Control Party.
(b) Any Series 1999-1 Certificateholder may, upon the satisfaction of all
applicable requirements under the Agreement (including Section 6.03), in the
------------
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more financial institutions or other entities
("Participants") participations in its Series 1999-1 Certificate and its rights
------------
hereunder pursuant to documentation in form and substance satisfactory to such
Series 1999-1 Certificateholder and the Participant. In the event of any such
sale by a Series 1999-1 Certificateholder to a Participant, such Series 1999-1
Certificateholder's obligations under this Supplement shall remain unchanged and
such Series 1999-1 Certificateholder shall remain solely responsible for the
performance thereof. The Transferor agrees that each Series 1999-1
Certificateholder is entitled, in its own name, to enforce for the benefit of,
or as agent for, any Participant any and all rights, claims and interest of such
Participant in respect of the Trust and the Transferor's obligations under this
Supplement. A Participant shall have the right to receive Article IV Costs
(other than amounts payable under Section 4.2 of this Supplement) but only to
-----------
the extent that the related selling Series 1999-1 Certificateholder would have
had such right absent the sale of the related participation. The Trustee shall
have no liability with respect to any Participant.
(c) The Initial Series 1999-1 Certificateholder may freely assign or
transfer its Certificate to Market Street Funding Corporation or any other CP
Conduit (an "Initial Assignee") of which an affiliate of PNC Bank Corp. serves
as agent or administrator without regard to any restrictions in this Agreement.
Any Series 1999-1 Certificateholder may, upon satisfaction of all applicable
requirements of the Agreement (including Section 6.03, provided that, in the
------------ --------
case of
31
<PAGE>
any assignment to a Program Support Provider, no Opinion of Counsel or
representation letter shall be required to be delivered) as amended by this
Supplement, in the ordinary course of its business and in accordance with
applicable law, at any time sell all or any part of its rights and obligations
under this Supplement and the related Series 1999-1 Certificate to (i) its
Affiliates or to any other Series 1999-1 Certificateholder, (ii) upon prior
written notice to the Agent, one or more of its Program Support Providers and
(iii) with the prior written consent of the Agent and, unless an Early
Amortization Event has occurred and is continuing, the Transferor, which consent
shall not be unreasonably withheld, one or more banks or other entities (an
"Acquiring Series 1999-1 Certificateholder"), in each case (other than an
-----------------------------------------
assignment to a Program Support Provider) pursuant to a commitment transfer
supplement, substantially in the form of Exhibit C to this Supplement (the
---------
"Commitment Transfer Supplement"), executed by such Acquiring Series 1999-1
------------------------------
Certificateholder, such assigning Series 1999-1 Certificateholder, the Agent
and, in the case of clause (iii) above, the Transferor (if the Transferor's
------------
consent is required), and delivered to the Agent for its acceptance and
recording in the Register. Upon such execution, delivery, acceptance and
recording, from and after the Transfer Issuance Date determined pursuant to such
Commitment Transfer Supplement, (x) the Acquiring Series 1999-1
Certificateholder thereunder shall be deemed to be a party hereto and, to the
extent provided in such Commitment Transfer Supplement, have the rights and
obligations of a Series 1999-1 Certificateholder hereunder with a Commitment as
set forth therein and (y) the transferring Series 1999-1 Certificateholder
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its obligations under this Supplement. Such Commitment Transfer
Supplement shall be deemed to amend this Supplement (including Schedule 1
----------
attached hereto) to the extent, and only to the extent, necessary to reflect the
addition of such Acquiring Series 1999-1 Certificateholder as a "Series 1999-1
Certificateholder" party to this Supplement and the resulting adjustment of
Commitment Percentages arising from the purchase by such Acquiring Series 1999-1
Certificateholder of all or a portion of the rights and obligations of such
transferring Series 1999-1 Certificateholder under this Supplement and the
Series 1999-1 Certificates. Any Series 1999-1 Certificateholder may pledge, or
grant a security interest in, its rights hereunder to, or for the benefit of,
any Program Support Provider.
(d) The Agent shall maintain at its address referred to in Section 8.8 of
-----------
this Supplement a copy of each Commitment Transfer Supplement delivered to it.
(e) Upon its receipt of a Commitment Transfer Supplement executed by a
transferring Series 1999-1 Certificateholder and an Acquiring Series 1999-1
Certificateholder, the Agent shall (i) promptly accept such Commitment Transfer
Supplement, (ii) on the Transfer Issuance Date determined pursuant thereto
record the information contained therein in the Register and give notice of such
acceptance and recordation to the Series 1999-1 Certificateholders, the
Servicer, the Transferor and the Trustee and (iii) prepare a revised Schedule 1
----------
to this Supplement in order to reflect the reduced Commitment of the applicable
transferring Series 1999-1 Certificateholder and the new or increased Commitment
of the applicable Acquiring Series 1999-1 Certificateholder, and Schedule 1 of
----------
this Supplement shall be deemed to be automatically superseded by such revised
Schedule 1 and the Agent shall distribute such revised Schedule 1 promptly to
- ---------- ----------
the Transferor, the Servicer, the Trustee and each Series 1999-1
Certificateholder.
32
<PAGE>
(f) The Transferor and the Servicer each authorizes each Series 1999-1
Certificateholder to disclose to any Participant or Acquiring Series 1999-1
Certificateholder (each, a "Transferee") and any prospective Transferee any and
----------
all financial information in such Series 1999-1 Certificateholder's possession
concerning the Transferor, the Servicer or the Receivables which has been
delivered to such Series 1999-1 Certificateholder by the Transferor or the
Servicer pursuant to this Supplement or which has been delivered to such Series
1999-1 Certificateholder by or on behalf of the Transferor in connection with
such Series 1999-1 Certificateholder's credit evaluation of the Transferor, the
Servicer, the Trust and the Trust Assets prior to becoming a party to this
Supplement; provided, however, if any such information is subject to a
-------- -------
confidentiality agreement between such Series 1999-1 Certificateholder and the
Transferor or the Servicer, the Transferee or prospective Transferee shall have
agreed to be bound by the terms and conditions of such confidentiality agreement
and, if the Transferor's consent is required pursuant to paragraph (c) above,
-------------
the Transferor has so consented to such Acquiring Series 1999-1
Certificateholders.
(g) If, pursuant to this Section, any interest in this Supplement or the
Series 1999-1 Certificates is transferred to any Transferee which is created in
or organized under the laws of any jurisdiction other than the United States or
any State thereof, the transferring Series 1999-1 Certificateholder shall cause
such Transferee, concurrently with the effectiveness of such transfer, (i) to
represent to the transferring Series 1999-1 Certificateholder (for the benefit
of the transferring Series 1999-1 Certificateholder, the Agent, the Transferor
and the Servicer) that under applicable law and treaties no taxes will be
required to be withheld by the Agent, the Transferor, the Servicer or the
transferring Series 1999-1 Certificateholder with respect to any payments to be
made to such Transferee in respect of the Series 1999-1 Certificates, (ii) to
furnish to the transferring Series 1999-1 Certificateholder (and, in the case of
any Acquiring Series 1999-1 Certificateholder not registered in the Register,
the Agent and the Transferor) either U.S. Internal Revenue Service Form 4224 or
new Form W-8ECI or U.S. Internal Revenue Service Form 1001 or new Form W-8BEN
(wherein such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder), (iii) to agree (for
the benefit of the transferring Series 1999-1 Certificateholder, the Agent, the
Transferor and the Servicer) to provide the transferring Series 1999-1
Certificateholder (and, in the case of any Acquiring Series 1999-1
Certificateholder not registered in the Register, the Agent, the Transferor and
the Servicer) a new Form 4224 or Form W-8ECI or Form 1001 or Form W-8BEN upon
the expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption unless any change in treaty, law or regulation has
occurred prior to the date on which any such delivery would otherwise be
required which renders such forms inapplicable or which would prevent such
Participant from duly completing and delivering any such form with respect to it
and such Participant so advises that transferring Series 1999-1
Certificateholder, the Transferor and the Agent; provided, that such failure to
--------
provide such forms does not have a material adverse effect on the Transferor,
the Servicer or the Trust.
33
<PAGE>
SECTION 8.10 Counterparts. This Supplement may be executed in any number of
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, and all of which
taken together shall constitute one and the same agreement.
SECTION 8.11 Adjustments. If any Series 1999-1 Certificateholder (a
-----------
"Benefitted Series 1999-1 Certificateholder") shall at any time receive in
------------------------------------------
respect of its Invested Amount any distribution of principal, interest,
Commitment Fees, Program Fees or other fees, or any interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by set-
off, or otherwise) in a greater proportion than any such distribution received
by any other Series 1999-1 Certificateholder, if any, in respect of such other
Series 1999-1 Certificateholder's Invested Amount, or interest thereon, such
Benefitted Series 1999-1 Certificateholder shall purchase for cash from the
other Series 1999-1 Certificateholders such portion of each such other Series
1999-1 Certificateholder's interest in the Series 1999-1 Certificates, or shall
provide such other Series 1999-1 Certificateholders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Series 1999-1 Certificateholder to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Series 1999-1
Certificateholders; provided, however, that if all or any portion of such excess
-------- -------
payment or benefits is thereafter recovered from such Benefitted Series 1999-1
Certificateholder, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Transferor agrees that each Series 1999-1 Certificateholder so purchasing a
portion of the Series 1999-1 Certificateholders' Interest may exercise all
rights of payment (including rights of set-off) with respect to such portion as
fully as if such Series 1999-1 Certificateholder were the direct holder of such
portion.
SECTION 8.12 Limitation of Payments by Transferor. Notwithstanding any
------------------------------------
other provision of the Agreement or this Supplement (but subject to Section 7.04
------------
of the Agreement), the Transferor's obligations under the Agreement and this
Supplement shall be limited to the funds available to the Transferor which have
been properly distributed to the Transferor pursuant to the Agreement and any
Supplement and neither the Agent nor any Series 1999-1 Certificateholder shall
have any actionable claim against the Transferor for failure to satisfy such
obligation because it does not have funds available therefor from amounts
properly distributed.
SECTION 8.13 No Bankruptcy Petition. The Agent, each Series 1999-1
----------------------
Certificateholder and each Participant, if any, hereby covenants and agrees
that, prior to the date which is one year and one day after the later of (i) the
last day of the Early Amortization Period and (ii) the last day of the
amortization period or early amortization period of any other outstanding
Series, it will not institute against, or join any other Person in instituting
against, the Transferor or the Trust any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other similar proceedings
under any federal or state bankruptcy or similar law. Each of the Transferor,
the Servicer, the Agent and the Trustee hereby covenants and agrees that, prior
to the date that is one year and one day after all indebtedness of the Initial
Series 1999-1 Certificateholder or any Series 1999-1 Certificateholder that is a
CP Conduit is paid in full, it will not institute against, or join any other
Person in instituting against, the Initial Series 1999-1
34
<PAGE>
Certificateholder or such CP Conduit any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceedings
under any federal or state bankruptcy or similar law. The Initial Series 1999-1
Certificateholder and each other Series 1999-1 Certificateholder that is a CP
Conduit, shall have no obligation to pay any amounts payable by it hereunder or
under any other Transaction Document (collectively, "Expense Claims"), and such
Expense Claims shall not constitute a claim, as defined in ss.101 of the United
States Bankruptcy Reform Act of 1978 (11 U.S.C. ss.101, et seq.), as amended
against such Series 1999-1 Certificateholder unless or until such Series 1999-1
Certificateholder has received amounts sufficient to pay such Expense Claims and
such amounts are available to pay such Expense Claims pursuant to such Series
1999-1 Certificateholder's program documentation.
SECTION 8.14 The Trustee. The Trustee shall not be responsible in any
-----------
manner whatsoever for or in respect of the validity or sufficiency of this
Supplement or for or in respect of the Preliminary Statement contained herein,
which Preliminary Statement is made solely by the Transferor.
SECTION 8.15 Consent to Jurisdiction. EACH OF THE SERVICER AND THE
-----------------------
TRANSFEROR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE AGREEMENT OR THIS SUPPLEMENT AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. EACH OF THE SERVICER AND THE TRANSFEROR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF
THE SERVICER AND THE TRANSFEROR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT EITHER THE SERVICER OR THE TRANSFEROR HAS
OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, EACH OF THE TRANSFEROR AND THE SERVICER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE AGREEMENT OR THIS SUPPLEMENT.
SECTION 8.16 Credit Agreements. CompuCom agrees that it shall not enter
-----------------
into any credit facility or similar agreement (including the Credit Agreement or
any amendment to any of
35
<PAGE>
them) with any lender unless (i) the Agent shall have informed CompuCom that
such agreement is reasonably acceptable to the Agent and (ii) such credit
facility or similar agreement does not provide for or result in any lien on
behalf of, or interest in favor of, the lenders thereunder or any other Person
in the Trust Assets.
ARTICLE IX
DEFINITIONS
SECTION 9.1 Definitions. The following words and phrases shall have the
-----------
following meanings with respect to Series 1999-1 and the definitions of such
terms are applicable to the singular as well as the plural form of such terms
and to the masculine as well as the feminine and neuter genders of such terms:
"Accrual Period" means the period from and including a Payment Date to but
--------------
excluding the next Payment Date; provided that the first Accrual Period will be
--------
the period from and including the Issuance Date to but excluding the next
Payment Date.
"Accrued Expense Amount" means, for each Business Day during an Accrual
----------------------
Period, the sum of (i) the portion of the Monthly Interest Amount allocable to
such Business Day, (ii) one-fifth of the Servicing Fee due on the succeeding
Payment Date (in the aggregate up to such Servicing Fee), (iii) the Program Fee
for such Business Day, (iv) the portion of the Monthly Trustee Fee and
Transition Costs allocable to such Business Day and (v) the Commitment Fee for
such Business Day; provided, however, that if by the fifth Business Day of an
-------- -------
Accrual Period, the entire amount of (A) the Monthly Interest Amount, (B) the
Servicing Fee, (C) the Program Fee, (D) the Monthly Trustee Fee and Transitions
Cost and (E) the Commitment Fee, in each case for such Accrual Period, shall not
have been transferred to the Series 1999-1 Non-Principal Collection Sub-
subaccount, the Accrued Expense Amount for such Business Day (and each Business
Day thereafter until paid) shall also include the amount of such shortfall.
"Acquiring Series 1999-1 Certificateholder" shall have the meaning assigned
-----------------------------------------
in Section 8.9(c) of this Supplement.
--------------
"Additional Interest" has the meaning specified in Section 4.05(b) of the
------------------- ---------------
Agreement as set forth in this Supplement.
"Additional Servicing Fee" for each Accrual Period means, if CompuCom is
------------------------
not the Servicer and the Servicing Fee Percentage exceeds 1.0%, the excess of
(a) the Servicing Fee (calculated as if clause (ii) of the definition of
-----------
Servicing Fee did not include the words "as in effect on the Issuance Date")
over (b) the Servicing Fee (calculated without changing clause (ii) of the
-----------
definition of Servicing Fee).
36
<PAGE>
"Adjusted Invested Amount" means, on any day the Series 1999-1 Aggregate
------------------------
Invested Amount at the close of business on such day minus the amount on deposit
-----
in the Series 1999-1 Principal Collection Sub-subaccount (after giving effect to
any withdrawal therefrom).
"Affected Party" means each Series 1999-1 Certificateholder, each Program
--------------
Support Provider, any assignee or Participant of any Series 1999-1
Certificateholder or any Program Support Provider, the Agent and any successor
thereto and sub-agent thereof.
"Aggregate Allocated Receivables Amount" means the sum of the Series 1999-1
--------------------------------------
Allocated Receivables Amount plus the series allocated receivables amounts
specified in the Supplements for any outstanding Series other than Series 1999-
1.
"Aggregate Commitment Amount" means, with respect to any Business Day, the
---------------------------
aggregate amount of the Commitments of all Series 1999-1 Certificateholders on
such date, as reduced from time to time pursuant to Section 1.7 of this
-----------
Supplement.
"Agreement" has the meaning specified in the preamble to this Supplement.
---------
"Alternate Base Rate" means, on any date, a fluctuating rate of interest
-------------------
per annum equal to the higher of
- ---------
(a) the rate of interest most recently announced by the Agent in
Pittsburgh, Pennsylvania, as its prime rate; and
(b) the Federal Funds Rate most recently determined by the Agent plus
0.50% per annum.
---------
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the Agent in connection with extensions of credit.
"Amortization Period Commencement Date" for the Series 1999-1 Certificates
-------------------------------------
shall mean the Commitment Termination Date.
"Article IV Costs" means any amounts due pursuant to Article IV of this
---------------- ----------
Supplement.
"Available Commitment" means, with respect to any Business Day, the (i)
--------------------
Aggregate Commitment Amount on such Business Day minus (ii) the Series 1999-1
-----
Aggregate Invested Amount on such Business Day.
"Benefitted Series 1999-1 Certificateholder" shall have the meaning
------------------------------------------
assigned in Section 8.11 of this Supplement.
------------
"Board" means the Board of Governors of the Federal Reserve System of the
-----
United States and any successor thereto.
37
<PAGE>
"Business Day" shall mean any day other than (a) a Saturday or a Sunday,
------------
(b) any other day on which the Servicer is closed, as specified on the list
furnished by the Servicer pursuant to Section 3.03(n) of the Agreement, (c) any
---------------
other day on which banking institutions or trust companies in the State of New
York generally or the City of New York, New York, the Commonwealth of
Pennsylvania generally or the City of Pittsburgh, Pennsylvania, or the State of
Minnesota generally or the City of Minneapolis, Minnesota are authorized or
obligated by law, executive order or governmental decree to be closed, or (d)
any other day on which The Depository Trust Company is closed.
"Certificate Rate" for any Accrual Period (i) in the case of any Invested
----------------
Amount of the Series 1999-1 Aggregate Invested Amount funded by a Liquidity
Funding through a Liquidity Agreement entered into by the Initial Series 1999-1
Certificateholder, the sum of the Eurodollar Rate for such Accrual Period, plus
1.75%, (ii) in the case of any portion of the Series 1999-1 Aggregate Invested
Amount funded by any other Liquidity Funding, the sum of the Eurodollar Rate for
such Accrual Period, plus 3.00% and (iii) in the case of any portion of the
----
Series 1999-1 Aggregate Invested Amount funded by Commercial Paper Notes, the CP
Rate for such Accrual Period; provided, however, that on any day during an
-------- -------
Accrual Period when any Early Amortization Event or Prospective Early
Amortization Event has occurred and is continuing, the Certificate Rate shall
mean the Alternative Base Rate in effect on such day plus 3.00%.
----
"Commercial Paper Notes" means short term promissory notes issued or to be
----------------------
issued by a Series 1999-1 Certificateholder, or the proceeds of which are loaned
to a Series 1999-1 Certificateholder, to fund its investments in accounts
receivable or other financial assets.
"Commitment" means, as to any Series 1999-1 Certificateholder, its
----------
obligation to maintain and, subject to certain conditions, increase, its
Invested Amount, in an aggregate amount not to exceed at any one time
outstanding the amount set forth opposite such Series 1999-1 Certificateholder's
name on Schedule 1 to this Supplement (as such Schedule 1 may be revised from
---------- ----------
time to time in accordance with this Supplement) under the caption "Commitment",
as such amount may be reduced from time to time as provided herein;
collectively, as to all Series 1999-1 Certificateholders, the "Commitments".
"Commitment Fee" shall have the meaning assigned in Section 1.8(b) of this
-------------- --------------
Supplement.
"Commitment Fee Percentage" shall have the meaning set forth in the Fee
-------------------------
Letter.
"Commitment Percentage" means, as to any Series 1999-1 Certificateholder
---------------------
and as of any date, the percentage equivalent of a fraction, the numerator of
which is such Series 1999-1 Certificateholder's Commitment as set forth on
Schedule 1 to this Supplement (as such Schedule 1 may be revised from time to
- ---------- ----------
time in accordance with this Supplement) and the denominator of which is the
Aggregate Commitment Amount as of such date.
"Commitment Reduction" shall have the meaning assigned in Section 1.7(a) of
-------------------- --------------
this Supplement.
38
<PAGE>
"Commitment Termination Date" means the earliest of (a) the Scheduled
---------------------------
Maturity Date, (b) the date on which the Commitments are terminated in whole
pursuant to Section 1.7 of this Supplement and (c) the date of termination
-----------
(whether by scheduled expiration, termination or default or otherwise) of any
Program Support Provider's commitment under any Program Support Agreement.
"Commitment Transfer Supplement" shall have the meaning assigned in Section
------------------------------ -------
8.9(c) of this Supplement.
- ------
"Consolidated Net Income" means, with respect to CompuCom and its
-----------------------
Subsidiaries for any period, the net income (or loss) of CompuCom and its
Subsidiaries for such period, plus restructuring charges incurred in CompuCom
1998 Fiscal Year, excluding any gains from asset sales otherwise than in the
ordinary course of business, any extraordinary gains and any gains from
discontinued operations and any items of extraordinary loss, including net loss
on any asset sales otherwise than in the ordinary course of business.
"Consolidated Subsidiaries" means at any date any Subsidiary or other
-------------------------
entity the accounts of which would be consolidated with those of CompuCom in its
consolidated financial statements if such statements were prepared as of such
date.
"Control Party" with respect to the Series 1999-1 Certificates means the
-------------
Majority Series 1999-1 Certificateholders.
"CP Conduit" means Market Street Funding Corporation or a special purpose
----------
entity that is in the business of issuing commercial paper.
"CP Rate" means, for any period means the sum of (i) the rate equivalent to
-------
the rate (or if more than one rate, the weighted average of rates) at which
Commercial Paper Notes outstanding during such period and to be issued to fund
or maintain the Invested Amount may be sold by any placement agent or commercial
paper dealer selected by the Initial Series 1999-1 Certificateholder or a
Program Support Provider, as agreed between each such agent or dealer and the
Initial Series 1999-1 Certificateholder or such Program Support Provider and
notified by the Initial Series 1999-1 Certificateholder to the Agent and the
Servicer; provided, however, if the rate (or rates) as agreed between any such
-------- -------
agent or dealer and the Initial Series 1999-1 Certificateholder with regard to
any period is a discount rate (or rates), the "CP Rate" for such period shall be
-------
the rate (or if more than one rate, the weighted average of the rates) resulting
from converting such discount rate (or rates) to an interest-bearing equivalent
rate (or rates) per annum, plus (ii), without duplication, the commissions and
----
charges charged as a percentage of such face amount and converted to an
interest-bearing equivalent rate per anum.
"CP Rate Tranche" means a portion of the Series 1999-1 Aggregate Invested
---------------
Amount for which the interest is calculated by reference to the CP Rate.
39
<PAGE>
"Credit Agreement" means the Inventory and Working Capital Financing
----------------
Agreement, dated as of May 7, 1999, among CompuCom, the various financial
institutions party thereto and IBM Credit Corporation, as it may be amended,
supplemented or otherwise modified from time to time.
"Cut-Off Date" means the last day of each calendar month.
------------
"Debt" of any Person means at any date, without duplication, (i) all
----
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property,
except accounts payable arising in the ordinary course of business, (iv) all
obligations of such Person as lessee under capital leases, (v) all Debt of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person, (vi) all Debt of others guaranteed by such Person,
and (vii) all non-contingent obligations of such Person to reimburse or prepay
any Person in respect of amounts paid under a letter of credit, banker's
acceptance or similar instrument.
"Determination Date" means, with respect to a Payment Date, the third
------------------
Business Day prior to such Payment Date.
"Delinquency Ratio" means, as of any Cut-Off Date, the ratio,
-----------------
expressed as a percentage, of (i) the aggregate Unpaid Balance of all Delinquent
Receivables on such Cut-Off Date divided by (ii) the aggregate Unpaid Balance of
----------
all Eligible Receivables on such Cut-Off Date.
"Dilution Reserve Percentage" as measured on any date means the
---------------------------
greater of (i) 7% and (ii) a percentage determined in accordance with the
following formula:
[(SF x ED) + ((DS-ED) x DS/ED)] x DHR where:
SF = the Stress Factor, which shall be 2.25;
ED = the "Expected Dilution", which shall be equal to the
-----------------
twelve-month rolling average Sales-Based Dilution
Ratio, expressed as a percentage;
DS = the "Dilution Spike", which shall be equal to the
--------------
highest one month Sales-Based Dilution Ratio over
the immediately preceding twelve months, expressed
as a percentage; and
DHR = the "Dilution Horizon Ratio", which shall be equal
----------------------
to the sales for the two months ending on the
related Cut-Off Date divided by the Aggregate
Eligible Unpaid Balance as of the such Cut-Off Date.
"Dynamic Loss Reserve Percentage" shall be measured as an amount
-------------------------------
calculated pursuant to the following formula:
40
<PAGE>
DLRP = LR x LH x SF
where:
-----
DLRP = the Dynamic Loss Reserve Percentage;
LR = the Loss Ratio, which shall be equal to the highest
average of the Sales-Based Default Ratios for any
three consecutive calendar months during the previous
twelve calendar months;
LH = the Loss Horizon, which shall be equal to the
cumulative sales over the previous three months
divided by the Aggregate Eligible Unpaid Balance; and
----------
SF = the Stress Factor, which shall be 2.25.
"Early Amortization Period" means, with respect to Series 1999-1, the
-------------------------
period from the declaration or occurrence of an Early Amortization Event or the
Commitment Termination Date to the earlier of (i) the date on which the Invested
Amount of Series 1999-1 (and all interest thereon) has been paid in full and
(ii) the Series Termination Date.
"Effective Date" shall have the meaning assigned in Section 6.1 of this
-------------- -----------
Supplement.
"Eurodollar Rate" means, for any Accrual Period, an interest rate per
---------------
annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the
following formula:
LIBOR
-----------------------------------------
100% - Eurodollar Rate Reserve Percentage
where "Eurodollar Rate Reserve Percentage" means, for any Accrual Period, the
maximum reserve percentage (expressed as a decimal, rounded upward to the
nearest 1/100th of 1%) in effect on the date LIBOR for such Accrual Period is
determined under regulations issued from time to time by the Federal Reserve
Board for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
"Eurocurrency" funding (currently referred to as "Eurocurrency liabilities)
having a term comparable to such Accrual Period.
"Federal Funds Effective Rate" means, for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of Cleveland, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
federal funds brokers of recognized standing selected by it. If for any reason
the Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable
41
<PAGE>
to ascertain the Federal Funds Effective Rate, including the inability or
failure of the Agent to obtain sufficient quotations in accordance with the
terms thereof, the Federal Funds Effective Rate shall mean the rate most
recently determined in accordance with the preceding sentence, until the
circumstances giving rise to such inability no longer exist.
"Fee Letter" means the fee letter, dated as of May 7, 1999, among
------------
CompuCom and the Agent, as it may be amended or supplemented from time to time.
"Fiscal Year" means the fiscal year of CompuCom and its Subsidiaries,
-------------
which period shall be the 12-month period ending on December 31 of each year.
References to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on December 31 of
such calendar year.
"Increase" shall have the meaning assigned in Section 1.5(a) of this
----------
Supplement.
"Increase Amount" shall have the meaning assigned in Section 1.5(a) of
-----------------
this Supplement.
"Increase Date" shall have the meaning assigned in Section 1.5(a) of
---------------
this Supplement.
"Initial Invested Amount" means the amount set forth on Schedule 3 to
-------------------------
this Supplement.
"Initial Series 1999-1 Certificateholder" shall have the meaning
-----------------------------------------
specified in the preamble to this Supplement.
"Invested Amount" means on any date of determination, an amount equal
-----------------
to (a) (i) with respect to the Initial Series 1999-1 Certificateholder, the
Initial Invested Amount or (ii) with respect to any Acquiring Series 1999-1
Certificateholder, the portion of the transferring Series 1999-1
Certificateholder's Invested Amount purchased by such Acquiring Series 1999-1
Certificateholder, plus (b) the aggregate amount of any increases in such Series
----
1999-1 Certificateholder's Invested Amount pursuant to Section 1.5 of this
-----------
Supplement, minus (c) the aggregate amount of any distributions to such Series
-----
1999-1 Certificateholder pursuant to Section 4.07(c) of the Agreement as set
---------------
forth in this Supplement.
"Invested Percentage" means, on any Business Day, the percentage (A)
---------------------
during the Revolving Period, obtained by dividing (i) the Series 1999-1
Allocated Receivables Amount as of the end of the immediately preceding Business
Day, by (ii) the Aggregate Eligible Unpaid Balance as of the end of the
immediately preceding Business Day (provided, that if during the Revolving
--------
Period an early amortization period or amortization period shall exist with
respect to any Series other than Series 1999-1, then the amount in this clause
------
(ii) shall be the greater of (1) the Aggregate Eligible Unpaid Balance as of the
- ----
end of the immediately preceding Business Day and (2) the sum of the numerators
used to calculate the Invested Percentages for all outstanding Series on the
Business Day for which such percentage is determined) and (B) during the Early
Amortization Period, obtained by dividing (x) the Series 1999-1 Allocated
Receivables Amount on the last day of the Revolving Period (provided, that if
--------
during the Early Amortization Period,
42
<PAGE>
the early amortization periods of all other outstanding Series which were
outstanding prior to the commencement of the Early Amortization Period commence,
then, from and after the date on which the last of such Series commences its
early amortization period, the amount of this clause (x) shall be the Series
----------
1999-1 Allocated Receivables Amount on such date) by (y) the greater of (1) the
Aggregate Eligible Unpaid Balance as of the end of the immediately preceding
Business Day and (2) the sum of the numerators used to calculate the Invested
Percentages for all outstanding Series on the Business Day for which such
percentage is determined; provided that for purposes of this definition, the
--------
Adjusted Invested Amount shall be calculated assuming that the amount on deposit
in the Series 1999-1 Principal Collection Sub-subaccount is zero.
"Issuance Date" means May 7, 1999, which is the Series Issuance Date
-------------
for Series 1999-1.
"Issuer" means the Initial Series 1999-1 Certificateholder.
------
"Issuer CP" means commercial paper notes issued to fund the Issuer's
---------
Invested Amount.
"LIBOR" means the rate of interest per annum determined by the Agent to
-----
be the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates
of interest per annum notified to the Agent by each Reference Bank as the rate
of interest at which dollar deposits in the approximate amount of the Invested
Amount to be funded at the Eurodollar Rate during such Accrual Period would be
offered by major banks in the London interbank market to such Reference Bank at
its request at or abut 11:00 a.m. (London time) on the second Business Day
before the commencement of such Accrual Period.
"LIBOR Rate Tranche" means a portion of the Series 1999-1 Aggregate
------------------
Invested Amount for which the interest is calculated by reference to LIBOR.
"Liquidity Agreement" means either (i) the Liquidity Agreement, dated
-------------------
as of May 7, 1999, among Market Street Funding Corporation, the financial
institutions from time to time parties thereto as Liquidity Lenders, and PNC
Bank, National Association as the Liquidity Agent, as it may be amended or
supplemented from time to time or (ii) the Liquidity Loan Agreement among the
Issuer, the Liquidity Lenders from time to time parties thereto and PNC Bank,
National Association as Administrator, dated as of May 7, 1999.
"Liquidity Banks" means the financial institutions party to the
---------------
Liquidity Agreement as liquidity institutions.
"Liquidity Commitment Amount" means, at any time, the then aggregate
---------------------------
amount of the Liquidity Banks' commitments under the Liquidity Agreement.
"Liquidity Funding" means a funding pursuant to one or more Liquidity
-----------------
Agreements.
43
<PAGE>
"Majority Series 1999-1 Certificateholders" means, on any day, Series
-----------------------------------------
1999-1 Certificateholders having, in the aggregate, more than 50% of the
Aggregate Commitment Amount.
"Maximum Commitment Amount" means on any date two hundred fifty million
-------------------------
dollars ($250,000,000) minus the aggregate amount of reductions in the
-----
Commitments pursuant to Section 1.7 of this Supplement.
-----------
"Miscellaneous Deficiency and Expense Amount" means on any Business
-------------------------------------------
Day, with respect to Series 1999-1, the sum of (i) (if CompuCom is not the
Servicer) all Program Costs which have been accrued and unpaid since the
preceding Business Day; (ii) any Commitment Fees and Program Fees due and
payable pursuant to this Supplement; and (iii) any Article IV Costs due and
payable pursuant to this Supplement.
"Monthly Interest Amount" for any Accrual Period means (i) the daily
-----------------------
average Series 1999-1 Aggregate Invested Amount during such Accrual Period,
times (ii) the Certificate Rate for such Accrual Period, times (iii) a fraction,
- ----- -----
the numerator of which is the number of days in such Accrual Period and the
denominator of which is 360.
"Monthly Trustee Fee" for any Accrual Period means an amount equal to
-------------------
$2,500 plus the reasonable out-of-pocket costs incurred by the Trustee during
such Accrual Period in the performance of its duties under this Agreement.
"Net Worth" means, as to any Person at any time, the excess of the
---------
total assets of such Person and its Subsidiaries at such time over the total
liabilities of such Person and its Subsidiaries at such time.
"Non-Excluded Taxes" shall have the meaning assigned in Section 4.2(a)
------------------ --------------
of this Supplement.
"Overconcentration Amount" means, at any date with respect to an
------------------------
Obligor, the excess of the aggregate Unpaid Balance of Eligible Receivables due
from such Obligor on such date over the Overconcentration Obligor Basis for such
Obligor on such date. In addition, with respect to Obligors that are
Governmental Authorities, the Overconcentration Amount means the excess of the
aggregate Unpaid Balance of Eligible Receivables due from such Obligors on such
date over 10% of the Aggregate Eligible Unpaid Balance on such date.
"Overconcentration Obligor Basis" for an Obligor means the percentage
-------------------------------
of the Aggregate Eligible Unpaid Balance at such date set forth below for the
applicable category of that Obligor (expressed as a dollar amount):
44
<PAGE>
Minimum Long-Term or Short-Term
Unsecured Debt Rating
---------------------
<TABLE>
<S> <C> <C>
S&P Moody's Percentage*
--- ------- ----------
A-1 or A+ P-1 or A1 14%
A-2 or BBB+ P-2 or Baa1 7%
A-3 or BBB- P-3 or Baa3 4.67%
Less than A-3 or Less than P-3 or
BBB-/Unrated Baa3/Unrated 2.8%
</TABLE>
provided, however, that all Obligors that are affiliates of each other having
- -------- -------
identical long-term and short-term debt ratings (or whose long-term or short-
term senior unsecured debt are unrated) shall be deemed to be a single Obligor,
provided further, however, that the following Obligors shall have a percentage
- -------- ------- -------
of 4%:
Deloitte & Touche LLP; and
Fidelity Investments.
The percentage applicable to any Obligor (or Obligor group, if
applicable) will be the percentage associated with the lower of such Obligor's
(or Obligor group's) short-term or long-term senior unsecured debt ratings (with
"unrated" being lowest) issued by S&P or Moody's. The ratings specified in the
table are minimums for each percentage category, so that a rating of an Obligor
not shown in the table falls in the category associated with the highest rating
shown in the table that is lower than such rating.
"Participants" shall have the meaning assigned in Section 8.9 of this
------------ -----------
Supplement.
"Past Due Receivable" means a Receivable that remains unpaid for more
-------------------
than 150 days but not more than 180 days from the original invoice date for such
payment, or that has been charged off before it has become 151 days past
invoice.
"Payment Date" means the fourteenth day of each month (or, if such day
------------
is not a Business Day, the next succeeding Business Day).
"Payment Date Interest Shortfall" has the meaning specified in Section
------------------------------- -------
4.05(b) of the Agreement as set forth in this Supplement.
- -------
"Payment Date Shortfall" has the meaning set forth in Section 3.11 of
---------------------- ------------
the Agreement as set forth in this Supplement.
45
<PAGE>
"Prime Rate Tranche" means that portion of the Series 1999-1 Aggregate
------------------
Invested Amount not allocated to a CP/LIBOR Rate Tranche and for which interest
is calculated by reference to the Alternate Base Rate.
"Program Costs" means, for any Business Day, the sum of (a) the product
-------------
of (i) all unpaid fees and expenses due and payable to counsel to, and
independent auditors of, the Transferor (other than fees and expenses payable on
or in connection with the closing of the issuance of the Series 1999-1 Investor
Certificates) on such Business Day and (ii) a fraction, the numerator of which
is the Series 1999-1 Aggregate Invested Amount on such Business Day and the
denominator of which is the sum of (1) the Aggregate Invested Amount on such
Business Day (except with respect to any Series of variable funding
certificates) and (2) the aggregate commitment amount (which, in the case of
Series 1999-1, is the Maximum Commitment Amount) with respect to any Series of
variable funding certificates on such Business Day, and if CompuCom is not the
Servicer, amounts otherwise payable by the Servicer for the Trustee's fees and
expenses pursuant to the Agreement.
"Program Fee" shall have the meaning set forth in Section 1.8(c) of
----------- --------------
this Supplement.
"Program Fee Percentage" shall have the meaning set forth in the Fee
----------------------
Letter.
"Program Support Agreement" means each Liquidity Agreement, each
-------------------------
agreement pursuant to which the Issuer obtains funding, through the issuance of
Commercial Paper Notes or otherwise, and each other agreement entered into by
the Issuer in connection with its securitization program.
"Program Support Provider" means each of each entity that issues
------------------------
Commercial Paper Notes, each Liquidity Bank and the Agent.
"Record Date" means with respect to any Payment Date, the last Business
-----------
Day of the immediately preceding Settlement Period.
"Reference Bank" means PNC Bank, National Association.
--------------
"Register" means a register maintained by the Agent for recording
--------
transfers of the Series 1999-1 Certificates.
"Sales-Based Default Ratio" means, as of any Cut-Off Date, the ratio,
-------------------------
expressed as a percentage, of (i) the aggregate Unpaid Balance of all Past Due
Receivables for the month ending on such Cut-Off Date, divided by (ii) the
----------
aggregate billings for the fifth preceding month.
"Sales-Based Dilution Ratio" as of any Cut-Off Date means (a) the
--------------------------
aggregate reduction attributable to Dilutions occurring in the Unpaid Balance of
Pool Receivables which Dilutions were granted during the month ending on such
Cut-Off Date; divided by (b) the aggregate
----------
46
<PAGE>
amount of billings for the month immediately preceding the two months ending as
of such Cut-Off Date.
"Scheduled Maturity Date", with respect to the Series 1999-1 Investor
-----------------------
Certificates, means the Payment Date in April 2002, as such date may be extended
pursuant to a written agreement executed by all of the Series 1999-1
Certificateholders, a copy of which shall be provided by the Agent to the
Trustee.
"Series 1999-1" means the Variable Funding Accounts Receivable Trust
-------------
Certificates, Series 1999-1, the principal terms of which are set forth in this
Supplement.
"Series 1999-1 Accrued Interest Sub-subaccount" has the meaning
---------------------------------------------
specified in Section 4.02(d)(i) of the Agreement as set forth in this
------------------
Supplement.
"Series 1999-1 Aggregate Invested Amount" means, as of any date of
---------------------------------------
determination, the sum of the Invested Amounts of all Series 1999-1
Certificateholders at the close of business on such date.
"Series 1999-1 Allocated Receivables Amount" means, for any day, the
------------------------------------------
lesser of (a) the Series 1999-1 Target Receivables Amount on such day and (b)
the Aggregate Eligible Unpaid Balance on such day times the percentage
equivalent of a fraction the numerator of which is the Series 1999-1 Target
Receivables Amount on such day and the denominator of which is the Aggregate
Target Receivables Amount on such day.
"Series 1999-1 Certificateholder" or "Series 1999-1 Investor
------------------------------- ----------------------
Certificateholder" means any Holder of a Series 1999-1 Investor Certificate, it
- -----------------
being understood that, subject to Section 9.1 of this Supplement, no Person
-----------
shall be a Series 1999-1 Certificateholder unless such Person is the Initial
Series 1999-1 Certificateholder or an Acquiring Series 1999-1 Certificateholder.
"Series 1999-1 Certificateholders' Interest" has the meaning specified
------------------------------------------
in Section 1.2 of this Supplement.
-----------
"Series 1999-1 Collection Subaccount" has the meaning specified in
-----------------------------------
Section 4.02(d)(i) of the Agreement as set forth in this Supplement.
- ------------------
"Series 1999-1 Investor Certificate" or "Series 1999-1 Certificate"
---------------------------------- -------------------------
means a Variable Funding Accounts Receivable Trust Certificate, Series 1999-1,
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit D to this Supplement.
---------
"Series 1999-1 Monthly Principal Payment" has the meaning specified in
---------------------------------------
Section 4.06(a) of the Agreement as set forth in this Supplement.
- ---------------
47
<PAGE>
"Series 1999-1 Non-Principal Collection Sub-subaccount" has the meaning
-----------------------------------------------------
specified in Section 4.02(d)(i) of the Agreement as set forth in this
------------------
Supplement.
"Series 1999-1 Principal Collection Sub-subaccount" has the meaning
-------------------------------------------------
specified in Section 4.02(d)(i) of the Agreement as set forth in this
------------------
Supplement.
"Series 1999-1 Principal Collection Subordinated Sub-subaccount" has
--------------------------------------------------------------
the meaning specified in Section 4.02(d)(i) of the Agreement as set forth in
------------------
this Supplement.
"Series 1999-1 Required Reserved Percentage" as of any day means the
------------------------------------------
sum of (i) the Dilution Reserve Percentage, (ii) the greater of (A) 14% and (B)
the Dynamic Loss Reserve Percentage and (iii) the Yield Reserve Percentage, in
each case as most recently calculated.
"Series 1999-1 Required Subordinated Amount" means, (i) on any day
------------------------------------------
during the Revolving Period, the sum of (a) the product of (1) the Adjusted
Invested Amount and (2) the percentage equivalent of a fraction the numerator of
which is the Series 1999-1 Required Reserved Percentage and the denominator of
which is one minus the Series 1999-1 Required Reserved Percentage and (b)
$110,000, and (ii) on any day during the Early Amortization Period, an amount
equal to the Series 1999-1 Required Subordinated Amount, in each case, on the
last Business Day of the Revolving Period.
"Series 1999-1 Subordinated Percentage" means the percentage equivalent
-------------------------------------
of a fraction the numerator of which is the Series 1999-1 Required Subordinated
Amount on the last Business Day of the Revolving Period and the denominator of
which is the sum of the Adjusted Invested Amount and Series 1999-1 Required
Subordinated Amount, in each case on the last day of the Revolving Period.
"Series 1999-1 Target Deficiency Amount" means for any day, the excess,
--------------------------------------
if any, of the Series 1999-1 Target Receivables Amount over the Series 1999-1
Allocated Receivables Amount. The Series 1999-1 Target Deficiency Amount is the
"Target Deficiency Amount" for purposes of Series 1999-1.
"Series 1999-1 Target Receivables Amount" means, on any day the sum of
---------------------------------------
(i) the Adjusted Invested Amount on such day and (ii) the Series 1999-1 Required
Subordinated Amount on such day. The Series 1999-1 Target Receivables Amount is
the "Target Receivables Amount" for purposes of Series 1999-1.
"Series Termination Date", with respect to Series 1999-1, means the
-----------------------
Payment Date in October 2002.
"Servicing Fee" for each Accrual Period means an amount equal to the
-------------
product of (i) one-twelfth, (ii) the Servicing Fee Percentage as in effect on
the Issuance Date and (iii) the Series 1999-1 Aggregate Invested Amount on the
first day of such Accrual Period.
48
<PAGE>
"Servicing Fee Percentage", with respect to Series 1999-1, means 1.0%,
------------------------
subject to any increase pursuant to Section 3.02(b) of the Agreement.
---------------
"Specified Principal Terms" means, with respect to any Series, the
-------------------------
following Principal Terms: (a) the floating allocation percentage contained in
the Supplement with respect to such Series; (b) any amendments to the
definitions of Eligible Accounts or Eligible Receivables contained in the
Supplement with respect to such Series; (c) any Early Amortization Events; (d)
any amendment to the definition of the Control Party contained in the Supplement
with respect to such Series; (e) any Servicer Defaults contained in the
Supplement with respect to such Series; (f) the method for allocating principal
and interest to Certificateholders of such Series; (g) the level of
subordination provided by the Transferor's Interest with respect to such Series;
and (h) the date on which such Series will begin its amortization or
accumulation period, if any, and the related terms thereof.
"Statutory Reserve" means a fraction (expressed as a decimal), the
-----------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the Agent or, if the Agent is not a bank, the Liquidity Agent (as such
term is defined in the Liquidity Agreement) (including any branch, Affiliate, or
other fronting office thereof) is subject, with respect to the Eurodollar Rate,
for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Each LIBOR Rate Tranche shall be deemed to constitute Eurocurrency Liabilities
and to be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Holder under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Supplement" has the meaning specified in the preamble hereto.
----------
"Tangible Net Worth means, as to any Person at any time, Net Worth of
------------------
such Person minus the value of goodwill, trademarks, trade names, copyrights,
patents, licenses, organizational expenses, research and development expenses
and similar intangibles and, with respect to Tangible Net Worth of CompuCom, any
write-up on the book value of any asset resulting from a revaluation thereof
subsequent to December 31, 1998.
"Transfer Issuance Date" has the meaning specified in the related
----------------------
Commitment Transfer Supplement.
"Transferee" has the meaning specified in Section 8.9(f) of this
---------- --------------
Supplement.
"Transaction Documents" means, collectively, the Agreement, the
---------------------
Receivables Contribution and Sale Agreement, this Supplement and the Series
1999-1 Investor Certificates.
49
<PAGE>
"Transition Costs" means any documented expenses and allocated costs of
----------------
personnel reasonably incurred by any Successor Servicer in connection with a
transfer of servicing from the Servicer to such Successor Servicer.
"Trust Accounts" has the meaning specified in Section 4.02(d)(i) of the
-------------- ------------------
Agreement as set forth in this Supplement.
"Turnover Rate" means, as of any Cut-Off Date, the ratio (expressed as
-------------
a percentage) of (i) the aggregate Unpaid Balance of the Receivables as of such
Cut-Off Date, divided by (ii) the most recent three month average billings for
-------
the month ending on such Cut-Off Date.
"Yield Reserve Percentage" means, at any time, the product of (a)(A)
------------------------
the sum of (i) 1.5 times the Eurodollar Rate for the current Accrual Period,
-----
plus (ii) 3.60%, plus (iii) the Servicing Fee Percentage (B) divided by twelve
and (b) two times the most recently calculated Turnover Rate.
Unless the context otherwise requires, any reference to the Early
Amortization Period or the Revolving Period in this Supplement (including in the
amendments to the Agreement contained in Section 2.1 of this Supplement) shall
-----------
refer only to such periods as they relate to the Series 1999-1 Investor
Certificates.
In the event that any term or provision contained herein shall conflict
with or be inconsistent with any term or provision contained in the Agreement,
the terms and provisions of this Supplement shall govern. All capitalized terms
not otherwise defined herein are defined in the Agreement. All Article or
Section references herein means Articles or Sections of the Agreement as
modified by this Supplement, except as otherwise provided herein. Unless
otherwise stated herein, as the context otherwise requires or if such term is
otherwise defined in the Agreement, each capitalized term used herein shall
relate only to the Series 1999-1 Investor Certificates and no other Series of
Investor Certificates. The words "hereof," "herein" and "hereunder" and words of
------ ------ ---------
similar import when used in this Supplement shall refer to this Supplement or
the Agreement as a whole and not to any particular provision of this Supplement
or the Agreement, as the case may be; the word "including" (and with correlative
---------
meaning "include") means including without limiting the generality of any
-------
description preceding such term; the word "or" is not exclusive; and Section,
--
Schedule and Exhibit references contained in this Agreement or this Supplement
are references to Sections, Schedules and Exhibits in or to this Supplement
unless otherwise specified.
Unless otherwise specified in this Supplement, all accounting terms
used herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder shall
be prepared in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except for immaterial
changes or changes concurred in by the independent public accountants of
CompuCom) with the most recent audited consolidated financial statements of
CompuCom and its Consolidated Subsidiaries delivered to the Agent.
50
<PAGE>
[SIGNATURES FOLLOW]
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
CSI FUNDING, INC.,
as Transferor
By:_____________________________________
Name:___________________________________
Title:__________________________________
COMPUCOM SYSTEMS, INC.,
as Servicer
By:_____________________________________
Name:___________________________________
Title:__________________________________
S-1
<PAGE>
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:_____________________________________
Name: Joseph Nardi
Title: Corporate Trust Officer
S-2
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:____________________________________
Name:__________________________________
Title:_________________________________
S-3
<PAGE>
MARKET STREET CAPITAL
CORPORATION, as the Initial Series 1999-1
Certificateholder
By:____________________________________
Name:__________________________________
Title:_________________________________
S-4
<PAGE>
SCHEDULE 1
to
Series 1999-1 Supplement
Commitments
-----------
Series 1999-1 Certificateholder Commitment
- -------------------------------
Market Street Capital Corporation $250,000,000
<PAGE>
SCHEDULE 2
to
Series 1999-1 Supplement
Trust Accounts
--------------
Series 1999-1 Accrued Interest Sub-subaccount 13521504
Series 1999-1 Collection Sub-account 13521500
Series 1999-1 Non-principal Collection Sub-subaccount 13521503
Series 1999-1 Principal Collection Sub-subaccount 13521501
Series 1999-1 Principal Collections Subordinated Sub-subaccount 13521502
Series 1999-1 Transferor Collection Sub-Account 13521505
<PAGE>
SCHEDULE 3
to
Series 1999-1 Supplement
Initial Invested Amount
-----------------------
Market Street Capital Corporation $175,000,000
<PAGE>
EXHIBIT 10(N)
================================================================================
RECEIVABLES CONTRIBUTION AND SALE AGREEMENT
among
COMPUCOM SYSTEMS, INC.,
as Seller and initial Servicer,
and
CSI FUNDING, INC.,
as the Buyer
Dated as of May 7, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES......................................................................... -3-
SECTION 1.1. Agreement to Purchase and Sell.................................................. -3-
------------------------------
SECTION 1.2. Timing of Purchases............................................................. -4-
-------------------
SECTION 1.3. No Recourse..................................................................... -4-
-----------
SECTION 1.4. True Sales...................................................................... -5-
----------
SECTION 1.5. Consideration for Purchases..................................................... -5-
---------------------------
ARTICLE II
CALCULATION OF PURCHASE PRICE.............................................................................. -5-
SECTION 2.1. Calculation of Purchase Price................................................... -5-
-----------------------------
ARTICLE III
PAYMENT OF PURCHASE PRICE.................................................................................. -6-
SECTION 3.1. The Initial Purchase Price Payment.............................................. -6-
----------------------------------
SECTION 3.2. Purchase Price Payments......................................................... -7-
-----------------------
SECTION 3.3. Ineligible Receivables, Etc..................................................... -8-
----------------------------
SECTION 3.4. Payments and Computations, Etc.................................................. -8-
------------------------------
ARTICLE IV
CONDITIONS TO PURCHASES.................................................................................... -9-
SECTION 4.1. Conditions Precedent to Initial Purchase........................................ -9-
----------------------------------------
SECTION 4.2. Conditions Precedent to All Purchases........................................... -10-
-------------------------------------
SECTION 4.3. Certification as to Representations and Warranties.............................. -11-
--------------------------------------------------
SECTION 4.4. Effect of Payment of Purchase Price............................................. -11-
-----------------------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES............................................................................. -11-
SECTION 5.1. Representations and Warranties.................................................. -11-
------------------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
COVENANTS.................................................................................................. -14-
SECTION 6.1. Affirmative Covenants........................................................... -14-
---------------------
SECTION 6.2. Negative Covenants.............................................................. -16-
------------------
SECTION 6.3. Separate Existence.............................................................. -16-
------------------
ARTICLE VII
INDEMNIFICATION............................................................................................ -17-
SECTION 7.1. Indemnities by COMPUCOM......................................................... -17-
-----------------------
ARTICLE VIII
ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS
AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES.............................................................. -19-
SECTION 8.1. Servicing of Receivables and Related Rights..................................... -19-
-------------------------------------------
SECTION 8.2. Rights of the Buyer; Enforcement Rights......................................... -19-
---------------------------------------
SECTION 8.3. Responsibilities of COMPUCOM.................................................... -20-
----------------------------
SECTION 8.4. Further Action Evidencing Purchases............................................. -20-
-----------------------------------
ARTICLE IX
MISCELLANEOUS.............................................................................................. -21-
SECTION 9.1. Amendments, Etc................................................................. -21-
----------------
SECTION 9.2. Notices, Etc.................................................................... -21-
-------------
SECTION 9.3. Acknowledgment and Consent...................................................... -22-
--------------------------
SECTION 9.4. Binding Effect; Assignability................................................... -23-
-----------------------------
SECTION 9.5. Costs, Expenses and Taxes....................................................... -23-
-------------------------
SECTION 9.6. No Proceedings; Limitation on Payments.......................................... -23-
--------------------------------------
SECTION 9.7. GOVERNING LAW AND JURISDICTION.................................................. -23-
------------------------------
SECTION 9.8. Execution in Counterparts....................................................... -24-
-------------------------
SECTION 9.9. Survival of Termination......................................................... -24-
-----------------------
SECTION 9.10. WAIVER OF JURY TRIAL............................................................ -24-
--------------------
SECTION 9.11. Entire Agreement................................................................ -25-
----------------
SECTION 9.12. Headings........................................................................ -25-
</TABLE>
SCHEDULE I LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
EXHIBIT A FORM OF PURCHASE REPORT
EXHIBIT B FORM OF BUYER NOTE
(ii)
<PAGE>
(iii)
<PAGE>
RECEIVABLES CONTRIBUTION AND SALE AGREEMENT
This RECEIVABLES CONTRIBUTION AND SALE AGREEMENT (as amended, supplemented
or otherwise modified from time to time, this "Agreement") is entered into as of
---------
May 7, 1999, between COMPUCOM SYSTEMS, INC., a Delaware corporation ("COMPUCOM"
--------
or the "Seller"), as seller and as initial Servicer, and CSI FUNDING, INC., a
------
Delaware corporation, as Buyer (the "Buyer").
-----
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, certain
terms that are used throughout this Agreement (including the Exhibits hereto)
are defined in Annex X to the Pooling and Servicing Agreement, dated as of even
date herewith, among the Buyer, as Transferor, COMPUCOM, as the initial
Servicer, and Norwest Bank Minnesota, National Association, as Trustee (as the
same may be amended, modified or supplemented from time to time, the "Pooling
-------
and Servicing Agreement"). Any reference to "this Agreement" or "the Receivables
- -----------------------
Contribution and Sale Agreement", including any such reference in any Exhibit
hereto, shall mean this Agreement in its entirety, including the Exhibits and
other attachments hereto, as amended, modified or supplemented from time to time
in accordance with the terms hereof.
Available Funds shall have the meaning assigned to such term in
---------------
Section 3.2 hereof.
- -----------
Buyer Note shall have the meaning assigned to such term in Section 3.1
---------- -----------
hereof.
Contributed Receivables shall have the meaning assigned to such term in
-----------------------
Section 1.2 hereof.
- -----------
Fair Market Value Discount Factor shall have the meaning assigned to
---------------------------------
such term in Section 2.1 hereof.
-----------
Ineligible Receivable shall have the meaning assigned to such term in
---------------------
Section 3.3(a) hereof.
- -------------
Initial Cut-Off Date means the Business Day immediately preceding the
--------------------
Initial Closing Date.
LIBO Rate means the offered rate per annum (rounded upwards, if necessary,
---------
to the nearest 1/16th of one percent) appearing in The Wall Street Journal for
--- ---- ------ -------
three month LIBOR loans on the date of determination plus 1.5%.
<PAGE>
Original Purchase Agreement shall have the meaning assigned to such term in
---------------------------
the Preliminary Statements.
Payment Day means (i) the date hereof and (ii) each Business Day thereafter
-----------
that COMPUCOM is open for business.
Purchase Price shall have the meaning assigned to such term in Section 2.1
-------------- -----------
hereof.
Purchase Report shall have the meaning assigned to such term in Section 2.1
--------------- -----------
hereof.
Related Rights shall have the meaning assigned to such term in
--------------
Section 1.1(a) hereof.
- -------------
Related Security with respect to any Receivable means all Related Property
----------------
related thereto other than the Related Property described in clause (a) of the
definition thereof.
Sale Indemnified Amounts shall have the meaning assigned to such term
------------------------
Section 7.1 hereof.
- -----------
Sale Indemnified Party shall have the meaning assigned to such term in
----------------------
Section 7.1 hereof.
- -----------
Sale Termination Date shall be the date on which an Early Amortization
---------------------
Event with respect to all Series shall have occurred and be continuing.
Seller Material Adverse Effect means, with respect to any event or
------------------------------
circumstance:
(i) a material adverse effect on the assets, business, financial
condition, prospects or operations of COMPUCOM;
(ii) a material adverse effect on the ability of COMPUCOM to perform
its obligations under this Agreement or any other Transaction Document to
which COMPUCOM, as seller, in its capacity as such, is a party;
(iii) a material adverse effect on the validity or enforceability as
against COMPUCOM of this Agreement or any other Transaction Document to
which COMPUCOM, as seller, in its capacity as such, is a party;
(iv) a material adverse effect on the status, existence, perfection,
priority or enforceability of the Buyer's interest in the Receivables and
the Related Rights; or
(v) a material adverse effect on the validity, enforceability or
collectibility of a material portion of the Receivables Pool.
-2-
<PAGE>
PRELIMINARY STATEMENTS
1. The Buyer is a limited purpose corporation, all of the issued and
outstanding shares of capital stock of which are wholly owned by COMPUCOM.
2. COMPUCOM wishes to sell Receivables that it now owns and from time to
time hereafter will own to the Buyer, and the Buyer is willing, on the terms and
subject to the conditions contained in this Agreement, to purchase such
Receivables from COMPUCOM at such time.
3. The Buyer has entered into the Pooling and Servicing Agreement,
pursuant to which, among other things, the Buyer may sell to the
Certificateholders Certificates representing undivided ownership interests in
the Receivables and certain Related Rights.
4. Buyer and Seller previously entered into that certain Receivables
Purchase Agreement, dated as of April 1, 1996 and amended and restated as of
November 3, 1997 (the "Original Purchase Agreement"), which agreement shall be
---------------------------
replaced and superseded in its entirety by this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 1.1. Agreement to Purchase and Sell.
------------------------------
(a) Each Receivable that existed as of the Business Day prior to the date
of this Agreement (the "Existing Receivables") was sold to the Buyer pursuant to
--------------------
the Original Purchase Agreement. On the terms and conditions hereinafter set
forth, and in consideration of the Purchase Price, COMPUCOM agrees to sell to
the Buyer, and the Buyer agrees to purchase from COMPUCOM, at the times set
forth in Section 1.2, but prior to the Sale Termination Date, all of COMPUCOM's
-----------
right, title, and interest in and to:
(i) each Receivable (other than Contributed Receivables) created or
originated by COMPUCOM from the close of COMPUCOM's business on the
Business Day prior to the date of this Agreement to and including the Sale
Termination Date;
(ii) all rights to, but not the obligations under, all related
Contracts and all Related Security with respect thereto;
(iii) all monies due or to become due with respect to the foregoing;
and
-3-
<PAGE>
(iv) all Collections in respect of, and other proceeds of,
Receivables or any other of the foregoing (as defined in the UCC)
including, without limitation, all funds which either are received by
COMPUCOM, the Buyer or the Servicer from or on behalf of the Obligors in
payment of any amounts owed (including, without limitation, finance
charges, interest and all other charges) in respect of Receivables, or are
applied to such amounts owed by the Obligors (including, without
limitation, insurance payments, if any, that COMPUCOM or the Servicer (if
other than COMPUCOM) applies in the ordinary course of its business to
amounts owed in respect of any Receivable and net proceeds of sale or other
disposition of goods or other collateral or property of the Obligors or any
other party directly or indirectly liable for payment of such Receivable
and available to be applied thereon, excluding, however, proceeds of
returned inventory).
All purchases and capital contributions hereunder shall be made without
recourse, but shall be made pursuant to and in reliance upon the
representations, warranties and covenants of COMPUCOM, in its capacity as
seller, set forth in each Transaction Document. The proceeds and rights
described in subsections (ii), (iii) and (iv) of this Section 1.1(a) are herein
--------------- --- -- -------------
collectively called the "Related Rights".
--------------
(b) Contribution. COMPUCOM does hereby contribute to Buyer, and Buyer
------------
hereby accepts all other Contributed Receivables, if any.
SECTION 1.2. Timing of Purchases. On and after the date hereof, and
-------------------
continuing until the Sale Termination Date, each Receivable described in Section
-------
1.1(a)(i) hereof, and all the Related Rights with respect thereto, created or
- --------
originated by COMPUCOM shall be sold or contributed by COMPUCOM to the Buyer
(without any further action) upon the creation or origination of such
Receivable. All such Receivables, other than those Receivables indicated on a
Purchase Report as having been contributed by COMPUCOM to the Buyer (such other
Receivables, the "Contributed Receivables"), shall be sold to the Buyer on such
-----------------------
date; all Contributed Receivables shall be contributed by COMPUCOM to the Buyer
on such date.
SECTION 1.3. No Recourse. Except as specifically provided in this
-----------
Agreement, the purchase and sale of Receivables and Related Rights under this
Agreement shall be without recourse to COMPUCOM; provided that COMPUCOM shall be
--------
liable to the Buyer for all representations, warranties, covenants and
indemnities made by COMPUCOM pursuant to the terms of this Agreement, it being
understood that such obligation of COMPUCOM will not arise on account of the
failure of the Obligor for credit reasons to make any payment in respect of a
Receivable.
SECTION 1.4. True Sales.
----------
(a) Each of COMPUCOM and the Buyer intend the transactions hereunder to
constitute true sales (or in the case of Contributed Receivables, absolute
conveyances in the form of capital contributions) of Receivables and the Related
Rights by COMPUCOM to the Buyer providing the Buyer with the full benefits of
ownership thereof, and no party hereto intends the transactions
-4-
<PAGE>
contemplated hereunder to be, or for any purpose to be characterized as, a loan
from the Buyer to COMPUCOM.
(b) In the event (but only to the extent) that the conveyance of
Receivables and Related Rights hereunder is characterized by a court or other
governmental authority as a loan rather than a sale or contribution, COMPUCOM
shall be deemed hereunder to have granted to the Buyer, and COMPUCOM hereby
grants to the Buyer, a security interest in all of COMPUCOM's right, title and
interest in, to and under all of the Receivables and Related Rights, whether now
or hereafter owned, existing or arising. Such security interest shall secure all
of COMPUCOM's obligations (monetary or otherwise) under this Agreement and the
other Transaction Documents to which it is a party, whether now or hereafter
existing or arising, due or to become due, direct or indirect, absolute or
contingent. The Buyer shall have, with respect to the property described in this
Section 1.4(b), and in addition to all the other rights and remedies available
- -------------
to the Buyer under this Agreement and applicable law, all the rights and
remedies of a secured party under the UCC, and this Agreement shall constitute a
security agreement under applicable law.
SECTION 1.5. Consideration for Purchases. On the terms and subject to
---------------------------
the conditions set forth in this Agreement, the Buyer agrees to make all
Purchase Price payments to COMPUCOM in accordance with Article III.
-----------
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1. Calculation of Purchase Price. On each Determination Date
-----------------------------
(commencing with the first Determination Date following the date hereof), the
Servicer shall deliver to the Buyer, the Trustee and COMPUCOM (if the Servicer
is other than COMPUCOM) a report in substantially the form of Exhibit A (each
---------
such report being herein called a "Purchase Report") with respect to the Buyer's
---------------
purchases of Receivables from COMPUCOM
(a) that arose on or prior to the Initial Cut-Off Date (in the case
of the first Purchase Report to be delivered hereunder) and
(b) that arose during the Settlement Period immediately preceding
such Determination Date (in the case of each successive Purchase Report).
Each Purchase Report shall designate the amount of such Receivables that were
Eligible Receivables on the date of origination (or, in the case of Receivables
transferred or contributed on or prior to the Initial Closing Date, on the
Initial Closing Date).
The "Purchase Price" (to be paid to COMPUCOM in accordance with the terms of
--------------
Article III) for the Receivables and the Related Rights shall be determined in
- -----------
accordance with the following formula:
-5-
<PAGE>
PP = AUB X FMVD
where:
-----
PP = Purchase Price (to be paid to COMPUCOM in accordance
with the terms of Article III) as calculated on the
------------
relevant Determination Date;
AUB = For purposes of calculating the Purchase Price for
Receivables on each Determination Date, the aggregate
Unpaid Balance of the Receivables described in Section
-------
1.1(a)(i) hereof that were generated by COMPUCOM during
---------
the immediately preceding Settlement Period, less an
----
amount equal to the sum of the aggregate Unpaid Balance
of all Contributed Receivables, if any, indicated on
the related Purchase Report; and
FMVD = "Fair Market Value Discount Factor" on the
---------------------------------
determination date, which shall equal 97.79%.
ARTICLE III
PAYMENT OF PURCHASE PRICE
SECTION 3.1. The Initial Purchase Price Payment.
----------------------------------
(a) Buyer paid a portion of the purchase price for Receivables sold
under the Original Purchase Agreement by the issuance of a subordinated note
thereunder (the "Original Subordinated Note"), the principal balance of which as
--------------------------
of the date hereof is $116,749,117. Such Original Subordinated Note shall be
replaced by a promissory note in the form of Exhibit B to this Agreement payable
---------
to the order of COMPUCOM in the initial principal amount equal to the
outstanding principal balance of the Original Subordinated Note as of the date
hereof (such promissory note, as it may be amended, supplemented, endorsed or
otherwise modified from time to time, together with any promissory notes issued
from time to time in substitution therefor or renewal thereof in accordance with
the Transaction Documents, being called an "Buyer Note"), which Buyer Note
----------
shall, in accordance with its terms, be subordinated to all interests in
Receivables and Related Rights and all obligations of the Buyer, of any nature,
whether now or hereafter arising under or in connection with the Pooling and
Servicing Agreement.
(b) The Servicer shall hold the Buyer Note for the benefit of
COMPUCOM, and shall make all appropriate record-keeping entries with respect to
the Buyer Note or otherwise to reflect payments on and adjustments of the Buyer
Note; provided that the failure to make such notation shall not be construed to
--------
reduce the amount owing under such Buyer Note. The Servicer's books and records
shall constitute rebuttable presumptive evidence of the principal amount of and
accrued and unpaid interest on the Buyer Note at any time. COMPUCOM hereby
-6-
<PAGE>
irrevocably authorizes the Servicer to mark its Buyer Note "CANCELED" and to
return such Buyer Note to the Buyer upon the full and final payment thereof
after the Sale Termination Date.
(c) The Buyer Note shall bear interest at a rate equal to the LIBO
Rate. Such rate shall be readjusted on each six month anniversary of the date
hereof.
SECTION 3.2. Purchase Price Payments. On each Business Day falling on
-----------------------
or after the date hereof until the termination of this Agreement pursuant to
Section 9.4, on the terms and subject to the conditions of this Agreement, the
- -----------
Buyer shall pay to COMPUCOM the Purchase Price for the Receivables and Related
Rights purchased from COMPUCOM during the immediately preceding Settlement
Period as follows:
(i) First, by paying to COMPUCOM a portion of the Purchase Price
-----
due pursuant to Section 2.1 by depositing into such account as COMPUCOM
-----------
shall specify immediately available funds from monies held by or on
behalf of the Buyer solely to the extent that such monies are available
to be distributed to the Buyer pursuant to the Pooling and Servicing
Agreement (such available monies, the "Available Funds");
---------------
(ii) Second, to the extent any portion of the Purchase Price
------
remains unpaid, the principal amount outstanding under the Buyer Note
issued to COMPUCOM automatically shall be increased in an amount equal
to such remaining Purchase Price.
To the extent that (x) the amount paid to CompuCom during such Settlement Period
pursuant to the foregoing sentences with respect to all Receivables created or
originated by COMPUCOM that arose during the corresponding Settlement Period
exceeds (y) the amount due pursuant to Section 2.1 for such Receivables, such
-----------
excess shall be treated as a reduction in the principal amount of the Buyer
Note, effective as of the last day of the related Settlement Period; provided,
--------
however, that if at any time the unpaid principal amount of the Buyer Note has
- -------
been reduced to zero, COMPUCOM shall pay the Buyer the remainder owed with
respect thereto in immediately available funds.
SECTION 3.3. Ineligible Receivables, Etc.
----------------------------
(a) If on any day any of the representations or warranties in Section
-------
5.1 (i) or (u) hereto is not true with respect to any Receivable (each such
- ------- ---
Receivable, an "Ineligible Receivable"), COMPUCOM shall deliver to the Servicer
---------------------
in same day funds an amount equal to the Unpaid Balance of such Receivable for
application by the Servicer to the same extent as if Collections of such Unpaid
Balance had actually been received on such date;
(b) except as provided in paragraph (a) of this Section 3.3, or as
------------- -----------
otherwise required by applicable law or the relevant Contract, all Collections
received from an Obligor of any Receivables shall be applied to the Receivables
of such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, unless such Obligor designates in writing its payment
for application to specific Receivables;
-7-
<PAGE>
(c) if and to the extent that the Buyer shall be required for any
reason to pay over to an Obligor (or any trustee, receiver, custodian or similar
official in any Event of Bankruptcy) any amount received by it under this
Section 3.3, such amount shall be deemed not to have been so received but rather
- -----------
to have been retained by COMPUCOM and, accordingly, the Buyer shall have a claim
against COMPUCOM for such amount, payable when and to the extent that any
distribution from or on behalf of such Obligor is made in respect thereof; and
(d) in the event that COMPUCOM has paid (by effecting a Purchase Price
reduction or otherwise) to the Buyer the full Unpaid Balance of any Receivable
pursuant to this Section 3.3, the Buyer shall reconvey such Receivable and all
-----------
Related Rights with respect thereto to COMPUCOM, without recourse,
representation or warranty, but free and clear of all Liens created by the
Buyer; such reconveyed Receivables and all Related Rights shall no longer be
subject to the terms of this Agreement (including any obligation to turn over
Collections with respect thereto).
SECTION 3.4. Payments and Computations, Etc.
------------------------------
(a) All amounts to be paid or deposited by COMPUCOM or the Servicer
hereunder shall be paid or deposited no later than 12:00 p.m. (New York time) on
the day when due in same day funds. All amounts received after 12:00 p.m. (New
York time) will be deemed to have been received on the immediately succeeding
Business Day.
(b) COMPUCOM shall, to the extent permitted by law, pay interest on
any amount not paid or deposited by COMPUCOM (whether as Servicer, or otherwise)
when due hereunder, at an interest rate equal to 2.0% per annum above the
--- -----
Alternate Base Rate, payable on demand.
(c) All computations of interest under Section 3.4(b) and all
--------------
computations of the Purchase Price, fees, and other amounts hereunder shall be
made on the basis of a 360-day year and actual days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1. Conditions Precedent to Initial Purchase. The initial
----------------------------------------
Purchase under this Agreement is subject to the condition precedent that the
Buyer shall have received each of the following (with copies to the Trustee), on
or before the date of such purchase, each in form and substance (including the
date thereof) satisfactory to the Buyer and the Trustee:
-8-
<PAGE>
(a) The Pooling and Servicing Agreement and the Series 1999-1 Supplement
thereto, duly executed by the parties thereto, together with evidence reasonably
satisfactory to the Buyer that all conditions precedent to the sale of the 1999-
1 Series Certificate to the Initial Series 1999-1 Certificateholder thereunder
(other than any condition relating to the effectiveness of the purchase
commitment under this Agreement) shall have been met;
(b) A certificate of the Secretary of COMPUCOM certifying (i) a copy of
the resolutions of its Board of Directors approving this Agreement and the other
Transaction Documents to be delivered by it hereunder and the transactions
contemplated hereby; (ii) the names and true signatures of the officers
authorized on its behalf to sign this Agreement and the other Transaction
Documents to be delivered by it hereunder (on which certificate the Trustee, the
Certificateholders and Buyer may conclusively rely until such time as the
Trustee shall receive from COMPUCOM, as the case may be, a revised certificate
meeting the requirements of this subsection (b)); (iii) a copy of its by-laws;
---------------
and (iv) all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement and the other
Transaction Documents;
(c) The Articles of Incorporation of COMPUCOM, duly certified by the
Secretary of State of Delaware, as of a recent date;
(d) Acknowledgment copies or time stamped receipt copies, of the proper
financing statements (Form UCC-1) that have been duly executed and name COMPUCOM
as the debtor and seller and the Buyer as the secured party and purchaser (and
the Trustee, for the benefit of the Certificateholders, as assignee of the
Buyer) of the Receivables and the Related Rights or other, similar instruments
or documents, as may be necessary or, in Servicer's or the Trustee's opinion,
desirable under the UCC or any comparable law of all appropriate jurisdictions
to perfect the Buyer's ownership interest in all Receivables and Related Rights
in which an ownership interest may be assigned to it hereunder;
(e) A search report provided in writing to the Trustee, listing all
effective financing statements that name COMPUCOM as debtor or assignor and that
are filed in the jurisdictions in which filings were made pursuant to subsection
----------
(d) above and in such other jurisdictions that Trustee shall reasonably request,
- ---
together with copies of such financing statements (none of which shall cover any
Trust Assets), and tax and judgment lien search reports from a Person
satisfactory to Servicer and the Trustee showing no evidence of such liens filed
against COMPUCOM;
(f) An opinion of Morgan, Lewis & Bockius, special counsel to COMPUCOM, in
the form reasonably acceptable to the Agent;
(g) A pro forma Purchase Report, prepared in respect of the proposed
---------
initial Purchase, assuming an Initial Cut-Off Date of March 31, 1999;
-9-
<PAGE>
(h) The Buyer Note in favor of COMPUCOM, duly executed by the Buyer;
(i) A certificate from an officer of COMPUCOM to the effect that
Servicer and COMPUCOM have placed on the most recent, and have taken all
steps reasonably necessary to ensure that there shall be placed on
subsequent, summary master control data processing reports the following
legend (or the substantive equivalent thereof):
THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO CSI FUNDING, INC.
PURSUANT TO A RECEIVABLES CONTRIBUTION SALE AGREEMENT, DATED AS OF May
7, 1999, AS AMENDED FROM TIME TO TIME, BETWEEN COMPUCOM SYSTEMS, INC.
AND CSI FUNDING, INC.; AND AN OWNERSHIP AND SECURITY INTEREST IN THE
RECEIVABLES DESCRIBED HEREIN HAS BEEN GRANTED AND ASSIGNED TO NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, AS TRUSTEE, PURSUANT TO A
POOLING AND SERVICING AGREEMENT, DATED AS OF May 7, 1999, AMONG
COMPUCOM SYSTEMS, INC., CSI FUNDING, INC., AND NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, AS TRUSTEE; and
(j) Such other agreements, instruments, UCC financing statements,
certificates, opinions and other documents as the Buyer, the Trustee or the
Agent may reasonably request.
SECTION 4.2. Conditions Precedent to All Purchases. Each purchase under
-------------------------------------
this Agreement is subject to the condition precedent that the agreement of
COMPUCOM to sell Receivables and Related Rights, and the agreement of the Buyer
to purchase Receivables and Related Rights, shall not have terminated pursuant
to Section 9.4 of this Agreement, and shall be subject further to the conditions
-----------
precedent that:
(a) in the case of each purchase, the Servicer shall have delivered
to the Buyer on or prior to such purchase, a completed Purchase Report with
respect to the immediately preceding calendar month, together with such
additional information as may be reasonably requested by the Buyer; and
(b) the representations and warranties contained in Article V are
---------
correct on and as of such day as though made on and as of such day and
shall be deemed to have been made on such day (except that any such
representation or warranty that is expressly stated as being made only as
of a specified earlier date shall be true and correct in all material
respects as of such earlier date).
SECTION 4.3. Certification as to Representations and Warranties. COMPUCOM,
--------------------------------------------------
by accepting the Purchase Price (whether in cash or by an increase in the
principal amount outstanding under the Buyer Note) paid for each purchase of
Receivables and Related Rights on any day, shall be deemed to have certified
that its representations and warranties contained in
-10-
<PAGE>
Article V are true and correct on and as of such day, with the same effect as
- ---------
though made on and as of such day.
SECTION 4.4. Effect of Payment of Purchase Price. Upon the payment of the
-----------------------------------
Purchase Price (whether in cash or by an increase in the principal amount
outstanding under the Buyer Note) for any purchase of Receivables and Related
Rights, title to such Receivables and Related Rights shall vest in the Buyer,
whether or not the conditions precedent to such purchase were in fact satisfied;
provided that the Buyer shall not be deemed to have waived any claim it may have
- --------
under this Agreement for the failure by COMPUCOM in fact to satisfy any such
condition precedent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1. Representations and Warranties. In order to induce the Buyer
------------------------------
to enter into this Agreement and to make purchases thereunder, COMPUCOM hereby
represents and warrants as follows:
(a) Organization and Good Standing. COMPUCOM has been duly organized
------------------------------
and is validly existing as a corporation in good standing under the laws of
the State of Delaware, with power and authority to own its properties and
to conduct its business as such properties are presently owned and such
business is presently conducted.
(b) Due Qualification. COMPUCOM is duly qualified to do business as a
-----------------
foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualification, licenses or approvals except where the failure to so qualify
or have such licenses or approvals could not reasonably be expected to have
a Seller Material Adverse Effect.
(c) Power and Authority; Due Authorization. COMPUCOM (i) has all
--------------------------------------
necessary power, authority and legal right to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party, (B)
carry out the terms of the Transaction Documents to which it is a party,
and (C) sell and assign the Receivables and Related Rights on the terms and
conditions herein provided and (ii) has duly authorized by all necessary
corporate action the execution, delivery and performance of this Agreement
and the other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each other
-------------------
Transaction Document to be signed by COMPUCOM when duly executed and
delivered will constitute, a legal, valid and binding obligation of
COMPUCOM enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy,
-11-
<PAGE>
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(e) No Violation. The consummation of the transactions contemplated
------------
by this Agreement and the other Transaction Documents to which COMPUCOM is
a party and the fulfillment of the terms hereof and thereof will not (i)
conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or both) a default
under COMPUCOM's articles of incorporation or by-laws or any loan or credit
agreement, other agreement, indenture, lease or instrument of COMPUCOM, or
by which it or its properties may be bound (ii) result in the creation or
imposition of any Lien upon any of COMPUCOM's properties pursuant to the
terms of any such loan or credit agreement, other agreement, indenture,
lease or instrument, other than the Transaction Documents, or (iii) violate
any Requirements of Law.
(f) No Proceedings. There is no litigation, proceedings or
--------------
investigations pending or, to the best of COMPUCOM's knowledge, threatened,
before any Governmental Authority or arbitrator (i) asserting the
invalidity of this Agreement or any other Transaction Document to which
COMPUCOM is a party, (ii) seeking to prevent the sale and assignment of the
Receivables and Related Rights, the collectibility of the Receivables or
the consummation of any of the other transactions contemplated by this
Agreement or any other Transaction Document, or (iii) seeking any
determination or ruling that could reasonably be expected to have a Seller
Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required for the
--------------------
due execution, delivery and performance by COMPUCOM of this Agreement or
any other Transaction Document to which it is a party.
(h) Securities Exchange Act. No proceeds of any purchase will be used
-----------------------
to acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
(i) Quality of Title; Valid Sale; Etc. Upon its creation and prior to
---------------------------------
its sale or contribution to the Buyer under this Agreement, it is the legal
and beneficial owner of each of the Receivables and the Related Rights free
and clear of any Lien; and upon each purchase or contribution the Buyer
shall acquire a valid and enforceable ownership interest in each Receivable
then existing or thereafter arising and in the Related Rights with respect
thereto, free and clear of any Lien. Each Receivable constitutes an
"account" as such term is defined in the UCC. No effective financing
statement or other instrument similar in effect covering any Receivable or
Related Rights with respect thereto is on file in any recording office,
except those filed in favor of the Buyer pursuant to this Agreement and in
favor of the Trustee pursuant to the Pooling and Servicing Agreement.
-12-
<PAGE>
(j) Accuracy of Information. Each report, information, exhibit,
-----------------------
financial statement, document, book, record or report furnished or to be
furnished at any time by or on behalf of it to the Buyer or the Trustee in
connection with this Agreement is or will be accurate in all material
respects as of its date or (except as otherwise disclosed to the Trustee at
such time) as of the date so furnished, and no such item contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made, not
materially misleading.
(k) Offices. The principal place of business and chief executive
-------
office of COMPUCOM are located at the address of COMPUCOM referred to in
Section 9.2, and the offices where COMPUCOM keeps all its books, records
-----------
and documents evidencing or relating to Receivables are located at the
address of COMPUCOM referred to in Section 9.2 (or at such other locations,
-----------
notified to the Trustee in accordance with Section 6.1(e), in jurisdictions
--------------
where all action required by Section 8.4 has been taken and completed).
-----------
(l) Bulk Sales Act. No transaction contemplated hereby requires
--------------
compliance with any bulk sales act or similar law.
(m) Margin Regulations. The use of all funds obtained by COMPUCOM
------------------
under this Agreement will not conflict with or contravene any of Regulation
T, U or X promulgated by the Federal Reserve Board from time to time.
(n) No Purchase Termination Events. No event has occurred and is
------------------------------
continuing, or would result from a purchase, in respect of the Receivables
or Related Rights or from the application of the proceeds therefrom, which
constitutes a Purchase Termination Event.
(o) Maintenance of Books and Records. It has accounted for each sale
--------------------------------
of Receivables and Related Rights in its books and financial statements as
sales, consistent with generally accepted accounting principles.
(p) Credit and Collection Policy. It has complied in all material
----------------------------
respects with the Credit and Collection Policy with regard to each
Receivable.
(q) Solvency. It is solvent; and at the time of (and immediately
--------
after) each sale pursuant to this Agreement it shall be solvent.
(r) Compliance with Transaction Documents. It, as Servicer or Seller,
-------------------------------------
has complied with all of the terms, covenants and agreements contained in
this Agreement and the other Transaction Documents applicable to it.
(s) Corporate Name. COMPUCOM's complete corporate name is set forth
--------------
in the preamble to this Agreement, and COMPUCOM does not use and has not
during the
-13-
<PAGE>
last six years used any other corporate name, trade name, doing business
name or fictitious name, other than NC Group (used in Ohio only) and
PCSave.
(t) Investment Company Act. It is not, and is not controlled by, an
----------------------
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended.
(u) Eligible Receivables. Each Receivable sold or contributed by it
--------------------
to the Buyer under the Original Purchase Agreement that is designated as an
Eligible Receivable on the initial Purchase Report or Settlement Statement
is in fact an Eligible Receivable. Each Receivable sold or contributed by
it to the Buyer hereunder that is designated as an Eligible Receivable on a
Purchase Report or Settlement Statement is in fact an Eligible Receivable.
ARTICLE VI
COVENANTS
SECTION 6.1. Affirmative Covenants. From the date hereof until the Final
---------------------
Trust Termination Date:
(a) Compliance with Laws, Etc. COMPUCOM will comply in all material
-------------------------
respects with all Requirements of Law, including those with respect to the
Receivables and the related Contracts, except where noncompliance could not
reasonably be expected to have a Seller Material Adverse Effect.
(b) Preservation of Corporate Existence. COMPUCOM will preserve and
-----------------------------------
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification could reasonably be expected to have a Seller Material
Adverse Effect.
(c) Audits. (i) COMPUCOM will at any time and from time to time
------
during regular business hours, permit the Trustee or any of its agents or
representatives, (A) to examine and make copies of and abstracts from all
books, records and documents (including, without limitation, computer tapes
and disks) in its possession or under its control relating to Receivables,
(B) to visit its offices and properties for the purpose of examining such
materials described in clause (i)(A) above, and to discuss matters relating
-------------
to Receivables or its performance hereunder with any of its officers or
employees having knowledge of such matters, and (C) to verify the existence
and amount of the Receivables; and (ii) without limiting the provisions of
clause (i) above, from time to time on request of the Trustee, permit
----------
certified public accountants or other auditors
-14-
<PAGE>
acceptable to the Trustee to conduct, at COMPUCOM's expense, a review of
its books and records with respect to the Receivables.
(d) Keeping of Records and Books of Account. COMPUCOM 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).
(e) Location of Records. COMPUCOM will keep its principal place of
-------------------
business and chief executive office, and the offices where it keeps its
records concerning the Receivables and all related Contracts and all other
agreements related to such Receivables (and all original documents relating
thereto), at its address(es) referred to in Section 9.2 or, upon 30 days'
-----------
prior written notice to the Trustee, at such other locations in
jurisdictions where all action required by Section 8.4 shall have been
-----------
taken and completed.
(f) Credit and Collection Policies. COMPUCOM, at its own expense,
------------------------------
will timely and fully perform and comply in all material respects with the
Credit and Collection Policy in regard to each Receivable and the related
Contracts.
(g) Collections. COMPUCOM will instruct all Obligors to cause all
-----------
Collections to be sent to a Post Office Box or a Wire Transfer Receipt
Account. In the event that COMPUCOM receives Collections directly from any
Obligor, COMPUCOM shall deposit such Collections into the Concentration
Account within one Business Day of receipt thereof.
SECTION 6.2. Negative Covenants. From the date hereof until the Final
------------------
Trust Termination Date:
(a) Sales, Liens, Etc. COMPUCOM will not, except as otherwise
-----------------
provided herein or in any other Transaction Document, sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Lien upon or with respect to, any Receivable or any interest
therein.
(b) Extension or Amendment of Receivables. COMPUCOM will not, except
-------------------------------------
as otherwise permitted in any other Transaction Document, extend, amend or
otherwise modify, or permit Servicer to extend, amend or otherwise modify,
the terms of any Receivable; or amend, modify or waive, or permit Servicer
to amend, modify or waive, any term or condition of any Contract related to
a Receivable.
-15-
<PAGE>
(c) Change in Business or Credit and Collection Policy. COMPUCOM will
--------------------------------------------------
not make any change in the character of its business or in the Credit and
Collection Policy, which change could impair the collectibility of any
Receivable or otherwise adversely affect the interests or remedies of the
Buyer under this Agreement or any other Transaction Document or any
Certificateholder.
(d) Change in Payment Instructions to Obligors. COMPUCOM will not
------------------------------------------
make any change, or permit Servicer to make any change, in its instructions
to Obligors regarding payments to be made to a Post Office Box or a Wire
Transfer Receipt Account.
(e) Deposits to Special Accounts. COMPUCOM will not deposit or
----------------------------
otherwise credit, or cause or permit to be so deposited or credited, to any
Lock-Box Account or the Concentration Account cash or cash proceeds other
than Collections of Receivables.
SECTION 6.3. Separate Existence. COMPUCOM hereby acknowledges that the
------------------
Investor Certificateholders are entering into the transactions contemplated by
the other Transaction Documents in reliance upon the Buyer's identity as a legal
entity separate from COMPUCOM. Therefore, from and after the date hereof,
COMPUCOM shall take all steps specifically required by the Transaction Documents
or by the Buyer or the Trustee to continue the Buyer's identity as a separate
legal entity and to make it apparent to third Persons that the Buyer is an
entity with assets and liabilities distinct from those of COMPUCOM and any other
Person, and is not a division of COMPUCOM or any other Person.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1. Indemnities by COMPUCOM. Without limiting any other rights
-----------------------
which the Buyer and each of its permitted assigns, officers, directors,
employees and agents (each of the foregoing Persons being individually called a
"Sale Indemnified Party") may have hereunder or under applicable law, COMPUCOM
----------------------
hereby agrees to indemnify the Buyer and each Sale Indemnified Party from and
against any and all damages, losses, claims, judgments, liabilities and related
costs and expenses, including reasonable attorneys' fees and disbursements (all
of the foregoing collectively being called "Sale Indemnified Amounts") arising
------------------------
out of or resulting from this Agreement (whether directly or indirectly) or the
use of proceeds of purchases or the ownership of any Receivable or Related
Rights, excluding, however, (a) Sale Indemnified Amounts to the extent resulting
from gross negligence or willful misconduct on the part of the Buyer or such
Sale Indemnified Party, (b) Sale Indemnified Amounts to the extent the same
includes losses in respect of Receivables and reimbursement therefor that would
constitute credit recourse to COMPUCOM for the amount of any Receivable or
Related Rights not paid by the related Obligor for credit reasons, or (c) any
net income taxes or franchise taxes imposed on the Buyer or such Sale
Indemnified Party. Without limiting or being limited by the foregoing, but
subject to the exclusions set forth in the immediately preceding sentence,
COMPUCOM shall
-16-
<PAGE>
pay on demand to the Buyer and each Sale Indemnified Party any and all amounts
necessary to indemnify the Buyer and such Sale Indemnified Party from and
against any and all Sale Indemnified Amounts relating to or resulting from any
of the following:
(i) the transfer by COMPUCOM of an interest in any Receivable
or Related Rights to any Person other than the Buyer;
(ii) the failure of any information provided by COMPUCOM, as
Servicer or otherwise, to the Buyer, the Trustee or the Servicer with
respect to Receivables or this Agreement to be true, correct and
complete;
(iii) the failure of any representation or warranty or
statement made or deemed made by COMPUCOM (or any of its officers),
under or in connection with this Agreement to have been true and
correct when made;
(iv) the failure by COMPUCOM to comply with any Requirements
of Law with respect to any Receivable or Related Rights or otherwise;
or the failure of any Receivable or Related Rights to conform to any
such Requirement of Law;
(v) the failure to vest and maintain vested in the Buyer a
valid and enforceable ownership interest in each Receivable at any time
existing and the Related Rights with respect thereto, free and clear of
any Lien, other than a Lien arising solely as a result of an act of the
Buyer or the Trustee, whether existing as the time of purchase of such
Receivable or at any time thereafter;
(vi) the failure of COMPUCOM to have filed, or any delay in
filing, financing statements or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws
with respect to any Receivables and the Related Rights in respect
thereof, whether at the time of any purchase or at any subsequent time;
(vii) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being a 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 the goods or
services related to such Receivable or the furnishing or failure to
furnish such goods or services;
(viii) any failure of COMPUCOM to perform its duties or
obligations in accordance with the provisions hereof or to perform its
duties or obligations under the Contracts;
(ix) any products liability or other claim, investigation,
litigation or proceeding arising out of or in connection with
merchandise, insurance or services which are the subject of any
Contract;
-17-
<PAGE>
(x) the commingling of Collections of Receivables at any time
with other funds;
(xi) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of purchases or the ownership of
any Receivable or Related Rights;
(xii) any tax or governmental fee or charge (but not including
taxes upon or measured by net income or representing a franchise or
doing business tax on such Sale Indemnified Party), all interest and
penalties thereon or with respect thereto, and all out-of-pocket costs
and expenses, including the reasonable fees and expenses of counsel in
defending against the same, which may arise by reason of the purchase
or ownership of the Receivables generated by COMPUCOM or any Related
Rights connected with any such Receivables; or
(xiii) any requirement that all or a portion of the
distributions made to the Buyer pursuant to this Agreement shall be
rescinded or otherwise must be returned to COMPUCOM for any reason.
ARTICLE VIII
ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS
AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES
SECTION 8.1. Servicing of Receivables and Related Rights. Consistent
-------------------------------------------
with the Buyer's ownership of the Receivables and the Related Rights, the Buyer
shall have the sole right to service, administer and collect the Receivables, to
assign such right and to delegate such right to others. In consideration of the
Buyer's purchase of the Receivables and the Related Rights, COMPUCOM agrees to
cooperate fully with the Buyer to facilitate the full and proper performance of
such duties and obligations for the benefit of the Buyer, the Trust and the
Certificateholders. To the extent that the Buyer, individually or through the
Servicer, has granted or grants powers of attorney to the Servicer or the
Trustee under the Pooling and Servicing Agreement, COMPUCOM hereby grants a
corresponding power of attorney on the same terms to the Buyer. COMPUCOM hereby
acknowledges and agrees that the Buyer, in all of its capacities, shall assign
to the Trustee for the benefit of the Certificateholders such powers of attorney
and other rights and interests granted by COMPUCOM to the Buyer hereunder, and
agrees to cooperate fully with the Trustee in the exercise of such rights.
SECTION 8.2. Rights of the Buyer; Enforcement Rights.
---------------------------------------
(a) The Buyer shall have no obligation to account for, to replace, to
substitute or to return any Receivables and Related Rights to COMPUCOM. The
Buyer shall have no obligation to account for, or to return to COMPUCOM,
Collections, or any interest or other finance charge
-18-
<PAGE>
collected pursuant thereto, without regard to whether such Collections and
charges are in excess of the Purchase Price for such Receivables and Related
Rights.
(b) The Buyer shall have the unrestricted right to further assign,
transfer, deliver, hypothecate, subdivide or otherwise deal with the Receivables
and Related Rights, and all of the Buyer's right, title and interest in, to and
under this Agreement, on whatever terms the Buyer shall determine, pursuant to
the Pooling and Servicing Agreement or otherwise.
(c) The Buyer shall have the sole right to retain any gains or profits
created by buying, selling or holding the Receivables and Related Rights and,
except as expressly set forth in the Transaction Documents, shall have the sole
risk of and responsibility for losses or damages created by such buying, selling
or holding.
(d) COMPUCOM hereby authorizes the Buyer, and irrevocably appoints the
Buyer as its attorney-in-fact with full power of substitution and with full
authority in the place and stead of COMPUCOM, which appointment is coupled with
an interest, to take any and all steps in the name of COMPUCOM and on behalf of
COMPUCOM necessary or desirable, in the determination of the Buyer, to collect
any and all amounts or portions thereof due under any and all Receivables or
Related Rights, including, without limitation, endorsing the name of COMPUCOM on
checks and other instruments representing Collections and enforcing such
Receivables and Related Rights.
SECTION 8.3. Responsibilities of COMPUCOM. Anything herein to the contrary
----------------------------
notwithstanding:
(a) COMPUCOM agrees to deliver directly to the Servicer (for the Buyer's
account), within one Business Day of receipt thereof, any Collections that it
receives, in the form so received, and agrees that all Collections shall be
deemed to be received in trust for the Buyer and shall be maintained and
segregated separate and apart from all other funds and moneys of COMPUCOM until
delivery of the Collections to the Servicer;
(b) COMPUCOM agrees to instruct all Obligors to cause all Collections to
be sent to a Post Office Box that is the subject of a Lock-Box Agreement or a
Wire Transfer Receipt Account that is subject to a Wire Transfer Receipt Account
Agreement; and
(c) COMPUCOM shall (i) perform all of its obligations hereunder and under
the Contracts related to the Receivables and Related Rights to the same extent
as if the Receivables and Related Rights had not been sold hereunder, and the
exercise by the Buyer or its designee or assignee of the Buyer's rights
hereunder or in connection herewith shall not relieve 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. Notwithstanding anything to the contrary in this Agreement, none
of the Buyer, the Trustee or any Certificateholder shall have any obligation or
liability with respect to any
-19-
<PAGE>
Receivable or Related Rights nor shall any of them be obligated to perform any
of the obligations of COMPUCOM under any of the foregoing.
SECTION 8.4. Further Action Evidencing Purchases. COMPUCOM agrees that from
-----------------------------------
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, in order to perfect,
protect or more fully evidence the purchase of the Receivables and the Related
Rights by the Buyer hereunder, or to enable the Buyer to exercise or enforce any
of its rights hereunder or under any other Transaction Document. COMPUCOM
further agrees from time to time, at its expense, promptly to take all action
that the Buyer, the Servicer or the Trustee may reasonably request in order to
perfect, protect or more fully evidence such purchase of the Receivables and the
Related Rights or to enable the Buyer or the Trustee (as assignee of the Buyer)
to exercise or enforce any of its or their respective rights hereunder or under
any other Transaction Document in respect of the Receivables and the Related
Rights. Without limiting the generality of the foregoing COMPUCOM will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as the Buyer or the Trustee may reasonably determine to be necessary or
appropriate; and
(b) mark the master data processing records evidencing the Receivables
and, if requested by the Buyer or the Trustee, to the extent reasonably
practicable, legend the related Contracts, to reflect the sale of the
Receivables and Related Rights pursuant to this Agreement and the Pooling and
Servicing Agreement.
COMPUCOM hereby authorizes the Buyer or its designee or assignee to file
one or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Receivables and Related
Rights of COMPUCOM, in each case whether now existing or hereafter generated. If
COMPUCOM fails to perform any of its agreements or obligations under this
Agreement, the Buyer or its designee or assignee may (but shall not be required
to) itself perform, or cause performance of, such agreement or obligation, and
the reasonable expenses of the Buyer or its designee or assignee incurred in
connection therewith shall be payable by COMPUCOM under Section 7.1.
-----------
SECTION 8.5. Purchase Termination Event. Either (i) an election by the
--------------------------
Seller to no longer sell Receivables and Related Rights to the Buyer hereunder
by delivery to the Buyer of a notice to that effect or (ii) an election by the
Buyer to no longer purchase Receivables and Related Rights from the Seller
hereunder by delivery to the Seller of a notice to that effect; such notice to
take effect on the Business Day after the day of receipt by the recipient of
such notice.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement or consent to any departure by COMPUCOM therefrom shall be
effective unless in a writing signed by the Buyer, and consented to in writing
by the Trustee in accordance with the Pooling and Servicing Agreement, and any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No failure on the part of the Buyer or the
Trustee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right.
SECTION 9.2. Notices, Etc. All notices and other communications provided
------------
for hereunder shall, unless otherwise expressly stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent by
certified mail, postage prepaid, or by facsimile, to the intended party at the
address or facsimile number of such party set forth under its name on Schedule
--------
9.2 hereto or at such other address or facsimile number as shall be designated
- ---
by such party in a written notice to the other parties hereto. All such notices
and communications shall be effective, (a) if personally delivered, when
received, (b) if sent by certified mail, three (3) Business Days after having
been deposited in the mail, postage prepaid, (c) if sent by overnight courier,
one (1) Business Day after having been given to such courier, and (d) if
transmitted by facsimile, when sent, receipt confirmed by telephone or
electronic means.
SECTION 9.3. Acknowledgment and Consent.
--------------------------
(a) COMPUCOM, as Seller and as initial Servicer, acknowledges that,
contemporaneously herewith or at any time hereafter, the Buyer is assigning or
will assign to the Trustee, for the benefit of the Certificateholders, pursuant
to the Pooling and Servicing Agreement, all of the Buyer's rights, title and
interest in, to and under the Receivables and Related Rights, and all of the
Buyer's right, title and interest in, to and under this Agreement, it being
-- -----
understood that such assignment shall not relieve any party hereto from (or
- ----------
require the Trustee or any Certificateholder to undertake) the performance of
any term, covenant or agreement on the part of any party hereto to be performed
or observed under or in connection with this Agreement. COMPUCOM, as Seller and
as initial Servicer, hereby consents to such assignments, including, without
limitation, the assignment by the Buyer of (i) the right of the Buyer, at any
time, to enforce this Agreement against COMPUCOM and the obligations of COMPUCOM
hereunder, (ii) the right to appoint a successor to the Servicer as set forth in
the Pooling and Servicing Agreement, (iii) the right, at any time, to give or
withhold any and all consents, requests, notices, directions, approvals,
demands, extensions or waivers under or with respect to this Agreement, any
other Transaction Document or the obligations in respect of COMPUCOM thereunder
to the same extent as the Buyer may do, and (iv) all of the Buyer's rights,
remedies, powers and privileges, and all claims of the Buyer against COMPUCOM,
under or with respect to this Agreement and the other Transaction Documents
(whether arising pursuant
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<PAGE>
to the terms of this Agreement or otherwise available at law or in equity). Each
of the parties hereto acknowledges and agrees that the Trustee and the Investor
Certificateholders are third party beneficiaries of the rights of the Buyer
arising hereunder and under the other Transaction Documents to which COMPUCOM is
a party.
(b) COMPUCOM hereby agrees to execute all agreements, instruments and
documents, and to take all other action, that the Buyer or the Trustee
determines is necessary or reasonably desirable to evidence its consent
described in Section 9.3(a).
--------------
(c) COMPUCOM hereby acknowledges that its obligations to the Trustee and
the Investor Certificateholders as assignees of the Buyer are and shall be, to
the extent permitted by applicable law or not prohibited by any order of any
court or administrative or regulatory authority, absolute and unconditional
under any and all circumstances and shall be unaffected by any claims, offsets
or other defenses COMPUCOM may have against the Buyer, and COMPUCOM agrees that
it shall not assert or interpose any such claims, offsets or defenses as a
defense to its performance of its obligations under the Transaction Documents to
which it is a party.
SECTION 9.4. Binding Effect; Assignability. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the Buyer, COMPUCOM and its respective
successors and permitted assigns. COMPUCOM may not assign its rights hereunder
or any interest herein without the prior written consent of the Buyer and each
Contract Party, subject to Section 9.3, the Buyer may not assign its rights
-----------
hereunder or any interest herein without the prior written consent of COMPUCOM
and each Control Party. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until the date after the Sale Termination
Date on which COMPUCOM has received payment in full for all Receivables and
Related Rights conveyed pursuant to Section 1.1 hereof and has paid and
-----------
performed all of its obligations hereunder in full. The rights and remedies with
respect to any breach of any representation and warranty made by COMPUCOM
pursuant to Article V shall be continuing and shall survive any termination of
---------
this Agreement.
SECTION 9.5. Costs, Expenses and Taxes. In addition to the rights of
-------------------------
indemnification granted under Article VII, COMPUCOM agrees to pay on demand all
-----------
costs and expenses, if any (including, without limitation, attorneys' fees), of
the Trustee, the Buyer, the Investor Certificateholders and their respective
Affiliates and agents, in connection with the enforcement of this
Agreement(unless such enforcement is finally denied on the merits by a court
with proper jurisdiction).
SECTION 9.6. No Proceedings; Limitation on Payments.
--------------------------------------
(a) COMPUCOM hereby agrees that it will not institute against, or join any
other Person in instituting against, the Buyer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
federal or state bankruptcy or similar law, for one year and one day after the
Final Trust Termination Date. The foregoing shall not
-22-
<PAGE>
limit COMPUCOM's right to file any claim in or otherwise take any action with
respect to any insolvency proceeding that was instituted by any Person other
than COMPUCOM.
(b) Notwithstanding any provisions contained in this Agreement to the
contrary, the Buyer shall not, and shall not be obligated to, pay any amount
pursuant to this Agreement unless the Buyer has excess cash flow from operations
or has received funds with respect to such obligation which may be used to make
such payment and, in each case, such payment is permitted by the Pooling and
Servicing Agreement.
SECTION 9.7. GOVERNING LAW AND JURISDICTION.
------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF
PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE BUYER IN THE RECEIVABLES
AND THE RELATED RIGHTS IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY UNITED STATES FEDERAL
COURT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES
HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. EACH
PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
SECTION 9.8. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of 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.
SECTION 9.9. Survival of Termination. The provisions of Section 1.4,
----------------------- -----------
Article VII, Section 9.3, Section 9.5, Section 9.6, Section 9.7, Section 9.10
- ----------- ----------- ----------- ----------- ----------- ------------
and this Section 9.9 shall survive any termination of this Agreement.
-----------
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ITS RESPECTIVE
--------------------
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
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<PAGE>
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH PARTY HERETO AGREES THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
SECTION 9.11. Entire Agreement. This Agreement and the other Transaction
----------------
Documents embodies the entire agreement and understanding of the parties hereto,
and supersedes all prior or contemporaneous agreements and understandings of
such Persons, verbal or written, relating to the subject matter hereof and
thereof. The Exhibits, Schedules and Annexes to this Agreement shall be deemed
incorporated by reference into this Agreement as if set forth herein.
SECTION 9.12. Headings. The captions and headings of this Agreement and
--------
in any Exhibit hereto are for convenience of reference only and shall not affect
the interpretation hereof or thereof.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
COMPUCOM SYSTEMS, INC., as Seller and as
initial Servicer
By: _______________________________
Name:
Title:
CSI FUNDING, INC., as Buyer
By: _______________________________
Name:
Title:
III-1
<PAGE>
EXHIBIT 10.Y
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED SOLUTIONS DIRECT RESELLERS
SIGNATURE PAGE
LEGAL BUSINESS NAME COMPUCOM
ADDRESS 7171 FOREST LANE
CITY, STATE, ZIP DALLAS, TEXAS 75230
PHONE, FAX #E-MAIL/INTERNET ADDRESS
--------------------------------
DBA(S)
--------------------------------
EXECUTIVE CONTACT
--------------------------------
CORPORATE WEB ADDRESS
--------------------------------
All documents marked with a "X" below govern the relationship between HP and you
for the purchase and resale of HP Products. HP and Reseller agree that
Reseller's volume level, at Net Reseller price, for HP Products on the Exhibits
for the term of this Agreement is:
AGREEMENT:
- -X- HP Reseller Business Terms
- -X- U.S. Direct Reseller Program
- -X- HP Solutions Direct Reseller Program Operations Policy Manual
ADDENDA & EXHIBITS:
- -X- U.S. Software License Terms
- -X- U.S. Solutions Support Options
- --- U.S. Solutions VAR Compensation Terms
- -X- U.S. Configuration Tools License
- --- U.S. Solutions Multinational Release Points
- --- U.S. Solutions Multinational Terms
- --- U.S. Solutions Multiple Release Points
- --- U.S. Solutions VAR Certification
- --- U.S. Solutions OEM/VAR Warranty
- --- U.S. Solutions VAR Dual Aggregation Terms
- -X- U.S. Direct Reseller Program-RAM Reseller
- --- AV20 HP-UX Server Products
- --- AV21 Unbundled HP-UX Server Products
- --- AV22 HP-UX Workstation Products
- --- AV23 Unbundled HP-UX Workstation Products
- --- AV24 Enterprise Storage Products
- --- AV25 Other Peripheral and HP-UX Related Products
- --- AV26 HP Openview NT and Packaged Solutions
- --- AV27 HP Openview IT Service Management
& Electronic Business Software
- --- AV28 MPE and Related Products
- --- AV30 HP Symmetrix Products
- --- AV33 HP UX Visualize Workstations
- --- AV35 HP NT Visualize Workstations (RAM VAR ONLY)
- --- AV40 HP High End Enterprise Server Products (RAM VAR ONLY)
- --- AV41 HP High End Enterprise Other Peripheral & (RAM VAR ONLY)
HP Related Products
- -X- AV42 HP SureStore E Disk Array XP256 Products (RAM VAR ONLY)
ATTACHMENTS:
- -X- HP Warranty & Installation Information
COMMITMENT:
- --- $ 3,000,000-and up
- --- $ 3,000,000-and up
- --- $ 1,000,000-and up
- --- $ 1,000,000-and up
- --- $ 3,000,000-and up
- --- $ Meet Certification
- --- $ Meet Certification
- --- $ Meet Certification
- --- $ 2,000,000-and up
- --- $ 1,000,000-and up
Page 1 of 4
<PAGE>
STATEMENT OF OWNERSHIP:
- -----------------------
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole proprietor):
For a Corporation, specify whether: X Publicly Held:
---
Privately Held: State of Incorporation/Organization Delaware
- --- --------
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
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership Type of Ownership interest
(Dollar Investment in (Assets, Common or
Limited Partners) Preferred Shares)
Thomas Lynch COO 1.19% Common Shares
- ----------------- ----------- -------------------- -------------------------
Lazanne Smith CFO 0 -------------
- ----------------- ----------- -------------------- -------------------------
- ----------------- ----------- -------------------- -------------------------
- ----------------- ----------- -------------------- -------------------------
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
This Reseller Agreement is made and entered into by and between CompuCom,
--------
a Delaware Corporation, and Hewlett-Packard Company, a Delaware Corporation.
--------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
/s/ Valda Dickens /s/ Susan Weatherman
- ---------------------------------- --------------------------------
Authorized Signature Susan Weatherman
Reseller Contracts & Negotiation Manager
Valda Dickens
- ----------------------------------
Typed Name
Director of Legal 8/12/99 March 31, 2000
- ---------------------------------- -------------- ---------------
Title Effective Date Expiration Date
Page 2 of 4
<PAGE>
HP RESELLER BUSINESS TERMS
TABLE OF CONTENTS
1. DEFINITIONS
2. APPOINTMENT
3. STATUS CHANGE
4. RELATIONSHIP
5. PRICES
6. ORDERS AND DELIVERY
7. PAYMENT
8. WARRANTY
9. PRODUCT MODIFICATION
10. SUPPORT
11. SOFTWARE
12. TRADEMARKS
13. INTELLECTUAL PROPERTY PROTECTION
14. CONFIDENTIALITY
15. LIMITATION OF LIABILITY AND REMEDIES
16. RECORD-KEEPING AND AUDIT
17. CHANGES AND AMENDMENTS
18. TERM AND TERMINATION
19. POLICIES AND PROGRAMS
20. GENERAL
Page 1 of 6
<PAGE>
1. DEFINITIONS
A. "Agreement" means the Signature Page containing the signatures of HP
and Reseller, these HP Reseller Business Terms, any attached Agreement,
Product Exhibits, Addenda, Product Categories, and the applicable
Operations Policy Manual.
B. "Delivery" means standard HP shipping to and arrival at the receiving
area at the "Ship To" address in the country where Reseller's order is
placed, unless otherwise indicated on the quotation.
C. "Exhibits" are documents attached to, incorporated by reference in, or
added to this Agreement at a later date which describe the Reseller
relationship, Products, Support, marketing programs or other business
terms. "Product Exhibits" and "Product Categories" refer to the
Products available for purchase under this Agreement "Addenda" refer to
particular Reseller relationships, Support offerings and marketing
programs.
D. "Operations Policy Manual" ("OPM") is a document which further
describes the specific relationship and obligations between HP and
Reseller under this Agreement.
E. "Net Reseller Price" for Products purchased under this Agreement means
the HP List Price in effect at the time an order from Reseller is
received by HP, less the applicable discounts based on Reseller's
volume, other commitments or elections specified in Exhibits and this
Agreement.
F. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that HP authorizes Reseller to purchase or
license under this Agreement, and that are determined by HP to be
available from HP upon receipt of Reseller's order. "Custom Products"
means Products modified, designed or manufactured to meet Reseller or
end-user customer requirements.
G. "Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software is
either a separate Product, included with another Product ("Bundled
Software"), or fixed in a Device and not removable in normal operation
("Firmware").
H. "Specifications" means specific technical information about HP Products
which is published in HP Product manuals and technical data sheets in
effect on the date HP ships Reseller's order.
I. "Support" means hardware maintenance and repair; Software updates and
maintenance; training; and other standard Support services provided by
HP. "Custom Support" means any agreed upon non-standard Support,
including consulting and custom project services.
2. APPOINTMENT
A. HP appoints Reseller as an authorized, non-exclusive Reseller for the
purchase and resale or sublicense of Products subject to the terms and
conditions of this Agreement.
B. The nature and scope of Reseller's authorization, including any
geographic, vertical market or other restrictions, are mainly detailed
in the attached Agreement and Addenda. The products covered by
Reseller's authorization, including any discounts and commitment
levels, are detailed in the attached Addenda, Product Exhibits and
Product Categories. Other policies, procedures, terms and conditions
applicable to this Agreement are contained in the OPM.
C. Reseller accepts appointment on these terms and conditions.
3. STATUS CHANGE
A. If Reseller wishes to:
1. Change its name;
2. Add, close or change an HP-approved shipment, delivery or other
HP-authorized location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls twenty-
five percent (25%) or more of Reseller's capital stock or assets
after such transaction, or assumes management of Reseller
operations; then Reseller will notify HP in writing at least ten
(10) working days prior to the intended date of change and
provide HP all information and documents requested by HP for the
purpose of evaluating such status change.
B. HP will promptly notify Reseller of its consent to the continuation of
Reseller's authorization following such a change in status, provided
that HP may terminate this Agreement immediately upon notice in the
event HP does not consent to such change. Pending HP's notification, HP
will have no obligation to perform under this Agreement
4. RELATIONSHIP
A. Reseller and HP are independent contractors for purposes of this
Agreement. This Agreement does not establish a franchise, joint venture
or partnership, or create any relationship of employer and employee,
master and servant, or principal and agent between the parties.
B. Neither party will have, nor represent that it has, any power, right,
or authority to bind the other party, or to assume or create any
obligation or responsibility, express or implied, on behalf of the
other party without such other party's express written consent.
Reseller acknowledges that any commitment made by Reseller to its
customers with respect to price, quantities, delivery, specifications,
warranties, modifications, interfacing capability or suitability will
be Reseller's sole responsibility, and Reseller will indemnify HP from
liability for any such commitment by Reseller.
C. This Agreement applies only to the Products listed on the Product
Exhibits, and the relationship between the parties is non-exclusive.
Reseller acknowledges that HP may market other products, including
products in competition with those listed on the Product Exhibits,
without making them available to Reseller. HP acknowledges that
Reseller may market other products, including those in competition with
those listed on the Product Exhibits. Each party reserves the right to
advertise, promote and sell any product, including Products listed on
the Product Exhibits, in competition with the other party.
D. HP will not be deemed a party to any agreement between Reseller and any
subsequent purchaser or licensee.
5. PRICES
A. Net Reseller Price includes shipment arranged by HP, unless otherwise
indicated on the quotation. HP reserves the right to charge Reseller
for any special routing, packing, handling or insurance requested by
Reseller and agreed to by HP. Orders
Page 3 of 6
<PAGE>
shipped under special routing instructions must be separately agreed
upon and may be subject to additional charges.
B. Prices are exclusive of, and Reseller will pay, applicable sales, use,
service, value added or like taxes, unless Reseller has provided HP
with an appropriate exemption certificate for the Delivery
jurisdiction, or HP agrees the transaction is otherwise exempt.
C. HP reserves the right to change prices and discounts upon reasonable
notice or as specified in Exhibits or the OPM. If Reseller is unsure of
the List Price to use in calculating Net Reseller Price for any
Product; Reseller should contact its HP sales representative or
relationship manager.
D. List prices are suggested prices for resale to end-user customers and a
basis for calculating Net Reseller Price. Reseller has the right to
determine its own resale prices, and no HP representative will require
that any particular resale price be charged by Reseller or grant or
withhold any benefits to Reseller based on Reseller's resale pricing
policies. Reseller agrees that it will promptly report any effort by HP
personnel to interfere with its pricing policies directly to an HP
officer or senior sales manager.
E. Upon request from Reseller, HP may at its discretion grant special
pricing for particular end-user customer transactions. In good faith HP
may retract the special pricing at any time before acceptance by the
end-user customer. HP may extend the pricing on an exclusive or non-
exclusive basis and may condition the pricing on a pass-through of all
or part of the non-standard offering extended by HP.
F. HP may, from time to time, offer Reseller certain Products on special
promotional terms and conditions. All such offerings may be subject to
pricing or discounts different from those provided for in this
Agreement. Such offerings may not, in some cases, apply towards
Reseller's volume or other commitments, and may not be eligible for
other standard benefits, including but not limited to promotional
allowance funds, price protection or stock adjustments. Except as
specifically altered by HP in a promotional offering under this
section, all other terms and conditions will remain unaltered.
6. ORDERS AND DELIVERY
A. HP will honor written orders from Reseller unless other methods are
agreed upon in writing. Reseller's orders must reference this Agreement
and comply with the minimum order, release, destination ("Shipment"
address) and other requirements specified in Addenda, Exhibits and/or
the OPM. Orders must also specify Delivery dates within periods
specified in the OPM.
B. Reseller will issue orders from approved locations within its
organization and will specify HP authorized "Ship To" addresses within
the country where the order is placed, unless otherwise agreed.
Reseller is responsible for ensuring that only authorized employees
place, change or delete orders and that the orders conform to all
requirements of this Agreement.
C. All orders are subject to acceptance by HP.
D. Delivery is subject to Product availability at the time Reseller's
order is received. HP will make every reasonable effort to meet
delivery dates quoted or acknowledged. If Products are in short supply,
HP will allocate them at HP's discretion.
E. Title to hardware Products and risk of loss and damage for any Product
will pass to Reseller at destination, provided however, that if
Products are shipped under Reseller's shipping instructions, title and
risk of loss and damage will pass to Reseller at HP's shipping dock.
F. Transactions may be conducted through Electronic Data Interchange
("EDI") or other electronic methods, as agreed.
G. Neither party will be responsible for failure or delay in performance
due to circumstances beyond its reasonable control, such as labor
disputes, natural disaster, shortage of or inability to obtain labor,
energy, and materials, war, riot, embargo, fire, or any other act or
condition beyond the reasonable control of the non-performing party.
Notwithstanding the foregoing, nothing shall relieve the Reseller from
any payment obligations under this Agreement.
7. PAYMENT
A. Reseller will pay invoices within thirty (30) days from the date of
HP's invoice. HP reserves the right to specify payment in advance or
other payment terms for credit reasons, or when Reseller's financial
condition or relationship with HP so warrants, with respect to any new
or unshipped orders.
B. If Reseller fails to pay any sum when due or fails to perform under
this or any other Agreement with HP after ten (10) days written
notice, HP may discontinue performance under this or any other
Agreement between HP and Reseller.
C. Any Reseller claim for adjustment of an invoice is deemed to be waived
if Reseller fails to present such claim within ninety (90) days from
the date of the invoice. No claims, credits, or offsets may be
deducted from any invoice.
8. WARRANTY
Product warranty terms, conditions, exceptions, exclusions and disclaimers
are contained in the OPM, Exhibits and where applicable with Products.
9. PRODUCT MODIFICATION
A. HP reserves the right to make change in the design or Specifications of
Products.
B. Reseller is responsible for any modification it makes to Products or
for any commitment made with respect to special interfacing,
compatibility or suitability of Products for specific applications.
C. If HP believes Reseller's modifications may have an adverse effect on
Product support, marketing and technical specifications, HP reserves
the right to modify this Agreement.
10. SUPPORT
Reseller may be eligible to participate in HP Support programs. Support
terms and conditions are contained in the OPM and/or Exhibits, and Program
guides which may be supplied separate from this Agreement.
11. SOFTWARE
Software distribution rights and license terms are contained in the OPM
and/or Exhibits, and where applicable with Products.
12. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks, logo types, trade names and insignia ("HP
Marks"). Reseller may display HP Marks solely to promote Products. Any
display of HP Marks must be in good taste, in a manner that preserves
their value as HP Marks, and in accordance with standards provided by
HP for their display. Reseller will not use any name or symbol in a way
which may imply that Reseller is an agency or branch of HP; Reseller
will discontinue any such use of a name or mark as requested by HP. Any
rights or purported rights in any HP Marks acquired through Reseller's
use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of Products
Page 4 of 6
<PAGE>
to Resellers selling locations. Any display of the trademarks must be
in good taste, in a manner that preserves their value as Reseller's
trademarks, and in accordance with standards provided by Reseller for
their display. Any rights or purported rights in any Reseller
trademarks acquired through HP's use belong solely to Reseller.
13. INTELLECTUAL PROPERTY PROTECTION
A. HP will defend or settle any claim against Reseller (or end-user
customer, or third parties to whom Reseller is authorized by HP to
resell or sublicense), that Products or Support (excluding Custom
Products and Custom Support), delivered under this Agreement infringe a
patent, utility model, industrial design, copyright trade secret, mask
work or trademark in the country where Products are used, sold or
receive Support, provided Reseller:
1. Promptly notifies HP in writing;
2. Cooperates with HP in, and grants HP sole control of the defense
or settlement; and
3. Sold said Products or Support in complete compliance with this
Agreement
B. HP will pay infringement claim defense costs, settlement amounts and
court-awarded damages. If such a claim appears likely, HP may modify
the Product, procure any necessary license, or replace it. If HP
determines that none of these alternatives is reasonably available, HP
will refund Reseller's purchase price upon return of the Product if
wihtin one (1) year of Delivery, or the Product's net book value
thereafter.
C. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with Reseller's designs, specifications or
instructions;
2. HP's use of technical information or technology provided by
Reseller;
3. Product modifications by Reseller or a third party;
4. Product use prohibited by Specifications or related application
notes; or
5. Use of the Product with products not supplied by HP.
D. These terms state HP's entire liability to Reseller and its customers
for claims of intellectual property infringement.
14. CONFIDENTIALITY
A. In the event that confidential information is exchanged, each party
will protect the confidential information of the other in the same
manner in which it protects its own like proprietary, confidential, and
trade secret information. If the party claiming the benefit of the
provision furnishes such information in writing and marks such
information as "Confidential" or if such information is provided
orally, then the transmitting party ("Discloser") will confirm in
writing to the receiving party ("Recipient") that it is confidential
within thirty (30) days of its communication. Such information will
remain confidential for three (3) years after the date of disclosure.
B. This Section imposes no obligation upon a Recipient with respect to
confidential information which (a) was in the Recipient's possession
before the Disclosure; (b) is or becomes a matter of public knowledge
through no fault of the Recipient; (c) is rightfully received by the
Recipient from a third party without a duty of confidentiality; (d) is
disclosed by the Discloser to a third party without a duty of
confidentiality on the third party; (e) is independently developed by
the Recipient; (f) is disclosed under operation of law; or (g) is
disclosed by the Recipient with the Discloser's prior written approval.
15. LIMITATION OF LIABILITY AND REMEDIES
A. Products are not specifically designed, manufactured or intended for
sale as parts, components or assemblies for the planning, construction,
maintenance, or direct operation of a nuclear facility. Reseller is
solely liable if Products or Support purchased by Reseller are used for
these applications. Reseller will indemnify and hold HP harmless from
all loss, damage, expense or liability in connection with such use.
B. To the extent HP is held legally liable to Reseller, HP's liability is
limited to:
1. Payments arising from warranty claims and as described in Section
13 above;
2. Damages for bodily injury;
3. Direct damages to tangible property up to a limit of U.S. one
million dollars ($1,000,000); and
4. Other direct damages for any claim based on a material breach of
Support services, up to a maximum of twelve (12) months of the
related Support charges paid by Reseller during the period of
material breach.
5. Other direct damages for any claim based on a material breach of
any other term of this Agreement, up to a limit of U.S. one
million dollars ($1,000,000) or the amount paid to HP for the
associated Product, whichever is less.
C. Notwithstanding Section 15.B. above, in no event will HP or its
subsidiaries, affiliates, subcontractors or suppliers be liable for any
of the following:
1. Actual loss or direct damage that is not listed in Section 15.B.
above;
2. Damages for loss of data. or software restoration;
3. Damages relating to Reseller's procurement of substitute products
or services (i.e., "cost of cover"); or
4. Incidental, special or consequential damages (including downtime
costs or lost profits).
D. THE REMEDIES IN THIS AGREEMENT ARE RESELLER'S SOLE AND EXCLUSIVE
REMEDIES.
16. RECORD-KEEPING AND AUDIT
A. For purposes such as Product safety notification, operational problem
correction and contract compliance, Reseller will maintain records of
second-tier reseller and/or customer purchases, which at a minimum must
include such purchaser's name, address, phone number, date of sale,
Product numbers, quantities, serial numbers, and shipment address.
B. HP may, from time to time, give notice to Reseller of its intention to
verify and audit Reseller's compliance with this Agreement or with
related marketing program terms and conditions. The auditor will be
given prompt access, either on-site or through other means, to
Reseller's customer, inventory or other records.
C. Further record-keeping and audit requirements may be contained in
Agreement, Addenda and/or the OPM.
17. CHANGES AND AMENDMENTS
A. From time to time, HP may add Products to or delete them from Product
Exhibits; obsolete Products; change List Prices or discounts; implement
or change HP policies or programs; or otherwise amend this Agreement at
HP's discretion, after reasonable notice to Reseller in writing.
Page 5 of 6
<PAGE>
B. Any amendment will automatically become a part of this Agreement on the
effective date specified in the notice, unless Reseller provides HP
with written notice of its objection to such amendment within fifteen
(15) days of Reseller's receipt of the notice. If agreement to the
Amendment is not reached by both HP and Reseller within thirty (30)
days after HP's receipt of Reseller's objection, either party may
terminate this Agreement.
C. Each party agrees that the other has made no commitments regarding the
duration or renewal of this Agreement beyond those expressly stated in
this Agreement.
18. TERM AND TERMINATION
A. Subject to applicable law, either party may terminate this Agreement
without cause at any time upon sixty (60) days' written notice or with
cause at any time upon thirty (30) days' written notice to the other
party. Unless earlier terminated as provided herein, this Agreement
will expire on March 31, 2000, but will continue to apply to orders
previously accepted by HP.
B. If either party becomes insolvent, is unable to pay its debts when due,
files for bankruptcy, is the subject of involuntary bankruptcy, has a
receiver appointed, or has its assets assigned, the other party may
terminate this Agreement without notice and may cancel any unfulfilled
obligations.
C. If either party gives the other notice of termination or advises the
other of its intent not to renew this Agreement, HP may require that
Reseller pay cash in advance for additional shipments during the
remaining term, regardless of Reseller's previous credit status, and
may withhold all such shipments until Reseller pays its outstanding
balance.
D. Upon termination or expiration, Reseller will immediately cease to be
an authorized HP Reseller and will refrain from representing itself as
such and from using any HP Trademark or name. Authorization of Reseller
and its Authorized Resellers to use any HP Mark will cease upon such
termination or expiration.
E. Upon any termination or expiration, HP may require that Reseller
return, against outstanding balance or for repurchase, any HP Products
purchased under this Agreement on HP's then current Product Exhibits,
which are in their unopened, original packaging and marketable as new
merchandise.
The repurchase price shall be the lower of either the Net Reseller
Price on the date of termination or expiration or Reseller's original
purchase price, in each case less any promotional or other discounts or
price protection or other credits extended by HP to Reseller for the HP
Product. Reseller should contact its HP sales representative for
information about the items eligible for repurchase and instructions
for their return at HP's expense.
F. Upon termination or expiration, all rights to any accrued HP
promotional allowance funds and HP promotional services wi11
automatically lapse.
G. All obligations concerning outstanding transactions, warranties,
Support, Software, intellectual property protection, limitations of
liability and remedies, confidentiality, and the general terms and
conditions will survive termination or expiration, except that the
provisions for confidentiality and Support will survive only through
the periods set forth in this Agreement.
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and promotional or
other marketing programs, including but not limited to programs involving
promotional allowances, Product demonstration and development unit
purchases, and Support. Participation in such programs will be subject to
the then current terms and conditions of those programs.
20. GENERAL
A. Neither party may assign or transfer any rights or obligations
hereunder without prior written consent of the other party, provided
that HP may assign or transfer all such rights and obligations to other
HP entities, and the right to receive payments to third parties,
without consent.
B. Neither party's failure to enforce any provision of this Agreement will
be deemed a waiver of that provision or of the right to enforce it in
the future.
C. Reseller and HP will conduct all its activities relating to their
respective business in accordance with the highest standards of ethics
and fairness as well as compliance with applicable law. Either party
may immediately terminate this Agreement if the other party fails to do
so.
D. Reseller who is expressly authorized by HP in writing to export re-
export or import Products, technology or technical data purchased
hereunder, assumes responsibility for complying with applicable laws
and regulations and for obtaining required export and import
authorizations. HP may suspend performance if Reseller is in violation
of any applicable laws or regulations.
E. This Agreement will be governed by the laws of the State of California.
F. To the extent that any provision of this Agreement is determined to be
illegal or unenforceable in a particular country, the remainder of the
Agreement will remain in full force and effect. The offending provision
will be deemed amended by the parties so as to make it enforceable and,
to the extent possible, have consequences which are substantially the
same as what was intended by the parties.
G. The United Nations Convention on Contracts for the International Sale
of Goods will not apply to this Agreement or to transactions processed
under this Agreement
H. All notices that are required under this Agreement and OPM will be in
writing and will be considered given as of twenty-four (24) hours after
sending by electronic means, facsimile transmission, overnight courier,
or hand delivery, or as of five (5) days of certified mailing and
appropriately addressed to 5301 Stevens Creek Boulevard, Santa Clara,
CA 95052-8059, M/S 54U HC.
I. This Agreement constitutes the entire understanding between HP and
Reseller, and supersedes any previous communications, representations
or agreements between the parties, whether oral or written, regarding
transactions hereunder. Reseller's additional or different terms and
conditions will not apply. Except as provided in Section 17 above, no
modification of this Agreement will be binding on either party unless
made in writing and signed by both parties.
J. In the event of a conflict, the following order of precedence will
apply: OPM, Agreement, Addenda, Product Exhibits, HP Reseller Business
Terms, unless otherwise expressly agreed upon in a specific Section or
Sections of this Agreement.
Page 6 of 6
<PAGE>
U.S. DIRECT RESELLER PROGRAM EXHIBIT
TABLE OF CONTENTS
1. FURTHER APPOINTMENT
2. RESELLER RESPONSIBILITIES
3. MULTIPLE AGREEMENT DISCOUNTS
4. PAYMENT
5. ORDERS AND DELIVERY
6. RECORD-KEEPING AND AUDIT
7. TERM AND TERMINATION
8. GENERAL
Page 1 of 4
<PAGE>
U.S. DIRECT RESELLER PROGRAM EXHIBIT
1. FURTHER APPOINTMENT
In addition to the terms set forth in Section 2 of the HP Reseller Business
Terms, the following will apply:
A. HP appoints Reseller as an authorized, non-exclusive direct reseller
(sometimes referred to in this Exhibit as "Direct Reseller"), for
marketing the Products listed on the Product Exhibits.
B. Direct Reseller will resell Products directly to customers (sometimes
refined to in this Exhibit as "Customers") for end use only, unless
otherwise permitted under this Agreement.
2. RESELLER RESPONSIBILITIES
A. Shipments of Products to unauthorized Customers will constitute a
breach of this Agreement and may result in termination of this
Agreement. In addition, Direct Reseller agrees to pay to HP an amount
equivalent to the discount received from HP for such shipments.
B. Shipments of Products to non-authorized resellers, or to HP authorized
resellers who sell such HP Products in violation of any eligibility
criteria, qualifications, added value requirements, or any other
limitations on Direct Reseller activity as set forth in this Agreement,
will constitute a breach of this Agreement and may result in
termination of this Agreement. In addition, Direct Reseller agrees to
pay to HP an amount equivalent to the discount received from HP for
such shipments.
C. Direct Reseller agrees to:
1. Advertise, promote, demonstrate and sell Products on a face-to-
face basis as required by this Agreement, including all Product
Exhibits, and provide pre-sales support and post-sales technical
support to all Customers.
2. Represent Products fairly.
3. Forward promptly to Customers all technical sales and promotional
materials, suggested price lists and other information provided by
HP for the purpose of reshipment to Customers.
4. Provide Customers with a written invoice stating the Customer's
name and address, the date of purchase, and serial numbers, if
any, of Products. Direct Reseller will retain such records, or
their equivalent, to enable Direct Reseller to notify Customers of
Product safety information, corrections for operational problems,
and the like.
5. Provide Customers with any HP ergonomics information, including,
where applicable, HP Working in Comfort materials (in paper and
electronic form) and any warning or advisory tags, labels, or
other information relating to the use of Products containing
keyboards.
6. Maintain or make available such qualified personnel as necessary
to provide timely and knowledgeable support services.
7. Use catalogs and telemarketing sales techniques only in conformity
with current HP policies and only as a complement to face-to-face
sales activity unless nationwide advertising for the Product is
permitted in this Agreement.
8. Ensure that no sale, advertising, promotion, display or disclosure
of any features, availability or pricing of any new HP product
takes place before HP's public announcement of that product.
9. Respond promptly to all Customer inquiries or requests related to
Products.
10. Authorize HP's representatives to call on Customers for Product
training and other objectives.
11. Report promptly to HP all suspected defects in Products.
12. Ensure that its employees complete any training courses and
certification programs designated by HP. In some cases, successful
completion of such training and/or certification may be required
before Direct Reseller is authorized to sell specific Products or
participate in specific programs.
13. Confer periodically with HP at HP's request on matters relating to
market conditions, sales forecasting, and Product planning.
3. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of Product under this
Agreement and purchases under any other HP agreement are exclusive of each
other for the purpose of calculating volume commitment and discount levels.
4. PAYMENT
In addition to the terms set forth in Section 7 of the HP Reseller Business
Terms, the following will apply:
A. Direct Reseller will furnish HP with copies of its financial reports,
including but not limited to Direct Reseller's latest balance sheet,
profit and loss statement, and other pertinent financial information as
HP deems necessary to determine Direct Reseller's credit worthiness.
B. Upon request, HP will provide Direct Reseller with invoice copies
accounting for sales of goods and services by HP to Direct Reseller.
Direct Reseller will have ninety (90) days from date of HP's invoice to
raise any questions or objections to this statement of account
C. In the event that Direct Reseller and HP are unable to resolve any
questions or objections to the statement of Direct Reseller's account
or invoice, Direct Reseller may file suit against HP at any time up to
one (1) year after the date of HP invoice in question.
D. Direct Reseller grants and HP reserves a purchase money security
interest in each Product purchased under this Agreement and in any
proceeds thereof for the amount of the purchase price from HP. Upon
request by HP, Direct Reseller will sign any document required to
perfect such security interest. Payment in full of the purchase price
of a Product will release the security interest in that Product.
5. ORDERS AND DELIVERY
In addition to the terms set forth in Section 6 of the HP Reseller Business
Terms, the following will apply:
A. HP will honor electronic, written, fax and telephone orders from the
following Direct Reseller location:
----------------------------------------------------------------------.
Direct Reseller is responsible for ensuring that only authorized
employees place, change or delete orders and that the orders conform to
all requirements of this Agreement.
B. HP reserves the right to schedule and reschedule any order, at HP's
discretion, and to decline any order for credit reasons or
Page 3 of 4
<PAGE>
because the order specifies an unreasonably large quantity or makes an
unreasonable shipment request.
C. Direct Reseller agrees to accept all deliveries of HP Product as
scheduled. If Direct Reseller fails to accept a scheduled delivery, or
takes any action which delays or hinders HP's ability to meet any
delivery schedule, HP reserves the right to charge Direct Reseller for
any costs resulting from such action, including return freight fees and
restocking charges. In addition, HP reserves the right to cancel any
order connected to a shipment which Direct Reseller refuses to accept
or delays, and to reallocate such order.
6. RECORD-KEEPING AND AUDIT
In addition to the terms set forth in Section 16 of the HP Reseller
Business Terms, the following will apply:
A. Direct Reseller is required to provide HP with accurate HP Product
sell-through. sell-to, and inventory data in a format and frequency
defined by HP in the data management guidelines provided by HP.
Participation in HP programs will be reliant on Direct Resellers
ability to comply with program reporting requirements.
B. Daily sell-through, sell-to and inventory reports must be received
consistently at the time agreed upon by HP and the Direct Reseller.
C. Direct Reseller warrants that the information transmitted to HP is
accurate. Such information may provide for benefits under HP programs
which link the provision of benefits to accurate sell-through, sell-to
or inventory information. Failure to report accurate daily data for
each approved location and to incorporate the previous day's data for
each approved location will be considered a violation of this Agreement
and will result in penalties equal to HP's cost to correct such errors.
D. Direct Reseller must respond to and resolve any data integrity issues
within seven (7) calendar days of HP's request for verification.
E. Direct Reseller must identify a specific contact for data integrity and
reporting issues.
F. Any changes to the format, frequency, or type of data provided by
Direct Reseller to HP must be made following HP's written request to
Direct Reseller, which request must be signed by one of Hp's authorized
data management representatives, or following HP's written agreement to
a letter documenting Direct Reseller's request for such changes. Such
agreement may be made only by one of HP's authorized data management
representatives. A list of such authorized representatives may be
obtained from Direct Resellers HP account manager. HP reserves the
right to deny Direct Reseller any HP financial benefits for purchases
or sales made for which Direct Reseller's provision of data is not in
compliance with the provisions of this subsection.
G. Direct Reseller is responsible for the accuracy of data provided to HP
for benefits under any HP program which links the provision of benefits
to sell-through, sell-to or inventory information.
H. HP reserves the right to refuse to review disputed benefit claim which
are made outside the allotted time frame referenced in the program
documentation or which are based on late, inaccurate or otherwise
discrepant data supplied by Direct Reseller. If HP agrees to review a
disputed benefit claim, then HP may charge and deduct from any credits
owed to Direct Reseller for all expenses HP incurs in reviewing the
claims.
I. Any expense incurred in the process of meeting the reporting
requirements set forth in this Agreement or related materials is the
sole responsibility of the Direct Reseller.
J. Direct Reseller must comply with any reporting requirements for HP
marketing and promotional programs. Such programs may impose a twenty-
five dollar ($25) minimum benefit per transaction requirement.
K. HP may recover all reasonable actual costs associated with compliance
verification procedures, by deducing equivalent amounts from any
promotional funds, rebate funds or any other HP accrued funds held for
Direct Resellers use.
L. HP may debit Direct Reseller for all wrongfully claimed discounts,
rebates, promotional allowances or other amounts determined as a result
of HP's audit.
M. HP may, from time to time, send to Direct Reseller a list of serial
numbers of designated Products for which HP tracks unauthorized sales.
Direct Reseller agrees to identify to which Customer each serial number
was shipped and to forward this information to its HP representative
within a period of not more than twenty-one (21) days from the date of
HP's notice.
7. TERM AND TERMINATION
In addition to and notwithstanding Section 18 of the HP Reseller Business
Terms:
A. Either party may terminate this Exhibit or the entire Agreement without
cause at any time upon thirty (30) days' written notice to the other
party, or with cause at any time upon fifteen (15) days' written
notice to the other party.
8. GENERAL
In addition to the terms set forth in Section 20 of the HP Reseller Business
Terms, the following will apply:
A. U.S. GOVERNMENT
1. Unless Direct Reseller has obtained HP's prior written consent,
Direct Reseller is prohibited from issuing any "Letter of Supply",
from guaranteeing to supply, or from selling, supplying, or
providing any person with Products for resale under any GSA
contract. Unless Direct Reseller has first received a Letter of
Supply or other written authorization from HP, Direct Reseller is
prohibited from listing, and will not list, HP Products on any GSA
Schedule or contract.
2. No U.S. Government procurement regulations will be deemed included
in this Agreement or binding an either party unless specifically
accepted in writing and signed by both parties.
3. HP has a specific published process for identifying Defense
Priority Allocation System (DPAS) orders, which HP will provide to
Reseller upon request. Orders placed by Direct Reseller that do
not follow this process will not recognized as DPAS orders and may
be rejected. HP will not be liable for improperly placed DPAS
orders.
B. INTERNATIONAL SALES
Notwithstanding Section 20.F of the HP Reseller Business Terms, Direct
Reseller will not export Products to any purchaser outside the U.S.,
nor will Direct Reseller sell Products for export outside the U.S.,
without HP's prior written consent. HP's consent to Direct Reseller's
export of Products does not relieve Direct Reseller of its obligation
to obtain any required licenses from the United States Department of
Commerce, or any other agency or department of the United States
government, or any other required approvals from any other government
required by any applicable law or regulation, prior to exporting HP
Products directly or indirectly.
Page 4 of 4
<PAGE>
U.S. DIRECT RESELLER PROGRAM:
RAM VAR EXHIBIT
TABLE OF CONTENTS
1. FURTHER APPOINTMENT
2. RESELLER ACCOUNT MANAGER INTERFACE
3. CERTIFICATION
4. CONDITIONS
Page 1 of 3
<PAGE>
U.S. DIRECT RESELLER PROGRAM:
RAM VAR EXHIBIT
1. FURTHER APPOINTMENT
A. HP appoints Direct Reseller as an authorized, non-exclusive reseller
(sometimes referred to in this Exhibit as "RAM VAR") of the Products
identified with a check mark on the signature page of this Agreement.
B. Except as expressly modified by this Exhibit, all other terms and
conditions in this Agreement remain in full force and effect, and apply
to all RAM VAR purchases under this Exhibit.
2. RESELLER ACCOUNT MANAGER INTERFACE
A. HP will designate a "Reseller Account Manager" to act as HP's agent in
connection with all Product purchases by RAM VAR under this Exhibit and
the associated Product Exhibits. The Reseller Account Manager will act
as RAM VAR's primary interface with respect to the fulfillment of HP's
obligations in the following areas, plus any others designated by HP:
Product marketing, Agreement compliance, pre-sales and post-sales
technical support, Product orders, invoices, credit and collection.
B. Reseller Account Manager may require additional terms and conditions
with RAM VAR in connection with this Exhibit, including additional
credit terms. Such additional terms and conditions will be subject to
HP's prior review and approval, and if so approved will take precedence
over any conflicting terms and conditions in this Agreement.
3. CERTIFICATION
RAM VAR certifies:
A. It is experienced in the use and operation of the Products to be
purchased hereunder and will be primarily responsible for the marketing
and support of the Products to end-user customers. RAM VAR may request
marketing assistance from HP. HP will only be obligated to provide such
assistance as is specifically and mutually agreed upon by both parties.
B. It will take sole responsibility for any representations it makes or
agreements it executes.
C. The Products purchased under this Agreement for RAM VAR purposes will
be incorporated in a system consisting of a substantial amount of other
services, hardware and/or software which VAR manufactures, develops,
provides or, in the case of software, acquires the right to license or
sublicense ("added value") and which RAM VAR sells or leases to end-
user customers (other than RAM VAR's corporate parent, division, or any
subsidiary of corporate parent) in the regular course of business. This
added value represents a significant functional and value enhancement
to the Products RAM VAR furnishes. If RAM VAR's added value consists of
software, the software solves a major application need for the system
being purchased.
D. It is responsible for maintaining ongoing support services for the
added value portion of the system.
E. It is responsible for complying with all training requirements
designated by HP and provided to RAM VAR, concerning each eligible
Product RAM VAR carries.
F. For the term of this Agreement, RAM VAR will only be authorized to
purchase HP Products associated with this Exhibit from Reseller Account
Manager with which RAM VAR applies and is approved by HP.
4. CONDITIONS
A. Whenever Products are being purchased for RAM VAR purposes, RAM VAR
will so specify in its order.
B. RAM VAR will not advertise, promote, or resell Products to customers
outside the vertical market(s) designated in writing by HP.
C. RAM VAR will not advertise, promote, or resell Products to customers
outside the geographic area(s) designated in writing by HP.
D. RAM VAR will not resell HP Products without the added value described
in this Agreement.
E. RAM VAR will have no claim against HP for compensation or commission
from any purchase of HP Products from HP or a third party by RAM VAR's
end-user customers or prospective end-user customers.
F. RAM VAR will qualify for RAM VAR discounts on add-on Products and
upgrades to Products previously purchased by RAM VAR under this Exhibit
if: (1) RAM VAR initially resold the Product or system being enhanced
or upgraded (the "Initial System") with added value in accordance with
the terms of this Program Exhibit including but not limited to any
added value or other requirements set forth in the Reseller's
application, and RAM VAR has provided and continues to provide ongoing
support on Initial System, or (2) RAM VAR did not initially resell the
Initial System but RAM VAR sells the upgrade or add-on with the added
value specified in this Program Exhibit.
Page 3 of 3
<PAGE>
HP SOFTWARE LICENSE TERMS ADDENDUM
TABLE OF CONTENTS
1. DEFINITIONS
2. LICENSES
3. GENERAL LICENSE TERMS
Page 1 of 4
<PAGE>
HP SOFTWARE LICENSE TERMS ADDENDUM
1. DEFINITIONS
A. "Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software is
either a separate Product, included with another Product ("Bundled
Software"), or fixed in a Device and not removable in normal operation
("Firmware").
B. "Use" means storing, loading, installing, executing, or displaying
Software on a Device.
C. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that are determined by HP to be available
from HP upon receipt of Customer's order. "Custom Products" means
Products modified, designed or manufactured to meet Customer
requirements.
D. "Software License" means the Use authorization(s) for the Software
specified by HP in its quotation, invoice or other documentation. Each
Software License has a corresponding License Fee.
E. "License Fee" means the fee or fees designated by HP for Use of
Software. Different License Fees may apply to particular Software if
more than one Software License is available for that Software.
2. LICENSES
In return for the License Fee, HP grants Customer a non-exclusive license to
Use the Software listed in Customers order in conformance with the
applicable Software License. Details of the types of Software Licenses
offered are available from HP on request. If no Software License is
specified, then, in return for the applicable fee, HP grants Customer a
license to Use one copy of the Software on one Device at any one time. All
Software Licenses will be perpetual unless terminated, transferred or
otherwise specified.
If Customer is an HP Authorized Reseller, Customer may sublicense the
Software to an end-user for its Use, or (if applicable) sublicense the
Software to an HP Authorized Reseller for subsequent distribution to an end-
user for its Use. These sublicenses must incorporate the terms of this
license in a written sublicense agreement, which will be made available to
HP upon request
3. GENERAL LICENSE TERMS
A. Unless otherwise permitted by HP, Customer may only make copies or
adaptations of the Software for archival purposes or when copying or
adaptation is an essential step in the authorized Use of the Software
on a backup Device, provided that copies and adaptations are used in no
other manner and provided further that the Use on the backup Device is
discontinued when the original or replacement Device becomes operable.
B. Customer must reproduce all copyright notices in or on the original
Software on all permitted copies or adaptations. Customer may not copy
the Software onto any public or distributed network.
C. Bundled Software or Firmware provided to Customer may only be used
when operating the associated Device in configurations as sold or
subsequently upgraded by HP.
Customer may transfer Firmware only upon transfer of the associated
Device.
D. Updates, upgrades or other enhancements are available under HP Support
Agreements. HP reserves the right to require additional licenses and
fees for Use Of the Software on upgraded Devices.
E. The Software is owned and copyrighted by HP or by third-party suppliers.
Customer's license confers no title or ownership and is not a sale of
any rights in the Software, its documentation, or the media on which
they are recorded or printed. Third-party suppliers may protect their
rights in the Software in the event of any infringement.
F. Customer will not disassemble or decompile the Software without HP's
prior written consent. Where Customer has other rights under statute,
Customer will provide HP with reasonably detailed information regarding
any intended disassembly or decompilation. Customer will not decrypt
the Software unless necessary for legitimate use of the Software.
G. Customer's Software License is transferable subject to HP's prior
written authorization and payment to HP of any applicable fees.
Customer will immediately upon transfer deliver all copies of the
Software to the transferee. The transferee must agree in writing to the
terms of Customers license. All license terms will be binding on
involuntary transferees, notice of which is hereby given. Customer's
license will automatically terminate upon transfer.
H. HP may terminate Customer's or any transferee's or sublicensee's
Software License upon notice for failure to comply with any applicable
license terms. Immediately upon termination, the Software and all
copies of the Software will be destroyed or returned to HP. Copies of
the Software that are merged into adaptations, except for individual
pieces of data in Customer's or transferee's or sublicensee's data
base, will be removed and destroyed or returned to HP. With HP's
written consent, one copy of the Software may be retained subsequent to
termination for archival purposes.
I. In this clause on Licenses to the U.S. Government, the term "Customer"
means HP's direct purchaser, any entity sublicensing the Software, and
the end-user.
1. If Software is licensed for use in the performance of a U.S.
government prime contract or subcontract, Customer agrees that
Software has been developed entirely at private expense. Customer
agrees that Software, and any derivatives or modifications, is
adequately marked when the Restricted Rights Legend below is
affixed to the Software or to its storage media and is perceptible
directly or with the aid of a machine or device. Customer agrees
to conspicuously put the following legend on the Software media
with Customer's name and address added below the notice:
RESTRICTED RIGHTS LEGEND
Use, duplication or disclosure is subject to HP standard
commercial license terms or to the following restrictions,
whichever is applicable:
Page 3 of 4
<PAGE>
1. for non-DOD Departments and Agencies of the U.S. Government, as
set forth in FAR 52.227-19(c)(1-2)(Jun 1987)
2. for the DOD and its Agencies, as set forth in DFARS 252.227-7013
(c) (1) (ii) (Oct 1988), DFARS 252.211-7015 (c) (May 1991),
whichever is applicable.
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304 U.S.A.
Copyright (c) 199_ Hewlett-Packard Company. All
Rights Reserved
2. Customer further agrees that Software is delivered and licensed as
"Commercial computer software" as defined in DFARS 252.227-7013
(Oct 1988), DFARS 252.211-7015 (May 1991) or DFARS 252.227-7014
(Jun 1995), or as a "commercial item" as defined in FAR 2.101(a),
or as "Restricted computer software" as defined in FAR 52.227-19
(Jun 1987) (or any equivalent agency regulation or contract
clause), whichever is applicable. The Customer agrees that it has
only those rights provided for such Software by the applicable FAR
or DFARS clause or the HP standard software agreement for the
Product involved.
J. Neither party may assign any rights or obligations hereunder without
prior written consent of the other party.
K. Customer who exports, re-exports or imports HP licensed Products,
technology or technical data purchased hereunder, assumes
responsibility for complying with applicable laws and regulations and
for obtaining required export and import authorizations. HP may suspend
performance if Customer is in violation of any applicable laws or
regulations.
L. Disputes arising in connection with this Agreement will be governed by
the laws of the country and locality in which HP accepts the order.
M. These HP Software License Terms supersede any previous communications,
representations or agreements between the parties, whether oral or
written, regarding transactions hereunder. Customer's additional or
different terms and conditions will not apply. These HP Software
License Terms may not be changed except by an amendment signed by an
authorized representative of each party.
Page 4 of 4
<PAGE>
U.S. SOLUTIONS SUPPORT OPTIONS ADDENDUM
TABLE OF CONTENTS
1. SERVICES INCLUDED
2. PREREQUISITES
3. SERVICE LIMITATIONS
4. CUSTOMER RESPONSIBILITIES
5. SOFTWARE LICENSE AND COPYRIGHTS
6. CHARGES
PAGE 1 OF 5
<PAGE>
U.S. SOLUTIONS SUPPORT OPTIONS ADDENDUM
Orders for HP System Support Options are subject to the terms of this Agreement
including the Support Exhibit or quotation in effect on the date of order.
Direct Reseller is responsible for obtaining the agreement of its end-user
Customer with respect to any Support obligations under this Agreement that
pertain to such Customer.
1. SERVICES INCLUDED
HP System Support Options are offered in one (1) year and three (3) year
increments. HP System Support Options provide the following features for HP
Products. Not all of the features are offered with every option or supported
Product. Features for each option will be provided as described in the
specifications sheet for HP System Support Options. Some service features
have prerequisites. Service features may include one (1) or more of the
following:
- On-site hardware support during warranty
- Flexible call submittal
- Phone-in Software assistance
- License to Use Software updates
- Software media and Documentation updates
- HP SupportLine electronic support
- Escalation management
- Remote support (for selected HP Products)
- HP PowerPatch tapes (for selected HP Product)
- Assigned account support engineer
- Assigned HP Response Center account advocate
- Patch management assistance
- Operational reviews
- System release planning seminars and assistance
- Installation of Software updates
- Installation, configuration, and verification of systems and networks
2. PREREQUISITES
HP reserves the right to make the final judgment as to whether Customer
adequately meets the requirements outlined in this document.
A. MINIMUM SYSTEM CONFIGURATION
Except for systems capable of diagnostic self-test, HP System Support
Options require, at a minimum, that a system include a central
processing unit (CPU), a peripheral capable of reading standard HP
diagnostics and verification tests, and a peripheral that allows HP to
interact fully with the covered Products.
B. UNIFORM COVERAGE
All Products that constitute the minimum system configuration must be
covered at the same HP System Support service level.
Options OSO - OS6 AND 3YO - 3Y6 may not be combined on the same
contract for software-only Products.
C. CONNECTORS AND CABLES
All Products covered by HP System Support Options must be
interconnected by cables or connectors listed in the appropriate HP
documentation as compatible with the CPU. For HP Products not meeting
this requirement service is available at HP's standard service rates.
D. SOFTWARE SUPPORT
All HP systems for which execution of diagnostic tests is software-
dependent must, at a minimum, be covered by an HP System Support Option
that provides periodic software updates.
E. COVERAGE REQUIREMENTS
For HP System Support Options orders that include software support, all
systems supported by one system manager, except PC systems, must be
covered by an HP System Support Option or by an existing contractual HP
software support service.
F. RIGHT TO COPY DOCUMENTATION
Customer may copy documentation updates for use with other systems
covered by an HP System Support option that provides Software support.
G. SOFTWARE LICENSES
Customer can purchase HP System Support Options only for HP software
for which Customer has rightfully acquired an appropriate HP Software
License.
H. DESIGNATED CALLERS AND TRAINING REQUIREMENTS
The following contacts for HP must be designated and trained through
completion of the appropriate HP training courses as defined by HP:
system manager and alternate; extended hours alternate; if applicable,
application software manager and alternate. Only the designated callers
can use the HP Response Center.
I. REMOTE SUPPORT
For HP to provide remote support, Customer must give authorization and
provide access to a qualified modem, as well as access to one (1)
voice-grade telephone and one (1) data-quality telephone line or
network with terminations near the system. If HP cannot access a system
remotely, HP may charge standard service rates if on-site service is
needed.
J. HP SUPPORTLINE
HP SupportLine electronic support is available via the Worldwide Web,
electronic mail, and a character-mode interface. With a character-mode
interface, Customer can access SupportLine electronic support using a
modem or the internet. To use HP SupportLine electronic support through
modem access, Customer must provide one (1) data-quality telephone
iine, one (1) locally compatible modem set for 1200, 2400, 9600, or
14,400 baud, and an HP-compatible terminal or terminal emulator, in
addition to the equipment required for remote support above. Customers
who submit HP Response Center calls via HP SupportLine must meet the
same training requirements as the system manager.
K. COUNTRY BOUNDARIES
All systems supported by one (1) system manager must be located within
the same country.
L. PRIORITY PLUS SUPPORT
Products may be covered by the Priority Plus hardware service level if
HP System Support Options charges for a site exceed a minimum amount.
If remote support is available on the Products, Customer must allow
remote access to receive
Page 3 of 5
<PAGE>
Priority Plus support.
3. SERVICE LIMITATIONS
A. HARDWARE AND SOFTWARE SUPPORT
Any services involving hardware, software or network-related problems
not covered by the HP System Support Options service ordered will be
subject to HP's standard service rates.
B. MAXIMUM USE LIMITATIONS
Products operated in excess of their maximum usage rate (as specified
in the Product's data sheet or operating manual) cannot be covered by
HP System Support Options, but can be serviced at HP's standard service
rates.
C. INTERFACES AND ACCESSORIES
HP may cover cables, connectors, accessories, and interfaces under the
same hardware service level purchased for the Products with which they
are used.
D. SUPPORTED SOFTWARE VERSIONS
HP provides support only for the current and immediately preceding
versions of HP Software, and only when the Software is used with
hardware that is included in HP-specified configurations. If support
coverage lapses, additional fees may be required to resume support
coverage. HP will support specified versions of selected non-HP
software, but will not support the software any longer than the vendor
supports it. For non-HP software, HP provides support only for software
versions that are specifically documented as supported on a specified
configuration.
E. NON-HP SOFTWARE
Support for non-HP software covered by HP System Support Options is
limited to telephone assistance and, if available to HP from the third-
party software vendor, patches, workarounds, and updates. HP's decision
on how long to offer HP support on selected versions of non-HP software
is final.
F. NON-HP PRODUCTS
HP is not liable for the performance or non-performance of third-party
software vendors, their products, or their support services including
design flaws in and/or incompatibility with non-HP products.
G. HP SOFTWARE ON NON-HP SYSTEMS
HP System Support Options for specified HP Software Products used with
designated non-HP systems provides the following features: phone-in
assistance, software problem reporting, HP SupportLine electronic
information access and call submittal, license for software updates,
and patches.
H. ESCALATION MANAGEMENT
On-site assistance for critical software problems is limited to
systems supported by one (1) system manager and situated within one
half (1/2) mile (one (1) kilometer) radius of each other. Systems
situated beyond this limit that require on-site assistance will be
subject to additional charges at HP's standard service rates.
I. ACCESS TO THE HP RESPONSE CENTER
HP Response Center use is limited to the system manager for the
operating system and subsystem software; if applicable, the network
operator for the network; if applicable, the application software
manager(s) for each family of HP application software; and if
purchased, additional HP Response Center callers. In the absence of any
of these managers, the HP Response Center is available to their
designated alternates and, if applicable, during after-hours telephone
assistance to the designated after-hours alternate.
J. SOURCE CODE SUPPORT
For HP source code Software covered under HP System Support Options,
assistance is limited to problems that can be duplicated on the current
version of the object code of the particular Software. HP charges
Customer at HP's standard service rates for any other assistance
required.
K. HP PREDICTIVE SUPPORT (SELECTED SYSTEMS)
HP is not responsible if HP Predictive Support Software does not
identify or remedy system or peripheral problems prior to actual
occurrence.
L. NETWORK SOFTWARE COVERAGE
Support for HP network software that provides multi-vendor node
connectivity is limited to product-usage and problem-solving assistance
and software update materials, unless network support is purchased.
M. TRAVEL ZONES
Customer sites located beyond one hundred (100) miles of a primary HP
Support Responsible Office may be subject to travel charges, longer
response times, and reduced coverage hours as specified in HP's
"Worldwide Customer Support Travel and Office Directory." Availability
of some coverage levels is based on distance from a primary HP Support
Responsible Office.
N. EXCLUSIONS
HP System Support Options do not include assistance that involves
program development coding, isolation of coding problems,
implementation assistance, performance consulting, data recovery
regardless of the cause of data loss, hardware malfunctions, or
problems and investigation time relating to the use of privileged code
on HP 3000 systems. HP System Support Options do not include
consulting. Consulting may be purchased separately. HP System Support
Options are not a substitute for any formal training offered by HP.
0. AVAILABILITY
Some HP System Support Options service features and coverage levels are
subject to local availability.
P. OUT OF COVERAGE HOURS
Customer requests for hardware and software support services or
installation and configuration services scheduled after HP's normal
business hours may be subject to local availability and additional
charges.
4. CUSTOMER RESPONSIBILITIES
A. ACCESS
Customer must provide HP with the following:
1. Access to the Products Covered under HP System support Options.
2. Adequate working space and facilities within a reasonable distance
of the Products.
3. Access to and use of all information, internal resources, and
facilities determined necessary by HP to service the Products.
Page 4 of 5
<PAGE>
B. OPERATING PROCEDURES
Customer must follow routine operating procedures as specified in the
HP Product operating manual.
C. USAGE-LEVEL CHARGES
Customer must allow HP to install or remove usage meters on specified
electromechanical devices. Usage charges may be invoiced separately.
D. DIAGNOSTIC/MAINTENANCE SOFTWARE (SELECTED SYSTEMS)
Customer must allow HP to keep system and network diagnostic and
maintenance programs resident on Customer's system or site for the
exclusive purpose of performing diagnostics and maintenance. Prior to
submitting a Software problem report to HP, Customer may be required
to assist HP in running these HP-supplied program. Customers with HP
Predictive Support Software must use the electronic data transfer
capability it provides to inform HP of events identified by the
Software. Customer acknowledges that Customer has no ownership interest
in diagnostic Software provided by HP and that HP may remove these
diagnostic programs and any HP-loaned modems upon termination of HP
System Support Options.
E. SERVICE REQUESTS
Prior to placing a service request with HP, Customer may be required to
run HP-supplied diagnostic programs.
F. REVISION LEVELS
Customer must maintain all associated system hardware and firmware,
except PC systems, at the latest HP-specified configuration and code
revision level. For PC systems, Customer must maintain all associated
system hardware and firmware at a revision level specified by HP.
Customers must maintain HP-supported non-HP software at a code
revision level specified by HP.
G. TELECOMMUNICATIONS CHARGES
Customer is responsible for all telecommunications charges associated
with using HP SupportLine electronic support.
H. TEMPORARY PROCEDURES
Customer is responsible for implementing temporary procedures or
workarounds while permanent solutions are being sought.
5. SOFTWARE LICENSE AND COPYRIGHTS
A. UPDATES
1. HP grants Customer a License to Use software updates provided by
HP under an HP System Support Option.
2. In addition, HP grants Customer a license to use and copy one (1)
copy of the updates received from HP for each HP Software Product
license for which Customer has purchased an HP System Support
option that provides Software support.
3. Customer agrees that the License to Use and copy of the updates is
governed by the HP Software License Terms in effect on the date HP
ships the update to Customer. The current version of the HP
Software License Terms is attached as an addendum to this
Agreement.
B. HP UPDATE OWNERSHIP
Customer acknowledges that it does not own and has no right to, title
to, or interest in the updates except as set forth in the HP Software
License Terms.
C. COPYRIGHT AND TRADEMARK NOTICES
Customer agrees to reproduce and conspicuously affix those copyright
and trademark notices from the original software or documentation on
each copy of an update that Customer makes or obtains from an
electronic data source, such as HP Supportline support.
6. CHARGES
A. CANCELLATION
If HP System Support Options are canceled, Customer will receive a pro
rata refund only for the unused prepaid services. Charges for HP
System Support Options cover a twelve (12) month period for one (1)
year options and a thirty-six (36) month period for three (3) year
options.
B. FINANCING
If HP system Support Options are financed as part of an HP Financing
Agreement the HP Financing Agreement terms and conditions regarding
cancellation will govern.
Page 5 of 5
<PAGE>
HP CONFIGURATION TOOLS LICENSE ADDENDUM
TABLE OF CONTENTS
1. PARTIES AND PRECEDENCE
2. LICENSE GRANT
3. RESTRICTIONS AND CHANNEL
PARTNER RESPONSIBILITIES
4. SUPPORT
5. CONFIDENTIAL INFORMATION
6. OWN RISK
7. TERM AND TERMINATION
Page 1 of 3
<PAGE>
HP CONFIGURATION TOOLS LICENSE ADDENDUM
1. PARTIES AND PRECEDENCE
This Addendum covers Channel Partner's use of certain electronic
configuration tools which consist of HP and third party Software. For
purposes of this Addendum, "Channel Partner" means any direct reseller,
indirect reseller or Independent Software Vendor ("ISV") of HP Solutions
Products pursuant to a written Agreement or Certification. This Addendum is
incorporated by reference into such Agreement or Certification, the terms
and conditions of which will continue in full force and effect; provided,
however, that in the event of a conflict with any of the provisions of this
Addendum, this Addendum will take precedence.
2. LICENSE GRANT
A. Subject to the terms and conditions set forth in this Addendum and in
Channel partners HP Agreement or Certification, HP grants to Channel
Partner an internal, non-exclusive, non-transferable, worldwide
license to use one copy of the following Software plus any other
Software designated by HP and agreed upon by Channel Partner in object
code format and including any associated documentation (collectively,
the "Configuration Tools"), per each individual user identified by
Channel Partner and approved by HP. For purposes of this Addendum,
"User" means an individual employee or contractor of Channel Partner,
as evidenced by a unique user identifier for such individual.
HP Knowledge Base
SalesBUILDER for Windows
QuoteBUILDER for Windows
RAM Doubler
B. Notwithstanding the foregoing transfer restriction, Channel Partner may
transfer copies of the Configuration Tools, including the associated
licenses and documentation, between similarly situated Users, subject
to Section 3 below and any related policies or guidelines issued by HP.
3. RESTRICTIONS AND CHANNEL PARTNER RESPONSIBILITIES
A. Channel Partner will use the Configuration Tools solely for the
purposes of selling, configuring, quoting prices for, ordering,
distributing and/or supporting HP Products and Channel Partner
products.
B. Channel Partner will be responsible for the payment of all registration
fees, periodic fees, and any connect time charges associated with the
delivery of the Configuration Tools by HP or its designee via
electronic communications services or other means.
C. Channel Partner must have a valid HP Purchase Agreement for resellers,
ISV Agreement Or Certification, with no compliance violations, in order
to be eligible to use the Configuration Tools.
D. Channel Partner will be responsible for controlling the number of its
users of the Configuration Tools, and will notify HP or its designee
promptly of any internal transfers of the Configuration Tools,
including the associated licenses and documentation.
E. Channel Partner acknowledges HP's right to change Product information
as reflected in The HP Product Knowledge Base without prior notice to
Channel Partner.
4. SUPPORT
HP will provide direct reselling and ISV Channel Partners with telephone
coverage support regarding SalesBUILDER for Windows only, each Monday
through Friday from 8:00 AM to 8:00 PM Eastern Standard Time, excluding HP
holidays pursuant to this Addendum regarding support. HP has no support
obligations regarding any other software licensed pursuant to this license.
The Channel Partners may contact directly the manufacturers of other
software licensed.
5. CONFIDENTIAL INFORMATION
Any information disclosed by HP to Channel Partner in connection with
Channel Partner's use of the Configuration Tools which is labeled
confidential or proprietary will be protected by Channel Partner from
unauthorized disclosure to third parties with the same degree of care as
Channel Partner uses for its own similar information for a period of three
(3) years from the date of disclosure. This restriction will not apply to
any information which is (i) already known by Channel Partner prior to
disclosure, (ii) independently developed by Channel Partner prior to or
independent of the disclosure, (iii) publicly available, (iv) rightfully
received from a third party without a duty of confidentiality, or (v)
disclosed by Channel Partner with HP's prior written approval.
6. OWN RISK
HP IS PROVIDING THESE CONFIGURATION TOOLS ON AN "AS IS" BASIS. CHANNEL
PARTNER'S USE OF THE CONFIGURATION TOOLS IS AT CHANNEL PARTNER'S OWN RISK.
HP, ITS AGENTS, EMPLOYEES, SUBCONTRACTORS AND THIRD PARTY SOFTWARE SUPPLIERS
DISCLAIM ANY AND ALL LIABILITIES FOR AND MAKE NO WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE CONFIGURATION TOOLS INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7. TERM AND TERMINATION
This Addendum will be effective upon execution by both parties, and will
continue in effect so long as Channel Partner's HP Agreement or
Certification is in effect; provided, however, that HP may terminate Channel
Partner's license immediately upon notice for cause, and that HP may, in
HP's sole discretion, terminate Channel Partner's license upon thirty (30)
days notice without cause. Upon any such termination, Channel Partner will
immediately destroy the Configuration Tools, together with all copies in any
form.
Page 3 of 3
<PAGE>
HP WARRANTY AND INSTALLATION INFORMATION
TABLE OF CONTENTS
1. DEFINITIONS
2. WARRANTY STATEMENT
3. PLACE OF PERFORMANCE
4. LIMITATION OF LIABILITY AND REMEDIES
5. WARRANTY AND INSTALLATION CLASSIFICATIONS
6. RESPONSE TIMES
7. INSTALLATION SERVICES
Page 1 of 10
<PAGE>
HP WARRANTY AND INSTALLATION INFORMATION
1. DEFINITIONS
A. "Delivery" means standard HP shipping to and arrival at the receiving
area at the "Ship To" address in the country where Customer's order is
placed, unless otherwise indicated on the quotation.
B. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that are determined by HP to be available
from HP upon receipt of Customer's order. "Custom Products" means
Products modified, designed or manufactured to meet Customer
requirements.
C. "Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software is
either a separate Product, included with another Product ("Bundled
Software"), or fixed in a Device and not removable in normal operation
("Firmware").
D. "Specifications" means specific technical information about HP Products
which is published in HP Product manuals and technical data sheets in
effect on the date HP ships Customers order.
2. WARRANTY STATEMENT
A. Product warranty period is defined by the warranty code appearing on
quotations, as described in the "Warranty and Installation
Classification Table" below or is available upon request.
B. Products purchased from HP outside the U.S. will receive the standard
warranty in the country of purchase. If Customer moves such Products to
another country where HP has Support presence, then Customer will
receive the destination country standard warranty.
C. Products purchased in the U.S. based on the U.S. list prices will only
receive standard warranty in the U.S., except for Products with a
global warranty. All Products purchased in the U.S. based on
international prices will include a global warranty. A global warranty
means that the Product will include the destination country's standard
warranty in any country where the Product is moved provided that HP has
Support presence in that country.
D. Additional warranty coverage may be purchased and that warranty will be
limited to the country in which the additional coverage was purchased.
Customer may receive a different warranty when the Product is purchased
as part of a system. HP reserves the right to change the warranty. Such
changes will affect only new orders.
E. The warranty period begins on the date of Delivery, or the date of
installation if installed by HP. If Customer schedules or delays
installation by HP more than 30 days after Delivery, the warranty
period begins on the 31st day after Delivery.
F. HP warrants HP hardware Product against defects in materials and
workmanship. HP further warrants that HP hardware Products conform to
Specifications. These warranties do not include periodic recalibration
(recommended for some HP Products), unless specifically covered in the
warranty terms for such Products.
G. HP warrants that Software will not fail to execute its programming
instructions due to defects in materials and workmanship when properly
installed and used on the Device designated by HP. HP further warrants
that HP owned standard Software will substantially conform to
Specifications. HP does not warrant that Software will operate in
hardware and software combinations selected by Customer, or meet
requirements specified by Customer.
H. HP does not warrant that the operation of Products will be
uninterrupted or error free.
I. HP warrants that each HP hardware, software, and firmware Product
delivered under this Exhibit and HP's Terms and Conditions of Sale and
Service will be able to accurately process date data (including, but
not limited to, calculating, comparing, and sequencing) from, into, and
between the twentieth and twenty-first centuries, and the years 1999
and 2000, including leap year calculations, when used in accordance
with the Product documentation provided by HP (including any
instructions for installing patches or upgrades), provided that all
other products (e.g. hardware, software, firmware) used in combination
with such HP Product(s) properly exchange date data with it. If the
Specifications require that specific HP Products must perform as a
system in accordance with the foregoing warranty, then that warranty
will apply to those HP Products as a system, and Customer retains sole
responsibility to ensure the Year 2000 readiness of its information
technology and business environment. The duration of this warranty
extends through January 31, 2001. To the extent permitted by local law,
this warranty applies only to branded HP Products and not to products
manufactured by others that may be sold or distributed by HP. This
warranty Section 21. applies only to HP Products shipped after July 01,
1998. The remedies applicable to this Section 21., are those provided
in Section 2J. below. Nothing in this warranty will be construed to
limit any rights or remedies provided elsewhere in this Exhibit and
HP's Terms and Conditions of Sale and Service with respect to matters
other than Year 2000 compliance.
J. If HP receives notice of defects or non-conformance to hardware
Specifications, or substantial non-conformance to HP owned standard
Software Specifications during the warranty period, HP will, at its
option, repair (and recalibrate only as necessitated by repairs), or
replace the affected Products. If HP is unable, within a reasonable
time, to repair, replace or correct a defect or non-conformance in a
Product to a condition as warranted, Customer will be entitled to a
refund of the purchase price upon prompt return of the Product to HP.
Customer, will pay expenses for return of such Products to HP. HP will
pay expenses for shipment of repaired or replacement Products, except
for Products returned to Customer from another country.
K. HP warrants that HP Support will be provided in a professional and
workmanlike manner. HP will replace, at no charge, parts which are
defective and returned to HP within 90 days of delivery.
L. Some newly manufactured HP Products may contain and warranty service
may use remanufactured parts, which are equivalent to new in
performance.
M. The above warranties do not apply to defects resulting from improper or
inadequate maintenance or calibration by Customer; Customer or third
party supplied software, interfacing or supplies; unauthorized
modification, improper use or operation outside of the Specifications
for the Product; abuse, negligence, accident, loss or damage in
transit; improper site preparation; or unauthorized maintenance or
repair.
Page 3 of 10
<PAGE>
N. THE ABOVE WARRANTIES ARE EXCLUSIVE AND NO OTHER WARRANTY, WHETHER
WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED. HP SPECIFICALLY DISCLAIMS THE
IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
3. PLACE OF PERFORMANCE
A. Within HP service travel areas, HP Products and certain other Products
designated by HP, sold with On Site warranty and installation
coverage, will be installed by HP at the Customer's facility at no
charge. Outside HP service travel areas, warranty and installation
services will be performed at Customer's facility only upon HP's prior
agreement; Customer will pay HP's travel expenses and other applicable
expenses for such services.
B. Products with On Site warranty will receive warranty services only at
the initial installation site. If Products eligible for On Site
warranty and installation services are moved from the initial
installation site, the warranty services will be provided only if the
Customer purchases additional inspection or installation services at
the new site.
C. Products with On-Site warranty will receive warranty services outside
the country of initial purchase if global warranty coverage applies.
Service outside the country of initial purchase is subject to the
conditions regarding HP service travel areas and initial installation
site in Sections 3A. and B. above.
D. Products with global warranty coverage and return to HP warranty, and
battery-powered Products, may be returned to the closest HP authorized
repair center. All other Products with return to HP warranty must be
returned to a HP authorized repair center within the country of
original purchase. Customer will pay expenses for return of such
Products to HP. HP will pay expenses for shipment of repaired or
replacement Products, except for Products returned to Customer from
another country.
4. LIMITATION OF LIABILITY AND REMEDIES
A. To the extent HP is held legally liable to Customer, HP's liability is
limited to:
1) damages for bodily injury;
2) direct damages to tangible property up to a limit of U.S. one
million dollars ($1,000,000).
B. Notwithstanding Section 4A. above, in no event will HP or its
affiliates, subcontractors or suppliers be liable for any of the
following:
1) actual loss or direct damage that is not listed in 4A. above;
2) damages for loss of data, or software restoration;
3) damages relating to Customer's procurement of substitute products
or services (i.e., "cost of cover"); or
4) incidental, special or consequential damages (including downtime
costs or lost profits).
C. THE REMEDIES IN THIS EXHIBIT AND HP's TERMS AND CONDITIONS OF SALE AND
SERVICE ARE CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES.
5. WARRANTY AND INSTALLATION CLASSIFICATIONS
Products receive warranty and installation services as defined in the
Warranty and Installation Classification Table below. Peripherals,
accessories and interfaces receive the same services as the systems to which
they are connected when:
1) the Products are purchased with the system on a coordinated
delivery and are included in the system configuration; or,
2) the Products are purchased as add-ons to an existing system
covered by a HP service agreement which is extended to include the
add-on Products.
Page 4 of 10
<PAGE>
WARRANTY AND INSTALLATION CLASSIFICATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
WARR WARRANTY SERVICE SUPPORT GLOBAL INSTALL UPGRADE
CODE PERIOD LOCATION LEVEL WARR. INC. ELIG.
(13) (4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1A 30 Days HP/DEALER Standard Bench (3) No No No
1B 60 Days HP Replacement (18) Yes No No
1C 30 Days HP/DEALER Replacement (18) Yes No No
1D 30 Days HP/DEALER Parts Only (16,30) Yes No No
1E 5 Years HP/DEALER Parts Only (32) Yes No No
1F 90 Days HP/DEALER Parts Only (16,30) Yes No No
1G 2 Years HP/DEALER Parts Only (16,30) Yes No No
1H 1 Year HP Enhanced Parts Only, No No Yes
within 48Hrs (33)
1P 30 Days HP Replacement (18) No No No
1Q 30 Days HP/DEALER Parts Only (16,30) No No No
2A 90 Days On Site 4 Hour Response (22) No Yes (1) Yes
2B 90 Days On Site 4 Hour Response (22) No Yes Yes
2C 90 Days On Site 4 Hour Response (22) No No Yes
2D 90 Days On Site Next Day (22) No No Yes
2E 90 Days On Site Next Day (22) No Yes Yes
2F 90 Days On Site Next Day (22) No No No
2G 90 Days On Site 4 Hour Response (22) No No No
2H 90 Days On Site Next Day (22) No Yes No
2J 90 Days On Site Within 3 Days (22) No Yes No
2K 90 Days HP/DEALER Replacement (2) Yes No No
3A 90 Days HP/DEALER Standard Bench (3) No No Yes
3B 90 Days HP/DEALER Standard Bench (3) No No No
3C 90 Days HP Replacement (2) No No No
3D 90 Days HP Standard Bench (3) No No No
3E 6 Months On Site Within 3 Days (22) Yes Yes Yes
3P 90 Days HP Replacement (18) No No No
3Q 90 Days HP Parts Only (16,24) No Yes No
3R 90 Days HP Parts Only (16,24) No No No
3S 1 Year On Site Next Day (22) Yes No Yes
3T 1 Year On Site Next Day (22) Yes Yes Yes
3U 90 Days HP Replacement (2) Yes No No
3V 18 Months HP/DEALER Standard Bench (3) Yes No No
3W 1 Year On Site Within 3 Days (22) Yes No No
Module Exchange(14)
3X 1 Year HP Replacement (18) Yes No No
4A 1 Year HP/DEALER Standard Bench (3) No No No
4B 1 Year HP/DEALER Standard Bench (3) No No Yes
4C 1 Year HP/DEALER Standard Bench (3) No Yes No
4D 1 Year HP/DEALER Standard Bench (3) Yes No No
4E 1 Year HP/DEALER Standard Bench (3) Yes No Yes
4F 1 Year HP/DEALER Standard Bench (3) Yes Yes No
4G 1 Year On Site Next Day (22) Yes No No
4H 1 Year HP/DEALER Unit Exchange, Next Day (7) Yes No No
4J 1 Year HP/DEALER Exchange, Next Day (7) Yes No No
4K 1 Year On Site Next Day (22) No Yes (1) Yes
4L 1 Year On Site NextDay(22) No Yes Yes
4M 1 Year On Site Next Day (22) No No Yes
4N 1 Year On Site Within 2 Days (19) Yes No No
4P 1 Year HP Parts Only (16) Yes No No
4Q 1 Year On Site Next Day (22) Yes Yes No
4R 1 Year On Site Cooperative, 7 Days (11) Yes Yes Yes
4S 1 Year On Site Cooperative (11) Yes Yes Yes
4T 1 Year On Site HW & SW, Next Day (26) Yes No SW
4U 1 Year HP/DEALER Unit Exchange (7) Yes No Yes
4V 3 Years HP/DEALER Parts Only (16) Yes No No
4W 90 Days On Site Shared, Same Day (20) No No No
4X 1 Year HP Replacement (6) No No No
4Y 1 Year On Site SW Next Day (31) Yes No No
5A 1 Year On Site Next Day (22) No Yes No
5B 1 Year On Site Next Day (22) No Yes No
</TABLE>
Page 5 of 10
<PAGE>
WARRANTY AND INSTALLATION CLASSIFICATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
5C 1 Year On Site Next Day (22) No No No
5D 1 Year On Site Within 3 Days (22) No No No
5E 1 Year HP/DEALER Unit Exchange (7) No No No
5F 1 Year HP/DEALER Unit Exchange, Next Day (7) No Yes (1) No
5G 1 Year On Site Within 3 Days (22) No Yes Yes
5H 1 Year On Site Within 3 Days (22) No No Yes
5J 1 Year On Site Within 3 Days (22) No No Yes
5K 1 Year On Site Within 3 Days (22) No Yes (1) Yes
5L 1 Year On Site 4 Hour Response (22) No Yes Yes
5M 1 Year On Site 4 Hour Response (22) No No Yes
5N 1 Year On Site 4 Hour Response (22) No No Yes
5P 1 Year HP Replacement (18) No No No
5Q 1 Year HP Standard Bench (3) No No No
5R 1 Year On Site 4 Hour Response (22) No Yes Yes
5S 1 Year On Site Within 3 Days (22) Yes No Yes
5T 1 Year On Site Within 3 Days (22) Yes Yes Yes
5U 1 Year On Site Within 3 Days (22) No Yes No
5V 1 Year On Site Cooperative (11) No Yes Yes
5W 1 Year On Site Next Day, 7 Days (I5) Yes No No
5X 1 Year HP Parts Only (16) No Yes No
5Y 1 Year On Site Cooperative, 7 Days (11) No No Yes
5Z I Year HP/DEALER Unit Exchange (7) No No Yes
6A 3 Years On Site Next Day (22) No No No
6B 2 Years HP/DEALER Standard Bench (3) No No No
6C 2 Years On Site Next Day (22) No Yes No
6D 2 Years On Site Next Day (22) No No No
6E 2 Years HP/DEALER Unit Exchange, Next Day (7) No No No
BF 2 Years HP/DEALER Unit Exchange (7) No No No
6G 2 Years HP/DEALER Unit Exchange (7) No No Yes
6H 2 Years HP Parts Only (16) No Yes No
6J 2 Years On Site Shared, Same Day (20) No No No
6L 18 Months HP/DEALER Standard Bench (3) No No No
6M 18 Months HP Replacement (18) No No No
6N 18 Months On Site Next Day (22) Yes No No
6P 2 Years HP Replacement (18) No Yes No
6Q 2 Years On Site Next Day, 7 Days (15) Yes No No
6R 2 Years On Site Next Day (22) Yes No No
6S 2 Years HP/DEALER Standard Bench (3) Yes Yes No
6T 2 Years On Site Unit Exchange, Next Day (7) No No No
6U 2 Years On Site Unit Exchange, Next Day (7) No No Yes
6V 2 Years On Site Within 3 Days (22) Yes No No
6W 2 Years On Site Unit Exchange, Next Day (7) No No No
6X 2 Years HP/DEALER Unit Exchange, Next Day (7) yes No No
6Y 2 Years On Site Unit Exchange, Next Day (7) Yes Yes No
6Z 1 Year HP Replacement (18) No No No
7A 3 Years HP/DEALER Standard Bench (3) No No No
7B 3 Years HP/DEALER Unit Exchange (7) No No No
7C 3 Years On Site Next Day (22) No No No
7D 3 Years Site & Bench 1 Year On Site + 2 Years No No No
Bench (10)
7E 3 Years HP/DEALER Unit Exchange, Next Day (7) No No No
7F 3 Years Exchange & Bench 1 Year Unit Exchange + 2 No No No
Years Bench (12)
7G 3 Years On Site Next Day (22) yes No No
7H 3 Years HP/DEALER Replacement (18) No No No
7J 3 Years HP/DEALER Module Exchange (14) Yes No No
7K 3 Years Site & Bench 1 Year On Site + 2 Years Yes No No
Bench (10)
7L 3 Years HP/DEALER Standard Bench (3) Yes No No
7M 3 Years HP/DEALER Unit Exchange (7) No No Yes
7N 3 Years On site Next Day (22) No Yes (1) Yes
7P 3 Years On Site Next Day (22) No Yes Yes
7Q 3 Years On Site Next Day (22) No No Yes
7R 3 Years HP/DEALER Unit Exchange, Next Day (7) No No Yes
7S 3 Years HP/DEALER Bench + Parts Only (21) Yes No No
</TABLE>
Page 6 of 10
<PAGE>
WARRANTY AND INSTALLATION CLASSIFICATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
7T 3 Years On Site 1 Year On Site + 2 Years Parts Yes No No
Only (23)
7U 3 Years On Site On Site, Within 3 Days (22) No Yes No
7V 3 Years On Site On Site, Within 3 Days (22) No No Yes
7W 3 Years On Site On Site, Within 3 Days (22) No No No
7X 3 Years HP/DEALER Unit Exchange (7) Yes No Yes
7Y 3 Years On Site 8 Hour Response, 24x7 (27) No No No
7Z 3 Years HP/DEALER Parts Only (16) No No No
8A 5 Years On Site Next Day (22) No No No
8B 5 Years HP Replacement (18) No No No
8C 5 Years HP/DEALER Standard Bench No No No
8D 5 Years HP/DEALER Replacement (18) No No Yes
8E 5 Years Site & Parts 1 Year On Site + Parts Only No No No
Lifetime (17)
8F 5 Years On Site Next Day Yes No No
8G 5 Years HP Replacement (18) Yes No No
8H 5 Years HP/DEALER Unit Exchange, Next Day (7) No No No
8J 5 Years HP/DEALER Unit Exchange, Next Day (7) No No Yes
8K 5 Years HP/DEALER Unit Exchange (7) No No No
8L 5 Years HP/DEALER Unit Exchange (7) No Yes Yes
8M 3 Years Site & Parts 90 Days On Site + 33 Months Yes No No
Parts Only (28)
8N 3 Years Site & Parts 1 Year On Site + 2 Years Parts Yes No No
Only (28)
8P 3 Years Site & Parts 1 Year On Site + 2 Years Parts Yes No No
Only Excluding KB/Mouse (29)
8Q 5 Years HP/DEALER Parts Only (16) No No No
8R 3 Years HP/DEALER Unit Exchange, Next Day (7) Yes No No
8S 3 Years On Site Unit Exchange (7) Yes No No
8T 2 Years On Site Next Day (22) Yes Yes No
8U 2 Years On Site Within 3 Days (22) Yes Yes No
8V 3 Years Site & Parts 1 Year On Site + 2 Years Parts No No No
Only Excluding KB/Mouse (29)
9A 6 Years On Site 4 Hour Response (Expires: 30 No No No
SEP 2001)
9M Lifetime HP Replacement (5) Yes No Yes
9N Lifetime HP Replacement (5) No No Yes
9P Lifetime HP Replacement (5) No No No
9Q 10 Years HP Replacement (9) No No No
9R Lifetime HP/DEALER Unit Exchange, Next Day (7) Yes No Yes
9X 30 Years HP/DEALER Replacement (8) No No No
9Y 90 Days HP/DEALER Replacement (6) No No No
9Z 90 Days HP Replacement (24) No No No
</TABLE>
Page 7 of 10
<PAGE>
NOTES:
1. Site preparation service included with installation.
2. Warranty service is limited to repair or replacement of defective Software
media or materials only.
3. Standard Bench warranty means repaired by HP or an HP dealer at its
designated repair center.
4. Upgrade eligibility indicates Product warranty and installation coverage is
eligible to change to match the warranty coverage of the controlling
Product when ordered as a component of a system.
5. Lifetime parts warranty for an item that is warranted throughout the
support life of the Product in which it is used.
6. Products manufactured by another company and distributed by Hewlett-Packard
are not supported by HP. Support is provided by the original product
manufacturer. Software warranty services from HP are limited to replacement
of defective Software media or materials. Customer should contact and/or
register with the product manufacturer to receive any additional warranty
and support coverage information that may be available.
7. Unit Exchange warranty may return to the Customer a repaired exchange unit,
or their original product repaired to HP standards.
8. The Product may be replaced, repaired or the purchase price refunded if
found to be defective during the first thirty (30) years of use.
9. The Product may be replaced if found to be defective during the first ten
(10) years of use.
10. On site warranty with next day response is provided for the first year and
Standard Bench warranty is provided for two additional years. Standard
Bench warranty means repaired by HP or by an HP dealer at its designated
repair center.
11. Cooperative Support involves a sharing of responsibilities for replacement
parts inventory and on site product servicing. Warranty 5V response is
limited to normal working hours. Warranty 5Y response is twenty-four (24)
hours a day, seven (7) days a week.
12. Unit exchange (see #7 above) warranty is provided for the first year and
Standard Bench warranty is provided for two additional years. Standard
Bench warranty means repaired by HP or an HP dealer at its designated
repair center.
13. Warranty coverage is available in all countries where HP has established
local support capabilities. Repairs of products configured to operate in a
different country may be subject to delays.
14. Module Exchange warranty may return to the Customer a refurbished module in
exchange for the Customer's original.
15. Response to a call for support is available seven (7) days a week. On site
response is provided by the next day after receiving a call requesting
warranty support.
16. Parts only warranty means HP will supply the Customer with a replacement
part in exchange for a defective one.
17. Five (5) year on site warranty is supplemented with a lifetime parts
warranty. Lifetime means HP will supply the Customer with a replacement
part in exchange for a defective one throughout the support life of the
Product. Some part restrictions apply.
18. The item is warranted against manufacturing defects in material or
workmanship only.
19. Warranty response is provided within two business days.
20. Shared warranty support responsibility with the original equipment
manufacturer. HP provides the initial contact for the Customer and works
with the original equipment manufacturer the same business day to supply
required warranty support if needed.
21. First year receives standard bench repair warranty coverage and years two
and three receive replacement parts warranty coverage only.
22. Responses are based on local standard business days and working hours.
Unless otherwise stated, all responses are measured from the time the
Customer calls until HP has either established a mutually acceptable time
for support to be performed, or HP has begun to provide on site support or
remote diagnostics.
23. First year receives standard On Site, Next Day warranty coverage and years
two and three receive replacement parts warranty coverage only.
24. Products manufactured by another company, distributed by HP and supported
by HP receive minimal warranty coverage of ninety (90) days parts only.
This warranty may upgraded to one (1) year on site support.
25. Product is serviced on site and if found to be defective is exchanged for a
previously repaired unit by the HP authorized support engineer.
26. HP warrants that both the standard hardware and software will substantially
conform to published specifications.
27. Responses are measured from the time the Customer calls until HP has
either established a mutually acceptable time for support to be performed,
or HP has begun to provide on site support or remote diagnostics. 24x7
refers to coverage hours of twenty-four (24) hours a day, seven (7) days a
week.
28. Two (2) levels of warranty coverage are provided for specified intervals of
time. The two (2) levels can be described as follows: 1) On site support
supplied by the next business day; and, 2) Parts only coverage without the
need to return the defective part.
29. Two (2) levels of warranty coverage are provided for specified intervals of
time. The two (2) levels can be described as follows: 1) On site support
supplied by the next business day; and, 2) Parts only coverage excluding
the keyboard and mouse.
30. The Customer may accept parts only warranty (see footnote 16) or return the
product to the point of sale for warranty support.
31. HP warrants that the standard software will substantially conform to
published specifications.
32. Keyboard and mouse are covered for the first (1st) year only.
33. The Enhanced Parts Only service level means that HP will provide the
Customer with remote resolution assistance, parts diagnosis, replacement
part(s) in return for defective one(s), and remote part installation
assistance. At its option, HP may, but is not obligated to, repair the
product on site.
Page 8 of 10
<PAGE>
6. RESPONSE TIMES
Response times for on site repair services are specified in the Response
Time Table below.
<TABLE>
<CAPTION>
RESPONSE TIME TABLE
----------------------------------------------------------------------------------------------------------
| | | | | |
|ZONE NUMBER | 1-3 | 3-5 | 6 | Other |
|<S> |<C> |<C> |<C> |<C> |
----------------------------------------------------------------------------------------------------------
|Distance (Miles/Km) |0-100 / 0-160 |101-200 / 161-320|201-300 / 321 / 480| |
----------------------------------------------------------------------------------------------------------
| | | | | |
----------------------------------------------------------------------------------------------------------
|Classification Codes 2A, 2B |4 |8 |12 |Quote |
|2C, 2G, 4S, 5L, 5M, 5N, 5R, |Coverage Hours|Coverage Hours |Coverage Hours | |
|5V & 9A | | | | |
----------------------------------------------------------------------------------------------------------
| | | | | |
|Clasification Codes 2D, 2E, 2F, |Next |2 |3 |Quote |
|2H, 4G, 4K, 4L, 4M, 4Q, 4T, 5A, |Coverage Day |Coverage Days |Coverage Days | |
|5B, 5C, 5F, 5W, 6A, 6C, 6D, 6N, | | | | |
|6Q, 6R, 7C, 7N, 7P, 7Q, 8A, 8H | | | | |
|& 8J | | | | |
----------------------------------------------------------------------------------------------------------
| | | | | |
|Classification Codes 2J, 5D, 5G,|Within 3 |3 |3 |Quote |
|5H, 5J, 5K, 5S, 5T, 5U, 6V, 7U, |Coverage Days |Coverage Days |Coverage Days | |
|7V & 7W | | | | |
----------------------------------------------------------------------------------------------------------
</TABLE>
7. INSTALLATION SERVICES
A. SITE PREPARATION
When this service is included in the purchase price of a Product, a
representative of HP wi11 contact the Customer upon receipt of
Customers purchase order to discuss site preparation requirements. This
may be accomplished either during an on site visit or by telephone, and
will encompass technical site planning, preparation and installation
requirements relevant to Customer's system. Customer will also receive
documentation or information characterizing the physical, electrical
and environmental requirements applicable to Customer's system, as well
as any other requirements obtained in the appropriate HP "Site
Preparation Manual" (when available) for the system.
B. SITE SURVEY
All installation sites must be approved by HP. Prior to the scheduled
delivery of Customer's system, an HP representative will verify that
the site has been prepared in conformation with the applicable "Site
Preparation Manual" (when available) and meets all electrical and
environmental requirements contained in that manual. This verification
may occur either on site or by telephone.
C. PURCHASE OF INSTALLATION SERVICES
Standard installation services are included in the price of some system
Products. These services may also be obtained from HP for Products or
systems which do not include these services in the purchase price of
the product for additional cost which will be specially quoted.
D. INSTALLATION OF SYSTEMS AND SELECTED COMPONENTS
1) HP will install Customer's system(s) at a mutually agreed time
following notification by Customer that all Products of the
coordinated shipment have been delivered to the site and that the
site conforms to HP's requirements. Installations will be
performed during HP's normal business hours. Installations
performed outside of business hours at Customer's request may be
subject to additional charges.
2) HP systems, including all accessories, interfaces, peripherals and
terminals ordered with a system on a coordinated delivery and
included in HP's configuration guide and located at the system
site, will be installed by HP at no additional charge.
E. SOFTWARE INSTALLATION
Standard Software installation services consist of loading the
operating system and utilities included in the operating system
Software on the system and executing applicable verification tests.
Software that is Customer installable will be noted in the applicable
data sheet.
F. INSTALLATION RESPONSIBILITIES
During system installation, HP will perform the following tasks:
1. Supervise uncrating, positioning and racking of the Products;
2. Inventory the shipment against the packing list(s);
3. Physically interconnect the Products;
4. Check the primary power line voltage;
5. Connect line power to Products shipped with power cable and
connector; (1)
6. Install operating system and utilities
7. Execute turn-on procedures;
8. Perform electronic and mechanical adjustments;
9. Perform any repairs which may be required to make the Products
operational; (2)
10. Execute standard HP diagnostic or verification programs and tests;
Page 9 of 10
<PAGE>
11. Instruct operator on daily care and proper use of Products.
During system installation, Customer will perform the following tasks:
1. Receive, uncrate, rack or move the Products and dispose of the
packaging materials;
2. Rerack or relocate the Products;
3. Reconfigure or regenerate Software systems;
4. Connect line power to Products delivered without power cable and
connector; (1)
5. May install products not supplied by HP;
6. Fabricate or pull cables;
7. Ensure that site, cable runs and power outlets conform to all
local fire and electrical codes;
8. Attach wall and ceiling mounts to building structure;
9. Reconfigure hardware systems, including recabling or relocation
of existing products.
All of the above Customer tasks, except 4 and 8, may be performed by HP
for an additional charge and are subject to availability of resources.
NOTES:
1) Due to variations in local electrical codes, many Products are shipped
without power cables and connectors. These Products must be connected to
power by Customer's electrical contractor who is familiar with local
regulations.
2) Repairs made on Products covered by HP warranty will be accomplished at no
additional charge. Shipment damage related to a Customer initiated relocation
or shipment is not covered under warranty. For Products or damage not covered
by HP warranty, repairs will be made at Customer's expense.
Page 10 of 10
<PAGE>
[HEWLETT PACKARD LOGO APPEARS HERE]
U.S. SOLUTIONS DIRECT RESELLER PROGRAM OPERATIONS POLICY MANUAL
INTRODUCTION
This Operations Policy Manual ("OPM") describes uniform HP policies applicable
across Products, channel segments, and Direct Resellers. This OPM applies to all
HP Channel Partners that have active purchase agreements containing the U.S.
Direct Reseller Program Exhibit. For convenience and consistency, this OPM
refers generically to "Direct Resellers".
HP has consolidated these policies in the OPM to ensure consistency and to
provide an efficient means for updating changes to HP's policies simultaneously
across all applicable channel segments. All capitalized terms used in this OPM
retain the meanings defined elsewhere in the Agreement, unless specifically
noted to the contrary.
Page 1 of 8
<PAGE>
U.S. SOLUTIONS DIRECT RESELLER OPERATIONS POLICY MANUAL
TABLE OF CONTENTS
1. WARRANTY
2. SUPPORT
3. SOFTWARE LICENSING
4. RETURNS
5. CHANNEL PARTNER INSIGNIA
6. OBSOLETE, USED OR REFURBISHED UNITS
Page 3 of 8
<PAGE>
U.S. Solutions Direct Reseller Operations Policy Manual
1. WARRANTY
A. WARRANTY STATEMENTS
1. HARDWARE. HP warrants hardware Products against defects in materials
and workmanship. HP further warrants that HP Products conform to
Specifications in affect on the date HP ships the Product.
2. DESIGNATED SOFTWARE AND FIRMWARE. HP warrants Software and Firmware
Products, which are designated by HP for use with a hardware Product
and are property installed on that hardware Product, against failures
to execute their programming instructions due to defects in materials
and workmanship.
3. HP OWNED STANDARD SOFTWARE. HP warrants that HP owned standard Software
will substantially conform to Specifications. HP does not warrant that
Software will operate in hardware and software combinations selected by
Direct Reseller and/or Customers, or meet requirements specified by
Direct Resellers and/or Customers, or that the operation of Products
will be uninterrupted or error free.
4. YEAR 2000. HP warrants that each HP hardware, Software and firmware
Product shipped by HP will be able to accurately process date data
(including, but not limited to, calculating, comparing, and sequencing)
from, into, and between the twentieth and twenty-first centuries, and
the years 1999 and 2000, including leap year calculations, when used in
accordance with the Product documentation provided by HP (including any
instructions for installing patches or upgrades), provided that all
other products (e.g. hardware, software, firmware) used in combination
with such HP Product(s) property exchange date data with it. If the
Specifications require that specific HP Products must perform as a
system in accordance with the foregoing warranty, then that warranty
will apply to those HP Products as a system, and warranty recipients
retain sole responsibility to ensure the Year 2000 readiness of their
information technology and business environments.
5. OTHER WARRANTIES. HP may provide Product specific warranties, either
with such Products or via the following HP web site:
http://partner.americas.hp.com/. HP revisions to such warranties will
be effective on the date specified by HP. These warranties will take
precedence over any conflicting terms contained in this Section 1.
B. WARRANTY PERIODS AND PASS THROUGH PROCESSES
1. WARRANTY PERIODS. Product warranty period and additional information is
available with Products, on quotations, or upon request. If Direct
Reseller does not pass through its HP warranties, the warranty period
begins on the date of Delivery, or the date of installation if
installed by HP. If Customer schedules or delays installation by HP
more than thirty (30) days after Delivery, the warranty period begins
on the thirty-first (31st) day after Delivery.
2. PASS THROUGH PROCESSES. Except as expressly provided in this Agreement,
Direct Reseller may pass through the warranties provided under the
Agreement to their end-user Customers, so long as such warranty terms
and conditions obligate HP to no greater than the following:
a. Warranty coverage for defective Products no greater than that
provided in this Warranty Section and any associated Product
Exhibit or Product Category.
b. Warranty exclusions and disclaimers no less than those set forth in
this Warranty Section and any associated product Exhibit.
c. A duration of warranty expiring no later than the date of
expiration of HP's warranty as provided under this Agreement; and
d. Limitations of remedies and liability no less than those provided
in the Limitation of Remedies and Liability Section of this
Agreement.
Direct Reseller must provide a copy of the currently effective HP
warranty to its end-user Customer prior to the downstream sale. A copy
of the current version of HP's Warranty and Installation Information
(also known as "E-26") is attached as an addendum to this Agreement and
may be provided by Direct Reseller to its end-user Customer, provided
that Direct Reseller is responsible for ensuring that it provides the
current version of E-26. In addition, Direct Reseller may provide more
extensive warranty coverage to its end-user Customers, so long as HP
has no responsibility for fulfilling the associated obligations.
3. PASS THROUGH WARRANTY PERIOD. Where Direct Reseller uses the pass
through processes described above, Products ordered by Direct Reseller
and temporarily retained in inventory are warranted beginning with the
shipment date from HP and ending with shipment to the end-user
Customer, for a period not to exceed one hundred eighty (180) days from
date of original purchase from HP by Direct Reseller. "User-Warranties"
apply only to end-user purchasers of Products. End-user Customer
warranties begin upon purchase by the end-user Customer and must be
verified by proof of acquisition by such Customer.
4. YEAR 2000 WARRANTY PERIOD. The duration of the Year 2000 warranty set
forth in subsection 1.A.4 above extends through January 31, 2001.
C. REMEDIES
If HP receives notice of defects or non-conformance to the warranties
provided in this Agreement during the applicable warranty period, HP will,
at its option, repair, or replace the affected Products. If HP is unable,
within a reasonable time, to repair, replace or correct a defect or non-
conformance in a Product to a condition as warranted, Customer will be
entitled to a refund of the purchase price upon prompt return of the
Product to HP. Customer will pay expenses for return of such Products to
HP. HP will pay expenses for shipment of repaired or replacement Products.
D. WARRANTY EXCEPTIONS
1. HP does not warrant that the operation of Products will be
uninterrupted or error free.
2. The warranties provided in subsections 1.A. through 1.H. above do not
include periodic recalibration, recommended for some Products, unless
specifically covered in the warranty terms for such Product.
3. Some newly manufactured Products may contain, and in supporting such
Products HP may use, remanufactured
Page 5 of 8
<PAGE>
parts which are equivalent to new in performance.
4. The Year 2000 warranty provided in subsection 1.A.4 above applies
only to branded HP Products and not to products manufactured by
others that may be sold or distributed by HP.
E. WARRANTY EXCLUSIONS
The warranties provided in subsections 1.A. through 1.H. above will not
apply to damages resulting from abuse, misuse, negligence, accident,
loss or damage in transit, or other Product warranty exclusion, or from
attempted repair by an unauthorized technician. Direct Reseller will
reimburse HP for all freight expenses for any of the foregoing Products
returned to HP, or for any returned Products determined by HP to be free
from defect. Such HP Products may be shipped back to Direct Reseller,
and Direct Reseller will be responsible for associated freight charges.
Title to the Products and risk of loss will pass to Direct Reseller at
HP's shipping point (Free On Board at Origin; "F.O.B. Origin").
F. WARRANTY DISCLAIMERS
THE ABOVE WARRANTIES ARE SOLE AND EXCLUSIVE, AND NO OTHER WARRANTY,
WHETHER WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED HP SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
2. SUPPORT
A. Direct Reseller may order Support from HP's then current Support
offering, which is set forth in the attached U.S. Solutions Support
Options Addendum. Orders for Support are subject to the terms of this
Agreement, including the Support Exhibit or quotation in effect on the
date of order. Direct Reseller is responsible for obtaining the
agreement of its end-user Customer with respect to any Support
obligations under this Agreement that pertain to such Customer.
B. To be eligible for Support, Products must be at current specified
revision levels and, in HP's reasonable opinion, in good operating
condition.
C. HP may, at no additional charge, modify Products to improve operation,
supportability and reliability, or to meet legal requirements.
D. Relocation of Products is the end-user Customer's responsibility.
Relocation may result in additional Support charges and modified service
response times. Support of Products moved to another country is subject
to availability.
E. HP will provide Support for products not supplied by HP when approved by
HP in writing. HP will provide Support for HP Products when the end-user
Customer allows HP to perform modifications if requested by HP under
Section 2.C. above. Such Customer is responsible for removing any
products not eligible for Support to allow HP to perform Support
services. If Support services are made more difficult because of such
product(s), HP will charge such Customer for the extra work at HP's
standard rates.
F. Support does not cover any damage or failure caused by:
1. Use of non-HP media, supplies and other products; or
2. Site conditions that do not conform to HP's site specifications; or
3. Neglect, improper use, fire or water damage, electrical
disturbances, transportation by Direct Reseller or its end-user
Customer, work or modification by people other than HP employees or
subcontractors, or other causes beyond HP's control; or
4. Inability of any non-HP products in the end-user Customer's
environment to correctly process, provide or receive date data
(i.e., representations for month, day, and year), and to properly
exchange date data with the Products supplied by HP.
G. The end-user Customer is responsible for maintaining a procedure
external to the Products to reconstruct lost or altered Customer files,
data or programs. Such Customer will have a representative present when
HP provides Support services at Customer's site. Customer will notify HP
if Products are being used in an environment which poses a potential
health hazard to HP employees or subcontractors; HP may require Customer
to maintain such Products under HP supervision.
H. The end-user Customer may delete Products under Support or cancel
Support orders upon thirty (30) days written notice. Upon sixty (60)
days written notice, HP may cancel Support orders or delete Products no
longer included in HP's Support offering.
3. SOFTWARE LICENSING
A. Unless prior written consent is obtained from HP, Direct Reseller will
not copy or modify any materials supplied under this Agreement, except
that Software may be copied for archival purposes, to replace a
defective copy, or for program error verification. Direct Reseller will
not remove, omit, or alter any label or copyright notice on or in these
materials.
B. Direct Reseller is granted the right to distribute Software and related
materials supplied by HP in accordance with the HP Software License
Terms in effect on the date of shipment by HP. The current version of
the HP Software License Terms are attached as an addendum to this
Agreement. Direct Reseller may also use the materials for demonstration
purposes in accordance with those license terms.
1. Where an end-user agreement is supplied with the Software, the user
must sign the agreement or indicate acceptance by opening the media
package in order to obtain a license to use it. Use of the Software
will be subject to the terms of the agreement.
2. Where the Software is designated as confidential or a trade secret
in its license terms, Direct Reseller will safeguard the Software in
accordance with industry standards and applicable law, using the
same degree of care to prevent unauthorized disclosure as they use
with their own trade secrets and those of other suppliers.
C. Direct Reseller is granted a license to use certain electronic
configuration tools, subject to and in accordance with the terms and
conditions set forth in the attached HP Configuration Tools License and
HP Software License Terms.
4. RETURNS
A. INTRODUCTION
1. The procedures provided in this Agreement for return and repair,
replacement, or credit are the exclusive remedies of Direct Reseller
for any claim related to any alleged defect, nonconformity, or
customer dissatisfaction in Products.
2. Some Products may be returned under different terms and conditions
than those set forth in this Section 4; the terms and conditions
applicable to such Products are noted in the specific Product
Exhibits and Program Exhibits related to such Products.
B. DEFECTIVE UNIT RETURNS
1. Products eligible for defective unit returns are designated on the
Product Exhibits.
Page 6 of 8
<PAGE>
2. HP will repair, provide a replacement unit, or refund credit to Direct
Reseller, at HP's election, for any Product HP finds defective ("Defective
Unit Return"). Such Product must be on HP's then current, applicable
Product Exhibit, and Direct Reseller must be authorized under this
Agreement to resell such Product.
3. HP may inspect Defective Unit Returns to verify they are eligible for
repair or replacement. All packaging must be saved for inspection purposes
so HP can determine cause of defect. HP will not be obligated to repair,
replace or provide credit for Products returned as defective but damaged
from abuse, misuse, negligence, accident, loss or damage in transit, or
other Product warranty exclusion, or from attempted repair by an
unauthorized technician. Direct Reseller will reimburse HP for all freight
expenses for any of the foregoing Products returned to HP, or for any
returned Products determined by HP to be free from defect. Such HP Products
may be shipped back to Direct Reseller, and Direct Reseller will be
responsible for associated freight charges. Title to the HP Products and
risk of loss will pass to Direct Reseller F.O.B. Origin.
4. Prior to any return, Direct Reseller must verify the Product is eligible to
be returned. Direct Reseller must obtain a Return Material Authorization
("RMA") number by calling Direct Reseller's HP customer support
representative. Products may be shipped freight collect, using a carrier
designated by HP, and must be accompanied by a packing slip which
identifies the HP Product numbers, quantities, Direct Reseller's internal
customer tracking number, HP customer base number, number of boxes, and
specifies return as a Defective Unit Return. The RMA number must appear on
the outside of all boxes returned to HP and on the packing slip.
5. Direct Reseller is responsible for ensuring the Defective Unit Return is
properly packaged.
6. Direct Resellers must centralize Defective Unit Returns on behalf of their
Customers. HP will not accept Product returns from Direct Resellers who do
not have a valid direct buying Agreement for the specific Products they
return to HP.
7. Repaired and replaced Products will be covered for the balance of the
original HP warranty. In supporting such Products, HP repair personnel may
use remanufactured parts which are equivalent to new in performance.
8. Eligible Products must be returned to HP within ninety (90) days of
original shipment by HP to Direct Reseller. Products returned to Direct
Reseller as defective by end-user Customers more than ninety (90) days
after HP's general notice of obsolescence may be returned to HP only if the
Products are covered by HP's warranty and only for repair under the
associated warranty repair.
9. At HP's discretion, HP will repair or replace any Product to a condition as
warranted, or Direct Reseller will be entitled to a refund of the purchase
price upon return of the Product to HP.
10. Direct Reseller will contact HP to report defective Products, and will
encourage its end user Customers to do the same. In the event a Product
requires return to HP, the return must be made through Direct Reseller.
13. Defective Returns, combined with Customer Satisfaction Returns, may not
exceed the aggregate return cap of three percent (3%) of the HP shipments
to Direct Reseller during the previous Quarter. Quarters are calculated as
follows: February through April, May through July, August through October,
and November through January ("Quarters").
C. CUSTOMER SATISFACTION RETURNS
1. At HP's sole discretion, HP will provide credit to the Direct Reseller
for Products returned by dissatisfied end-user Customers ("Customer
Satisfaction Returns").
2. Products must be on HP's then current, applicable Product Exhibit, and
Direct Reseller must be authorized under this Agreement to resell such
Product.
3. HP will not accept defective or damaged Products as customer
satisfaction returns. Demonstration units, consignment units, and
remarketed Products are not included in the scope of this policy. All
software Products must be removed from any hardware Product prior to
its return to HP.
4. Prior to any return, Direct Reseller must verify the Product is
eligible to be returned. Direct Reseller must obtain an RMA number by
calling Direct Reseller's HP customer support representative for each
return. Products may be shipped freight collect, using a carrier
designated by HP, and must be accompanied by a packing slip which
identifies the Product numbers, quantities, number of boxes, Direct
Reseller's internal customer tracking number, HP customer base number,
and specifies the return as a Customer Satisfaction Return. The RMA
number must appear on the packing slip, and on the outside of all
boxes returned to HP.
5. Direct Reseller is responsible for ensuring the Customer Satisfaction
Return is properly packaged.
6. HP must receive Customer Satisfaction Returns within forty-five (45)
days of the Direct Reseller's receipt of an RMA number.
7. HP will not accept Product returns from Direct Resellers who do not
have a valid direct buying Agreement for the specific Products with HP.
8. HP will provide credit to Direct Reseller for Products returned by
dissatisfied Customers, provided that such Products shipped by HP
within the United States are returned to HP within sixty (60) days of
shipment to Direct Reseller or end-user Customers, or within ninety
(90) days of shipment by HP for Products shipped from outside the
United States. Product Returns for customer satisfaction purposes may
not exceed two percent (2%) of HP shipments to Direct Reseller during
the previous Quarter.
9. At HP's discretion, HP will repair or replace any Product to a
condition as warranted, or Direct Reseller will be entitled to a refund
of the purchase price upon return of the Product to HP.
10. Customer Satisfaction Returns, combined with Defective Returns, may not
exceed the aggregate Return Cap of three percent (3%) of the HP
shipments to Direct Reseller during the previous Quarter.
5. CHANNEL PARTNER INSIGNIA
A. Pursuant to Section 12 of the HP Reseller Business Terms, Direct
Reseller may identify itself as an HP Authorized Direct Reseller only
for those Products Direct Reseller is authorized to sell and only to
describe the relationship Direct Reseller has with HP.
B. Direct Reseller may describe itself as an "HP Channel Partner", and may
utilize the HP Mark known as the "HP Channel Partner Insignia", subject
to the usage guidelines provided by HP in connection with such
insignia.
<PAGE>
C. Display of HP Marks is at all times subject to HP's standards, policies
and guidelines. HP reserves all rights under law or in equity for misuse
of HP trademarks.
6. OBSOLETE, USED OR REFURBISHED UNITS
A. HP may, from time to time, offer Direct Reseller obsolete, used or
refurbished Products and/or certain Products on special promotional
terms. Such purchases may be subject to discounts different than those
shown in the Product Exhibits, and on terms which may not include
eligibility for Price Protection, stock adjustment, promotional accrual
fund allowance or credit towards Direct Reseller's volume commitment
levels.
<PAGE>
EXHIBIT 10.BB
FOREST PARK CORPORATE CENTER
1245 FOREST PARKWAY
STANDARD
LEASE AGREEMENT
with
COMPUCOM SYSTEMS, INC.
<PAGE>
STANDARD COMMERCIAL LEASE AGREEMENT 1245 Forest Parkway
(BUILDING TO BE CONSTRUCTED) 84 Suite 200
Paulsboro, New Jersey 08066
147,680 (approximate) square feet
Lease Agreement
THIS LEASE AGREEMENT, made and entered into by and between RIGGS &
COMPANY, a division of Riggs Bank N.A.,, as Trustee for the Multi-Employer
Property Trust, a Trust created under the authority of 12 CFR Section 9.18,
having an address at 808 17th Street, N.W., Washington, D.C. 20006, hereinafter
referred to as "Landlord", and COMPUCOM SYSTEMS, INC., a Delaware corporation
having an address at 7171 Forest Lane, Dallas, TX 75230, hereinafter referred to
as "Tenant".
WITNESSETH
1. Premises and Term. In consideration of the obligation of Tenant to
pay rent as herein provided, and in consideration of the other terms, provisions
and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord certain premises situated within the County of
Gloucester, State of New Jersey, more particularly described on EXHIBIT "A"
attached hereto and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances, and immunities belonging to or in any way
pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
building and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the same for a term commencing on the
"commencement date", as hereinafter defined, and ending sixty (60) months
thereafter. The "commencement date" shall be October 1, 1999.
2. Base Rent, Adjustment Thereof and Security Deposit.
A. Tenant agrees to pay to Landlord rent for the premises, in advance,
without demand, deduction or set off, for the entire term hereof as follows:
Monthly Annual
Period Base Rent Base Rent
------ --------- ---------
10/99 - 9/02 $50,457.34 $605,488.08
10/02 - 9/04 $52,303.34 $627,640.08
The monthly installment for October, 1999 shall be due and payable on
the date hereof and a like monthly installment shall be due and payable on or
before the first day of each calendar month succeeding the commencement date
recited above during the hereby demised term, except that the rental payment for
any fractional calendar month at the commencement or end of the lease period
shall be prorated.
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<PAGE>
B. In addition, Tenant agrees to deposit with Landlord on the date
hereof the sum of Fifty One Thousand Dollars ($51,000), which sum shall be held
-------------------------- -------
by Landlord, as security for the performance of Tenant's covenants and
obligations under this lease, it being expressly understood and agreed that such
deposit is not an advance rental deposit or a measure of Landlord's damages in
case of Tenant's default. If Tenant provides Landlord with Tenant's taxpayer
identification number and completes such confirmation forms as Landlord's bank
may require, Landlord will hold the security deposit in a separate interest
bearing account, with interest to accrue and be held and applied as part of the
principal of such security deposit. Upon the occurrence of any event of default
by Tenant, Landlord may, from time to time, without prejudice to any other
remedy provided herein or provided by law, use such fund to the extent necessary
to make good any arrears of rent or other payments due Landlord hereunder, and
any other damage, injury, expense or liability caused by such event of default;
and Tenant shall pay to Landlord on demand the amount so applied in order to
restore the security deposit to its original amount. Tenant shall not assign,
pledge or otherwise encumber the security deposit. Provided that Tenant is not
then in default hereunder, on the third anniversary of the commencement date
Landlord shall return the security deposit, together with the interest thereon,
to Tenant.
3. Use. The premises shall be used only for the purpose of receiving,
storing, assembling, preparing for sale, shipping and selling (other than
retail) products, materials and merchandise made and/or distributed by Tenant
and for such other lawful purposes as may be incidental thereto. Outside
storage, including without limitation, trucks and other vehicles and the washing
thereof at any time, is prohibited without Landlord's prior written consent,
provided that the overnight parking of tractor trailers perpendicular to and
abutting Tenant's loading docks is permitted. Tenant shall at its own cost and
expense obtain any and all licenses and permits necessary for any such use.
Tenant shall comply with all governmental laws, ordinances and regulations
applicable to the use of the premises, and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of nuisances in or upon, or connected with, the premises, all at Tenant's sole
expense. Tenant shall not permit any objectionable or unpleasant odors, smoke,
dust, gas, noise or vibrations to emanate from the premises, nor take any other
actior. which would constitute a nuisance or would disturb or endanger any other
tenants of the building in which the premises are situated or unreasonably
interfere with their use of their respective premises. Without Landlord's prior
written consent, Tenant shall not receive, store or otherwise handle any
product, material or merchandise which is explosive or highly inflammable.
Tenant will not permit the premises to be used for any purpose or in any manner
(including without limitation any method of storage) which would render the
insurance thereon void or the insurance risk more hazardous or cause the State
Board of Insurance or other insurance authority to disallow any sprinkler
credits. If any increase in the fire and extended coverage insurance premiums
paid by Landlord for the building in which Tenant occupies space is caused by
Tenant's use and occupancy of the premises, or if Tenant vacates the premises
and causes an increase in such premiums, then Tenant shall pay as additional
rental the amount of such increase to Landlord.
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<PAGE>
4. Operating Expenses.
A. In the event the operating expenses of Landlord upon the building
and/or project of which the premises are a part shall, in any calendar year
during the term of this lease, exceed - Zero Dollars ($0.00) per square foot,
------------ -----
Tenant agrees to pay to Landlord as additional rental, upon demand, Tenant's
proportionate share of the excess operating expenses. In the year in which this
lease terminates, Landlord, in lieu of waiting until the close of the calendar
year in order to determine any excess operating expenses, has the option to
charge Tenant for Tenant's proportionate share of the operating expenses based
upon the previous year's excess operating expenses. The procedures for payment
of excess operating expenses are set forth in Paragraph 25 hereof.
B. The term "operating expenses" as used above includes all expenses
incurred by Landlord with respect to the ownership, maintenance and operation of
the building and/or project of which the premises are a part, including, but not
limited to, maintenance and repair costs, water, sewer, security, trash and snow
removal, landscaping, wages and fringe benefits payable to employees or
authorized agents of Landlord whose duties are connected with the operations and
maintenance of the building and/or project in an amount equal to 4% of the gross
annual rental to be received hereunder, amounts paid to contractors and
subcontractors for work or services performed in connection with the operation
and maintenance of the building and/or project, all services, supplies, repairs,
replacements or other expenses for maintaining and operating the building and/or
project including common area and parking area. The term "operating expenses"
also includes all real property taxes, assessments (whether general or special)
and governmental charges of any kind and nature whatsoever including assessments
due to deed restrictions and/or owners' associations, which accrue against the
building and/or project of which the premises are a part during the term of this
lease as well as all insurance premiums Landlord is required to pay or deems
necessary to pay, including without limitation public liability insurance and
fire and extended coverage insurance with respect to the building and/or
project. The term "operating expenses" does not include any capital costs,
including those for structural, roof or parking lot replacement, nor shall it
include repairs, restoration or other work occasioned by fire, windstorm or
other casualty to the extent of net insurance proceeds received by Landlord with
respect thereto (and Landlord shall use diligent efforts to obtain available
insurance proceeds), income and franchise taxes of Landlord, expenses incurred
in leasing to or procuring of tenants, leasing commissions, advertising
expenses, expenses for the renovating of space for new tenants, interest or
principal payments on any mortgage or other indebtedness of Landlord, nor
depreciation allowance or expense.
C. Tenant's "proportionate share", as used in this lease, shall mean a
fraction, the numerator of which is the space contained in the premises and the
denominator of which is the entire space contained in the building.
D. If at any time during the term of this lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or any future building or
buildings on the premises, then all such taxes,
-3-
<PAGE>
assessments, levies or charges, or the part thereof so measured or based, shall
be deemed to be included within the term "taxes" for the purposes hereof.
E. Tenant may audit Landlord's books relevant to the additional
rentals due under this paragraph; however, Tenant agrees to pay all costs
associated with or resulting from such audit, including reimbursement to
Landlord for any additional costs incurred by Landlord; provided, that if an
--------
audit reveals that operating expenses as reported by Landlord are five percent
(5%) or more in excess of the actual operating expenses incurred, then Landlord
shall reimburse Tenant for the reasonable third party out of pocket costs of its
audit.
F. Any payment to be made pursuant to this Paragraph 4 with respect to
the calendar year in which this lease commences or terminates shall be prorated.
5. Landlord's Repairs. Landlord shall at its expense maintain only the
roof, foundation and the structural soundness of the exterior walls of the
building in good repair, reasonable wear and tear excepted. Tenant shall repair
and pay for any damage caused by Tenant, or Tenant's employees, agents or
invitees, or caused by Tenant's default hereunder. The term "walls" as used
herein shall not include windows, glass or plate glass, doors, special store
fronts or office entries. Tenant shall immediately give Landlord written notice
of defect or need for repairs, after which Landlord shall have reasonable
opportunity to repair same or cure such defect. Landlord's liability with
respect to any defects, repairs or maintenance for which Landlord is responsible
under any of the provisions of this lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect.
6. Tenant's Repairs and Other Covenants of Care and Treatment of
Premises.
A. Tenant shall at its own cost and expense keep and maintain all
parts of the premises (except those for which Landlord is expressly responsible
under the terms of this lease) in good condition, promptly making all necessary
repairs and replacements, including but not limited to, windows, glass and plate
glass, doors, any special office entry, interior walls and finish work, doors
and floor covering, downspouts, gutters, heating and air conditioning systems,
dock boards, truck doors, dock bumpers, plumbing work and fixtures, termite and
pest extermination, regular removal of trash and debris, keeping the parking
areas, driveways, alleys and the whole of the premises in a clean and sanitary
condition. Tenant shall not be obligated to repair any damage caused by fire,
tornado or other casualty covered by the insurance to be maintained by Landlord
pursuant to subparagraph 12(A) below, except that Tenant shall be obligated to
repair all wind damage to glass except with respect to tornado or hurricane
damage.
B. Tenant shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall, at its sole cost and
expense, promptly repair any damage or injury to any demising wall caused by
Tenant or its employees, agents, customers, invitees, and/or licensees.
C. In the event the premises constitute a portion of a multiple
occupancy building, Tenant and its employees, agents, customers, invitees,
and/or licensees shall have the exclusive right to use the parking areas, if
any, as may be designated by Landlord in writing, subject to such reasonable
rules and regulations as Landlord may from time to time prescribe and subject to
rights of ingress and egress of other tenants. Landlord shall not be responsible
for enforcing Tenant's exclusive
-4-
<PAGE>
parking rights against any third parties. As part of the operating expenses,
Landlord shall, at Tenant's cost on a pro rata basis, perform the paving and
landscape maintenance, exterior painting and common sewage line plumbing and
Tenant shall be liable for its proportionate share (as defined in subparagraph
4(C) above) of the cost and expense of the care for the grounds around the
building, including but not limited to, the mowing of grass, care of shrubs,
general landscaping, maintenance of parking areas, driveways and alleys,
exterior repainting and common sewage line plumbing; provided, however, the
Landlord shall have the right to require Tenant to pay such other reasonable
proportion of said mowing, shrub care and general landscaping costs as may be
determined by Landlord in its sole discretion; and further provided that if
Tenant or any other particular tenant of the building can be clearly identified
as being responsible for obstructions or stoppage of the common sanitary sewage
line, then Tenant, if Tenant is responsible, or such other tenant, shall pay the
entire cost thereof, upon demand, as additional rent. Tenant shall pay when due
its share, determined as aforesaid, of such costs and expenses along with the
other tenants of the building to Landlord upon demand, as additional rent, for
the amount of its share as aforesaid of such costs and expenses in the event
Landlord elects to perform or cause to be performed such work.
D. Landlord shall either assign to Tenant all warranties received by
Landlord with respect to the systems and equipment installed in the premises or
enforce such warranties at Tenant's request and expense for Tenant's benefit.
Tenant shall, at its own cost and expense, enter into a regularly scheduled
preventive maintenance/service contract with a maintenance contractor for
servicing all hot water, heating and air conditioning systems and equipment
within the premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services suggested
by the equipment manufacturer within the operation/maintenance manual and must
become effective (and a copy thereof delivered to Landlord) within thirty (30)
days of the date Tenant takes possession of the premises.
E. Tenant agrees that no washing of any type (other than reasonable
restroom or kitchen washing) will take place in the premises including the truck
apron and parking areas.
7. Alterations. Tenant shall not make any alterations, additions or
improvements to the premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord, which consent shall
not be unreasonably withheld if the proposed alteration, addition or improvement
is non-structural, is not visible from the exterior of the building and does not
affect any building system. Tenant may, without the consent of Landlord, but at
its own cost and expense and in a good workmanlike manner erect such shelves,
bins, machinery and trade fixtures as it may deem advisable, without altering
the basic character of the building or improvements and without overloading or
damaging such building or improvements, and in each case complying with all
applicable governmental laws, ordinances, regulations and other requirements.
All alterations, additions, improvements and partitions erected by Tenant shall
be and remain the property of Tenant during the term of this lease and Tenant
shall, if Landlord so elects as hereinafter provided, remove all alterations,
additions, improvements and partitions erected by Tenant and restore the
premises to their original condition, reasonable wear and tear excepted, by the
date of termination of this lease or upon earlier vacating of the premises;
otherwise such alterations, additions, improvements and partitions shall become
the property of Landlord as of the date of termination of this lease or upon
earlier vacating of the premises and shall be delivered up to the Landlord with
the premises. All shelves, bins machinery and trade fixtures installed by Tenant
may be removed by
-5-
<PAGE>
Tenant prior to the termination of this lease if Tenant so elects, and shall be
removed by the date of termination of this lease or upon earlier vacating of the
premises if required by Landlord: upon any such removal Tenant shall restore
the premises to their original condition, reasonable wear and tear excepted. All
such removals and restoration shall be accomplished in a good workmanlike manner
so as not to damage the primary structure or structural qualities of the
buildings and other improvements situated on the premises. If requested to do so
by Tenant in writing at the time Tenant requests Landlord's consent to a
proposed alteration, addition or improvement, Landlord will indicate in its
consent to the proposed alteration, addition or improvement (assuming that
Landlord otherwise consents thereto) whether Landlord will require the removal
of such alteration, addition or improvement upon the termination of this Lease.
Otherwise, Landlord may elect to require Tenant to remove any alteration,
addition or improvement made by Tenant to the premises, or all or any part of
Landlord's Work or Tenant's Work (as provided in Paragraph 31) by giving
written notice to Tenant at any time prior to termination of this lease
specifying the alterations, additions and/or improvements to be removed.
8. Signs. Tenant shall have the right to install signs upon the
premises only when first approved in writing by Landlord and subject to any
applicable governmental laws, ordinances, regulations and other requirements.
Tenant shall have the right to install, at its expense, a window-mounted sign
next to Tenant's building entrance in compliance with the standard signage
program in effect at Forest Park, which provides for the installation of one 2
1/2 foot by 2 1/2 foot plaque. Tenant shall remove all such signs by the
termination of this lease. Such installations and removals shall be made in such
manner as to avoid injury or defacement of the building and other improvements,
and Tenant shall repair any injury or defacement, including without limitation,
discoloration caused by such installation and/or removal.
9. Inspection. Landlord and Landlord's agents and representatives
shall have the right to enter and inspect the premises at any reasonable time
during business hours, upon reasonable advance notice (except in the case of
emergency) for the purpose of ascertaining the condition of the premises or in
order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this lease. During the period that is six (6) months
prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises and shall
have the right to erect on the premises a suitable sign indicating the premises
are available. Tenant shall arrange to meet with Landlord for a joint inspection
of the premises at least thirty (30) days prior to Tenant's vacating the
premises. In the event of Tenant's failure to arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the premises shall be
conclusively deemed correct for the purposes of determining Tenant's
responsibility for repairs and restoration.
10. Utilities. Landlord agrees to provide at its cost water,
electricity and telephone service connections into the premises, but Tenant
shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler
charges and other utilities and services used on or from the premises, together
with any taxes, penalties, surcharges or the like pertaining thereto and any
maintenance charges for utilities and shall furnish all electric light bulbs and
tubes. Gas and electric service shall be separately metered to the premises and
Tenant shall contract directly with the utilities for such services. With
respect to water, sewer and any other service not separately metered to the
premises, Tenant shall pay a reasonable proportion as determined by Landlord of
all charges jointly metered
-6-
<PAGE>
with other premises. Landlord shall in no event be liable for any interruption
or failure of utility services on the premises.
"In the event water is not separately metered to Tenant, Tenant agrees
that it will not use water for uses other than normal restroom usage; and,
Tenant does further agree to reimburse Landlord for the entire amount of common
water costs as additional rental if, in fact, Tenant uses water for uses other
than normal restroom uses without first obtaining Landlord's written permission.
"Tenant agrees it will not use sewer capacity for any use other than
normal, domestic restroom use. Tenant further agrees to notify Landlord of any
other sewer use ("excess sewer use") and also agrees to reimburse Landlord for
the costs and expenses related to Tenant's excess sewer use, which shall
include, but is expressly herein not limited to the cost of acquiring additional
sewer capacity to service Tenant's lease."
11. Assignment and Subletting. Tenant shall not have the right to
assign, sublet, transfer or encumber this lease, or any interest therein,
without the prior written consent of Landlord. Landlord shall not unreasonably
withhold or delay its consent to an assignment of this lease or a subletting of
the premises provided that: (i) the proposed user shall be of a character, and
shall be engaged in a business, in keeping with the commercial standards
generally applied by Landlord for new tenants in Forest Park, (ii) the proposed
user shall have a financial condition in keeping with the commercial standards
generally applied by Landlord for new tenants in Forest Park; (iii) the proposed
assignee or subtenant shall not then be occupying other space in the Building,
and as a result would cease to occupy such space, nor shall it be a prospective
tenant then negotiating with Landlord for comparable sized space; (iv) the
proposed user shall not have parking requirements in excess of the parking made
available to Tenant under this Lease; (v) Tenant shall not publicly advertise
(whether through mail solicitation of brokers or otherwise) Tenant's net offered
rent if such rent is less than the net effective rent then being offered by
Landlord for new leases of space in Forest Park; and (vi) the documents creating
the sublease or assignment, and the nature of the fixtures and improvements to
be performed or installed, shall be subject to Landlord's approval, which shall
not be unreasonably withheld or delayed. Tenant may assign this Lease or sublet
the Premises without the need for Landlord's consent, but upon written notice to
Landlord, to a corporation that is the parent or subsidiary corporation of
Tenant or a subsidiary of Tenant's parent.
Any attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Paragraph shall be void.
Fifty percent (50%) of the proceeds as exceed the rentals called for hereunder
in the case of a subletting and fifty percent (50%) all cash or other proceeds
of any other transfer of Tenant's interest in this lease shall be paid to
Landlord, whether such assignment, subletting or other transfer is consented to
by Landlord or not, unless Landlord agrees to the contrary in writing, and
Tenant hereby assigns all rights it might have or ever acquire in any such
proceeds to Landlord. Any assignment, subletting or other transfer of Tenant's
interest in this lease shall be for an amount equal to the then fair market
value of such interest. These covenants shall run with the land and shall bind
Tenant and Tenant's heirs, executors, administrators, personal representatives,
representatives in any bankruptcy proceeding, successors and assigns. Any
assignee, sublessee or transferee of Tenant's interest in this lease (all such
assignees, sublessees and transferees being hereinafter referred to as
"successors"), by assuming Tenant's obligations hereunder shall assume liability
to Landlord for all amounts paid to
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persons other than Landlord by such successors in contravention of the
Paragraph. No assignment, subletting or other transfer, whether consented to by
Landlord or not, shall relieve Tenant of its liability hereunder. Upon the
occurrence of an "event of default" as hereinafter defined, if the premises or
any part thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided, or provided by law, may at its option collect directly
from such assignee or subtenant all rents becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due to Landlord from
Tenant hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder.
12. Fire and Casualty Damage.
A. Landlord agrees to maintain standard fire and extended coverage
insurance covering the building of which the premises are a part with an
insurance company rated A-VII or better by AM Best's Insurance Reports, in an
amount not less than 80% (or such greater percentage as may be necessary to
comply with provisions of any co-insurance clauses of the policy) of the
"replacement cost" thereof as such term is defined in the Replacement Cost
Endorsement to be attached thereto, insuring against the perils of Fire,
Lightning and Extended Coverage, such coverages and endorsements to be as
defined, provided and limited in the standard bureau forms prescribed by the
insurance regulatory authority for the State in which there premises are
situated for use by insurance companies admitted in such state for the writing
of such insurance on risks located within such state. Subject to the provisions
of subparagraphs 12(C), 12(D), and 12(E) below, such insurance shall be for the
sole benefit of Landlord and under its sole control.
B. If the buildings situated upon the premises should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord.
C. If the buildings situated upon the premises should be totally
destroyed by fire, tornado or other casualty, or if they should be so damaged
thereby the rebuilding or repairs cannot in Landlord's estimation be completed
within one hundred sixty five (165) days after the date upon which Landlord is
notified by Tenant of such damage, then either party shall have the option to
terminate this Lease by giving written notice to the other within ten (10) days
after Landlord gives Tenant Landlord's written estimate of the time required to
repair the damage. If a party elects to terminate this Lease pursuant to the
preceding sentence, such termination shall be effective from the date of the
occurrence of such damage, and rent shall abate from such date. Notwithstanding
the foregoing, if Landlord elects to terminate this Lease under this
subparagraph, Tenant shall have the right to nullify such election by giving
Landlord written notice within five (5) days after receipt of Landlord's
termination notice, whereby Tenant agrees to extend the term of this Lease as
necessary to ensure that the remaining term of this Lease after completion of
the repair and restoration will be not less than five (5) years. If Tenant gives
this notice nullifying Landlord's termination notice, Landlord shall then
diligently pursue repair and restoration of the premises, using commercially
reasonable efforts to complete repair and restoration within the period
estimated by Landlord.
D. If the buildings situated upon the premises should be damaged by
any peril covered by the insurance to be provided by Landlord under subparagraph
12(A) above, but only to such extent that rebuilding or repairs can in
Landlord's estimation be completed within one hundred sixty five (165) days
after the date upon which Landlord is notified by Tenant or otherwise receives
notice of such damage, this lease shall not terminate, and Landlord shall at it
sole cost and expense thereupon
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proceed with reasonable diligence to rebuild and repair such buildings to
substantially the condition in which they existed prior to such damage, except
that Landlord shall not be required to rebuild, repair or replace any part of
the partitions, fixtures, additions and other improvements which may have been
placed in, on, or about the premises by Tenant. Landlord shall advise Tenant,
within sixty (60) days after notice to Landlord of such damage, of Landlord's
estimate of the time required to repair the damage. If the premises are
untenantable in whole or in part following such damage (including portions of
the premises that are unusable due to damage to other portions of the premises),
the rent payable hereunder during the period in which they are untenantable
shall be reduced to such extent as may be fair and reasonable under all of the
circumstances. In the event that Landlord should fail to diligently pursue such
repairs and rebuilding within one hundred sixty five (165) days after the date
upon which Landlord is notified of such damage, Tenant may at its option
terminate this lease by delivering written notice of termination to Landlord as
Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall
cease and terminate.
E. Anything in this lease to the contrary notwithstanding, Landlord
and Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the premises,
improvements to the building of which the premises are a part, or personal
property (building contents) within the building, by reason of fire or the
elements regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, officers and employees, but only to the extent of the
insurance proceeds payable under the policies of insurance covering the property
or required to cover the property by the terms of this lease. Because this
subparagraph will preclude the assignment of any claim mentioned in it by way of
subrogation (or otherwise) to an insurance company (or any other person), each
party to this lease agrees immediately to give to each insurance company which
has issued to it policies of fire and extended coverage insurance, written
notice of the terms of the mutual waivers contained in this subparagraph, and to
have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages by reason of the mutual waivers
contained in this subparagraph.
13. Liability. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, servants or employees, or of any other person entering upon the
premises, or caused by the buildings and improvements located on the premises
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the premises, or due to any cause whatsoever, and
Tenant hereby covenants and agrees that it will at all times indemnify and hold
safe and harmless the property, the Landlord (including without limitation the
trustee and beneficiaries if Landlord is a trust), Landlord's agents and
employees from any loss, liability, claims, suits, costs, expenses, including
without limitation attorney's fees and damages, both real and alleged, arising
out of any such damage or injury; except injury to persons or damage to property
to the extent caused by the negligence of Landlord or the failure to Landlord to
repair any part of the premises which Landlord is obligated to repair and
maintain hereunder within a reasonable time after the receipt of written notice
from Tenant or any governmental authority having jurisdiction of needed repairs.
Tenant shall procure and maintain throughout the term of this lease a policy or
policies of insurance, at its sole cost and expense, insuring both Landlord and
Tenant against all claims, demands or actions arising out of or in
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connection with: (i) the premises; (ii) the condition of the premises; (iii)
Tenant's operations in and maintenance and use of the premises; and (iv)
Tenant's liability assumed under this lease, the limits of such policy or
policies to be in the amount of not less than $ 1,000,000 per occurrence in
respect of injury to persons (including death), and in the amount of not less
than $500,000 per occurrence in respect of property damage or destruction,
including loss of use thereof. All such policies shall be procured by Tenant
from responsible insurance companies satisfactory to Landlord. Certified copies
of such policies, together with receipt evidencing payment of premiums therefor,
shall be delivered to Landlord prior to the commencement date of this lease. Not
less than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof, bearing notations evidencing the
payment of renewal premiums shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days written notice shall be
given to Landlord before such policy may be canceled or changed to reduce
insurance provided thereby.
14. Condemnation.
A. If the whole or any substantial part as determined by Landlord of
the premises should be taken for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof and the taking would prevent or materially
interfere with the use of the premises for the purpose for which they are being
used, as determined by Landlord this lease shall terminate and the rent shall be
abated during the unexpired portion of this lease, effective when the physical
taking of said premises shall occur.
B. If part of the premises shall be taken for any public or quasi-
public use under any governmental law, ordinance or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and this lease is not
terminated as provided in the subparagraph above, this lease shall not terminate
but the rent payable hereunder during the unexpired portion of this lease shall
be reduced to such extent as may be fair and reasonable under all of the
circumstances.
C. In the event of any such taking or private purchase in lieu
thereof, Landlord and Tenant shall each be entitled to receive and retain such
separate awards as may be allocated to their respective interests in any
condensation proceedings.
15. Holding Over. Tenant will, at the termination of this lease by
lapse of time or otherwise, yield up immediate possession to Landlord. If
Landlord agrees in writing that Tenant may hold over after the expiration or
termination of this lease, unless the parties hereto otherwise agree in writing
on the terms of such holding over, the hold over tenancy shall be subject to
termination by Landlord at any time upon not less than thirty (30) days advance
written notice, or by Tenant at any time upon not less than thirty (30) days
advance written notice, and all of the other terms and provisions of this lease
shall be applicable during that period, except that Tenant shall pay Landlord
from time to time upon demand, as rental for the period of any hold over, an
amount equal to one hundred fifty percent (150%) of the rent in effect on the
termination date, computed on a daily basis for each day of the hold over
period. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this lease except as otherwise expressly provided. The
preceding provisions of this paragraph 15 shall not be construed as consent for
Tenant to hold over.
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16. Quiet Enjoyment. Landlord covenants that it now has, or will
acquire before Tenant takes possession of the premises, good title to the
premises, free and clear of all liens and encumbrances, excepting only the lien
for current taxes not yet due, such mortgage or mortgages as are permitted by
the terms of this lease, zoning ordinances and other building and fire
ordinances and governmental regulations relating to the use of such property,
and easements, restrictions and other conditions of record. In the event this
lease is a sublease, then Tenant agrees to take the premises subject to the
provision of the prior teases. Landlord represents and warrants that it has full
right and authority to enter into this lease and that Tenant, upon paying the
rental herein set forth and performing its other covenants and agreements herein
set forth, shall peaceably and quietly have, hold and enjoy the premises for the
term hereof without hindrance or molestation from Landlord, subject to the terms
and provisions of this lease.
17. Events of Default. The following events shall be deemed to be
events of default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent herein
reserved when due, or any payment with respect to operating expenses hereunder
when due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days following
notice from Landlord that such payment is due; provided that Landlord shall not
be obligated to provide Tenant notice of non-payment of rent more than two times
in any twelve month period; for the balance of such twelve month period an event
of default shall have occurred if a payment of rent is more than five (5) days
past due, with or without notice from Landlord.
(b) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors.
(c) Tenant shall file a petition under any section or chapter of the
United States Bankruptcy Code, as amended, or under any similar law or statute
of the United States or and State thereof; or an order for relief shall be
entered against Tenant in any proceedings filed against Tenant thereunder.
(d) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.
(e) Tenant shall vacate all or a substantial portion of the premises
without prior written notice to Landlord, whether or not Tenant is in default of
the rental payments due under this lease.
(f) Tenant shall fail to discharge any lien placed upon the premises
in violation of Paragraph 21 hereof within thirty (30) days after any such lien
or encumbrance is filed against the premises.
(g) Tenant shall fail to comply with any term, provision or covenant
of this lease (other than the foregoing in this Paragraph 17), and shall not
cure such failure within thirty (30) days after written notice thereof to
Tenant, provided that if such failure is curable but not within thirty (30)
--------
days, Tenant shall have such longer period (not to exceed ninety (90) days in
the aggregate) that may be reasonably required to cure such failure, provided
that Tenant commences such cure within the original thirty (30) day period and
thereafter diligently pursues such cure to completion.
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18. Remedies.
A. Upon the occurrence of any of such events of default described in
Paragraph 17 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
(a) Terminate this lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails so to do, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearage in rent, enter upon and take possession of the premises by legal
process and expel or remove Tenant and any other person who may be occupying
such premises or any part thereof, without being liable for prosecution or any
claim of damages therefor.
(b) Enter upon and take possession of the premises by legal
process and expel or remove Tenant and any other person who may be occupying
such premises or any part thereof without being liable for prosecution or any
claim for damages therefor, and relet the premises and receive the rent
therefor.
(c) Enter upon the premises by legal process without being liable
for prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action. In the event Landlord may elect to regain possession of the
premises by a forcible detainer proceeding, Tenant hereby specifically waives
any statutory notice which may be required prior to any such proceeding, and
agrees that Landlord's execution of this lease is, in part, consideration for
this waiver.
In the event Landlord may elect to regain possession of the premises by a
forcible detainer proceeding. Tenant hereby specifically waives any statutory
notice which may be required prior to any such proceeding, and agrees that
Landlord's execution of this lease is, in part, consideration for this waiver.
In the event Tenant fails to pay any installment of rent hereunder and such
failure continues for ten (10) days after such installment is due, to help
defray the additional cost to Landlord for processing such late payments, Tenant
shall pay to Landlord, on demand, a late charge in an amount equal to five
percent (5%) of such installment; and the failure to pay such amount within ten
(10) days after demand therefor shall be an event of default hereunder. The
provision for such late charge shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as liquidated
damages or as limiting Landlord's remedies in any manner.
B. Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. No such removal or other exercise of dominion by Landlord
over the property of Tenant or others at the premises shall be deemed
unauthorized or constitute a conversion, Tenant hereby consenting, after any
event of default, to the aforesaid repossession and all claims by Tenant
therefor are hereby waived, as are all claims for damages by reason of any
distress warrant, forcible detainer proceedings, sequestration proceedings or
other legal process. Tenant agrees that any re-entry by Landlord may be pursuant
to judgment obtained
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in forcible detainer proceedings or other legal proceedings as Landlord may
elect, and Landlord shall not be liable in trespass or otherwise.
C. In the event Landlord elects to terminate the lease by reason of an
event of default, then notwithstanding such termination, Tenant shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of all rental and other indebtedness accrued to date of such
termination, plus, as damages, an amount equal to the difference between (i) the
total rental hereunder for the remaining portion of the lease term (had such
term not been terminated by Landlord prior to the date of expiration stated in
Paragraph 1) and (ii) the then present value of the then fair rental values of
the premises for such period.
D. In the event that Landlord elects to repossess the premises without
terminating the lease, then Tenant shall be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the lease term
until the date of expiration of the term as stated in Paragraph 1 diminished
by any net sums thereafter received by Landlord through reletting the premises
during said period (after deducting expenses incurred by Landlord as provided in
subparagraph 17(E) below). In no event shall Tenant be entitled to any excess of
any rental obtained by relenting over and above the rental herein reserved.
Actions to collect amounts due by Tenant to Landlord under this subparagraph may
be brought from time to time, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the lease term.
E. In case of any event of default or breach by Tenant, Tenant shall
also be liable for and shall pay to Landlord, at the address specified for
notice to Landlord herein, in addition to any sum provided to be paid above,
brokers' fees incurred by Landlord in connection with reletting the whole or any
part of the premises; the costs of removing and storing Tenant's or other
occupant's property; the costs of repairing, altering, remodeling or otherwise
putting the premises into condition acceptable to a new tenant or tenants; and
all reasonable expenses incurred by Landlord in enforcing or defending
Landlord's rights and/or remedies including reasonable attorney's fees which
shall be not less than five percent (5%) of all sums then owing by Tenant to
Landlord whether suit is actually filed or not.
F. Landlord shall use commercially reasonable efforts to relet the
premises (or, in Landlord's reasonable discretion, a part thereof) for the
account of Tenant for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
lease) and on such conditions (which may include concessions or free rent) and
for such uses as Landlord, in its reasonable discretion, may determine, and
Landlord may collect and receive any rents payable by reason of such reletting.
For purposes of such mitigation, Landlord need not attempt to lease the Premises
prior to the lease of other vacant space in Forest Park, shall not be required
to accept a tenant for less than the entire space, and shall not be required to
accept any tenant offered by Tenant or observe any instruction given by Tenant
about such reletting. For the purpose of such reletting, Landlord may decorate
or make repairs, changes, alterations or additions in or to the premises or any
part thereof to the extent deemed by Landlord desirable or convenient, and the
reasonable cost of such decoration, repairs, changes, alterations or additions
shall be charged to and be payable by Tenant as additional rent hereunder, as
well as any reasonable brokerage and legal fees expended by Landlord. In the
event of any dispute over whether Landlord
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exercised commercially reasonable efforts to mitigate damages, the burden of
proof shall be on Tenant.
G. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the premises for such purpose), and thereupon Tenant shall be obligated to, and
hereby agrees, to pay Landlord, upon demand, all costs, expenses and
disbursements (including reasonable attorney's fees) incurred by Landlord in
taking such remedial action.
H. In the event of any default by Landlord, Tenant's exclusive remedy
shall be an action for damages (Tenant hereby waiving the benefit of any laws
granting it a lien upon the property of Landlord and/or upon rent due Landlord),
but prior to any such action Tenant will give Landlord written notice specifying
such default with particularity, and Landlord shall thereupon have ten (10) days
in which to commence and thereafter diligently pursue the cure of any such
default. Unless and until Landlord fails to so cure any default after such
notice, Tenant shall not have any remedy or cause of action by reason thereof.
All obligations of Landlord hereunder will be construed as covenants, not
conditions; and all such obligations will be binding upon Landlord only during
the period of its possession of the premises and not thereafter. The term
"Landlord" shall mean only the owner, for the time being of the premises, and in
the event of the transfer by such owner of its interest in the premises, such
owner shall thereupon be released and discharged from all covenants and
obligations of the Landlord thereafter accruing, but such covenants and
obligations shall be binding during the lease term upon each new owner for the
duration of such owner's ownership. Notwithstanding any other provision hereof,
Landlord shall not have any personal liability hereunder. In the event of any
breach or default by Landlord in any term or provision of this lease, Tenant
agrees to look solely to the equity or interest then owned by Landlord in the
premises; however, in no event, shall any deficiency judgement or any money
judgement of any kind be sought or obtained against any party Landlord.
I. In the event that Landlord shall have taken possession of the
premises pursuant to the authority herein granted then Landlord shall have the
right to keep in place and use all of the furniture, fixtures and equipment at
the premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
lessor thereof or third party having a lien thereon. Landlord shall also have
the right to remove from the premises (without the necessity of obtaining a
distress warrant, writ of sequestration or other legal process) all or any
portion of such furniture, fixtures, equipment and other property located
thereon and to place same in storage at any premises within the County in which
the premises is located; and in such event, Tenant shall be liable to Landlord
for costs incurred by Landlord in connection with such removal storage. Landlord
shall also have the right to relinquish possession of all or any portion of such
furniture, fixtures, equipment and other property to any person ("Claimant")
claiming to be entitled to possession thereof who presents to Landlord a copy of
any instrument represented to Landlord by Claimant to have been executed by
Tenant (or any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other
property, without the necessity on the part of Landlord to inquire into the
authenticity of said instrument's copy of Tenant's or Tenant's predecessor's
signature thereon and without the necessity of Landlord making any nature of
investigation or inquiry as to the validity of the factual or legal basis upon
which Claimant purports
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to act; and Tenant agrees to indemnify and hold Landlord harmless from all cost,
expense, loss, damage and liability incident to Landlord's relinquishment of
possession of all or any portion of such furniture, fixtures, equipment or other
property to Claimant. The rights of Landlord herein stated shall be in addition
to any and all other rights which Landlord has or may hereafter have at law or
in equity; and Tenant stipulates and agrees that the rights herein granted
Landlord are commercially reasonable.
19. Waiver of Landlord's Lien. Landlord waives its statutory lien
rights in Tenant's personal property. At Tenant's request Landlord shall execute
such documents as may be reasonably required to confirm the waiver in favor of
any lender or equipment lessor providing financing or leasing equipment to
Tenant. Tenant shall be responsible for the reasonable fees and expenses of
Landlord's counsel for the review and negotiation of any such requested
documentation.
20. Mortgages. Tenant accepts this lease subject and subordinate to
any mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the premises or the improvements situated
thereon, provided, however, that if the mortgagee, trustee, or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this lease
superior to any such instrument in whole or in part, then by notice to Tenant,
from such mortgagee, trustee or holder, this lease shall be deemed superior to
such lien, whether this lease was executed before or after said mortgage or deed
of trust. Tenant shall at any time hereafter on demand execute any instruments,
releases or other documents which may be required by any mortgagee for the
purpose of subjecting and subordinating this lease or making this lease superior
to the lien of any such mortgage.
Anything contained in this Paragraph to the contrary notwithstanding,
the subordination of this Lease to any future mortgage encumbering the Building
is conditioned upon the mortgagee's agreement that Tenant shall not be disturbed
in its possession of the Premises pursuant to the terms of this Lease. Such non-
disturbance covenant shall be evidenced by the mortgagee's standard
subordination, non-disturbance and attornment agreement, which Tenant agrees to
execute, provided such agreement does not impose upon Tenant any obligations in
excess of those obligations assumed by Tenant under this lease. Landlord
represents and warrants to Tenant that as of the date of this lease there are no
mortgages encumbering the Building.
21. Mechanic's Liens and Tenant's Personal Property Taxes.
A. Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind, the interest of Landlord or Tenant in the premises or to charge
the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
premises on which any lien is or can be validly and legally asserted against its
leasehold interest in the premises or the improvements thereon and that it will
save and hold Landlord harmless from any and all loss, cost or expense based on
or arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of the Landlord in the premises or under
the terms of this lease. Tenant agrees to give Landlord immediate written notice
of the placing of any lien or encumbrance against the premises.
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B. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and if Landlord elects to pay the same or if the
assessed value of Landlord's property is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the premises, and Landlord
elects to pay the taxes based on such increase, Tenant shall pay to Landlord
upon demand that part of such taxes.
22. Notices. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address for
Landlord hereinbelow set forth or at such other address as Landlord
may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay rent and any other
amounts to Landlord under the terms of this lease shall not be deemed
satisfied until such rent and other amounts have been actually
received by Landlord.
(b) All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set
forth, or at such other address within the continental United States
as Tenant may specify from time to time by written notice delivered in
accordance herewith.
(c) With the exception of Paragraph 21(a) above, any notice or
document required or permitted to be delivered hereunder shall be
deemed to be delivered whether actually received or not when deposited
in the United States Mail, postage prepaid, Certified or Registered
Mail, addressed to the parties hereto at the respective addresses set
out below, or at such other address as they have theretofore specified
by written notice delivered in accordance herewith:
LANDLORD: TENANT:
Riggs & Company, Compucom Systems, Inc.
a division of Riggs Bank N.A., 7171 Forest Lane
as Trustee for the Dallas, Texas 75230
Multi-Employer Property Trust Attn: Ms. Shelly K. Christenson
808 17th Street, NW Manager, Real Estate Services
Washington, DC 20006
Attn: Ms. Sandra Marder
with a copy to:
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<PAGE>
TC Northeast Metro, Inc.
Commerce Center
1820 Chapel Avenue West
Suite 220
Cherry Hill, New Jersey 08002
Attn: Property Management
If and when included within the term "Landlord", as used in this instrument,
there are more than one person, fmn or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectfully, shall be bound
by notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
23. Miscellaneous.
A. Words of any gender used in this lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in
this lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly provided.
Landlord shall have the right to transfer and assign, in whole or in part, its
rights and obligations in the building and property that are the subject of this
lease. Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such party to
enter into this lease.
C. The captions inserted in this lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
D. Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this lease and such other
matters pertaining to this lease as may be requested by Landlord.
E. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
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<PAGE>
F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, following the inspection of the
premises contemplated by Paragraph 9, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the premises, including
without limitation all heating and air conditioning systems and equipment
therein, in the condition and repair that Tenant is required to maintain the
premises during the term of this Lease, normal wear and tear excepted. Tenant
shall also, prior to vacating the premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's obligation hereunder for real estate taxes
and insurance premiums for the year in which the lease expires or terminates.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord, or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied, as the
case may be. Any security deposit held by Landlord and the accrued interest
thereon shall be credited against the amount payable by Tenant under this
Paragraph 23(F).
G. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
H. Because the premises are on the open market and are presently being
shown, this lease shall be treated as an offer with the premises being subject
to prior lease and such offer subject to withdrawal or non-acceptance by
Landlord or to other use of the premises without notice, and this lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
I. All references in this lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
J. Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction or that no broker,
agent or other person brought about this transaction, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any broker,
agent or other person claiming a commission or other form of compensation by
virtue of having dealt with Tenant with regard to this leasing transaction.
24. Additional Provisions. [See paragraphs 25 through 32 attached
hereto.]
-18-
<PAGE>
EXECUTED BY a duly authorized officer of LANDLORD, this 27th day of September,
--
1999.
RIGGS & COMPANY, a division of
Riggs Bank N.A., as Trustee
for the Multi-Employer Property Trust
Attest/Witness:
/s/ By: /s/
- ----------------------------- ---------------------------------
Title: Director Title: Managing Director
----------------------- ------------------------------
EXECUTED BY a duly authorized officer of TENANT, this 1999. day of September,
---
1999.
COMPUCOM SYSTEMS, INC.
Attest/Witness:
/s/ SHELLEY K. CHRISTENSON By: /s/ Daniel Celoni
- ----------------------------- ---------------------------------
Title: Manager, R.E. Services Title: Treasurer
----------------------- ------------------------------
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<PAGE>
25. OPERATING EXPENSE ADJUSTMENT
----------------------------
In the event that Tenant's proportionate share of projected operating
expenses for common area services as described in Paragraphs 4, 6, and 10
exceeds the amount specified in Paragraph 4 (a), (such excess to be called
"Excess Operating Expenses"), Tenant agrees to pay Landlord monthly, as an
additional rental, one twelfth (1/12) of the projection of "Excess Operating
Expenses".
The most recent projection for "Excess Operating Expenses" for the building
and/or project is $1.27 per square foot per year. Tenant's proportionate share
of this projection of "Excess Operating Expenses" amounts to a monthly charge of
$15,629.47, for which the Tenant will be separately billed.
On or about April 15 of each calendar year during Tenant's occupancy and
the calendar year following termination of this lease, or as soon thereafter as
is practical, Landlord shall furnish to Tenant a statement in reasonable detail
of the actual Operating Expenses for the previous year. If for any calendar year
Tenant's payments on account for Excess Operating Expenses exceeds Tenant's
proportionate share of the actual Excess Operating Expenses, Landlord shall
either credit the overpayment against the next installment of rent due from
Tenant or promptly refund to Tenant the overpayment. Conversely, if the payments
made by Tenant on account of the prior year's Excess Operating Expenses are less
than Tenant's proportionate share of the actual Excess Operating Expenses,
Tenant shall pay to Landlord, within thirty (30) days after receipt of such
statement, as additional rent, the underpayment with respect to Tenant's
Proportionate Share of the Excess Operating Expenses for the prior year.
Landlord, upon notice to Tenant, may elect to lower or raise the projected cost
paid monthly by Tenant so that Tenant's payments are equal to the adjusted
projection of "Excess Operating Expenses".
Notwithstanding anything to the contrary in Paragraph 4B, to the extent
that employees or agents of Landlord perform tasks associated with the operation
and maintenance of the building premises, which would have otherwise been
performed by outside contractors, 100% of such reasonable costs for these
services may be charged as operating expenses. These costs will be treated as if
the services were performed by outside contractors and shall not be subject to
the cap of 4% of gross annual rental which shall apply to management tasks
performed by employees of agents of Landlord. The term "Excess Operating
Expenses" shall specifically exclude capital improvements which under generally
accepted accounting principles and practices would be classified as capital
expenditures to the building or the project of which the Premises is a part.
26. ENVIRONMENTAL MATTERS
---------------------
a. Tenant shall not engage in operations at the Premises which involve the
generation, manufacture, refining, transportation, treatment, storage, handling
or disposal of "Hazardous Substances" or "Hazardous Waste" as such terms are
defined under the Industrial Site Recovery Act ("ISRA"). In no event shall
Tenant violate any governmental statutes, laws and ordinances regarding the use,
handling, storage, and disposal of Hazardous Waste and Hazardous Substances.
Tenant further covenants that it will not cause or permit to exist as result of
an intentional or unintentional action or omission on its part, the releasing,
spilling, leaking, pumping, pouring,
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<PAGE>
emitting, emptying or dumping from, on or about the Premises of any hazardous
substance (as such term is defined under N.J.S.A. 58:10-23.11 (b)(k) and
N.J.A.C. 7:1-3.3.
b. Tenant shall, at Landlord's request, provide such certifications and
affidavits as Landlord may require in connection with any filing made by
Landlord under ISRA. If Tenant's operations on the Premises now or hereafter
constitute an "Industrial Establishment" subject to the requirements of ISRA,
then prior to the expiration or sooner termination of this Lease or to any
assignment of this Lease or any subletting of any portion of the Premises,
Tenant shall, at its expense, comply with all requirements of ISRA pertaining to
the transfer or closure of an Industrial Establishment. Without limitation of
the foregoing, Tenant's obligations shall include (i) the proper filing of an
initial notice to the New Jersey Department of Environmental Protection ("DEP")
(ii) the performance of any soil, ground water and surface water sampling and
tests required by the DEP and (iii) either the filing of a "negative
declaration" with the DEP or the performance of a proper and approved clean up
plan to the satisfaction of the DEP.
c. In the event of Tenant's failure to comply in full with this Article,
Landlord may, at its option, perform any and all of Tenant's obligations as
aforesaid and all costs and expenses incurred by Landlord in the exercise of
this right shall be deemed to be Additional Rent payable on demand.
d. This Article shall survive the expiration or sooner termination of the
Lease.
27. ESTOPPEL CERTIFICATE
--------------------
Tenant shall at any time upon not less than twenty (20) days written notice
execute and deliver to Landlord, lender or assignee or subtenant of Tenant, an
estoppel certificate as reasonably requested by Landlord in the form attached as
Exhibit "C" with any modifications thereto required by the then applicable state
of facts.
28. ACCESS LAWS
-----------
(a) As used in this paragraph, the ten-n "Access Laws" shall mean the Americans
with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988, all
state and local laws or ordinances related to handicapped access, or any
statute, rule, regulation, ordinance, order of governmental bodies or regulatory
agencies, or order or decree of any court adopted or enacted with respect to any
of the foregoing. The term Access Laws shall include all Access Laws now in
existence or hereafter enacted, adopted or applicable.
(b) Landlord makes no representations regarding the compliance of the Premises,
Building or the Project with Access Laws; provided that, if any improvements or
alterations constructed by Landlord do not comply with Access Laws, Landlord
shall be responsible for correcting such defects if and to the extent required
by law.
(c) Tenant agrees to notify Landlord immediately if Tenant becomes aware of (i)
any condition or situation in or on the Premises which would constitute a
violation of any Access Laws, or (ii) any threatened or actual lien, action or
notice of the Premises not being in compliance with any Access Laws. Tenant
shall inform Landlord of the nature of any such condition, situation, lien,
action or notice and of the action Tenant proposes to take in response thereto.
-21-
<PAGE>
(d) Tenant shall be solely responsible for all costs and expenses relating
to or incurred in connection with bringing the Premises, the Building and the
common areas into compliance with the Access Laws if and to the extent such
costs and expenses arise out of or relate to Tenant's use of the Premises or
Tenant's modifications, improvements or alterations to the Premises after the
date of this Lease.
(e) Tenant agrees to indemnify, defend and hold Landlord harmless from and
against any and all claims, demands, damages, losses, liens, liabilities,
penalties, fines, lawsuits, and other proceedings and costs and expenses
(including attorneys fees), arising directly or indirectly from or out of, or in
any way connected with, any activity on or use of the Premises, the Building or
the Project by Tenant, its agents, employees, contractors, invitees, or any
subtenant or concessionaire put into possession of all or any part of the
Premises by Tenant, which activity or use results in the Premises violating any
applicable Access Laws.
(f) The provisions in this Paragraph 28 shall supersede any other
provisions in this Lease regarding Access Laws to the extent inconsistent with
the provisions of this paragraph. The provisions in this Paragraph 28 shall
survive the expiration of the term or the termination of this Lease for any
other reason whatsoever.
29. ERISA
-----
Tenant represents to Landlord that with the exception of this Lease and its
lease of space at 1225 Forest Parkway, neither Tenant nor any affiliate of
Tenant is a tenant under a lease or any other tenancy arrangement (1) with (a)
Riggs & Company, a division of Riggs Bank N.A., as trustee of the Multi-Employer
Property Trust; (b) Riggs Bank N.A. as trustee of the Multi-Employer Property
Trust; (c) the Multi-Employer Property Trust; (d) the National Bank of
Washington Multi-Employer Property Trust, the previous name of the Multi-
Employer Property Trust; (e) The Riggs National Bank of Washington, D.C., as
trustee of the Multi-Employer Property Trust; (f) the Corporate Drive
Corporation as trustee of the Corporate Drive Nominee Realty Trust; (g)
Arboretum Lakes-I, L.L.C., a Delaware limited liability company; (h) Village
Green at Seven Bridges, L.L.C.; (i) Pine Street Development; L.L.C.; (j) MEPT
Realty LLC; (k) MEPT, L.L.C.; (1) Cabrillo Properties LLC; (m) Valencia LLC; (n)
Centrepointe Distribution Center LLC; (o) Mission Trails LLC; (p) Northridge
Business Center LLC; (q) Oyster Point Tech Center LLC; (r) Meadows Office
Building LLC; (s) MEPT West Hills, LLC; (t) MEPT Sea-Tac Company LLC; (u) Sea-
Tac Hotel Venture LLC; (v) MEPT Greenspoint, L.L.C.; or (w) MEPT Norman Woods
LLC; or (2) involving any property in which any one or more of the entities name
in clauses (1)(a) through (e) are known by the Tenant to have an ownership
interest.
30. LIMITATION OF LANDLORD'S LIABILITY
----------------------------------
Notwithstanding any provision to the contrary contained in this Lease,
Tenant shall look solely to the estate and interest of Landlord in and to the
Land and the building, and Landlord shall have no personal liability, in the
even of any claim against Landlord arising out of or in connection with this
Lease, the relationship of Landlord and Tenant, or Tenant's use of the Leased
Premises, and Tenant agrees that the liability of Landlord arising out of or in
connection with this Lease, the
-22-
<PAGE>
relationship of Landlord and Tenant, or Tenant's use of the Leased Premises
shall be limited solely to such estate or interest of Landlord in and to the
Land and the Building and that Landlord shall have no personal liability as
provided above in this sentence. No properties or assets of Landlord other than
the estate and interest of Landlord in and to the Land and the Building, and no
property owned by any partners, officer, member, director or trustee in or of
Landlord. shall be subject to levy, execution or other re-enforcement procedures
for the satisfaction of any judgment (or other judicial process) or for the
satisfaction of any other remedy of Tenant arising out of or in connection with
this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Leased Premises. Further, in no event whatsoever shall any partner, officer,
member, director or trustee in or of Landlord have any liability or
responsibility whatsoever arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Leased Premises.
31. "AS-IS" CONDITION
-----------------
Tenant agrees to accept the premises in its present "as-is" condition,
without any representation or warranty by Landlord or any obligation on
Landlord's part to perform any construction, improvements or repairs as a
condition to the effectiveness of this Lease. Tenant acknowledges that Tenant
has fully inspected the premises and is satisfied with the current condition and
repair of the premises. Tenant further acknowledges that Tenant is currently in
possession of a portion of the premises pursuant to a temporary lease agreement,
and agrees that such temporary lease agreement shall automatically terminate
upon the commencement date of this Lease.
32. TERMINATION OPTION
------------------
Tenant shall have the option to terminate this Lease effective as of
September 30, 2002 (the "Early Termination Date"). Tenant may exercise this
option only by giving Landlord written notice of termination no later than
October 1, 2001. To be effective, Tenant's notice of termination must be
followed by payment to Landlord, no later than June 30, 2002, of a termination
payment equal to the sum, as of the Early Termination Date, of the unamortized
portion of the brokerage commissions paid by Landlord with respect to this
Lease, amortized over the initial term with interest at 10.5% per annum.
Landlord shall have the option to terminate this Lease effective as of the
Early Termination Date by giving Tenant written notice of termination no later
than October 1, 2001.
If either Landlord or Tenant effectively exercises the termination option
granted it pursuant to this Paragraph, the Lease term shall expire on the Early
Termination Date as if that were the date originally specified in this Lease as
the last day of the Lease term.
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<PAGE>
EXHIBIT 10.CC
INDUSTRIAL LEASE AGREEMENT
--------------------------
THIS Lease AGREEMENT, made and entered into on February 11, 1999, by and
between:
LESSOR: DAMES & MOORE/BROOKHILL DURHAM I, LLC, (hereinafter referred to as
the "Lessor") whose address is % Brookhill Management Corp., 501
Madison Avenue, New York, New York 10022; and
LESSEE: COMPUCOM SYSTEMS, INC., a Delaware Corporation, (hereinafter
referred to as "Lessee") whose address is 7171 Forest Lane,
Dallas, Texas 75230.
W I T N E S S E T H
-------------------
IN CONSIDERATION of the payment of rents and other charges, and the
covenants and conditions all hereinafter set forth, Lessor and Lessee hereby
agree as follows:
ARTICLE I - DEMISED PREMISES
----------------
1.1 Lessor hereby leases to Lessee and Lessee hereby rents from
Lessor approximately 96,992 square feet as depicted on attached Exhibit "A" (the
"Demised Premises"), which constitutes a part of the 168,295 square foot
building (the "Building") located at 2910 Weck Drive, in the City of Durham,
County of Durham, State of North Carolina, as more particularly described on
Exhibit "B" (the "Property").
The Demised Premises shall not be deemed to include either the land lying
thereunder or the exterior walls or roof of the Building.
1.2 The Demised Premises are demised and let subject to the following:
(a) the existing and subsequent state of title to the Demised
Premises, the Building and Property;
(b) all zoning regulations, restrictions, rules and ordinances,
building or use restrictions and other laws and regulations now in effect or
hereafter adopted by any governmental authority with jurisdiction;
(c) any state of facts an accurate survey might show;
(d) Lessee's representation that Lessee has examined the physical
condition of the Demised Premises and has found them satisfactory for all
purposes hereof and Lessee accepts the Demised Premises in their present
condition, "AS IS", except as otherwise provided for herein. Lessor has not made
and does not make any representations or warranties with respect to the
condition of the Demised Premises or their fitness or suitability for any
particular use and Lessor shall not be liable for any latent or patent defect
therein; and
(e) Lessee's agreement that should Lessor advise Lessee that Lessor
intends to procure some part or all of the funds to finance or refinance the
construction of improvements on and to the Building from one or more financing
institutions and should any such financing institution require any modification
of the terms and provisions of this Lease excluding provisions of term,
expiration or rent, as a condition to such financing (including the issuance of
a commitment) as Lessor may desire. If Lessee refuses to approve and execute
such modification(s) within fifteen (15) days after Lessor's request thereof,
Lessee shall pay a daily penalty of two (2) days rent for each day transpiring
after the fifteen (15) days in addition to all other charges under this Lease.
Neither party shall have any liability either for damages or otherwise to the
other by reason of such cancellation. Notwithstanding anything in this
paragraph to the contrary, Lessee shall not be required to agree, and Lessor
shall not have any right of cancellation for Lessee's refusal to agree to any
modification of the provisions of this Lease relating to the amount of rental
reserved, the purposes for which the Demised Premises may be used, the size of
the Demised Premises, the duration of the Term, the Commencement Date, or the
improvements to be made by Lessor to the Demised Premises prior to delivery of
possession.
ARTICLE II - TERM OF LEASE
-------------
2.1 The term of this Lease (hereinafter the "Term") is Five Years (5)
years, commencing on March 15, 1999 and expiring on March 14, 2004.
2.2 Commencement of Term upon Delivery of Lessor. The Term and Lessee's
--------------------------------------------
obligation to pay Rent, shall commence on the later of substantial completion of
the required tenant improvements or March 15, 1999 (the "Commencement Date").
Substantial completion shall be defined as substantial completion of Landlord's
work, except for final punchlist items. If the Commencement Date shall be other
than the fifteenth day of a month, then the Term shall be measured from the
fifteenth day of the month next succeeding the Commencement Date.
ARTICLE III - RENT
----
3.1 Lessee shall, throughout the Term, pay to Lessor Minimum Base Rent
for the Demised Premises, in advance on the first day of each month at the
office of Lessor's agent, BROOKHILL MANAGEMENT CORPORATION, 501 Madison Avenue,
New York, New York, 10022, or such other place as the Lessor may designate in
writing, in the following amounts:
LANDLORD INITIALS
--------
TENANT INITIALS
--------
2
<PAGE>
Period Annual Rent Monthly Rent
- ------ ----------- ------------
3/15/1999 - 3/14/2000 $411,918.00 $34,326.50
3/15/2000 - 3/14/2001 $420,156.00 $35,013.00
3/15/2001 - 3/14/2002 $428,559.00 $35,713.25
3/15/2002 - 3/14/2003 $437,130.00 $36,427.50
3/15/2003 - 3/14/2004 $445,873.00 $37,156.00
3.2 If the Term commences on a day other than the first day of the month,
Lessee shall pay Minimum Base Rent prorated for such fractional month on the
basis of a thirty (30) day calendar month. In addition to the Minimum Base
Rent, Lessee shall pay, as additional rent ("Additional Rent"), Lessee's
portion of Taxes, Insurance (which does not duplicate the insurance required to
be carried by the Lessee), Common Area Maintenance Expenses, and all other
charges as provided herein. Minimum Base Rent and Additional Rent are sometimes
hereinafter referred to as "Rent".
ARTICLE IV - INTENTIONALLY OMITTED
---------------------
ARTICLE V - USE OF PREMISES
---------------
5.1 Subject to and in accordance with all rules, regulations, laws,
ordinances, statutes, and requirements of all governmental authorities, and the
Fire Insurance Rating Organization and Board of Fire Insurance Underwriters, and
any similar bodies having jurisdiction thereof, the Demised Premises shall be
continuously occupied unless notice of vacating is given by Lessee and all rent
continues to be paid and used for the sole purpose of: Assembly of personal
computers and related uses.
5.2 Lessee shall not permit the license or occupancy of the Demised
Premises by any party other than Lessee, its agents, employees and invitees
without the approval of Lessor which shall not be unreasonably withheld, delayed
or conditioned, and shall:
(a) Take no intentional action which would violate Lessor's union
contracts, if any, affecting the Building, nor create any work stoppage,
picketing, labor disruption or dispute, or any interference with the business
of Lessor or any tenant or occupant in the Building or with the rights and
privileges of any customer or other person(s) lawfully in and upon the
Building, nor cause any impairment or reduction of the good will of the Building
or Lessor;
(b) Obey and observe (and compel its officers, employees,
contractors, licensees, invitees, subtenants, and all others doing business
with it to obey and observe) all reasonable rules and regulations established by
Lessor from time to time for the conduct of Lessee and/or for the welfare of the
Building;
(c) Not intentionally permit or allow any act or deed to be
performed on the Demised Premises which is likely to cause injury to any person
or to the Lessor;
(d) Not use the plumbing facilities for any purpose injurious to
same or dispose of any garbage or any other foreign substance therein, nor place
a load on any floor in the Demised Premises or on the parking lots or drives
exceeding the floor load per square foot which such floor was designed to carry,
nor intentionally install, intentionally operate and/or maintain in the Demised
Premises any electrical or other utilities system therein, or any part thereof,
beyond its capacity for proper and safe operation as determined by the Lessor or
which does not bear Underwriter's approval;
(e) Keep the Demised Premises (including without limitation,
exterior and interior portions of all windows, doors, entryways, and delivery
areas (if any) in a neat, clean and sanitary condition, free of all insects,
rodents, vermin and pests of every type and kind and free from rubbish, dirt,
standing water and ice;
(f) Not use the Demised Premises for any purpose or business which
is noxious or unreasonably offensive because of the emission of noise, smoke,
dust or odors.
5.3 Except for exceptions noted in Rider 5 to this lease, Lessee agrees,
at its own cost and expense, to keep and maintain in good order, condition and
repair any loading platform, truck dock and/or truck maneuvering space which
is used exclusively by Lessee or to which Lessee has the right of exclusive use,
and for the purposes hereof, the same shall not be considered part of the
parking area.
ARTICLE VI - INSTALLATIONS AND ALTERATIONS
-----------------------------
6.1 Lessee shall not make or permit to be made any alterations or changes
to the Demised Premises or any part thereof except with the prior written
consent of Lessor which shall not be unreasonably withheld, delayed or
conditioned. All alterations and changes to the Demised Premises shall be made
in accordance with applicable laws and shall be deemed to have attached to the
freehold and to have become the property of Lessor and shall remain for the
benefit of Lessor at the end of the Term or the earlier termination of this
Lease; provided however, if at the time of approval by Lessor, if Lessor so
directs, Lessee shall promptly remove the additions, improvements, fixtures and
installations in, upon or on the Demised Premises which are designated in said
notice and shall repair any damage occasioned by such removal. In default
thereof, Lessor may affect said removals and repairs at Lessee's expense. In the
event of making such alterations or changes as herein provided, Lessee does
hereby indemnify and save harmless Lessor from all expense, liens, claims or
damages to either person or property arising out of, or resulting from the
undertaking or making of such alteration or change, except for the negligent act
or omission of Lessor, Lessor's agents' or assigns.
6.2 If, at the Inception of this Lease or during the Term, or any
extension thereof, any law regulation, or rule requires that an alteration, or
change be made to the Demised Premises,
LANDLORD INITIALS
--------
TENANT INITIALS
--------
3
<PAGE>
the parties agree that Lessee shall make said alteration or change and bear all
expense connected with such alteration or change.
6.3 If Lessor shall hereafter determine to alter and change the Building
or add structures to the Property, Lessee hereby consents thereto and to the
performance of work necessary to effect the same and to any inconvenience caused
thereby, provided it does not materially affect Lessee's ability to do business
from the Premises, Lessee agrees to pay its proportionate share of the increased
Common Area expenses, insurance, and real estate taxes which result therefrom.
ARTICLE VII - MAINTENANCE OF DEMISED PREMISES
-------------------------------
7.1 Lessor shall maintain and keep in good repair the roof over the
Demised Premises and the structural portions of the exterior walls of the
Demised Premises; however, (I) Lessee shall be responsible for giving Lessor
notice of the necessity for such maintenance and repairs; and (II) Lessee shall
be financially responsible for damages to the roof or exterior walls caused by
any act or omission of Lessee, its employees, agents, invitees, subtenants,
assignees or contractors. Except as specifically provided herein, Lessor shall
not be responsible for any maintenance, repairs or improvements of any kind, in,
or upon the Demised Premises. Lessor's responsibility for effecting repairs as
stated in this Article in no way precludes Lessee's reimbursement obligations
defined in Article XII. Lessor hereby agrees to diligently seek to cure any and
all uncompleted maintenance, repairs or improvements throughout the term of the
lease.
7.2 Lessee shall keep and maintain in good order, condition and repair
(which repair shall mean replace if necessary) the Demised Premises and every
part thereof, including, without limitation, the exterior and interior portions
of all loading docks, doors, door checks, security gates, windows, glass,
utility facilities, plumbing and sewage facilities within the Demised Premises
or under the floor slab including free flow up to the main sewer line; all
heating and air-conditioning equipment and apparatus including exterior
mechanical equipment exterior utility facilities and exterior electrical
equipment serving the Demised Premises; and all interior walls, floors and
ceilings, including painting and adjacent sidewalks; and shall at all times
comply with applicable building codes. Lessee shall contract for, in its own
name, and shall pay for; (a) a qualified service contractor to inspect, adjust,
clean and repair heating, ventilating and air conditioning equipment, including
changing filters on a quarterly basis, and (b) a qualified service contractor to
render pest control services to the Demised Premises. All such service
contractors shall be subject to the prior written approval of Lessor which shall
not be unreasonably withheld, delayed or conditioned. Upon delivery of
possession of the Demised Premises, Lessor shall provide HVAC system in good
working order. Lessor shall provide Lessee a letter from the contractor stating
that the HVAC systems are in good working order upon occupancy.
7.3 Lessee shall permit Lessor or its designees to erect, use, maintain
and repair pipes, cables, conduits, plumbing, vents and wires in, to and through
the Demised Premises, as and to the extent that Lessor may now or hereafter deem
to be necessary or appropriate for the proper operation and maintenance of the
Property. All such work shall be done, so far as practical, in such manner as to
avoid interference with Lessee's use of the Demised Premises.
ARTICLE VIII - INTENTIONALLY OMITTED
---------------------
ARTICLE IX - INTENTIONALLY OMITTED
---------------------
ARTICLE X - UNAVOIDABLE DELAYS
------------------
10.1 If during or prior to the Term, Lessor shall, as a result of, any:
(a) strike(s), lockout(s), or labor disputes(s); (b) inability to obtain labor
or materials or reasonable substitutes therefor; or (c) acts of God,
governmental restrictions, regulations or controls, enemy or hostile
governmental action, civil commotion, insurrection, revolution, sabotage, or
fire or other casualty, acts or failure to act by Lessee or other conditions
similar to those enumerated in the foregoing items (a), (b), and (c) beyond the
reasonable control of Lessor, fail punctually to perform any Lease obligation,
then such obligation(s) shall be punctually performed as soon as practicable
after such event shall abate. If Lessor shall, as a result of any such event, be
unable to exercise any right or option within any time limit provided in this
Lease, such time limit shall be deemed extended for a period equal to the
duration of such event.
ARTICLE XI - CONSENTS
--------
11.1 As to any provision of this Lease which provides that Lessor shall not
unreasonably withhold or delay any consent or any approval, Lessee, in no event,
shall be entitled to make, any claim for, and Lessee hereby waives any claim for
money damages; nor shall claim any money damages by way of setoff, counterclaim
or defense, based upon any claim or assertion by Lessee that Lessor has
unreasonably withheld or unreasonably delayed any consent or approval unless
otherwise provided for herein; but Lessee's sole remedy shall be an action or
proceeding to enforce any such provision, or for specific performance,
injunction or declaratory judgment.
ARTICLE XII - TAXES, INSURANCE AND COMMON AREA MAINTENANCE
--------------------------------------------
12.1(a) TAXES: Lessee shall pay as Additional Rent its share of all taxes,
-----
as herein defined, which may be levied or assessed by any lawful authority
against the land and improvements constituting the Property. The term "Taxes"
shall include all real estate taxes, assessments, water and sewer rents, taxes
on rents, drainage assessments, sewer charges, assessments for public
improvements and other governmental impositions of any kind or nature,
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whether general or special, levied, assessed, charged or imposed by federal,
state or local governments against or upon the land and improvements of the
Property. If due to a change in method of taxation, any franchise, income,
profit or other tax shall be levied or assessed against Lessor in whole or in
part in substitution or in lieu of any tax which would otherwise constitute
Taxes, such franchise, income, profit or other tax or license fee shall be
deemed to be Taxes for all purposes hereof. Taxes shall also include all of
Lessor's expenses, including but not limited to professional fees, incurred by
Lessor in any effort to minimize the real estate taxes whether by contesting
proposed increases in assessments or by other means or procedures appropriate
under the circumstances. If the Term shall begin or end other than on the first
or last day of the applicable tax year, these charges shall be billed and
adjusted on the basis of such fractional tax year. Should the taxing authorities
include in such real estate taxes, machinery, equipment, fixtures, inventory or
other personal property or assets of Lessee, then Lessee shall also pay the
entire real estate taxes for such items.
12.1(b) INSURANCE: Lessor shall maintain and keep in force fire, all risk
---------
at replacement value and at the option of Lessor, rental insurance and other
insurance on the Property, in such amounts as may be determined by Lessor, at
its sole discretion. Lessee shall pay to Lessor, as Additional Rent, the
Lessee's share of such insurance premiums.
(i) Lessee shall maintain and keep in full force fire and extended
coverage insurance on its personal property in the Demised Premises equal to its
100% replacement value. Lessee shall provide and keep in force general liability
insurance against any and all claims for injuries to persons or property
occurring in, upon, about or from the Demised Premises, in the amount of not
less than $1,000,000 in respect to injuries to any one person, not less than
$2,000,000 in respect to any one accident, and not less than $300,000 for
property damage. All such insurance required to be maintained by Lessee shall
name Lessor and any other entity designated by Lessor as additional insureds and
shall be with an insurance company reasonably satisfactory to Lessor. Lessee
shall provide Lessor with copies or certificates of all policies required
herein, including an endorsement providing that such insurance shall not be
canceled or modified except after thirty (30) days notice in writing to Lessor.
Should Lessee fail to furnish such certificates as hereinabove provided, Lessor
may obtain such insurance and the premiums on such insurance, which may be more
expensive than that which could be obtained by Lessee, shall be deemed
Additional Rent to be paid by Lessee to Lessor on demand.
(ii) Lessee does hereby waive and agrees to cause any insurance
policies maintained with respect to the Demised Premises to contain a waiver of
such causes of action which the Lessee may have or acquire against Lessor by way
of subrogation or otherwise, for any loss or damage covered by the insurance
policies to be maintained by Lessee or under any other insurance policies which
may be maintained by the Lessee, including, specifically, any business
interruption insurance maintained by Lessee, except for such loss or damage is
caused by the negligence of Lessor, its agents, employees or invitees, or
otherwise.
(iii) As a material part of the consideration for this Lease, Lessee
hereby assumes all risks and waives all claims against Lessor for any damage to
any property or any injury to or death of any person in or about the Demised
Premises, the Building or any part of the Common Area or facilities except for
those caused solely by the negligent act or omission of Lessor, Lessor's agents
or assigns, (including, without limitation to the generality of the term
"facilities", stairways, passageways, hallways, sidewalks and parking areas) the
use of which Lessee may have in conjunction with other lessees of the Building,
arising at any time and from any cause whatsoever other than solely by reason of
the negligence or willful act of Lessor, or its agents, employees or
contractors. Lessee further agrees to indemnify, defend and hold Lessor harmless
from and against any and all claims except for those caused solely by the
negligent act or omission of Lessor, Lessor's agents or assigns, by or on
behalf of any person, firm or corporation arising from the conduct or management
of any work or thing whatsoever done by Lessee in or about, or from transactions
of Lessee concerning, the Demised Premises, and will further indemnify, defend
and hold Lessor harmless from and against any and all claims arising from any
breach or default by Lessee in the performance of any covenant or agreement by
Lessee to be performed pursuant to the terms of this Lease, or arising from any
act or negligence of Lessee, or its agents, contractors, servants, employees or
licensees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in connection with any such claim, action or proceeding
brought thereon. Furthermore, if any action or proceeding shall be brought
against Lessor by reason of any such claims or liability, Lessee shall defend
such action or proceeding at Lessee's sole expense by counsel reasonably
satisfactory to Lessor. The provisions of this Paragraph 12.1(b)(iii) shall
survive the expiration or termination of this Lease with respect to any claims
or liability occurring prior to such expiration or termination.
12.1 (c) COMMON AREA MAINTENANCE: Lessor hereby grants to Lessee the
-----------------------
nonexclusive right to use the "Common Areas" of the Property. The term "Common
Areas" shall mean and include all areas, facilities, improvements and services
provided from time to time for general, common, joint, but non-exclusive, use by
the Lessor and the tenants of the Property, their respective agents, employees,
invitees and customers. Except as may be otherwise designated by Lessor for the
exclusive use of any tenant, "Common Areas" shall include, without limitation,
all parking spaces and areas, pedestrian sidewalks, driveways, curbing,
retaining walls, truckways, access roads, ramps, loading docks, delivery areas,
all service corridors, signs, landscaped and vacant areas, lighting facilities,
storm/sanitary sewer systems and all utilities serving "Common Areas", whether
located within or outside of the Property. Lessor shall maintain the Common
Areas in good repair and reasonably clear of debris.
(i) The Common Areas shall be subject to the exclusive control and
management of Lessor and to such rules and regulations as Lessor may from time
to time adopt. Lessor hereby reserves the right at any time or from time to time
to: (a) change the areas, locations and arrangement of parking areas and other
Common Areas; (b) enter into, modify, and terminate
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easements and other agreements pertaining to the maintenance and use of the
parking areas and other Common Areas; (c) close any or all portions of the
Common Areas to such extent and for such time as may, at the sole discretion of
Lessor, be legally necessary to prevent a dedication thereof or the accrual of
any rights to any person or to the public therein; (d) close temporarily, if
necessary, any part of the Common Areas; (e) make changes, additions, deletions,
alterations or improvements in and to such Common Areas, provided that there
shall be no unreasonable obstruction of Lessee's right of ingress to or egress
from the Demised Premises except as provided in subparagraph (c) above; and (f)
adopt reasonable rules and regulations by which Lessee shall abide relating to
the use of the Common Areas. However, in no event will any closing of the common
areas prohibit Lessee from the use and access to the truck dock areas of their
premises.
(ii) In addition to the monthly Minimum Base Rent payable by Lessee,
the Lessee shall pay Lessee's portion of "Common Area Maintenance Expenses".
"Common Area Maintenance Expenses" shall include every kind of cost and expense
paid or incurred by Lessor in maintaining, operating and insuring the Common
Areas (to be obtained at fair market pricing and conditions), including, without
limitation, the following items:
(a) real estate ad valorem taxes assessed against the Property;
(b) lighting of parking areas, roadways, walkways, and service
areas, including electric utility charges and maintenance,
repair and replacement of fixtures and wiring;
(c) sanitary control;
(d) the removal of snow, ice, trash, garbage and refuse from the
parking lots, roadways, service areas and walkways, and other
Common Areas;
(e) paving/surfacing repairs and replacements for the parking lots,
roadways, service areas and walkways and other Common Areas;
(f) striping/line-painting for parking areas, roadways and delivery
areas;
(g) roof repairs, roof patching and roof replacements at the
Property;
(h) reasonable personnel costs to implement such services,
including without limitation, security, management,
bookkeeping, accounting and all other service charges incurred
by Lessor in connection with the operation of the Building;
(i) property and public liability insurance for the Property in
such amounts as Lessor may reasonably determine; and
(i) Management fees payable to Lessor's or any other management
company.
12.2 During the first Lease Year, Lessee shall pay to Lessor on the first
day of each month as Additional Rent, the sum of Five Thousand Four Hundred
Eleven Dollars and forty eight cents ($5,411.48) per month as the estimated
Lessee's portion of Taxes, Insurance and Common Area Maintenance Expenses
("TICAM") determined by multiplying the total TICAM for the Property by a
fraction, the numerator of which shall be the number of square feet in the
Demised Premises, and the denominator of which shall be the total square feet in
the Property less, if applicable, the number of square feet Leased to other
tenants not burdened in the same manner as Lessee. Commencing on the Second
Lease Year and continuing each year thereafter, Lessee shall pay as the
estimated Lessee's portion of TICAM, an amount equal to one-twelfth (1/12) of
the actual amount of TICAM payable by Lessee for the immediately preceding Lease
Year. In the event the total of Lessee's payments for TICAM during the Lease
Year is less than or greater than the actual TICAM payable by Lessee, based on
the actual costs incurred by Lessor for the immediately preceding Lease Year,
then the deficiency or the excess, as the case may be, shall be paid to Lessor
or repaid by Lessor within fifteen (15) days of the forwarding to Lessee of the
actual cost computation. If payment is due from Lessee the sum shall constitute
Additional Rent hereunder.
ARTICLE XIII - MECHANIC'S LIEN OR CLAIMS
-------------------------
13.1 Lessee shall not permit to be created nor to remain undischarged any
lien, encumbrance or charge arising out of any work of any contractor, mechanic,
laborer or materialman which might be or become a lien, notice or intention of a
lien, encumbrance or charge upon the Demised Premises or the Building or the
income therefrom; and Lessee shall not suffer any other matter or thing whereby
the estate, right and interest of Lessor in the Demised Premises or in the
Building might be impaired. If any lien or notice of intention or notice of lien
on account of an alleged debt of Lessee or any notice of contract by a party
engaged by Lessee or Lessee's contractor to work in the Demised Premises or in
the Building, Lessee shall, within ten (10) days after notice of the filing
thereof, cause the same to be discharged of record by payment, deposit, bond,
order of a court of competent jurisdiction or otherwise. If Lessee shall fail to
cause such lien or notice of lien to be discharged within the period provided,
then Lessor, in addition to any other rights or remedies, may, but shall not be
obligated to, discharge the same by either paying the amounts claimed to be due
or by procuring the discharge of such lien by deposit or by bonding proceedings;
and in any such event, Lessor shall be entitled, if Lessor so elects, to defend
any prosecution of an action for foreclosure of such lien by the lienor or to
compel the prosecution of an action for the foreclosure of such lien by the
lienor and to pay the amount of the judgment in favor of the lienor with
interest, costs and allowances. Any amount paid by Lessor and all costs and
expenses, including attorney fees, incurred by Lessor in connection therewith,
together with interest not to exceed 10% from the respective dates of Lessor's
making of the payment or incurring of the cost and expense shall be paid by
Lessee to Lessor on demand. All such sums shall be considered Additional Rent
hereunder. Nothing in this Lease shall be construed as in any way constituting a
consent or request by Lessor, expressed or implied, by inference or otherwise,
to any contractor, subcontractor, laborer, or materialman for the performance of
any labor or the furnishing of materials for any specific or general
improvement, alteration, or repair of or to the Demised Premises or to any
buildings or to any part thereof.
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ARTICLE XIV - DESTRUCTION AND RESTORATION
---------------------------
14.1 If the Demised Premises or the Building shall be damaged or destroyed
by fire or other casualty to the extent that the cost of repairing or replacing
the same equals or exceeds twenty-five percent (25%) of the then replacement
value thereof, then Lessor may, at its option, within sixty (60) days after the
occurrence of such casualty, terminate this Lease upon written notice to Lessee.
The Lessee's rent shall abate in an amount equal to the percentage of the
Demised Premises which cannot be occupied or used in the Lessee's's sole
opinion, from the date of the casualty.
14.2 If the Demised Premises or the Building shall be damaged or destroyed
by fire or other casualty to the extent that the cost of repairing or replacing
the same be less than twenty-five percent (25%) of the then replacement value
thereof, or in the event Lessor does not elect to terminate this Lease as
provided in Paragraph 14.1 above, then Lessor shall repair the damage with
reasonable dispatch after notice of such casualty; provided, however, Lessor's
obligation to repair or restore shall be limited to restoring the structural
portions of the Demised Premises and shall not include repairs or the
restoration of any of Lessee's fixtures, improvements or other alterations made
by Lessee in or upon the Demised Premises; provided, further, however, in the
event such damage or destruction occurs during the last three (3) years of the
Term, the Lessor or Lessee shall have the option, to be exercised by notice to
other party within ninety (90) days after the occurrence of any casualty, to
either rebuild or terminate this Lease. Notwithstanding anything provided herein
to the contrary, Lessor's obligation to repair or rebuild shall be limited to
the amount of the fire insurance proceeds received by Lessor plus Lessor's
insurance policy deductible(s) (less any costs incurred by Lessor in collecting
the same) as a result of any such casualty. If the fire insurance proceeds
received by Lessor plus Lessee's insurance policy deductibles (less any costs
incurred by Lessor in collecting the same) are insufficient to rebuild the
Demised Premises, or the holder of the First Mortgage encumbering the Building
restricts Lessor from doing so, then Lessor shall have the option to terminate
the Lease upon notice to Lessee within ninety (90) days after Lessor's receipt
of the entire net insurance proceeds payable with respect to such fire or
casualty.
14.3 If this Lease is terminated in the manner set forth above, the
rentals, including Additional Rents, shall be apportioned to the time of such
casualty. In the event this Lease is not terminated and Lessor elects to restore
or repair the Demised Premises, then the Minimum Base Rent payable by Lessee
shall be equitably abated based on the square footage of the Demised Premises
which is usable, until such time as the damage to the Demised Premises has been
repaired.
ARTICLE XV - EMINENT DOMAIN
--------------
15.1 If the Demised Premises, or any part thereof, or more than twenty-
five percent (25%) of the Common Areas are taken by condemnation or right of
eminent domain, or by private purchase in lieu thereof, this Lease may be
terminated by Lessor. If Lessor so terminates, then this Lease shall expire on
the date possession is taken by the condemnor, the rent herein reserved shall be
apportioned and paid in full to that date and all prepaid rent shall be repaid
by the Lessor to Lessee. If Lessor does not elect to terminate this Lease as
provided above, then Lessor shall rebuild and restore the Demised Premises as
nearly as possible to their condition immediately prior to any such taking and
this Lease shall continue in full force and effect except that, during such
restoration, the rent payable pursuant to Article III hereof shall be equitably
apportioned by the proportion that the square footage of the part of the Demised
Premises so taken bears to the total square footage of the Demised Premises
immediately prior to such taking; provided, however, provided further, however,
Lessor's obligations to restore or rebuild shall be limited to an amount which
does not exceed the proceeds obtained from such taking (less expenses incurred
in collecting the same). Notwithstanding the foregoing, if the net condemnation
award received by Lessor is insufficient to restore or rebuild the structural
portions of the Demised Premises, or the holder of the First Mortgage
encumbering the Building restricts Lessor from doing so, Lessor shall have the
option, within ninety (90) days after Lessor's receipt of the net condemnation
proceeds, to terminate this Lease, and Lessee shall be limited to consequential
damages only.
15.2 All compensation awarded or paid upon any total or partial taking of
the Demised Premises shall belong to and be the property of Lessor. The Lessee
reserves the right to pursue any award for furniture, fixture and equipment or
improvements insured by lessee.
ARTICLE XVI - PROPERTY IN DEMISED PREMISES
----------------------------
16.1 All leasehold improvements, such as signs, light fixtures and heating
and air conditioning equipment, shall when installed attach to the freehold and
become and remain the property of Lessor unless an amendment to Lease is made at
the time improvement is approved by Lessor. All fixtures shall remain the
property of Lessee, subject at all times to any Lessor's lien for rent and other
sums which may become due to Lessor under this Lease or otherwise. Lessee shall
be allowed to remove all such fixtures upon termination of this Lease, provided
that Lessee is not in default hereunder.
16.2 Lessee's personal property which may at any time be in the Demised
premises shall be so at Lessee's sole risk, or at the risk of those claiming
under Lessee. Lessor shall not be liable for any damage to said property or
loss of business suffered by Lessee which may be caused by water from any source
whatsoever including the bursting, overflowing or leaking of sewer or steam
pipes, or from the heating or plumbing fixtures or from electric wires or from
gas or odor unless caused by Lessor's negligence.
16.3 Lessee shall pay before delinquency all taxes assessed against Lessee's
fixtures, furnishings, leasehold improvements, equipment and stock-in-trade
placed in or on the Demised Premises. Any such taxes paid by Lessor shall become
due and payable by Lessee within ten (10)
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days after written notice from Lessor. Such amounts if not so paid shall
constitute Additional Rent hereunder.
ARTICLE XVII - ACCESS TO DEMISED PREMISES
--------------------------
17.1 Lessee shall permit Lessor or Lessor's agents to inspect or examine
the Demised Premises at any reasonable time with reasonable notice to Lessee,
except in emergencies, and shall permit Lessor to enter and make such repairs,
alterations, improvements or additions in the Demised Premises or to the
Building, that Lessor may deem desirable or necessary or which Lessee has
covenanted herein to do and has failed to do, and Lessor shall have the right to
store in the Demised Premises any materials or equipment necessary for such
repairs, alterations, improvements or additions without the same being construed
as an eviction of Lessee in whole or in part and the rent shall in no manner
abate while such repairs, alterations, improvements or additions are being made
by reason of loss or interruption of Lessee's business because of such work,
unless loss or interruption is due to the gross negligence or willful misconduct
of Lessor, Lessor's agent or assigns.
ARTICLE XVIII - SURRENDER OF DEMISED PREMISES
-----------------------------
18.1 Lessee shall deliver and surrender to Lessor possession of the Demised
Premises upon expiration or earlier termination of this Lease, broom clean and
in as good condition and repair as the same shall be at the commencement of the
Term, ordinary wear and tear and damage by fire or other insured casualty
excepted.
18.2 Lessee shall remove all property and equipment of Lessee which Lessor
has required in writing to be removed pursuant to Article 6.2 herein, shall
repair all damage to the Demised Premises caused by such removal and restore the
Demised Premises to the condition in which they existed immediately prior to the
installation of the articles so removed. Any property not so removed at the
expiration or termination of the Term shall be deemed to have been abandoned by
Lessee and may be retained or disposed of by Lessor, as Lessor shall desire.
Lessee's obligation to observe or perform this covenant shall survive the
expiration or termination of this Lease.
ARTICLE XIX - UTILITIES
---------
19.1 Lessee shall contract for, in its own name, and shall pay before
delinquency, all utility services rendered or furnished to the Demised Premises,
including, but not limited to, heat, water, gas, electricity, fire protection,
sewer rental, sewage treatment facilities and the like, together with all taxes
levied or other charges on such utilities. Lessor shall, at its sole cost,
separately meter all utilities to the Demised Premises. In no event shall Lessor
be liable for the quality, failure or interruption of such services to the
Demised Premises, unless such quality, failure or interruption of such services
is due to Lessor, Lessor's agent(s) or assign(s) willful misconduct or gross
negligence.
ARTICLE XX - ASSIGNMENT
----------
20.1 Lessee shall not, by operation of law or otherwise, assign or transfer
this Lease or sublet all or part of the Demised Premises without prior written
consent by Lessor, which consent may be refused with or without cause and
without stating, the reasons for which it refuses to grant such consent and may
not, under any circumstances, be required or compelled to grant such consent. In
the event of any approved assignment or subletting: (a) Lessee shall not be
discharged of its obligations under this Lease but shall remain liable therefor;
and (b) the assignee or sublessee shall not let or underlet the whole or any
part of the Demised Premises or assign this Lease or said sublease without
Lessor's prior written consent. If Lessee is a partnership, a withdrawal or
change, voluntary, involuntary, or by operation of law, of any partner or
partners owning 51% or more of the partnership, or the dissolution of the
partnership, shall be deemed an assignment. If Lessee is a corporation, any
dissolution, merger, consolidation, or other reorganization of Lessee, or the
sale or other transfer of a controlling percentage of the capital stock of
Lessee or the sale of 51%, or more of the value of the assets of the Lessee,
shall be deemed an assignment. Should any change of ownership, whether by sale,
assignment, bequest, inheritance, operation of law or otherwise take place
without the prior written consent of Lessor, then Lessor shall have the option
to terminate this Lease upon thirty (30) days notice to Lessee. Any assignment
or sublease to an affiliate or subsidiary of Lessee shall not require Lessor's
prior written consent provided Lessee remains responsible under this Lease.
ARTICLE XXI - DEFAULT BY LESSEE
-----------------
21.1 Upon the happening of any one or more of the events as expressed
below the Lessor shall have any and all rights and remedies hereinafter set
forth in this Article XXI:
(a) If Lessee should fail to pay any one or more monthly installment
of rent, or any other sums required to be paid hereunder, whether Additional
Rent or otherwise, as and when the same becomes due, after written notice of
same to Lessee and reasonable time to cure.
(b) If a petition in bankruptcy (including all proceedings under the
Bankruptcy Act) be filed by or against the Lessee and such petition is not
dismissed within thirty (30) days from the filing thereof;
(c) If an assignment for the benefit of creditors is made by Lessee;
(d) If any Court appoints a receiver or other Court officer of
Lessee's property and such receivership is not dismissed within thirty (30) days
from such appointment;
(e) If Lessee without the prior written consent of Lessor, vacates
the Demised Premises or abandons possession thereof, or uses the Demised
Premises for purposes other than the purposes for which the same are hereby
leased, or ceases to use the Demised Premises for the purposes herein required;
notwithstanding anything to the contrary in this section 21.1(e), provided
Lessee is not in monetary default, is using the Premises for a permitted or
Lessor consented use, not to be unreasonably withheld, and is paying rent, this
section is null and void.
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(f) If Lessee violates any other term, condition or covenant of
Lessee herein contained, and fails to commence and proceed with diligence and
dispatch to remedy the same within ten (10) days after written notice thereof is
given by Lessor to Lessee.
21.2 Upon any such default or breach as specified above, Lessor may
terminate this Lease on three (3) days prior notice to Lessee, and re-enter and
take possession of the Demised Premises with or without legal process. Upon any
such default or breach, Lessor may from time to time, without terminating this
Lease, re-enter and re-let the Demised Premises, or any part thereof, with or
without legal process, or re-enter and correct any default or breach by Lessee
as the agent and for the account of Lessee upon such terms and conditions as
Lessor may deem advisable or satisfactory, in which event the rents received on
such re-letting and collection including necessary renovations and alterations
of the Demised Premises, cleaning expenses, reasonable attorneys' fees and any
real estate commissions or any costs of making corrections or repairs shall
accrue as Additional Rent. If a sufficient sum shall not be thus realized to pay
such sums and other charges, Lessor's may demand, (i) Lessee pay to Lessor any
deficiency monthly notwithstanding Landlord may have received rental in excess
of the rental stipulated in this Lease in previous or subsequent months, and
Lessor may bring an action therefor as such monthly deficiency shall arise, or
(ii) the entire unpaid rent and other charges reserved in this Lease for the
remaining Term be immediately due and payable by Lessee. Nothing herein,
however, shall be construed to require Lessor to pay Lessee any surplus of any
sums received by Lessor on a re-letting of the Demised Premises in excess of the
rent provided in this Lease.
21.3 Upon termination or breach of this Lease or re-entry upon the
Demised Premises for any reason set forth herein or where the same is permitted
by law, the Minimum Base Rents for the balance of the Term plus any renewal or
extension thereof, plus any Additional Rent or indebtedness due Lessor, plus a
10% surcharge for legal fees and costs of collection, and other indebtedness, if
any, shall become immediately due and payable, at the option of the Lessor, and
without regard to whether or not possession of the Demised Premises shall have
been surrendered to or accepted by Lessor and Lessor may commence action
immediately thereupon and recover judgement therefor.
21.4 Lessor shall have the right to remove all or any part of Lessee's
property from the Demised Premises and any property so removed may be stored at
the cost of and for the account of Lessee, and Lessor shall not be responsible
for the care or safekeeping thereof, and Lessee hereby waives claim against
Lessor for any and all loss, destruction and/or damage or injury which may be
occasioned by any of the aforesaid acts.
21.5 No re-entry or taking possession of the Demised Premises by Lessor
shall be construed as an election by Lessor to terminate this Lease unless a
written notice of such intention is given to Lessee. Notwithstanding any such
re-letting without termination, Lessor may at all times thereafter, elect to
terminate this Lease for such previous default or breach. Any re-entry shall be
allowed without hindrance, and Lessor shall not be liable in damages for any
such re-entry, nor guilty of trespass nor forcible entry.
21.6 Any rental which may be due Lessor, whether by acceleration or
otherwise, as herein provided in this Article XXI, shall include the rent
provided in Article III as well as the Additional Rent payable as provided in
this Lease.
21.7 Any and all rights, remedies and options given in this Lease to
Lessor shall be cumulative, in addition to and without waiver of or in
derogation of any right or remedy given to it under any law now or hereafter in
effect.
21.8 The waiver by Lessor of any breach of any term, condition or covenant
herein contained in a singular instance shall not be deemed to be a waiver of
such term, condition or covenant for the duration of the Lease. The consent or
approval by Lessor to or of any act by Lessee requiring Lessor's consent or
approval in a single instance shall not be deemed to waive or render unnecessary
Lessor's consent or approval to or of any subsequent or similar act by Lessee.
No re-entry hereunder shall bar the recovery of rents or damages for the breach
of any of the terms, conditions or covenants by Lessee herein contained. The
receipt of rent after breach or a condition broken, or delay by Lessor to
enforce any right hereunder, shall not be deemed a waiver or forfeiture, or a
waiver of the right of Lessor to annul this Lease or to re-enter the Demised
Premises or to re-let same.
21.9 If Lessor or Lessee employs an attorney to collect any rents or other
sums due hereunder or to enforce the performance of any obligation hereunder, or
on account of the breach by the other party of any term condition or covenant
hereof, the non-prevailing party shall pay all reasonable costs and expenses of
such action, including, but not limited to, attorney's fees.
ARTICLE XXII - ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION
--------------------------------------------------
22.1 Within ten (10) days after request by Lessor, Lessee shall deliver to
Lessor a written and acknowledged statement certifying that Lessee has accepted
possession of the Demised Premises, that this Lease is unmodified and in full
force and effect or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications, and the dates to
which the rent and other charges have been paid in advance, if any, and any
other factual representations Lessor may request, it being intended that any
such statement may be relied upon by any prospective purchaser or mortgagee of
the fee or the Building or any other legal estates of which the Demised Premises
form a part.
22.2 Upon request of Lessor, the holder of any mortgage on the Building or
the Property or the purchaser of the Building or the Property at any foreclosure
of any mortgage encumbering the Building or the Property, Lessee shall attorn to
such purchaser or holder or upon any such foreclosure sale, recognize such
purchaser or holder as Lessor under this Lease and execute any and all documents
or instruments which may by reasonably requested by the purchaser or holder.
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22.3 Any purchaser at a foreclosure sale or grantee of a deed in lieu of
foreclosure (collectively a "Successor Lessor") shall not be subject to any
claim, defense or offset valid against any prior lessor, nor shall any Successor
Lessor be liable for any act or omission of any prior Lessor, nor any prepaid
rent or Additional Rent, nor any security deposit, nor any prepaid charge not
actually received by such Successor Lessor, nor shall a Successor Lessor be
bound by any amendment or modification of this Lease made without its written
consent.
22.4 This Lease and Lessee's rights hereunder are and shall always be
subject and subordinate to the lien of any mortgage or mortgages now or
hereafter placed upon the Building or Property, and to all advances hereafter
made from time to time thereunder. Lessor and Lessee agree that this Lease be
and hereby is made subject and subordinate at all times to all ground and
underlying Leases, which may now or hereinafter affect the Building. The term
"mortgages" as used herein shall be deemed to include trust indentures and deeds
of trust and includes all renewals, modifications, consolidations,
participations, replacements and extensions thereof.
22.5 The aforesaid provisions shall be self-operative and no further
instrument of subordination shall be required by any such lessor or mortgagee.
If Lessor or any lessor under any ground lease or any mortgagee desires
confirmation of such subordination, Lessee shall execute promptly any
certificate that Lessor may request.
22.6 Lessee, upon request of any party in interest, shall execute promptly
such instruments or certificates to carry out the intent of Article 22.1, 22.2,
22.3 and 22.5 above. Lessee hereby irrevocably appoints Lessor as attorney-in-
fact for Lessee with full power and authority to execute and deliver in the name
of Lessee any such instruments or certificates.
22.7 This Lease shall not be recorded without the prior written consent of
Lessor.
ARTICLE XXXIII - INTENTIONALLY OMITTED
---------------------
ARTICLE XXIV - HOLDING OVER
------------
24.1 If Lessee remains in possession of the Demised Premises after the
expiration of the tenancy created hereunder and without the execution of a new
lease, Lessee, at the option of Lessor, shall be deemed to be occupying the
Demised Premises as a tenant at sufferance until such time as a court of
competent jurisdiction awards Lessor possession of the Demised Premises at a
monthly rent equal to 125% for month one of the holdover and 150% for months two
and three and 200% thereafter of the Minimum Base Rent payable during the last
month of the Term. In addition to the Minimum Base Rent, Lessee agrees to pay
monthly: (a) one-twelfth (1/12) of the Real Estate Taxes payable for the Lease
Year immediately prior to the Lease Year in which the expiration occurs; (b) the
monthly Common Area Maintenance Expenses payable for such month; and (c) the
cost of Insurance for which Lessee would have been responsible if this Lease had
been renewed on the same terms contained herein. Such tenancy shall be subject
to all other conditions, provisions and obligations of this Lease.
ARTICLE XXV - QUIET ENJOYMENT
---------------
25.1 Lessor agrees that if Lessee pays the rent and other charges herein
provided and shall perform all of the covenants and agreements herein stipulated
to be performed by Lessee, Lessee shall have peaceable and quiet enjoyment and
possession of the Demised Premises without any manner of hindrance from Lessor
or any persons lawfully claiming through Lessor, except as to such portion of
the Demised Premises as shall be taken under the power of eminent domain or
which may be claimed by any mortgagee of the Demised Premises or the Building.
ARTICLE XXVI - REIMBURSEMENT
-------------
26.1 All terms, covenants and conditions herein contained, to be performed
by Lessee, shall be performed at Lessee's sole cost and expense; provided,
however, if Lessor shall pay any sums of money or do any act which requires the
payment of money, by reason of the failure, neglect or refusal of Lessee to
perform such term, covenant or condition, the sum of money so paid by Lessor
shall be payable by Lessee to Lessor with the next succeeding installment of
rent. All sums payable by Lessee to Lessor under this Lease shall be paid
without any prior demand therefor and without any deduction or set-off
whatsoever, unless otherwise provided for herein.
ARTICLE XXVII - FUTURE DEVELOPMENT AND EASEMENTS
--------------------------------
27.1 Notwithstanding anything provided herein to the contrary, Lessor
hereby reserves the right to develop at any time or from time to time all or any
part of the Property, including any Common Areas, in such manner as the Lessor
may in its sole discretion determine without regard to the configuration of the
buildings or parking areas now or hereinafter existing on the Property. in
connection with any such future development of the Property, Lessor shall have
the exclusive right to attach to, construct on, and otherwise use any part of
the roof or exterior walls of the Demised Premises or the other buildings of
which the Demised Premises form a part, including the erection of temporary
scaffolds on or adjacent to the Demised Premises; and the installation,
maintenance, repair and replacement of pipes, ducts, conduits and wiring leading
through the Demised Premises to serve other portions of the Property or any
adjoining property owned or controlled by Lessor.
ARTICLE XXVIII - SIGNS
-----
28.1 Lessee shall not place any sign, advertisement or notice on the
Building without prior written approval of Lessor which shall not be
unreasonably withheld, delayed or conditioned, and in connection therewith
Lessee must conform to all applicable rules, regulations, codes and directives
of governmental agencies having jurisdiction.
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ARTICLE XXIX - COMPLIANCE
----------
29.1 Lessee shall comply with all laws, ordinances, rules and regulations
of governmental authorities (including zoning laws and building codes) and
insurance underwriters, and any other organization exercising similar functions,
affecting the Demised Premises, but this Article XXIX shall not be construed to
require Lessee to comply with any such laws, ordinances, rules or regulations
which require structural changes in the Demised Premises or the Building unless
the same are made necessary by any act or work performed by Lessee or by the
nature of Lessee's business or by its manner of use of the Demised Premises.
Lessee shall further indemnify, hold harmless and defend Lessor from any and all
claims arising out of a breach of this covenant by Lessee.
29.2 Environmental Hazards. Lessee covenants that:
---------------------
(a) No hazardous substances shall be generated, treated, stored or
disposed of, or otherwise deposited in or located on the Demised Premises,
including without limitation, the surface and subsurface waters of the Demised
premises;
(b) No intentional activity shall be undertaken on the Demised
Premises which would cause:
(1) the Demised Premises to become a hazardous waste treatment,
storage or disposal facility within the meaning of, or otherwise cause the
Premises to be in violation of the Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., or any similar law or local
------
ordinance;
(2) a release from any source on the Demised Premises of
Hazardous Substance from the Demised Premises within the meaning of, or
otherwise cause the Demised Premises to be in violation of, the Comprehensive
Environmental Response Compensation and Liability Act, as amended ("CERCLA"), 42
U.S.C. Section 9601 et seq., or any similar law or local ordinance or any other
------
environmental law; or
(3) the discharge of pollutants or effluents into any water
source or system, or the discharge into the air of any pollution emissions,
which would require a permit under the Federal Water Pollution Control Act
("FWPCA"), 33 U.S.C. Section 1251 et seq., or the Clean Air Act ("CAA"), 42
------
U.S.C. Section 7401 et seq., or any similar state law or local ordinance;
------
(c) There shall be no substance or conditions in or on the Demised
Premises which may support a claim or cause of action under RCRA, CERCLA, any
other federal, state or local environmental statues, regulations, ordinances or
other environmental regulatory requirements or under any common law claim
relating to environmental matters, or could result in recovery by any
governmental or private party or remedial or removal costs, natural resources
damages, property damages, damages in personal injuries or other costs, expenses
or damages, or could result in injunctive relief arising from any alleged injury
or threat of injury to health, safety, or the environment; and
(d) There shall be no storage tanks or release or threatened releases
from such tanks located on the Demised Premises.
(e) For purposes of this Lease, "Hazardous Substances" shall mean
any and all hazardous or toxic substances, hazardous constituents, contaminants,
wastes, pollutants or petroleum (including without limitation crude oil or any
fraction thereof), including without limitation hazardous or toxic substances,
pollutants and/or contaminants as such terms are defined in CERCLA or RCRA;
asbestos or material containing asbestos; and PCBs, PCB articles, PCB
containers PCB N277.
29.3 Americans with Disabilities Act Compliance. Lessee agrees to comply,
------------------------------------------
at its sole cost and expense, with all provisions of the Americans with
Disability Act (the "ADA") except Lessor shall comply, at its sole cost and
expense, with all provisions of the ADA applying to the exterior or structural
portions of the Demised Premises unless such compliance is necessitated directly
or indirectly by the actions or non-actions of Lessee. Lessor's obligations
hereunder shall not apply to the renovation of restrooms. Lessee and Lessor
shall each indemnify the other and hold the other harmless from any violation
of the ADA, for any fines or penalties imposed on the other for such violations
and for any other costs and reasonable expenses incurred in defending against
any alleged or actual violation of the ADA.
ARTICLE XXX - NOTICES
-------
30.1 Any notice, request, demand, approval, consent or other communication
which Lessor or Lessee may be required or permitted to give to the other party
shall be in writing and shall be deemed to have been given upon deposit in the
United States Mail, postage prepaid and properly addressed as provided below or
upon delivery to Lessee at the Demised Premises, either in person or by posting
a copy of any such notice to the front door of the Demised Premises, or to such
other address as either party hereof shall have designated by notice to the
other.
If to Lessor: DAMES & MOORE/BROOKHILL DURHAM I, LLC
c/o Brookhill Management Corporation
501 Madison Avenue
New York, New York 10022
Attn: General Counsel
If to Lessee: COMPUCOM SYSTEMS, INC.
7171 Forest Lane
Dallas, Texas 75230
Attn: Real Estate Department
ARTICLE XXXI - SECURITY DEPOSIT
----------------
31.1 Lessee has deposited with Lessor the sum of Zero dollars ($0) as
security for the faithful performance and observance by Lessee of the terms,
provisions and conditions of this
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Lease. No interest thereon shall be payable unless and to the extent required by
law. it is agreed that in the event Lessee defaults with respect to any of the
terms, provisions, and conditions of this Lease, including, but not limited to,
the payment of Minimum Base Rent and Additional Rent, Lessor may use, apply or
retain the whole or any part of the security so deposited to the extent required
for the payment of any Minimum Base Rent and Additional Rent or any other sums
as to which Lessee is in default or for any sum which Lessor may expend or may
be required to expend by reason of Lessee's default in respect of any of the
terms, covenants and conditions of this Lease, including, but not limited to,
any damages or deficiency in the re-letting of the Demised Premises, whether
such damages or deficiencies accrued before or after summary proceedings or
other re-entry by Lessor. If Lessee shall fully and faithfully comply with all
the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Lessee without interest, after the expiration of the Lease
and after delivery of possession of the Demised Premises to Lessor.
31.2 Lessor may transfer the security deposit to any purchaser of Lessor's
interest in the Demised Premises, in which event Lessor shall be discharged from
any further liability with respect to such deposit and Lessee will look solely
to the purchaser of Lessor's interest for any return of said security deposit.
ARTTICLE XXXII - DEFINITION OF LESSOR
--------------------
32.1 The term "Lessor" as used in this shall Lease mean only the owner or
the mortgagee in possession of the Building and/or the Property so that in
the event of any sale of the Building and/or the Property or an assignment of
this Lease or any underlying lease or a demise of any such estate, Lessor
hereunder shall be and hereby is entirely freed and relieved of all obligations
of Lessor herein and it shall be deemed without further agreement between the
parties and such purchaser(s), assignee(s) or lessee(s) that the purchaser,
assignee or lessee has assumed and agreed to observe and perform all obligations
of Lessor hereunder. The provisions of the preceding sentence shall be
applicable to any Successor Lessor.
32.2 Lessee shall look solely to the estate and property of the Lessor in
the Property (subject to prior rights of any mortgagee) for the collection of
any judgment (or other judicial process) requiring payment or expenditure of
money by Lessor due to any default or breach by Lessor with respect to any of
the terms, covenants and conditions of this Lease to be observed and/or
performed by Lessor, and, without any exception, no other property or assets of
Lessor or any officer, director, shareholder, partner or principal of Lessor or
its successors or assigns shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Lessee's remedies.
ARTICLE XXXIII - AFFILIATE
---------
33.1 "Affiliate" means any person, firm, or corporation which controls or
is controlled by the party in question, or is controlled by the same person(s),
or firm(s), or corporation(s), or which is a member with such party in a
relationship of joint venture, partnership or notice form of business
association which in any way affects the subject matter involved. The term
"control" means the ownership of stock or the right to exercise more than fifty
(50%) percent of the total combined voting power of all classes of stock of the
controlled corporation issued, outstanding and entitled to vote for the election
of directors, whether such ownership be direct or indirect through control of
another corporation or firm.
ARTICLE XXXIV - NOTICE TO MORTGAGEE AND GROUND LESSOR
-------------------------------------
34.1 After receiving notice from any person, firm or other entity that it
holds a mortgage which includes the Demised Premises as part of the mortgaged
premises, or that it is the ground lessor under a lease with Lessor, as ground
lessee, which includes the Demised Premises as a part of the Demised Premises,
no notice from Lessee to Lessor shall be effective unless and until a copy of
the same is given to such holder or ground lessor and the curing of any of
Lessor's defaults by such holder or ground lessor shall be treated as
performance by Lessor.
ARTICLE XXXV - ASSIGNMENT OF RENTS
-------------------
35.1 With reference to any assignment by Lessor of Lessor's interest in
this Lease, or the rents payable hereunder, conditional in nature or otherwise,
which assignment is made to the holder of such mortgage or ground lease on the
Property, Lessee agrees: (i) that the execution thereof by Lessor and the
acceptance thereof by the holder of such mortgage, or the ground lessor, shall
never be treated as an assumption by such holder or ground lessor of any of the
obligations of Lessor hereunder, unless such holder or ground lessor, shall by
notice sent to Lessee, specifically otherwise elect; and (ii) that, except as
aforesaid, such holder or ground lessor shall be treated as having assumed
Lessor's obligations hereunder only upon the foreclosure of such holder's
mortgage and the taking of the position of the Lessor, or in the case of a
ground lessor, the assumption of Lessor's position hereunder by such ground
lessor.
ARTICLE XXXVI - GROUND LESSOR
-------------
36.1 Any ground lessor under a ground Lease relating to the Property shall
never be treated as being the Lessor hereunder or as having any of the
obligations of the Lessor hereunder unless and until such ground lessor
expressly assumes the position of Lessor hereunder by terminating such ground
lease, by taking possession of the premises under the ground lease and by
commencing to collect the rent and other charges provided for herein directly
from the Lessee.
ARTICLE XXXVII - LESSOR'S DEFAULT
----------------
37.1 Lessor shall in no event be in default in the performance of any of
its obligations hereunder unless and until Lessor shall have failed to perform
such obligations within thirty (30)
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days, or such additional time as is reasonably required to correct any such
default, after notice by Lessee to Lessor properly specifying wherein Lessor has
failed to perform any such obligation.
ARTICLE XXXVIII - MISCELLANEOUS
-------------
38.1 If any term or provision of this Lease or the application thereof to
any person or circumstances shall to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
38.2 Except as herein otherwise expressly provided, the terms and
provisions hereof shall be binding upon and shall inure to the benefit of the
heirs, executors, administrators, successors and permitted assigns,
respectively, of Lessor and Lessee. Each term and each provision of this Lease
to be performed by Lessee shall be construed to be both an independent covenant
and a condition. The reference contained to successors and assigns of Lessee is
not intended to constitute a consent of Lessor to any assignment by Lessee, but
has reference only to those instances in which Lessor may have given consent to
a particular assignment.
38.3 This writing contains the entire agreement between the parties hereto,
and no agent, representative, salesman or officer of Lessor hereto has authority
to make or has made any statement, agreement or representation, either oral or
written, in connection herewith, modifying, adding or changing the terms and
conditions herein set forth. No modification of this Lease shall be binding
unless such modification shall be in writing and signed by the parties hereto.
Lessee hereby further recognizes and agrees that this Lease shall have no force
or validation until and unless it is returned to Lessee duly executed by Lessor.
Lessee warrants to Lessor that, if Lessee is a corporation, (a) the execution
and delivery of this Lease has been duly authorized by the Board of Directors of
Lessee, (b) the making of this Lease does not require any vote or consent of
shareholders, and (c) the individual(s) whose name(s) and signature(s) appear
below have individually guaranteed Lessee's performance of the terms and
obligations herein. If Lessee is a Partnership, or other entity, Lessee
represents that it is empowered to execute this Lease on behalf of said
Partnership, and to bind said Partnership hereto.
38.4 The captions or titles used throughout this Lease are for reference
and convenience only and shall in no way define, limit or describe the scope or
intent of this Lease. Words or any neuter gender used in this Lease shall be
heid to include both the masculine and feminine gender and words in the singular
number shall be held to include the plural, and vice-versa.
38.5 In the event Lessor commences any summary proceeding for possession of
the Demised Premises, Lessee shall not interpose any counterclaim of whatsoever
nature or description in any such proceeding.
38.6 If Lessor is unable to give possession of the Demised Premises on
the date Commencement Date, because of holdover or retention of possession of
the Demised Premises by any previous lessee or occupant, Rent payable hereunder
shall be abated one day for each day delayed (provided Lessee is not responsible
for inability to obtain possession) until after Lessor shall give Lessee written
notice that the Demised Premises are ready for Lessee's occupancy.
38.7 Lessee agrees to furnish to Lessor once per year within thirty (30)
days of the commencement of a Lease Year, or upon Lessor's request at any other
time, financial statements certified by a corporate officer and prepared by a
Certified Public Accountant, including, but not limited to, a profit and loss
statement.
38.8 Intentionally Omitted.
----------------------
38.9 Late charges. If any payment due under the provisions of this Lease
------------
shall not be paid to, and received by Lessor, on or before the fifth (5th) day
following the date the same is otherwise payable pursuant to this Lease, then
the Lessor shall provide to Lessee no more than two (2) times per year, notice
of such failure to receive such payment, then the Lessee shall pay to Lessor
such payment within five (5) days thereof. If remittance is not received by the
6th day after Lessor's notification to Lessee, then a late charge shall be
applied as Additional Rent, ten percent (10%) of the amount not so timely paid
plus reasonable attorney fees incurred in said collection. If Lessee attempts to
make payment of the sums due under the terms of this Lease by a way of a check
that is returned unpaid from Lessee's banking institution, Lessor shall be
entitled to collect a returned check fee equal one hundred and twenty five
dollars ($125.00) in each instance.
38.10 Nothing contained in this Lease shall be deemed or construed as
making the parties partners or co-venturers, or as making Lessor an associate
of Lessee in the conduct of its business, or as making either of the parties in
any way responsible for the debts, losses or obligations of the other; it is
understood and agreed that the relationship between the parties is, and is
limited to, that of Lessor and Lessee.
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38.11 Effect of Submission. The submission of the Lease for examination
--------------------
does not constitute an offer to Lease, and this Lease becomes effective only
upon execution thereof by both Lessor and Lessee.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF
LESSOR:
------
DAMES & MOORE/BROOKHILL DURHAM I, LLC
/s/ Jacquelynn C. Ellison By: /s/ Charles Smail, President
- -------------------------- ---------------------------------
Witness as to Lessor Charles Smail, President
LESSEE:
------
COMPUCOM SYSTEMS, INC.
/s/ ^ illegible ^ By: /s/ Daniel Celoni, Tresurer
- -------------------------- ---------------------------------
Witness as to Lessee
<PAGE>
DATED: February 11, 1999
BETWEEN DMB DURHAM 1, LLC, AS LESSOR,
AND
COMPUCOM SYSTEMS, INC., AS LESSEE
1. Right of First Refusal. At any time during the Lease Term or an
----------------------
Option Term, as hereinafter defined, of which there remains at least three (3)
or more years before (5) years remain in the initial Lease Term, and provided
Lessee is not in default hereunder, Lessee shall have a continual right of first
refusal to lease (the "Offer Right") all or any portion of any space in the
Building not included in the Demised Premises (the "Offer Space") subject to the
terms and conditions hereof. If Lessor receives a bonafide offer from a third
party ("Third Party Offeror") to lease the Offer Space, Lessor shall first send
Lessee notice of such offer to lease such Offer Space (the "Proposed Offer").
Lessee shall have seven (7) business days subsequent to receipt by Lessee of
such notice from Lessor (the "Offer Date") during which to exercise its option
to lease the Offer Space subject to the same terms and at the then annual base
rental rate in effect under this Lease, including rental increases at the same
rate of annual increase (i.e. 2%) for the term of such extension, and shall
include an additional Lessee's Improvement Allowance, as defined below, to be
calculated by multiplying twenty eight cents ($.28) by the product of: (i) the
square footage of the Offer Space and (ii) the balance of years remaining in the
then current Term or Option Term, as the case may be, and paid in accordance
with Paragraph 4 of this Rider to Lease. Within said seven (7) business day
period, Lessee shall by notice to Lessor accept or reject the Proposed Offer. In
the event Lessee accepts the Proposed Offer, Lessor and Lessee shall promptly
execute an amendment to this Lease to include the Offer Space within the Demised
Premises under the Proposed Offer, commencing the later of: (a) thirty (30) days
from the Offer Date or (b) on the Lease Commencement provided for in the
Proposed Offer, except that all of the terms of this Lease shall apply for the
Offer Space. In the event Lessee does not accept the Proposed Offer, or if
Lessee fails to notify Lessor of its intent within the seven (7) business days
review period, Lessee shall be deemed to have rejected the Offer Space and
Lessor shall be free to lease the Offer Space to the Third Party Offeror on any
terms.
2(a) Option Period - If Lessee is not in default of this Lease, Lessee,
-------------
upon written notice to Lessor made not less than two hundred seventy (270) days
prior to the expiration of the Term (or of the first Option Term), shall have
two (2) options to extend the Term for an additional five (5) years each (the
"Option Terms").
(b) Rent for Option Term - The Base Rent for the Option Terms shall be
--------------------
equal to ninety five (95%) percent of the then prevailing market rate with
consideration given to such items as free rent, cash concessions and improvement
allowances.
(c) Refurbishment Allowance - Upon the effective date of any such Option
-----------------------
Term, Lessor shall pay to Lessee a refurbishment Allowance of $55,000.00 in the
same manner as the Lessee Improvement Allowance described below.
3. Lessee Improvements - Lessee, at its sole cost and expense, shall
-------------------
alter and renovate the Demised Premises in a manner which Lessee deems necessary
or desirable to adapt the same for the conduct of its business operations
subject to Lessor's prior written consent and in a first class manner. Upon
full execution of the Lease and initial approval of all construction costs by
Lessee, Lessee shall make such Lessee Improvements at Lessee's sole cost and
expense, other than Lessor's obligation to pay the Lessee Improvement Allowance
under Paragraph 4 of this Rider to Lease. Lessor shall bid the Lessee
Improvements to at least three (3) mutually acceptable general contractors.
Lessee shall have the right to review all bid documents and bids as received.
Within five (5) days of receipt of such bids Lessee shall accept or reject the
bid and execute a Contract with an approved general contractor as soon as
practicable. Lessor agrees to provide the construction management of all Lessee
Improvements at Lessor's sole cost and expense. Lessee shall be responsible for
all costs related to Lessee Improvements above the Lessee's Improvement
Allowance as hereinafter defined. Any cost and expenses in excess of Lessee's
Improvement Allowance shall be the sole responsibility of Lessee and shall be
payable to Lessor upon demand. Lessor shall be responsible for ensuring that the
general contractor constructs the Lessee Improvements in compliance with all
city and or county building codes. All necessary space planning, architectural,
mechanical, electrical and plumbing drawings required to construct the Lessee
Improvements, including stamped and sealed construction drawings by a licensed
architect and all municipal approvals and permits related to Lessee Improvements
(the "Plans") of the Demised Premises which may be required by Lessor shall be
provided by
<PAGE>
Lessor at Lessor's cost and expense, not to exceed up to ten thousand dollars
($10,000.00). Any such costs and expenses in excess of $10,000.00 shall be the
sole responsibility of the Lessee and shall be payable in advance to or at the
direction of Lessor.
Lessee acknowledges that Lessor's role as construction manager shall be
limited to overseeing the activities of Lessee's approved architect ("Tenant's
Architect") and the local Lessee approved general contractor ("Lessee's General
Contractor"). Lessee agrees to hold Lessor harmless from and against any and
all claims made against Lessor in connection with the Plans, including any and
all incidental or consequential damages or willful misconduct resulting from
Lessor's actions or omissions, barring negligence or willful misconduct by
Lessor. Lessor disclaims, and Lessee hereby accepts and acknowledges Lessor's
disclaimer, of any adequacy of the Plans for Lessee's intended use of the
Demised Premises and the construction of the Demised Premises in accordance with
the Plans. Lessee acknowledge that it has thoroughly investigated the Demised
Premises and the Building and has found them to be acceptable "AS IS" and Lessee
shall require no changes to the Demised Premised or the Building other than as
may be detailed by Lessee's Plans or Lessor's Work.
4. Lessee's Improvement Allowance - Lessor shall pay to Lessee or as
------------------------------
designated in writing by Lessee a Lessee Improvement Allowance of One Hundred
Twenty Five Thousand dollars ($125,000) (the "Lessee's Improvement Allowance").
The Lessee's Improvement Allowance shall be paid when Lessor has received a
final certificate of occupancy from the municipality, all lien waivers from all
contractors and insurance certificates required under this Lease. The Lessee's
Improvement Allowance shall be applied towards any and all costs directly or
indirectly related to Lessee Improvements, including, but not limited to, all
costs to bring the Demised Premises into compliance with the Americans with
Disability Act and all rules, regulations or orders promulgated thereunder (the
"ADA"), to upgrade utility services including electricity, gas, fiber optics,
cable, water, etc., and to make such other improvements necessary to convert the
existing space for Lessee's permitted use (the "Lessee's Improvement Costs").
Lessor shall not be responsible for any costs incurred in the completion of
Lessee Improvements other than the Lessee's Improvement Allowance and Lessor's
Work. Lessee improvements shall be the sole responsibility of Lessee. In
connection with such improvements, Lessee shall provide to Lessor for Lessor's
approval, which shall not be unreasonably withheld or delayed, contractor's
insurance including workman's compensation and liability insurance and lien
waivers. Lessee shall be responsible at its sole cost and expense for the
procurement of any and all licenses and permits required for such work or for
Lessee's use and occupancy of the Demised Premises, including demolition permits
and certificates of occupancy, or other local equivalents for the Demised
Premises. Lessor agrees to assist Lessee in any reasonable manner, at no
additional cost to Lessor, over the $10,000.00 limitation described in Paragraph
above, in Lessee's efforts to procure any permits or licenses required for
Lessee's work or for Lessee's use and occupancy of the Demised Premises in a
manner consistent with the terms of the Lease. If Lessor does not pay all of the
Improvement Allowance within fifteen (15) days of Lease Commencement and notice
of completion of the Lessee's improvements (which may not include punch list
items) and the receipt of the documents listed above, Lessee may credit an
amount equal to the Improvement Allowance against the monthly Base Rent due
under this Lease until the entire Improvement Allowance has been paid.
Notwithstanding anything to the contrary contained in this Section 4, Lessor's
cash payment of the Improvement Allowance shall be limited to the Improvement
Costs. In the event such cash payment is less than the Improvement Allowance
(the "Improvement Shortfall"), Lessee shall be entitled to a rent abatement
equal to the Improvement Shortfall to be applied against Base Rent commencing
with the first installment due hereunder until all of the Improvement Shortfall
is used. Lessee agrees to enter into an AIA standard form contract directly with
the Lessee's General Contractor. Such AIA contract will provide for periodic
payments to be made by Lessee upon receipt of an AIA Funding Application under
approval by Tenant's Architect.
5. Lessor's Work - For purpose of this lease and Rider to Lease, Lessor's
-------------
Work shall mean insuring that all docks and associated existing equipment,
exterior paving, exterior lighting and roof is in good working order, and the
cost of any demising wall and of segregating existing utilities to allow for
those services to be contracted directly with the service provider by Lessee.
6. Lessor hereby grants to Lessee, during the term of this Lease, the
nonexclusive right to use no less than One Hundred Fifty (150) parking spaces in
common with all others so entitled and trailer parking to accommodate all ten
(10) dock doors.
<PAGE>
7. Lessee shall not, by operation of law or otherwise, assign or transfer
this Lease or sublet all or any part of the Demised Premises without the prior
written consent of Lessor, which shall not be unreasonably withheld, conditioned
or delayed. Notwithstanding the above, Lessee shall have the right to sublease
all or part of the Demised Premises, to assign the Lease in whole or in part, or
to otherwise transfer or encumber its in the Lease and the Demised Premises to a
subsidiary or affiliate of Lessee without Lessor's approval but with the prior
written approval of Lessor's third party Lender's with a security interest in
the Property, the Building or this Lease. In the event of any approved
assignment or subletting: (a) Lessee shall not be discharged of its obligations
under this Lease but shall remain liable therefor as a principal and not as a
surety; and (b) the assignee or sublessee shall not let or underlet the whole or
any part of the Demised Premises or assign this Lease or its said sublease
without Lessor's prior written consent. If Lessee is a partnership, a withdrawal
or change, voluntary, involuntary, or by operation of law, of any partner or
partners owning 51% or more of the partnership, or the dissolution of the
partnership, shall be deemed an assignment. If Lessee is a corporation, any
dissolution, merger, consolidation, or other reorganization of Lessee, or the
sale or other transfer of a controlling percentage of the capital stock of
Lessee or the sale of 51% or more of the value of the assets of the Lessee,
shall be deemed an assignment.
8. Lessee shall provide, install and maintain, at its own cost and expense,
a sign on the facade of the Demised Premises, provided that such installation
shall be made in such manner as will not affect the rights of Lessor under
any roofing bond and/or other guarantee which shall then be in force and effect.
Such sign and/or any other exterior sign, advertisement or notice and its/their
placement on the Building must be approved by the Lessor in writing before
installation and must conform to all applicable rules, regulations, codes and
directives of governmental agencies having jurisdiction. Lessee agrees that
Lessee will not place any signs, advertisements or other type of structure or
other obstruction on the Building or the Property, and Lessee shall not operate
any loudspeaker or other device which can be heard outside of the Demised
Premises. Lessee agrees not to place any paper sign on any window of the Demised
Premises. In the event that a pylon mounted, internally illuminated, or any
other type of sign is permitted by Lessor, in any location within or without the
Building, Lessee shall bear all costs, expenses and liabilities related to the
installation, maintenance, repair, and operation of said signs. Notwithstanding
the above, Lessee shall have the right to install a sign on the Building and at
the entrance to the project subject to local laws, rules and ordinances and
Lessor's approval, not to be unreasonably withheld.
9. Americans with Disabilities Act Compliance. Lessor agrees to cause the
------------------------------------------
Common Areas to comply, at its sole cost and expense, with all provisions of the
ADA. Lessor shall comply, at its sole cost and expense, with all provisions of
the ADA applying to the exterior or structural portions of the Building unless
such compliance is necessitated directly or indirectly by the actions or
omissions of Lessee. Lessor's obligation hereunder shall not include the
renovation of restrooms as part of Lessee's Improvement Allowance. Lessee and
Lessor shall each indemnify the other and hold the other harmless unless Lessor
is grossly negligent, for any violation of the ADA, for any fines or penalties
imposed on the other for such violations and for the others costs and reasonable
expenses incurred in defending against any alleged or actual violation of the
ADA.
10. Lessor shall be responsible for payment of a fee to the Staubach
Company ("Broker") as outlined in a separate agreement between Lessor and
Broker. Lessor and Lessee each represent and warrant to the other that no other
brokers other than Broker was used in this transaction and agree that each shall
indemnify and hold the other harmless from and against any and all damages and
costs associated with the defense or payment of any claims made as a result of
the breach of the foregoing representation by the indemnifying party.
11. Provided Lessee is not in default under this Lease, Lessee shall have
the right, upon two hundred seventy (270) days written notice to lessor, to
terminate this Lease effective no earlier than the beginning of the 49th month
thereof. Lessor agrees that the termination fee shall be equal to one month of
the then current base rent, plus the unamortized Lessee Improvement Allowance
and Broker's commissions. This termination option fee shall be due and payable
30 days prior to the termination date.
12. Lessor represents to Lessee that to the best of its knowledge, defined
as the actual personal knowledge without investigation of the officer signing
this Lease on behalf of Lessor, it is not aware of any Hazardous materials in
the Building or contained
<PAGE>
in the Property, other than disclosed in that certain Phase I Environmental
Assessment Report dated June 17, 1997, and a letter report on additional site
assessment tasks dated September 10, 1997, both prepared by Dames & Moore NC.
(the "Reports"). Lessee acknowledges receipt of the Reports, that it has been
afforded the opportunity to adequately review the Reports to its satisfaction
and rents the Demised Premises subject to the information contained therein.
13. Provided Lessee is not in default hereunder, during the Term or any
exercised Option Term, Lessor agrees to not lease any space at 2910 Weck Drive
to Entex, Comark, Micro Age/Pinacor, Inacom, Vanstar or any successor in
interest thereto by merger or otherwise. Lessor shall not be in default of this
Section 12 if Lessor leases such space to an entity which at the time of such
leasing is not affiliated with any of the above entities, but subsequentially
becomes affiliated or otherwise associated with any of the above entities.
14. Broker's Commission. Lessee represents and warrants to Lessor that
there are no claims for brokerage commissions or finder's fees in connection
with the execution of the Lease, except as listed below. Lessee agrees to
indemnify, defend and save Lessor harmless from all liabilities arising from
such claims including without limitation, the cost of counsel fees, as follows:
The Staubach Co and Goodman, Segar, Hogan, Hoffler.
IN WITNESS WHEREOF, the parties hereto have executed this Rider to Lease
this _______ day of ____________, 1999.
LESSOR:
------
DMB DURHAM 1, LLC
/s/ Jacquelyn C. Ellison
- ------------------------------ By: /s/ Charles Smail
Witness as to Lessor ------------------------------
Charles Smail, President
LESSEE:
------
COMPUCOM SYSTEMS, INC.
/s/ ^ ILLEGIBLE SIGNATURE ^
- ------------------------------ By: /s/ Daniel Celoni, Treasurer
Witness as to Lessee ------------------------------
<PAGE>
EXHIBIT 10.DD
MODIFICATION OF LEASE
---------------------
MODIFICATION OF LEASE is made this 1 day of October, 1999 by and between
-
DMB DURHAM 1, LLC, a Delaware limited liability company, acting through its
managing agent Brookhill Management Corp., having an office at 501 Madison
Avenue, New York, New York 10022 ("Lessor") and COMPUCOM SYSTEMS, INC., a
Delaware corporation ("Lessee"), whose address is 7171 Forest Lane, Dallas,
Texas 75230.
W I T N E S S E T H:
Lessor and Lessee have entered into a lease ("Lease") dated February 11,
1999, pursuant to which Lessor leased to Lessee approximately 96,922 square
feet, at, 2910 Weck Drive in the City of Durham, County of Durham, State of
North Carolina ("Original Premises").
NOW, THEREFORE, in consideration of the mutual covenants herein and in the
Lease contained, it is hereby agreed that the Lease is hereby modified and
extended as follows:
1. Demised Premises. Lease is amended to reflect the actual original
----------------
square footage of 96,922 square feet ("Original Premises"). The Demised Premises
under the Lease are hereby expanded to include as of September 19, 1999 an
additional portion of the Property consisting of a gross floor area of
approximately 71,373 square feet. The Expansion Space together with the Original
Premises shall constitute the Demised Premises for the purposes of this lease.
The Demised Premises shall now constitute 168,295 square feet (the "Expansion
Space").
2. Annual Rental. Section 3.1 of the Lease is hereby amended so that the
-------------
Lessee shall pay Minimum Base Rent in accordance with Schedule A attached
hereto.
3. Initial Occupancy. Lessee acknowledges that Lessee has commenced
-----------------
occupancy of the Expansion Space on or before September 19, 1999.
4. Lessor's Work. Lessor shall, at it's own cost and expense, repair
-------------
the roof of the Demised Premises. Further, Lessor shall expand the truck/apron
court and install three (3) dock doors, including lights, pads and levelers, at
a location to be determined by Lessor.
5. Refurbishment Allowance - Section 2 (c) of the Rider to Lease is
-----------------------
hereby deleted in its entirety and replaced with the following:
<PAGE>
Refurbishment Allowance - Upon the effective date of any such Option
-----------------------
Term, Lessor shall pay to Lessee a Refurbishment Allowance of
$95,000.00 at the same time and in the same manner as the Lessee
Improvement Allowance described below.
6. Lessee's Improvement Allowance. Section 4. Lessee's Improvement
------------------------------
Allowance is hereby modified to be read in accordance with the following:
"In connection with the Expansion Space, Lessor shall pay to Lessee
or as designated in writing by Lessee a Lessee Improvement Allowance
of Eighty One Thousand and No/100 Dollars ($81,000.00)".
7. Design Allowance. Lessor shall provide Lessee with a Design
----------------
Allowance of $5,000.00 to be used for the preparation of the architectural,
mechanical and plumbing drawings required to construct the Lessee's
Improvements, including stamped and sealed construction drawings by a licensed
architect and all municipal approvals and permits. This Allowance is in addition
to Lessee's Improvement Allowance and shall be due and payable at the same time
and in the same manner as Lessee's Improvement Allowance is due and payable.
8. Lease Binding. Except as herein expressly modified, all other terms,
-------------
covenants and conditions of a Lease and Lease Extension Agreement shall remain
in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Modification of
Lease the date and year first written above.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF
LESSOR: DMB DURHAM 1, LLC
------
a Delaware limited liability company,
BY BROOKHILL MANAGEMENT CORPORATION
Its Managing Agent
/s/ Ronald B. Bruder
- ----------------------------- ----------------------------------------
Witness to Lessor By: Ronald B. Bruder
Its: President
LESSEE: COMPUCOM SYSTEMS, INC.
------
a Delaware Corporation
/s/ Shelly K. Christenson /s/ Daniel Celoni, Treasurer
- ----------------------------- ----------------------------------------
Witness to Lessee By:
Its:
-3-
<PAGE>
Schedule A
DMB - Durham 1
Period and Monthly Rent
For Compucom Systems
Month Monthly Rent Period Rent Month Monthly Rent Period Rent
- ----- ------------ ----------- ----- ------------ -----------
Period 9/19/99 - 3/14/00: Period 3/15/02 - 3/14/03:
Sep-99 $17,980.60 Mar-02 $34,686.92
Oct-99 44,951.49 Apr-02 63,252.62
Nov-99 44,951.49 May-02 63,252.62
Dec-99 44,951.49 Jun-02 63,252.62
Jan-00 44,951.49 Jul-02 63,252.62
Feb-00 44,951.49 Aug-02 63,252.62
Mar-00 20,300.67 $263,038.72 Sep-02 63,252.62
-------- ----------- Oct-02 63,252.62
Nov-02 63,252.62
Period 3/15/00 - 3/31/00: Dec-02 63,252.62
Mar-00 $25,143.82 $25,143.82 Jan-03 63,252.62
---------- ---------- Feb-03 63,252.62
Mar-03 28,565.70 $759,031.44
Period 4/01/00 - 3/14/01: --------- -----------
Apr-00 $60,796.47
May-00 60,796.47
Jun-00 60,796.47 Period 3/15/03 - 3/14/04
Jul-00 60,796.47 Mar-03 $35,380.64
Aug-00 60,796.47 Apr-03 64,517.63
Sep-00 60,796.47 May-03 64,517.63
Oct-00 60,796.47 Jun-03 64,517.63
Nov-00 60,796.47 Jul-03 64,517.63
Dec-00 60,796.47 Aug-03 64,517.63
Jan-01 60,796.47 Sep-03 64,517.63
Feb-01 60,796.47 Oct-03 64,517.63
Mar-0l 27,456.47 $696,217.64 Nov-03 64,517.63
---------- ----------- Dec-03 64,517.63
Jan-04 64,517.63
Period 3/15/01 - 3/14/02: Feb-04 64,517.63
Mar-01 $34,006.79 Mar-04 29,136.99 $774,211.56
Apr-01 62,012.39 --------- -----------
May-01 62,012.39
Jun-01 62,012.39
Jul-01 62,012.39
Aug-01 62,012.39
Sep-01 62,012.39
Oct-01 62,012.39
Nov-01 62,012.39
Dec-01 62,012.39
Jan-02 62,012.39
Feb-02 62,012.39
Mar-02 28,005.60 $744,148.68
-------- -----------
<PAGE>
EXHIBIT 10.II
SPECIALITY WARRANTY DEED
STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
(S)
COUNTY OF DALLAS (S)
THAT, COMPUCOM SYSTEMS, INC., a Delaware corporation (the "Grantor"), for
and in consideration of the sum of Ten Dollars ($10.00) cash in hand paid by
DELAWARE COMP LLC, a limited liability company organized under the laws of
Delaware (the "Grantee"), whose mailing address is c/o W.P. Carey & Co., Inc.,
50 Rockefeller Plaza, 2nd Floor, New York, New York 10020 and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Grantor, has GRANTED, BARGAINED, SOLD, and CONVEYED, and by
these presents does GRANT, BARGAIN, SELL, and CONVEY unto Grantee, the real
property more particularly described on Exhibit A attached hereto and
-----------
incorporated herein for all purposes, together with all fixtures and
improvements located thereon and appurtenances appertaining thereto, including,
but not limited to, all of Grantor's right, title and interest in and to (i) all
strips and gores between the land and abutting properties, (ii) any land in the
bed of any street, road or avenue, (iii) roads, rights of way and easements, and
(iv) mineral interests of any kind or character (the "Property").
This conveyance is made by Grantor and accepted by Grantee subject only to
those certain title exceptions set forth on Exhibit B attached hereto and made a
---------
part hereof for all purposes, but only to the extent that such exceptions are
valid, existing, and in fact, affect the Property (the "Permitted Exceptions").
TO HAVE AND TO HOLD the Property together with, all and singular, the
rights and appurtenances thereto in anywise belonging, unto Grantee and
Grantee's successors and assigns forever, and subject to the Permitted
Exceptions, Grantor does hereby bind Grantor and Grantor's successors and
assigns to warrant and forever defend all and singular the Property unto the
Grantee and Grantee's successors and assigns against every person whomsoever
lawfully claiming or to claim the same, or any part thereof, by, through or
under Grantor, but not otherwise.
Executed on the date of the notary certification below to be effective as
of March 31, 1999.
GRANTOR:
COMPUCOM SYSTEMS, INC.
By: /s/ Daniel L. Celoni
-----------------------------
Daniel L. Celoni
Vice President, Finance/Treasurer
<PAGE>
EXHIBIT 10.JJ
LEASE AGREEMENT
by and between
DELAWARE COMP LLC,
a Delaware limited liability company
as LANDLORD
and
COMPUCOM SYSTEMS, INC.,
a Delaware corporation,
as TENANT
Premises: 7171 Forest Lane
Dallas, Texas
Dated as of: March 31, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Parties..................................................................... 1
1. Demise of Premises..................................................... 1
2. Certain Definitions.................................................... 1
3. Title and Condition.................................................... 7
4. Use of Leased Premises; Quiet Enjoyment................................ 8
5. Term................................................................... 8
6. Basic Rent............................................................. 9
7. Additional Rent........................................................ 9
8. Net Lease; Non-Terminability........................................... 10
9. Payment of Impositions................................................. 11
10. Compliance with Laws and Easement Agreements; Environmental Matters.... 12
11. Liens; Recording....................................................... 13
12. Maintenance and Repair................................................. 14
13. Alterations and Improvements........................................... 15
14. Permitted Contests..................................................... 15
15. Indemnification........................................................ 16
16. Insurance.............................................................. 17
17. Casualty and Condemnation.............................................. 19
18. Termination Events..................................................... 20
19. Restoration............................................................ 21
20. Procedures Upon Purchase............................................... 23
21. Assignment and Subletting; Prohibition against Leasehold Financing..... 24
22. Events of Default...................................................... 25
23. Remedies and Damages Upon Default...................................... 27
24. Notices................................................................ 30
25. Estoppel Certificate................................................... 30
26. Surrender.............................................................. 30
27. No Merger of Title..................................................... 30
28. Books and Records...................................................... 31
29. Determination of Value................................................. 31
30. Non-Recourse as to Landlord............................................ 33
31. Financing.............................................................. 33
32. Subordination, Non-Disturbance and Attornment.......................... 33
33. Financial Covenants.................................................... 34
34. Tax Treatment; Reporting............................................... 34
35. Restrictive Covenant Issues............................................ 34
36. Excess Land............................................................ 35
37. Miscellaneous.......................................................... 35
EXHIBITS
- --------
Exhibit "A-1" - Premises
Exhibit "A-2" - Excess Land
Exhibit "B" - Machinery and Equipment
Exhibit "C" - Schedule of Permitted Encumbrances
Exhibit "D" - Rent Schedule
Exhibit "E" - Financial Covenants
Exhibit "F" - Post-Closing Obligations
-i-
<PAGE>
LEASE AGREEMENT, made as of this 31/st/ day of March, 1999, between
DELAWARE COMP LLC, a Delaware limited liability company ("Landlord"), with an
--------
address c/o W. P. Carey & Co., Inc., 50 Rockefeller Plaza, 2nd Floor, New York,
New York 10020, and COMPUCOM SYSTEMS, INC., a Delaware corporation ("Tenant"),
------
with an address at 7171 Forest Lane, Dallas, Texas 75230.
In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and lets to Tenant, and
------------------
Tenant hereby takes and leases from Landlord, for the term and upon the
provisions hereinafter specified, the following described property
(collectively, the "Leased Premises"): (a) the premises described in Exhibit
--------------- -------
"A-1" hereto, together with the Appurtenances (collectively, the "Land");
- ----- ----
(b) the buildings, structures and other improvements now or hereafter
constructed on the Land (collectively, the "Improvements"); and (c) the
------------
fixtures, machinery, equipment and other property described in Exhibit "B"
-----------
hereto (collectively, the "Equipment ").
- ----------- ---------
2. Certain Definitions.
--------------------
"Acquisition Cost" shall mean $39,790,500.
"Additional Rent" shall mean Additional Rent as defined in Paragraph
7.
"Adjoining Property" shall mean all sidewalks, driveways, curbs, gores
and vault spaces adjoining any of the Leased Premises.
"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals, replacements or removals
of and all substitutions or replacements for any of the Improvements or
Equipment, both interior and exterior, structural and non-structural, and
ordinary and extraordinary.
"Appurtenances" shall mean all tenements, hereditaments, easements,
rights-of-way, rights, privileges in and to the Land, including (a) easements
over other lands granted by any Easement Agreement and (b) any streets, ways,
alleys, vaults, gores or strips of land adjoining the Land.
"Assignment" shall mean any assignment of rents and leases from
Landlord to a Lender which (a) encumbers any of the Leased Premises and (b)
secures Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified from time to time.
"Basic Rent" shall mean Basic Rent as defined in Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as
defined in Paragraph 6.
"Casualty" shall mean any injury to or death of any person or any loss
of or damage to any property (including the Leased Premises) included within or
related to the Leased Premises or arising from the Adjoining Property.
"Commencement Date" shall mean Commencement Date as defined in
Paragraph 5.
<PAGE>
"Condemnation" shall mean a Taking and/or a Requisition.
"Condemnation Notice" shall mean notice or knowledge of the
institution of or intention to institute any proceeding for Condemnation.
"Costs" of a Person or associated with a specified transaction shall
mean all reasonable out-of-pocket costs and expenses incurred by such Person or
associated with such transaction, including without limitation, attorneys' fees
and expenses, court costs, brokerage fees, escrow fees, title insurance
premiums, mortgage commitment fees, mortgage points, recording fees and transfer
taxes, as the circumstances require.
"Covenants" shall mean the covenants and agreements described on
Exhibit "E".
- -----------
"CPI" shall mean CPI as defined in Exhibit "D" hereto.
----------
"Default Termination Amount" shall mean the Default Termination
Amount as defined in Paragraph 23(a)(iii).
"Default Rate" shall mean the Default Rate as defined in Paragraph
7(a)(iv).
"Easement Agreement" shall mean any conditions, covenants,
restrictions, easements, declarations, licenses and other agreements listed as
Permitted Encumbrances or as may hereafter affect the Leased Premises.
"Environmental Law" shall mean (i) whenever enacted or promulgated,
any applicable federal, state, foreign and local law, statute, ordinance, rule,
regulation, license, permit, authorization, approval, consent, court order,
judgment, decree, injunction, code, requirement or agreement with any
governmental entity, (x) relating to pollution (or the cleanup thereof), or the
protection of air, water vapor, surface water, groundwater, drinking water
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous
Conditions or Hazardous Activities, in each case as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations or injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act, the
federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation Act,
each as amended and as now or hereafter in effect and any similar state or local
Law.
"Environmental Violation" shall mean (a) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring, injection,
leaching, release, seepage, filtration or transporting of any Hazardous
Substance at, upon, under, onto or within the Leased Premises, or from the
Leased Premises to the environment, in violation of any Environmental
2
<PAGE>
Law or in excess of any reportable quantity established under any Environmental
Law or which is likely to result in any liability to Landlord, Tenant or Lender,
any Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which is likely to result in any liability to any Federal, state or local
government or to any other Person for the costs of any removal or remedial
action or natural resources damage or for bodily injury or property damage, (c)
the abandonment or discarding of any barrels, containers or other receptacles
containing any Hazardous Substances in violation of any Environmental Laws, (d)
any activity, occurrence or condition which is likely to result in any
liability, cost or expense to Landlord or Lender or any other owner or occupier
of the Leased Premises, or which is likely to result in a creation of a lien on
the Leased Premises under any Environmental Law, or (e) any violation of or
noncompliance with any Environmental Law.
"Equipment" shall mean the Equipment as defined in Paragraph 1.
"Event of Default" shall mean an Event of Default as defined in
Paragraph 22(a).
"Excess Land" shall mean that portion of the Land described in Exhibit
"A-2".
- -----
"Excess Land Price" shall mean Excess Land Price as defined in
Paragraph 36(a)(iii).
"Fair Market Value" shall mean the higher of (a) the fair market value
of the Leased Premises (including the Excess Land) or the Excess Land, as the
case may be, as of the Relevant Date as if-unaffected and unencumbered by this
Lease or (b) the fair market value of the Leased Premises as of the Relevant
Date as affected and encumbered by this Lease and assuming (i) that the term
shall terminate on the Expiration Date (or if the term has been extended for any
extension period provided for herein, on the next Renewal Date) in the event
Fair Market Value is determined in accordance with Paragraph 18 or (ii) that the
Term has been extended for all extension periods provided for herein in the
event Fair Market Value is being determined in accordance with Paragraph 23. For
all purposes of this Lease, Fair Market Value shall be determined in accordance
with the procedure specified in Paragraph 29.
"Fair Market Value Date" shall mean the date when the Fair Market
Value is determined in accordance with Paragraph 29.
"Federal Funds" shall mean federal or other immediately available
funds which at the time of payment are legal tender for the payment of public
and private debts in the United States of America.
"Hazardous Activity" means any activity, process, procedure or
undertaking which directly or indirectly (i) procures, generates or creates any
regulated quantities of Hazardous Substance; (ii) causes or results in (or
threatens to cause or result in) the release, seepage, spill, leak, flow,
discharge or emission of regulated quantities of any Hazardous Substance into
the environment (including the air, ground water, watercourses or water
systems), (iii) involves the containment or storage of any regulated quantities
of a Hazardous Substance; or (iv) would cause the Leased Premises or any portion
thereof to become a hazardous waste treatment, recycling, reclamation,
processing, storage or disposal facility within the meaning of any Environmental
Law.
3
<PAGE>
"Hazardous Condition" means any condition which would support any
claim or liability under any Environmental Law, including the presence of
underground storage tanks.
"Hazardous Substance" means (i) any substance, material, product,
petroleum, petroleum product, derivative, compound or mixture, mineral
(including asbestos), chemical, gas, medical waste, or other pollutant, in each
case whether naturally occurring, man-made or the by-product of any process,
that is toxic, harmful or hazardous or acutely hazardous to the environment or
public health or safety or (ii) any substance supporting a claim under any
Environmental Law, whether or not defined as hazardous as such under any
Environmental Law. Hazardous Substances include, without limitation, any toxic
or hazardous waste, pollutant, contaminant, industrial waste, petroleum or
petroleum-derived substances or waste, radon, radioactive materials, asbestos,
asbestos containing materials, urea formaldehyde foam insulation, lead and
polychlorinated biphenyls.
"Impositions" shall mean the Impositions as defined in Paragraph 9(a).
"Improvements" shah mean the Improvements as defined in Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined in Paragraph 15.
"Insurance Requirements" shall mean the requirements of all insurance
policies required to be maintained in accordance with this Lease.
"Land" shall mean the Land as defined in Paragraph 1.
"Law" shall mean any constitution, statute, rule of law, code,
ordinance, order, judgment, decree, injunction, rule, regulation, policy,
requirement or administrative or judicial determination, even if unforeseen or
extraordinary, of every duly constituted governmental authority, court or
agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Year" shall mean, with respect to the first Lease Year, the
period commencing on the Commencement Date and ending at midnight on the last
day of the twelfth (12th) consecutive calendar month following the month in
which the Commencement Date occurred, and each succeeding twelve (12) month
period during the Term.
"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 1.
"Legal Requirements" shall mean the requirements of all present and
future Laws (including but not limited to Environmental Laws and Laws relating
to accessibility to, usability by, and discrimination against, disabled
individuals) and all covenants, restrictions and conditions now or hereafter of
record which may be applicable to Tenant or to any of the Leased Premises, or to
the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or restoration of any of the Leased Premises, even if
compliance therewith necessitates structural changes or improvements or results
in interference with the use or enjoyment of any of the Leased Premises.
"Lender" shall mean any person or entity (and their respective
successors and assigns) which may, after the date hereof, make a Loan to
Landlord or is the holder of any Note.
4
<PAGE>
"Loan" shall mean any loan made by one or more Lenders to Landlord,
which loan is secured by a Mortgage and an Assignment and evidenced by a Note.
"Monetary Obligations" shall mean Rent and all other sums payable by
Tenant under this Lease to Landlord, to any third party on behalf of Landlord or
to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust from Landlord to a
Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's
obligation to repay a Loan, as the same may be amended, supplemented or
modified.
"Net Award" shall mean (a) the entire award payable to Landlord or
Lender by reason of a Condemnation whether pursuant to a judgment or by
agreement or otherwise, or (b) the entire proceeds of any insurance required
under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v)
or (vi) of Paragraph 16(a), as the case may be, less any expenses incurred by
Landlord and Lender in collecting such award or proceeds.
"Note" shall mean any promissory note evidencing Landlord's obligation
to repay a Loan, as the same may be amended, supplemented or modified.
"Partial Casualty" shall mean any Casualty which does not constitute a
Termination Event.
"Partial Condemnation" shall mean any Condemnation which does not
constitute a Termination Event.
"Permitted Encumbrances" shall mean those covenants, restrictions,
reservations, liens, conditions and easements and other encumbrances, other than
any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing
-----------
shall not be deemed to revive any such encumbrances that have expired or
terminated or are otherwise invalid or unenforceable).
"Person" shall mean an individual, partnership, association,
corporation or other entity.
"Prepayment Premium" shall mean any payment (other than a payment of
principal and/or interest which Landlord is required to make under a Note or a
Mortgage) by reason of any prepayment by Landlord of any principal due under a
Note or Mortgage, and which may be (in lieu of such prepayment premium or
prepayment penalty) a "make whole" or yield maintenance clause requiring a
prepayment premium or a defeasance deposit (such defeasance deposit to be an
amount equal to the positive difference between (a) the total amount required to
defease a Loan and (b) the outstanding principal balance of the Loan as of the
date of such defeasance, in either case in an amount sufficient to compensate
the Lender for the loss of the benefit of the Loan due to a prepayment.
"Present Value" of any amount shall mean such amount discounted by a
rate per annum which is the lower of (a) the Prime Rate at the time such present
value is determined or (b) eight percent (8%) per annum.
"Prime Rate" shall mean the annual interest rate as published, from
time to time, in The Wall Street Journal as the "Prime Rate" in its column
-----------------------
entitled "Money Rate". The Prime Rate may not be the lowest rate of interest
charged by any "large U.S. money center commercial banks" and Landlord makes no
representations or warranties to that effect. In the event The Wall Street
--------------
Journal ceases publication or ceases to publish the "Prime Rate" as described
- -------
above, the Prime Rate shall be the average per annum discount rate (the
"Discount
- ---------
5
<PAGE>
Rate") on ninety-one (91) day bills ("Treasury Bills") issued from time to time
- ----- ----------------
by the United States Treasury at its most recent auction, plus three hundred
(300) basis points. If no such 91-day Treasury Bills are then being issued, the
Discount Rate shall be the discount rate on Treasury Bills then being issued for
the period of time closest to ninety-one (91) days.
"Relevant Amount" shall mean the Termination Amount, the Default
Termination Amount or the Excess Land Price, as the case may be.
"Relevant Date" shall mean (a) the date immediately prior to the date
on which the applicable Condemnation Notice is received, in the event of a
Termination Notice under Paragraph 18 which is occasioned by a Taking, (b) the
date immediately prior to the date on which the applicable Casualty occurs, in
the event of a Termination Notice under Paragraph 18 which is occasioned by a
Casualty, (c) the date when Fair Market Value is redetermined, in the event of a
redetermination of Fair Market Value pursuant to Paragraph 20(c), (d) the date
immediately prior to the Event of Default giving rise to the need to determine
Fair Market Value in the event Landlord provides Tenant with notice of its
intention to require Tenant to make a termination offer under Paragraph
23(a)(iii), or (e) the date on which Landlord elects to convey to Tenant the
Excess Land under Paragraph 36(a)(iii).
"Renewal Term" shall mean Renewal Term as defined in Paragraph 5.
"Rent" shall mean, collectively, Basic Rent and Additional Rent.
"Requisition" shall mean any temporary requisition or confiscation of
the use or occupancy of any of the Leased Premises by any governmental
authority, civil or military, whether pursuant to an agreement with such
governmental authority in settlement of or under threat of any such requisition
or confiscation, or otherwise.
"Site Assessment" shall mean a Site Assessment as defined in
Paragraph 10(c).
"State" shall mean the State of Texas.
"Surviving Obligations" shall mean any obligations of Tenant under
this Lease, actual or contingent, which arise on or prior to the expiration or
prior termination of this Lease or which survive such expiration or termination
by their own terms.
"Taking" shall mean (a) any taking or damaging of all or a portion of
any of the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemnor in settlement of or under threat of any such
condemnation or other eminent domain proceeding, or (iii) by any other means, or
(b) any de facto condemnation. The Taking shall be considered to have taken
place as of the later of the date actual physical possession is taken by the
condemnor, or the date on which the right to compensation and damages accrues
under the law applicable to the Leased Premises.
"Term" shall mean the Term as defined in Paragraph 5.
"Termination Amount" shall mean the greater of (a) Fair Market Value
or (b) the sum of the Acquisition Cost and any Prepayment Premium which Landlord
will be required to pay in prepaying any Loan with proceeds of the Termination
Amount.
"Termination Date" shall mean Termination Date as defined in Paragraph
18.
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<PAGE>
"Termination Event" shall mean a Termination Event as defined in
Paragraph 18.
"Termination Notice" shall mean Termination Notice as defined in
Paragraph 18(a).
3. Title and Condition.
-------------------
(a) The Leased Premises are demised and let subject to (i) the
Mortgage and Assignment presently in effect, (ii) the rights of any Persons in
possession of the Leased Premises, (iii) the existing state of title of any of
the Leased Premises, including any Permitted Encumbrances, (iv) any state of
facts which an accurate survey or physical inspection of the Leased Premises
might show, (v) all Legal Requirements, including any existing violation of any
thereof, and (vi) the condition of the Leased Premises as of the commencement of
the Term, without representation or warranty by Landlord.
(b) Tenant acknowledges that the Leased Premises is in good condition
and repair at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND
TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS. TENANT ACKNOWLEDGES THAT
-----
LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT
MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN
OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL
OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT,
(iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS,
(vii) LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY,
(xii) DESCRIPTION, (xiii) DURABILITY, (xiv) OPERATION, (xv) THE EXISTENCE OF ANY
HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR HAZARDOUS ACTIVITY OR (xvi)
COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL
RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE
LEASED PREMISES IS OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE
LEASED PREMISES HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE
EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE,
WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE
BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW
OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has examined the title
to the Leased Premises prior to the execution and delivery of this Lease and has
found the same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) fee simple title (both legal and equitable) is in Landlord
and that Tenant has only the leasehold right of possession and use of the Leased
Premises as provided herein, (ii) the Improvements conform to all material Legal
Requirements and all material Insurance Requirements, (iii) to the best
knowledge of Tenant, all easements necessary or appropriate for the use or
operation of the
7
<PAGE>
Leased Premises have been obtained, (iv) to the best knowledge of Tenant, all
contractors and subcontractors who have performed work on or supplied materials
to the Leased Premises have been fully paid, and all materials and supplies have
been fully paid for, (v) the Improvements have been fully completed in all
material respects in a workmanlike manner of first class quality, and (vi) all
Equipment necessary or appropriate for the use or operation of the Leased
Premises has been installed and is presently fully operative in all material
respects.
(d) Landlord hereby assigns to Tenant, without recourse or warranty
whatsoever, all assignable warranties, guaranties, indemnities and similar
rights (collectively, "Warranties") which Landlord may have against any
------------
manufacturer, seller, engineer, contractor or builder in respect of any of the
Leased Premises. Such assignment shall remain in effect until an Event of
Default occurs or until the expiration or earlier termination of this Lease,
whereupon such assignment shall cease and all of Warranties, guaranties,
indemnities and other rights shall automatically revert to Landlord. Tenant
shall enforce the Warranties in accordance with their respective terms.
4. Use of Leased Premises, Quiet Enjoyment.
---------------------------------------
(a) Tenant may occupy and use the Leased Premises for general office
use and for no other purpose. Tenant shall not use or occupy or permit any of
the Leased Premises to be used or occupied, nor do or permit anything to be done
in or on any of the Leased Premises, in a manner which would or might (i)
violate any Law or Legal Requirement in any material respect, (ii) make void or
voidable or cause any insurer to cancel any insurance required by this Lease, or
make it difficult or impossible to obtain any such insurance at commercially
reasonable rates, (iii) make void or voidable, cancel or cause to be cancelled
or release any warranty, guaranty or indemnity, (iv) cause structural injury to
any of the Improvements or (v) constitute a public or private nuisance or waste.
(b) Subject to the provisions hereof, so long as no Event of Default
has occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the
Leased Premises throughout the Term, without any hindrance, ejection or
molestation by Landlord with respect to matters that arise after the date
hereof, provided that Landlord or its agents may, in a manner which does not
unreasonably interrupt or otherwise interfere with Tenant's business, enter upon
and examine any of the Leased Premises at such reasonable times as Landlord may
select and upon reasonable notice to Tenant (except in the case of an emergency,
in which no notice shall be required) for the purpose of inspecting the Leased
Premises, verifying compliance or non-compliance by Tenant with its obligations
hereunder and the existence or non-existence of an Event of Default or event
which with the passage of time and/or notice would constitute an Event of
Default, showing the Leased Premises to prospective Lenders and purchasers and
taking such other action with respect to the Leased Premises as is permitted by
any provision hereof.
5. Term.
----
(a) Subject to the provisions hereof, Tenant shall have and hold
the Leased Premises for an initial term (such term, as extended or renewed in
accordance with the provisions hereof, being called the "Term") commencing on
------
the date hereof (the "Commencement Date") and ending on the last day of the two
-------------------
hundred fortieth (240th) calendar month next following the date hereof with
respect to the Leased Premises, (the "Expiration Date").
-----------------
(b) Provided that if, on or prior to the Expiration Date or any other
Renewal Date (as hereinafter defined) this Lease shall not have been terminated
pursuant to any provision hereof, then on the Expiration Date and on the fifth
(5th) anniversary of the Expiration Date (the Expiration Date and the
anniversary being a "Renewal Date"), Tenant, at Tenant's sole
--------------
8
<PAGE>
option, may extend the Term for an additional period of five (5) years, at any
time until notice from Tenant to Landlord of Tenant's election to extend
delivered to Landlord no more than eighteen (18) months prior to the next
Renewal Date or (ii) the currently scheduled Expiration Date. Any such extension
of the Term shall be subject to all of the provisions of this Lease, as the same
may be amended, supplemented or modified.
(c) If Tenant fails to exercise its option to extend or further
extend the Term, or if an Event of Default occurs, then Landlord shall have the
right during the remainder of the Term then in effect and, in any event,
Landlord shall have the right during the last year of the Term, (i) to advertise
the availability of the Leased Premises for sale or reletting and to erect upon
the Leased Premises signs indicating such availability and (ii) to show, in a
manner that does not unreasonably interrupt or interfere with Tenant's business,
the Leased Premises to prospective purchasers or tenants or their agents at such
reasonable times as Landlord may select.
6. Basic Rent. Tenant shall pay to Landlord, as annual rent for the
----------
Leased Premises during the Term, the amounts determined in accordance with
Exhibit "D" hereto ("Basic Rent commencing on the first day of April, 1999, and
- ----------- ----------
continuing on the first day of each July, October, January and April thereafter
during the Term (each such day being a "Basic Rent Payment Date"). Each such
-------------------------
rental payment shall be made, at Landlord's sole discretion, (a) to Landlord at
its address set forth above and/or to one other Person, at such addresses and in
such proportions as Landlord may direct by fifteen (15) days' prior written
notice to Tenant (in which event Tenant shall give Landlord notice of each such
payment concurrent with the making thereof), and (b) by a check hand delivered
at least five (5) business days before or mailed at least ten (10) days before
the applicable Basic Rent Payment Date, or in Federal Funds. Delivery to such
other Person shall be deemed for all purposes to be proper delivery to Landlord
of any amounts so delivered. Pro rata Basic Rent for the period from the date
hereof through the last day of the month hereof shall be paid on the date
hereof.
7. Additional Rent.
---------------
(a) Tenant shall pay and discharge, as additional rent (collectively,
"Additional Rent"):
---------------
(i) except as otherwise specifically provided herein, all
costs and expenses of Tenant, Landlord and any other Persons specifically
referenced herein which are incurred in connection or associated with (A) the
ownership, use, non-use, occupancy, possession, operation, condition, design,
construction, maintenance, alteration, repair or, to the extent provided in this
Lease, restoration of any of the Leased Premises, (B) the performance of any of
Tenant's obligations under this Lease, (C) any sale or other transfer of any of
the Leased Premises to Tenant under this Lease, (D) any Condemnation
proceedings, (E) the adjustment, settlement or compromise of any insurance
claims involving or arising from any of the Leased Premises, (F) the
prosecution, defense or settlement of any litigation involving or arising from
any of the Leased Premises, this Lease, or the sale of the Leased Premises to
Landlord, (G) the exercise or enforcement by Landlord, its successors and
assigns, of any of its rights under this Lease, (H) any amendment to or
modification or termination of this Lease made at the request of Tenant, (I)
reasonable Costs of Landlord's counsel and reasonable internal Costs of Landlord
incurred in connection with any act undertaken by Landlord (or its counsel) at
the request of Tenant, or incurred in connection with any act of Landlord
performed on behalf of Tenant permitted under this Lease, (J) the reasonable
internal Costs of Landlord incurred in connection with any act undertaken by
Landlord at the request of Tenant or Tenant's failure to act promptly in an
emergency situation, (K) costs of appraisals and inspections required by Lender
in connection with an Event of Default or if required by banking regulations or
Laws applicable to
9
<PAGE>
Lender and reasonable costs of maintaining any depository account for the
payment of Rent and (L) any other items specifically required to be paid by
Tenant under this Lease;
(ii) after the date all or any portion of any installment of
Basic Rent is due and not paid, an amount equal to five percent (5%) of the
amount of such unpaid installment or portion thereof, provided, however, that
with respect to the first late payment of all or any portion of any installment
of Basic Rent in any Lease Year, the Late Charge shall not be due and payable
unless the Basic Rent has not been paid within five (5) days following the due
date thereof.
(iii) a sum equal to any additional sums (including any late
charge, default penalties, interest and fees of Lender's counsel) which are
payable by Landlord to any Lender under any Note by reason of Tenant's late
payment or non-payment of Basic Rent or by reason of an Event of Default; and
(iv) interest at the rate (the "Default Rate") of four percent
------------
(4%) over the Prime Rate per annum on the following sums until paid in full: (A)
all overdue installments of Basic Rent from the respective due dates thereof,
provided, however, that with respect to the first late payment of all or any
portion of any installment of Basic Rent in any Lease Year the late installment
of Basic Rent shall not bear interest at the Default Rate until the sixth
(6/th/) day following the date on which such installment was due, (B) all
overdue amounts of Additional Rent relating to obligations which Landlord shall
have paid on behalf of Tenant, from the date of payment thereof by Landlord, and
(C) all other overdue amounts of Additional Rent, from the date when any such
amount becomes overdue.
(b) Tenant shall pay and discharge (i) any Additional Rent referred
to in Paragraph 7(a)(i) when the same shall become due, provided that amounts
which are billed to Landlord or any third party, but not to Tenant, shall be
paid within ten (10) days after Landlord's demand for payment thereof, which
demand for payment shall include the applicable supporting materials, and (ii)
any other Additional Rent, within ten (10) days after Landlord's written demand
for payment thereof, which demand for payment shall include the applicable
supporting materials.
(c) In no event shall amounts payable under Paragraph 7(a)(ii), (iii)
and (iv) exceed the maximum amount permitted by applicable Law.
8. Net Lease: Non-Terminability.
----------------------------
(a) This is a net lease and except as otherwise expressly provided
all Monetary Obligations shall be paid without notice or demand and without set-
off, counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense (collectively, a "Set-Off").
---------
(b) Except as otherwise expressly provided herein, this Lease and the
rights of Landlord and the obligations of Tenant hereunder shall not be affected
by any event or for any reason, including the following: (i) any damage to or
theft, loss or destruction of any of the Leased Premises, (ii) any Condemnation,
(iii) Tenant's acquisition of ownership of any of the Leased Premises other than
pursuant to an express provision of this Lease, (iv) any default on the part of
Landlord hereunder or under any Note, Mortgage, Assignment or any other
agreement, (v) any latent or other defect in any of the Leased Premises, (vi)
the breach of any warranty of any seller or manufacturer of any of the
Equipment, (vii) any violation of any provision of this Lease by Landlord,
(viii) the bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution or winding-up of, or other proceeding affecting
Landlord, (ix) the exercise of any remedy, including foreclosure, under any
Mortgage or Assignment, (x) any
10
<PAGE>
action with respect to this Lease (including the disaffirmance hereof) which may
be taken by Landlord, any trustee, receiver or liquidator of Landlord or any
court under the Federal Bankruptcy Code or otherwise, (xi) any interference with
Tenant's use of the Leased Premises, (xii) market or economic changes or (xiii)
any other cause, whether similar or dissimilar to the foregoing, any present or
future Law to the contrary notwithstanding.
(c) The obligations of Tenant hereunder shall be separate and
independent covenants and agreements, all Monetary Obligations shall continue to
be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal
thereto), and the obligations of Tenant hereunder shall continue unaffected
unless the requirement to pay or perform the same shall have been terminated
pursuant to an express provision of this Lease. The obligation to pay Rent or
amounts equal thereto shall not be affected by any collection of rents by any
governmental body pursuant to a tax lien or otherwise, even though such
obligation results in a double payment of Rent. All Rent payable by Tenant
hereunder shall constitute "rent" for all purposes (including Section 502(b)(6)
of the Federal Bankruptcy Code).
(d) Except as otherwise expressly provided herein, Tenant shall have
no right and hereby waives all rights which it may have under any Law (i) to
quit, terminate or surrender this Lease or any of the Leased Premises, or (ii)
to any Set-Off of any Monetary Obligations.
9. Payment of Impositions.
----------------------
(a) Tenant shall, before interest or penalties are due thereon, pay
and discharge all taxes (including real and personal property, franchise, sales
and rent taxes), all charges for any easement or agreement maintained for the
benefit of any of the Leased Premises, all assessments and levies, all permit,
inspection and license fees, all rents and charges for water, sewer, utility and
communication services relating to any of the Leased Premises, all ground rents
and all other public charges whether of a like or different nature, even if
unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii)
Tenant's leasehold interest in the Leased Premises, (iii) any of the Leased
Premises, (iv) Landlord as a result of or arising in respect of the acquisition,
ownership, occupancy, leasing, use, possession or sale of any of the Leased
Premises, any activity conducted on any of the Leased Premises, or the Rent, or
(v) any Lender by reason of any Note, Mortgage, Assignment or other customary
document evidencing or securing a Loan and which (as to this clause (v))
Landlord has agreed to pay (collectively, the "Impositions"); provided, that
-----------
nothing herein shall obligate Tenant to pay (A) income, excess profits or other
taxes of Landlord (or Lender) which are determined on the basis of Landlord's
(or Lender's) net income or net worth (unless such taxes are in lieu of or a
substitute for any other tax, assessment or other charge upon or with respect to
the Leased Premises which, if it were in effect, would be payable by Tenant
under the provisions hereof or by the terms of such tax, assessment or other
charge), (B) any estate, inheritance, succession, gift or similar tax imposed on
Landlord or (C) any capital gains tax imposed on Landlord in connection with the
sale of the Leased Premises to any Person. If any Imposition may be paid in
installments without interest or penalty, Tenant shall have the option to pay
such Imposition in installments; in such event, Tenant shall be liable only for
those installments which accrue or become due and payable during the Term.
Tenant shall prepare and file all tax reports required by governmental
authorities which relate to the Impositions. Tenant shall deliver to Landlord
(1) copies of all settlements and notices pertaining to the Impositions which
may be issued by any governmental authority within ten (10) days after Tenant's
receipt thereof, (2) receipts for payment of all taxes required to be paid by
Tenant hereunder within thirty (30) days after the due date thereof and (3)
receipts for payment of all other Impositions within ten (10) days after
Landlord's request therefor.
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(b) Landlord shall have the right at any time following the
occurrence of an Event of Default or if required by Lender to require Tenant to
pay to Landlord an additional monthly sum (each an "Escrow Payment") sufficient
--------------
to pay the Escrow Charges (as hereinafter defined) as they become due. As used
herein, "Escrow Charges" shall mean real estate taxes on the Leased Premises or
--------------
payments in lieu thereof and premiums on any insurance required by this Lease.
Landlord shall determine the amount of the Escrow Charges and of each Escrow
Payment. As long as the Escrow Payments are being held by Landlord the Escrow
Payments shall not be commingled with other funds of Landlord or other Persons
and interest thereon shall accrue for the benefit of Tenant from the date such
monies are received and invested until the date such monies are disbursed to pay
Escrow Charges. Landlord shall apply the Escrow Payments to the payment of the
Escrow Charges in such order or priority as Landlord shall determine or as
required by law. If at any time the Escrow Payments theretofore paid to Landlord
shall be insufficient for the payment of the Escrow Charges, Tenant, within ten
(10) days after Landlord's demand therefor, shall pay the amount of the
deficiency to Landlord.
10. Compliance with Laws and Easement Agreements, Environmental Matters.
-------------------------------------------------------------------
(a) Tenant shall, at its expense, comply with and conform to, and
cause the Leased Premises and any other Person occupying any part of the Leased
Premises to comply with and conform to, all Insurance Requirements and Legal
Requirements (including all applicable Environmental Laws). Tenant shall not at
any time (i) cause, permit or suffer to occur any Environmental Violation or
(ii) permit any sublessee, assignee or other Person occupying the Leased
Premises under or through Tenant to cause, permit or suffer to occur any
Environmental Violation and, at the request of Landlord or Lender, Tenant shall
promptly remediate or undertake any other appropriate response action to correct
any existing Environmental Violation, however immaterial. Any and all reports
prepared for or by Landlord with respect to the Leased Premises shall be for the
sole benefit of Landlord and Lender and no other Person shall have the right to
rely on any such reports. Notwithstanding the foregoing, Tenant shall have the
right, at Tenant's sole cost and expense, to contest any covenants enforceable
against Tenant by any third parties provided that the Lease shall remain in full
force and effect.
(b) Tenant, at its sole cost and expense, will at all times promptly
and faithfully abide by, discharge and perform all of the covenants, conditions
and agreements contained in any Easement Agreement on the part of Landlord or
the occupier to be kept and performed thereunder. Subject to Paragraph 35
hereof, Tenant will not alter, modify, amend or terminate any Easement
Agreement, give any consent or approval thereunder, or enter into any new
Easement Agreement without, in each case, the prior written consent of Landlord,
such consent not to be unreasonably withheld or delayed.
(c) Upon prior written notice from Landlord, Tenant shall permit such
persons as Landlord may designate ("Site Reviewers") to visit the Leased
--------------
Premises and perform, as agents of Tenant, in a manner which does not
unreasonably interfere with Tenant's business, environmental site
investigations and assessments ("Site Assessments") on the Leased Premises for
----------------
the purpose of determining whether there exists on the Leased Premises any
Environmental Violation or any condition which could result in any Environ-
mental Violation. Such Site Assessments may include both above and below the
ground testing for Environmental Violations and such other tests as may be
necessary, in the opinion of the Site Reviewers, to conduct the Site
Assessments. Any such investigations, assessments and testing should be
performed in a good and workmanlike manner in compliance with all applicable
Legal Requirements and in a manner which does not unreasonably interfere with
Tenant's business on the Leased Premises. Tenant shall supply to the Site
Reviewers such historical and operational information regarding the Leased
Premises as may be reasonably requested by the Site Reviewers to facilitate the
Site Assessments, and shall make available for meetings with the Site Reviewers
appropriate
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personnel having knowledge of such matters. The cost of performing and reporting
any Site Assessments shall be paid by Tenant.
(d) If an Environmental Violation occurs or is found to exist and, in
Landlord's reasonable judgment, the cost of remediation of, or other response
action with respect to, the same is likely to exceed $500,000, Tenant shall
provide to Landlord, within ten (10) days after Landlord's request therefor,
adequate financial assurances that Tenant will effect such remediation in
accordance with applicable Environmental Laws. Such financial assurances shall
be a bond or letter of credit reasonably satisfactory to Landlord in form and
substance and in an amount equal to or greater than Landlord's reasonable
estimate, based upon a Site Assessment performed pursuant to Paragraph 10(c),
of the anticipated cost of such remedial action.
(e) Notwithstanding any other provision of this Lease, if an
Environmental Violation occurs or is found to exist and the Term would otherwise
terminate or expire and either (1) as a result of the Environmental Violation
the Landlord, after good faith efforts is unable to lease the Leased Premises at
its fair market rental value absent such Environmental Violation or (2) the
Environmental Violation causes a diminution in the value of the Premises, then,
at the option of Landlord, the Term shall be automatically extended beyond the
date of termination or expiration and this Lease shall remain in full force and
effect beyond such date until the earlier to occur of (i) the completion of all
remedial action in accordance with applicable Environmental Laws or (ii) the
date specified in a written notice from Landlord to Tenant terminating this
Lease.
(f) If Tenant fails to correct any Environmental Violation which
occurs or is found to exist, Landlord shall have the right (but no obligation)
to take any and all actions as Landlord shall deem necessary or advisable in
order to cure such Environmental Violation.
(g) Tenant shall notify Landlord immediately after becoming aware of
any Environmental Violation (or alleged Environmental Violation) or
noncompliance with any of the covenants contained in this Paragraph 10 and shall
forward to Landlord immediately upon receipt thereof copies of all orders,
reports, notices, permits, applications or other communications relating to any
such violation or noncompliance.
(h) All future leases, subleases or concession agreements relating to
the Leased Premises entered into by Tenant shall contain covenants of the other
party not to at any time (i) cause any Environmental Violation to occur or (ii)
permit any Person occupying the Leased Premises through said subtenant or
concessionaire to cause any Environmental Violation to occur.
11. Liens; Recording.
-----------------
(a) Tenant shall not, directly or indirectly, create or permit to be
created or to remain and shall promptly discharge or remove any lien, levy or
encumbrance on any of the Leased Premises or on any Rent or any other sums
payable by Tenant under this Lease, other than any Mortgage or Assignment, the
Permitted Encumbrances and any mortgage, lien, encumbrance or other charge
created by or resulting solely from any act or omission of Landlord. NOTICE IS
HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR
OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO
MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH
TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES.
LANDLORD MAY AT ANY TIME, AND AT LANDLORD'S REQUEST TENANT SHALL
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<PAGE>
PROMPTLY, POST ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY
OF LANDLORD.
(b) Tenant shall execute, deliver and record, file or register
(collectively, "record") all such instruments as may be required or permitted by
------
any present or future Law in order to evidence the respective interests of
Landlord and Tenant in the Leased Premises, and shall cause a memorandum of this
Lease (or, if such a memorandum cannot be recorded, this Lease), and any
supplement hereto or thereto, to be recorded in such manner and in such places
as may be required or permitted by any present or future Law in order to protect
the validity and priority of this Lease.
12. Maintenance and Repair.
----------------------
(a) Tenant shall at all times maintain the Leased Premises and the
Adjoining Property in as good repair and appearance as they are in on the date
hereof and fit to be used for their intended use in accordance with the better
of the practices generally recognized as then acceptable by other companies in
its industry or observed by Tenant with respect to the other real properties
owned or operated by it, and, in the case of the Equipment, in as good
mechanical condition as it was on the later of the date hereof or the date of
its installation, except for ordinary wear and tear. Tenant shall take every
other action necessary or appropriate for the preservation and safety of the
Leased Premises. Tenant shall promptly make all Alterations of every kind and
nature, whether foreseen or unforeseen, which may be required to comply with the
foregoing requirements of this Paragraph 12(a). Such Alterations shall include
Alterations required in order to insure that the Improvements are "year 2000"
compliant (that is capable of correctly and accurately processing, providing
and/or receiving date data from, into and between the 20/th/ and 2l/st/
centuries, and the years 1999 and 2000 and beyond, including recognizing that
the year 2000 is a leap year; and does not operate abnormally or inaccurately or
cease to operate as a result of the inability to correctly and accurately
process, provide and/or receive date data from, into, and between the 20/th/ and
21/st/ centuries and the years 1999 and 2000 and beyond). Landlord shall not be
required to make any Alteration, whether foreseen or unforeseen, or to maintain
any of the Leased Premises or Adjoining Property in any way, and Tenant hereby
expressly waives any right which may be provided for in any Law now or hereafter
in effect to make Alterations at the expense of Landlord or to require Landlord
to make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12
shall be made in conformity with the provisions of Paragraph 13.
(b) If any Improvement, now or hereafter constructed, shall (i)
encroach upon any setback or any property, street or right-of-way adjoining the
Leased Premises, (ii) violate the provisions of any restrictive covenant
affecting the Leased Premises, (iii) hinder or obstruct any easement or right-
of-way to which any of the Leased Premises is subject or (iv) impair the rights
of others in, to or under any of the foregoing, Tenant shall, promptly after
receiving notice or otherwise acquiring knowledge thereof, either (A) obtain
from all necessary parties waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation, hindrance, obstruction
or impairment, whether the same shall affect Landlord, Tenant or both, or (B)
take such action as shall be necessary to remove all such encroachments,
hindrances or obstructions and to end all such violations or impairments,
including, if necessary, making Alterations.
(c) Tenant covenants and agrees that it shall perform the post-
closing obligations described in Exhibit "F" within the timeframe specified
-----------
therein.
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13. Alterations and Improvements.
----------------------------
(a) Tenant shall have the right, without having obtained the prior
written consent of Landlord and Lender and provided that no Event of Default
then exists, to make (i) Alterations or a series of related Alterations that, as
to any such Alterations or series of related Alterations, do not cost in excess
of $500,000 and (ii) to install Equipment in the Improvements or accessions to
the Equipment that, as to such Equipment or accessions, do not cost in excess of
$500,000, so long as at the time of construction or installation of any such
Equipment or Alterations no Event of Default exists and the value and utility of
the Leased Premises is not diminished thereby. If the cost of any Alterations,
series of related Alterations, Equipment or accessions thereto is in excess of
$500,000, the prior written approval of Landlord and Lender shall be required,
such approval not to be unreasonably withheld or delayed. Tenant shall not
construct upon the Land any additional buildings without having first obtained
the prior written consent of Landlord and Lender.
(b) If Tenant makes any Alterations pursuant to this Paragraph 13 or
as required by Paragraph 12 or 17 (such Alterations and actions being
hereinafter collectively referred to as "Work"), whether or not Landlord's
----
consent is required, then (i) the market value of the Leased Premises shall not
be lessened by any such Work or its usefulness impaired, (ii) all such Work
shall be performed by Tenant in a good and workmanlike manner, (iii) all such
Work shall be expeditiously completed in compliance with all Legal Requirements,
(iv) all such Work shall comply with the Insurance Requirements, (v) if any such
Work involves the replacement of Equipment or parts thereto, all replacement
Equipment or parts shall have a value and useful life equal to the greater of
(A) the value and useful life on the date hereof of the Equipment being replaced
or (B) the value and useful life of the Equipment being replaced immediately
prior to the occurrence of the event which required its replacement, (vi) Tenant
shall promptly discharge or remove all liens filed against any of the Leased
Premises arising out of such Work, (vii) Tenant shall procure and pay for all
permits and licenses required in connection with any such Work, (viii) all such
Work shall be the property of Landlord and shall be subject to this Lease, and
Tenant shall execute and deliver to Landlord any document requested by Landlord
evidencing the assignment to Landlord of all estate, right, title and interest
(other than the leasehold estate created hereby) of Tenant or any other Person
thereto or therein, and (ix) Tenant shall comply, to the extent requested by
Landlord or required by this Lease, with the provisions of Paragraph 19(a),
whether or not such Work involves restoration of the Leased Premises.
14. Permitted Contests. Notwithstanding any other provision of
------------------
this Lease, Tenant shall not be required to (a) pay any Imposition, (b)
discharge or remove any lien referred to in Paragraph 11 or 13 or (c) take any
action with respect to any encroachment, violation, hindrance, obstruction or
impairment referred to in Paragraph 12(b) (such non-compliance with the terms
hereof being hereinafter referred to collectively as "Permitted Violations"), so
--------------------
long as at the time of such contest no Event of Default exists and so long as
Tenant shall contest, in good faith, the existence, amount or validity thereof,
the amount of the damages caused thereby, or the extent of its or Landlord's
liability therefor by appropriate proceedings which shall operate during the
pendency thereof to prevent or stay (i) the collection of, or other realization
upon, the Permitted Violation so contested, (ii) the sale, forfeiture or loss of
any of the Leased Premises or any Rent to satisfy or to pay any damages caused
by any Permitted Violation, (iii) any interference with the use or occupancy of
any of the Leased Premises, (iv) any interference with the payment of any Rent,
or (v) the cancellation or increase in the rate of any insurance policy or a
statement by the carrier that coverage will be denied. If the Cost of the
Permitted Violation is in excess of $ 100,000 or if required by Lender or
applicable Law irrespective of the Cost, Tenant shall provide Landlord security
which is satisfactory, in Landlord's reasonable judgment, to assure that such
Permitted Violation is corrected, including all Costs, interest and penalties
that may be incurred or become due in connection therewith. While any
proceedings which comply with the requirements of this Paragraph 14 are pending
and the required security is held by
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<PAGE>
Landlord, Landlord shall not have the right to correct any Permitted Violation
thereby being contested unless Landlord is required by law to correct such
Permitted Violation and Tenant's contest does not prevent or stay such
requirement as to Landlord. Each such contest shall be promptly and diligently
prosecuted by Tenant to a final conclusion, except that Tenant, so long as the
conditions of this Paragraph 14 are at all times complied with, has the right to
attempt to settle or compromise such contest through negotiations. Tenant shall
pay any and all losses, judgments, decrees and Costs in connection with any such
contest and shall, promptly after the final determination of such contest, fully
pay and discharge the amounts which shall be levied, assessed, charged or
imposed or be determined to be payable therein or in connection therewith,
together with all penalties, fines, interest and Costs thereof or in connection
therewith, and perform all acts the performance of which shall be ordered or
decreed as a result thereof. No such contest shall subject Landlord to the risk
of any civil or criminal liability.
15. Indemnification.
---------------
(a) Except with respect to an act of gross negligence or willful
misconduct by the Indemnitee seeking indemnification, Tenant shall pay, protect,
indemnify, defend, save and hold harmless Landlord, Lender and all other Persons
described in Paragraph 30 (each an "Indemnitee") from and against any and all
----------
liabilities, losses, damages (including punitive damages), penalties, Costs
(including attorneys' fees and costs), causes of action, suits, claims, demands
or judgments of any nature whatsoever, howsoever caused, without regard to the
form of action and whether based on strict liability, negligence or any other
theory of recovery at law or in equity, arising from (i) any matter pertaining
to the acquisition (or the negotiations leading thereto), ownership, use, non-
use, occupancy, operation, condition, design, construction, maintenance, repair
or restoration of the Leased Premises or Adjoining Property, (ii) any casualty
in any manner arising from the Leased Premises or Adjoining Property, whether or
not Indemnitee has or should have knowledge or notice of any defect or condition
causing or contributing to said casualty, (iii) any violation by Tenant of any
provision of this Lease, any contract or agreement to which Tenant is a party,
any Legal Requirement or any Permitted Encumbrance or any encumbrance Tenant
consented to or the Mortgage or Assignment or (iv) any alleged, threatened or
actual Environmental Violation, including (A) liability for response costs and
for costs of removal and remedial action incurred by the United States
Government, any state or local governmental unit or any other Person, or damages
from injury to or destruction or loss of natural resources, including the
reasonable costs of assessing such injury, destruction or loss, incurred
pursuant to Section 107 of CERCLA, or any successor section or act or provision
of any similar state or local Law, (B) liability for costs and expenses of
abatement, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any of the other Environmental Laws and (C)
liability for personal injury or property damage arising under any statutory or
common-law tort theory, including damages assessed for the maintenance of a
public or private nuisance or for carrying on of a dangerous activity.
(b) In case any action or proceeding is brought against any
Indemnitee by reason of any such claim, (i) Tenant may, except in the event of a
conflict of interest or a dispute between Tenant and any such Indemnitee or
during the continuance of an Event of Default, retain its own counsel and defend
such action (it being understood that Landlord may, at Landlord's sole expense
and without pass-through as Additional Rent, employ counsel of its choice to
monitor the defense of any such action) and (ii) such Indemnitee shall notify
Tenant to resist or defend such action or proceeding by retaining counsel
reasonably satisfactory to such Indemnitee, and such Indemnitee will cooperate
and assist in the defense of such action or proceeding if reasonably requested
so to do by Tenant. In the event of a conflict of interest or dispute or during
the continuance of an Event of Default, Landlord shall have the right to select
counsel, and the reasonable cost of such counsel shall by paid by Tenant.
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(c) The obligations of Tenant under this Paragraph 15 shall survive
any termination, expiration or rejection in bankruptcy of this Lease.
16. Insurance.
---------
(a) Tenant shall maintain the following insurance on or in connection
with the Leased Premises except as otherwise approved or consented to by
Landlord:
(i) Insurance against physical loss or damage to the
Improvements and Equipment as provided under a standard "All Risk" property
policy including but not limited to flood and earthquake (if the Leased Premises
is in a flood zone and/or earthquake zone, as applicable) and earthquake
coverage in amounts not less than the actual replacement cost of the
Improvements and Equipment. Such policies shall contain Replacement Cost and
Agreed Amount Endorsements and shall contain deductibles not more than $50,000
per occurrence.
(ii) Commercial General Liability Insurance (including but not
limited to Incidental Medical Malpractice and Host Liquor Liability) and
Business Automobile Liability Insurance (including Non-Owned and Hired
Automobile Liability) against claims for personal and bodily injury, death or
property damage occurring on, in or as a result of the use of the Leased
Premises, in an amount not less than $15,000,000 per occurrence/annual aggregate
and all other coverage extensions that are usual and customary for properties of
this size and type provided, however, that the Landlord shall have the right to
require such higher limits as may be reasonable and customary for properties of
this size and type.
(iii) Workers' compensation insurance covering all persons
employed by Tenant in connection with any work done on or about any of the
Leased Premises for which claims for death, disease or bodily injury may be
asserted against Landlord, Tenant or any of the Leased Premises or, in lieu of
such Workers' Compensation Insurance, a program of self-insurance complying with
the rules, regulations and requirements of the appropriate agency of the State.
(iv) Comprehensive Boiler and Machinery Insurance on any of the
Equipment or any other equipment on or in the Leased Premises, in an amount not
less than $5,000,000 per accident for damage to property. Such policies shall
include at least $5,000,000 per accident for Off-Premises Service Interruption,
Expediting Expenses, Ammonia Contamination, and Hazardous Materials Clean-Up
Expense and may contain a deductible not to exceed $50,000.
(v) Business Income/Extra Expense Insurance at limits
sufficient to cover 100% of the period of indemnity not less than one year from
time of loss. Such insurance shall name Landlord as loss payee solely with
respect to Rent payable to or for the benefit of Landlord as its interest
appears under this Lease.
(vi) During any period in which substantial Alterations at the
Leased Premises are being undertaken, builder's risk insurance covering the
total completed value including any "soft costs" with respect to the
Improvements being altered or repaired (on a completed value, non-reporting
basis), replacement cost of work performed and equipment, supplies and materials
furnished in connection with such construction or repair of Improvements or
Equipment, together with such "soft cost" endorsements and such other
endorsements as Landlord may reasonably require and general liability, worker's
compensation and automobile liability insurance with respect to the Improvements
being constructed, altered or repaired.
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(vii) Such other insurance (or other terms with respect to any
insurance required pursuant to this Paragraph 16, including without limitation
amounts of coverage, deductibles, form of mortgagee clause) on or in connection
with any of the Leased Premises as Landlord or Lender may reasonably require,
which at the time is usual and commonly obtained in connection with properties
similar in type of building size, use and location to the Leased Premises.
(b) The insurance required by Paragraph 16(a) shall be written by
companies which have a Best's rating of A:X or above and are admitted in, and
approved to write insurance policies by, the State Insurance Department for the
State. The insurance policies shall be in amounts sufficient at all times to
satisfy any coinsurance requirements thereof. The insurance referred to in
Paragraphs 16(a)(i), 16(a)(iv) and 16(a)(vi) shall name Landlord as Owner and
Lender as loss payee and Tenant as its interest may appear. The insurance
referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as additional
insureds, and the insurance referred to in Paragraph 16(a)(v) shall name
Landlord as insured and Lender and Landlord as loss payee. If said insurance or
any part thereof shall expire, be withdrawn, become void, voidable, unreliable
or unsafe for any reason, including a breach of any condition thereof by Tenant
or the failure or impairment of the capital of any insurer, Tenant shall
immediately obtain new or additional insurance reasonably satisfactory to
Landlord.
(c) Each insurance policy referred to in clauses (i), (iv), (v) and
(vi) of Paragraph 16(a) shall contain standard non-contributory mortgagee
clauses in favor of and acceptable to Lender. Each policy required by any
provision of Paragraph 16(a), except clause (iii) thereof, shall provide that it
may not be cancelled, substantially modified or allowed to lapse on any renewal
date except after fifteen (15) days' prior notice to Landlord and Lender. Each
such policy shall also provide that any loss otherwise payable thereunder shall
be payable notwithstanding (i) any act or omission of Landlord or Tenant which
might, absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of any of the Leased Premises for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by Lender pursuant to
any provision of the Mortgage, Note, Assignment or other document evidencing or
securing the Loan upon the happening of an event of default therein or (iv) any
change in title to or ownership of any of the Leased Premises.
(d) Tenant shall pay as they become due all premiums for the
insurance required by Paragraph 16(a), shall renew or replace each policy and
deliver to Landlord evidence of the payment of the full premium therefor or
installment then due at least thirty (30) days prior to the expiration date of
such policy, and shall promptly deliver to Landlord all original certificates of
insurance.
(e) Anything in this Paragraph 16 to the contrary notwithstanding,
any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may
be carried under a "blanket" or umbrella policy or policies covering other
properties or liabilities of Tenant, provided that such "blanket" or umbrella
policy or policies otherwise comply with the provisions of this Paragraph 16 and
provided further that Tenant shall provide to Landlord a Statement of Values
which shall be reviewed annually and amended as necessary based on Replacement
Cost Valuations. The original or a certified copy of each such "blanket" or
umbrella policy shall promptly be delivered to Landlord.
(f) Tenant shall promptly comply with and conform to (i) all
provisions of each insurance policy required by this Paragraph 16 and (ii) all
requirements of the insurers thereunder applicable to Landlord, Tenant or any of
the Leased Premises or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration or repair of any of the
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Leased Premises, even if such compliance necessitates Alterations or results in
interference with the use or enjoyment of any of the Leased Premises.
(g) Tenant shall not carry separate insurance concurrent in form or
contributing in the event of a Casualty with that required in this Paragraph 16
unless (i) Landlord and Lender are included therein as named insureds, with loss
payable as provided herein, and (ii) such separate insurance complies with the
other provisions of this Paragraph 16. Tenant shall immediately notify Landlord
of such separate insurance and shall deliver to Landlord the original policies
thereof.
(h) All policies shall contain effective waivers by the carrier
against all claims for insurance premiums against Landlord and shall contain
full waivers of subrogation against the Landlord.
(i) All proceeds of any insurance required under Paragraph 16(a)
shall be payable as follows:
(i) Proceeds of insurance payable under clauses (ii), and
(iii) of Paragraph 16(a) and proceeds attributable to the general liability
coverage of Builder's Risk insurance under clause (vi) of Paragraph 16(a) shall
be payable to the Person entitled to receive such proceeds.
(ii) All proceeds of insurance payable under clauses (iv) and
(vii) of Paragraph 16(a) shall be payable to Landlord or, if required by the
Mortgage, to Lender and that portion of any proceeds of insurance payable under
clause (v) of Paragraph 16(a) to which Landlord is entitled to hereunder shall
be payable to Landlord or, if required by the Mortgage, to Lender.
(iii) Proceeds of insurance required under clause (i) of
Paragraph 16(a) and proceeds attributable to Builder's Risk insurance (other
than its general liability coverage provisions) under clause (vi) of Paragraph
16(a) shall be payable to Landlord (or Lender) and applied as set forth in
Paragraph 17. Tenant shall apply the Net Award to restoration of the Leased
Premises in accordance with the applicable provisions of this Lease.
17. Casualty and Condemnation.
-------------------------
(a) If any Casualty in excess of $50,000 occurs to the Leased
Premises occurs, Tenant shall give Landlord and Lender immediate notice thereof.
Landlord and Lender are hereby authorized to adjust, collect and compromise, in
their discretion and upon notice to Tenant (except that no notice to Tenant
shall be required if an Event of Default has occurred and is continuing), all
claims under any of the insurance policies required by Paragraph 16(a) (except
public liability insurance claims payable to a Person other than Tenant,
Landlord or Lender) and to execute and deliver on behalf of Tenant all necessary
proofs of loss, receipts, vouchers and releases required by the insurers.
Provided that no Event of Default has occurred and is continuing, Tenant shall
be entitled to participate with Landlord and Lender in any adjustment,
collection and compromise of the Net Award payable in connection with a
Casualty. Tenant agrees to sign, upon the request of Landlord and Lender, all
such proofs of loss, receipts, vouchers and releases. If Landlord or Lender so
requests, Tenant shall adjust, collect and compromise any and all such claims,
and Landlord and Lender shall have the right to join with Tenant therein. Any
adjustment, settlement or compromise of any such claim shall be subject to the
prior written approval of Tenant (so long as no Event of Default exists),
Landlord and Lender, and Landlord and Lender shall have the right to prosecute
or contest, or to require Tenant to prosecute or contest, any such claim,
adjustment, settlement or compromise. Each insurer is hereby authorized and
directed to make payment under said policies, including return
19
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or unearned premiums, directly to Landlord or, if required by the Mortgage, to
Lender instead of to Landlord and Tenant jointly, and Tenant hereby appoints
each of Landlord and Lender as Tenant's attorneys-in-fact to endorse any draft
therefor. The rights of Landlord under this Paragraph 17(a) shall be extended to
Lender if and to the extent that any Mortgage so provides.
(b) Tenant, immediately upon receiving a Condemnation Notice, shall
notify Landlord and Lender thereof. Landlord and Lender are authorized to
collect, settle and compromise, in their discretion (and, if no Event of Default
exists, upon notice to Tenant), the amount of any Net Award. Provided that no
Event of Default has occurred and is continuing, Tenant shall be entitled to
participate with Landlord and Lender in any Condemnation proceeding or
negotiations under threat thereof and to contest the Condemnation or the amount
of the Net Award therefor. No agreement with any condemnor in settlement or
under threat of any Condemnation shall be made by Tenant without the written
consent of Landlord and Lender. Subject to the provisions of this Paragraph
17(b), Tenant hereby irrevocably assigns to Landlord any award or payment to
which Tenant is or may be entitled by reason of any Condemnation, whether the
same shall be paid or payable for Tenant's leasehold interest hereunder or
otherwise; but nothing in this Lease shall impair Tenant's right to any award or
payment on account of Tenant's trade fixtures, equipment or other tangible
property which is not part of the Equipment, moving expenses or loss of
business, if available, to the extent that and so long as (i) Tenant shall have
the right to make, and does make, a separate claim therefor against the
condemnor and (ii) such claim does not in any way reduce either the amount of
the award otherwise payable to Landlord for the Condemnation of Landlord's fee
interest in the Leased Premises or the amount of the award (if any) otherwise
payable for the Condemnation of Tenant's leasehold interest hereunder. The
rights of Landlord under this Paragraph 17(b) shall also be extended to Lender
if and to the extent that any Mortgage so provides.
(c) If any Partial Casualty (whether or not insured against) or
Partial Condemnation shall occur, this Lease shall continue, notwithstanding
such event, and there shall be no abatement or reduction of any Monetary
Obligations. Promptly after such Partial Casualty or Partial Condemnation,
Tenant, as required in Paragraphs 12(a) and 13(b), shall commence and diligently
continue to restore the Leased Premises as nearly as possible to their value,
condition and character immediately prior to such event (assuming the Leased
Premises to have been in the condition required by this Lease). So long as no
Event of Default exists, any Net Award up to and including $250,000 shall be
paid by Landlord to Tenant and Tenant shall restore the Leased Premises in
accordance with the requirements of Paragraphs 12(a) and 13(b) of this Lease.
Any Net Award in excess of $250,000 shall (unless such Casualty resulting in the
Net Award is a Termination Event) be made available by Landlord (or Lender, if
required by the terms of any Mortgage) to Tenant for the restoration of any of
the Leased Premises pursuant to and in accordance with the provisions of
Paragraph 19 hereof. If any Casualty or Condemnation which is not a Partial
Casualty or Partial Condemnation shall occur, Tenant shall comply with the terms
and conditions of Paragraph 18.
18. Termination Events.
-------------------
(a) If (i) the entire Leased Premises shall be taken by a Taking or
(ii) any substantial portion of the Leased Premises shall be taken by a Taking
or all or any substantial portion of the Leased Premises shall be damaged or
destroyed by a Casualty and, in such case, Tenant certifies and covenants to
Landlord that it will forever abandon operations at the Leased Premises (each of
the events described in the above clauses (i) and (ii) shall hereinafter be
referred to as a "Termination Event"), then (x) in the case of (i) above, Tenant
-----------------
shall be obligated, within thirty (30) days after Tenant receives a Condemnation
Notice and (y) in the case of (ii) above, Tenant shall have the option, within
thirty (30) days after Tenant receives a Condemnation Notice or thirty (30) days
after the Casualty, as the case may be, to give to
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Landlord written notice of the Tenant's option to terminate this Lease (a
"Termination Notice") in the fonn described in Paragraph 18(b).
------------------
(b) A Termination Notice shall contain (i) notice of Tenant's
intention to terminate this Lease on the first Basic Rent Payment Date which
occurs at least sixty (60) days after the Fair Market Value Date (the
"Termination Date"), (ii) a binding and irrevocable offer of Tenant to pay to
----------------
Landlord the Termination Amount and (iii) if the Termination Event is an event
described in Paragraph 18(a)(ii), the certification and covenants described
therein and a certified resolution of the Board of Directors of Tenant
authorizing the same. Promptly upon the delivery to Landlord of a Termination
Notice, Landlord and Tenant shall commence to determine the Fair Market Value.
(c) If Landlord shall reject such offer to terminate this Lease
pursuant to Paragraph 18(b) above by written notice to Tenant (a "Rejection"),
---------
which Rejection shall contain the written consent of Lender, not later than
thirty (30) days following the Fair Market Value Date, then this Lease shall
terminate on the Termination Date; provided that, if Tenant has not satisfied
all Monetary Obligations and all other obligations and liabilities under this
Lease which have arisen on or prior to the Termination Date (collectively,
"Remaining Obligations") on the Termination Date, then Landlord may, at its
---------------------
option, extend the date on which this Lease may terminate to a date which is no
later than the first Basic Rent Payment Date after the Termination Date on which
Tenant has satisfied all Remaining Obligations. Upon such termination (i) all
obligations of Tenant hereunder shall terminate except for any Surviving
Obligations, (ii) Tenant shall immediately vacate and shall have no further
right, title or interest in or to any of the Leased Premises and (iii) the Net
Award shall be retained by Landlord. Notwithstanding anything to the contrary
hereinabove contained, if Tenant shall have received a Rejection and, on the
date when this Lease would otherwise terminate as provided above, Landlord shall
not have received the full amount of the Net Award payable by reason of the
applicable Termination Event, then the date on which this Lease is to terminate
automatically shall be extended to the first Basic Rent Payment Date after the
receipt by Landlord of the full amount of the Net Award provided that, if Tenant
has not satisfied all Remaining Obligations on such date, then Landlord may, at
its option, extend the date on which this Lease may terminate to a date which is
no later than the first Basic Rent Payment Date after such date on which Tenant
has satisfied all such Remaining Obligations.
(d) Unless Tenant shall have received a Rejection not later than
the thirtieth (30th) day following the Fair Market Value Date, Landlord shall be
conclusively presumed to have accepted such offer. If such offer is accepted by
Landlord then, on the Termination Date, Tenant shall pay to Landlord the
Termination Amount and all Remaining Obligations and, if requested by Tenant,
Landlord shall (i) convey to Tenant the Leased Premises or the remaining portion
thereof, if any, and (ii) pay to or assign to Tenant Landlord's entire interest
in and to the Net Award, all in accordance with Paragraph 20.
19. Restoration.
-----------
(a) Landlord (or Lender if required by any Mortgage) shall hold Net
Award in excess of $250,000 in a fund (the "Restoration Fund") and disburse
----------------
amounts from the Restoration Fund only in accordance with the following
conditions:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the restoration shall have
been approved by Landlord, such approval not to be unreasonably withheld or
delayed, (B) Landlord and Lender shall be provided with mechanics' lien
insurance (if available) and acceptable performance and payment bonds which
insure satisfactory completion of and payment for the restoration, are in an
21
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amount and form and have a surety acceptable to Landlord, and name Landlord and
Lender as additional dual obligees;
(ii) at the time of any disbursement, no Event of Default shall
exist and no mechanics' or materialmen's liens shall have been filed against any
of the Leased Premises and remain undischarged or unbonded unless the title
company insuring Landlord's title is willing to insure over such lien;
(iii) disbursements shall be made from time to time in an amount
not exceeding the cost of the work completed since the last disbursement, upon
receipt of (A) satisfactory evidence, including architects' certificates, of the
stage of completion, the estimated total cost of completion and performance of
the work to date in a good and workmanlike manner in accordance with the
contracts, plans and specifications, (B) waivers of liens, (C) contractors' and
subcontractors' sworn statements as to completed work and the cost thereof for
which payment is requested, (D) a satisfactory bringdown of title insurance and
(E) other evidence of cost and payment so that Landlord can verify that the
amounts disbursed from time to time are represented by work that is completed,
in place and free and clear of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by an authorized officer of Tenant, describing the
work for which payment is requested, stating the cost incurred in connection
therewith, stating that Tenant has not previously received payment for such work
and, upon completion of the work, also stating that the work has been fully
completed and complies with the applicable requirements of this Lease;
(v) Landlord may retain ten percent (10%) of the Restoration
Fund until the restoration is fully completed;
(vi) if the Restoration Fund is held by Landlord, the
Restoration Fund shall not be commingled with Landlord's other funds and shall
bear interest at a rate agreed to by Landlord and Tenant; and
(vii) such other reasonable conditions as Landlord or Lender
may impose.
(b) Prior to commencement of restoration and at any time during
restoration, if the estimated cost of completing the restoration work free and
clear of all liens, as determined by Landlord, exceeds the amount of the Net
Award available for such restoration, the amount of such excess shall, upon
demand by Landlord, be paid by Tenant to Landlord to be added to the Restoration
Fund. Any sum so added by Tenant which remains in the Restoration Fund upon
completion of restoration shall be refunded to Tenant. For purposes of
determining the source of funds with respect to the disposition of funds
remaining after the completion of restoration, the Net Award shall be deemed to
be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after completion of
the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum
shall be retained by Landlord or, if required by a Note or Mortgage, paid by
Landlord to a Lender.
20. Procedures Upon Purchase.
------------------------
(a) If the Leased Premises is purchased by Tenant pursuant to any
provision of this Lease, Landlord need not convey any better title thereto than
that which was conveyed to Landlord, and Tenant shall accept such title,
subject, however, to the Permitted
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Encumbrances and to all other liens, exceptions and restrictions on, against or
relating to any of the Leased Premises and to all applicable Laws, but free of
the lien of and security interest created by any Mortgage or Assignment and
liens, exceptions and restrictions on, against or relating to the Leased
Premises which have been created by or resulted solely from acts of Landlord
after the date of this Lease, unless the same are Permitted Encumbrances or
customary utility easements benefiting the Leased Premises or were created with
the concurrence of Tenant or as a result of a default by Tenant under this
Lease.
(b) Upon the date fixed for any such purchase of the Leased Premises
pursuant to any provision of this Lease (any such date the "Purchase Date"),
-------------
Tenant shall pay to Landlord, or to any Person to whom Landlord directs payment,
the Relevant Amount therefor specified herein, in Federal Funds, less any credit
of the Net Award received and retained by Landlord or a Lender allowed against
the Relevant Amount, and Landlord shall deliver to Tenant (i) a special warranty
deed which describes the premises being conveyed and conveys the title thereto
as provided in Paragraph 20(a), (ii) such other instruments as shall be
necessary to transfer to Tenant or its designee any other property (or rights to
any Net Award not yet received by Landlord or a Lender) then required to be sold
by Landlord to Tenant pursuant to this Lease and (iii) any Net Award received by
Landlord, not credited to Tenant against the Relevant Amount and required to be
delivered by Landlord to Tenant pursuant to this Lease; provided, that if any
Monetary Obligations remain outstanding on such date, then Landlord may deduct
from the Net Award the amount of such Monetary Obligations; and further
provided, that if any event has occurred which, in Landlord's reasonable
judgment, is likely to subject any Indemnitee to any liability which Tenant is
required to indemnify against pursuant to Paragraph 15, then an amount shall be
deducted from the Net Award which, in Landlord's reasonable judgment, is
sufficient to satisfy such liability, which amount shall be deposited in an
interest-bearing escrow account for the benefit of Tenant with a financial
institution reasonably satisfactory to Landlord and Tenant pending resolution of
such matter. If on the Purchase Date any Monetary Obligations remain outstanding
and no Net Award is payable to Tenant by Landlord or the amount of such Net
Award is less than the amount of the Monetary Obligations, then Tenant shall pay
to Landlord on the Purchase Date the amount of such Monetary Obligations. Upon
the completion of such purchase, this Lease and all obligations and liabilities
of Tenant hereunder shall terminate, except any Surviving Obligations.
(c) If the completion of such purchase shall be delayed after (i)
the Termination Date, in the event of a purchase pursuant to Paragraph 18 or,
(ii) the date scheduled for such purchase, in the event of a purchase under any
other provision of this Lease then (x) Rent shall continue to be due and payable
until completion of such purchase if such purchase is delayed for more than six
(6) months after the date scheduled for such purchase and (y) at Landlord's sole
option, Fair Market Value shall be redetermined and the Relevant Amount payable
by Tenant pursuant to the applicable provision of this Lease shall be adjusted
to reflect such redetermination.
(d) Any prepaid Monetary Obligations paid to Landlord shall be
prorated as of the Purchase Date, and the prorated unapplied balance shall be
deducted from the Relevant Amount due to Landlord; provided, that no
apportionment of any Impositions shall be made upon any such purchase.
21. Assignment and Subletting; Prohibition against Leasehold Financing.
-------------------------------------------------------------------
(a) (i) Tenant shall have the right, upon thirty (30) days prior
written notice to Landlord and Lender, with no consent of Landlord or Lender
being required or necessary ("Preapproved Assignment") to assign this Lease by
----------------------
operation of law or otherwise to any Person ("Preapproved Assignee") that
--------------------
immediately following such assignment will have a publicly traded unsecured
senior debt rating of "Baal" or better from Moody's Investors
23
<PAGE>
Services, Inc. or a rating of "BBB+" or better from Standard & Poor's
Corporation, and in the event all of such rating agencies cease to furnish such
ratings, then a comparable rating by any rating agency reasonably acceptable to
Landlord and Lender.
(ii) If Tenant desires to assign this Lease, whether by
operation of law or otherwise, to a Person ("Non-Preapproved Assignee") who
------------------------
would not be a Preapproved Assignee ("Non-Preapproved Assignment") then Tenant
--------------------------
shall, not less than ninety (90) days prior to the date on which it desires to
make a Non-Preapproved Assignment submit to Landlord and Lender information
regarding the following with respect to the Non-Preapproved Assignee
(collectively, the "Review Criteria"): (A) credit, (B) capital structure, (C)
---------------
management, (D) operating history, (E) proposed use of the Leased Premises and
(F) risk factors associated with the proposed use of the Leased Premises by the
Non-Preapproved Assignee, taking into account factors such as environmental
concerns, product liability and the like. Landlord and Lender shall review such
information and shall approve or disapprove the Non-Preapproved Assignee no
later than the thirtieth (30th) day following receipt of all such information,
and Landlord and Lender shall be deemed to have acted reasonably in granting or
withholding consent if such grant or disapproval is based on their review of the
Review Criteria applying prudent business judgment.
(b) (i) Tenant shall have the right, upon thirty (30) days prior
written notice to Landlord and Lender, to enter into one or more subleases that
demise, in the aggregate, up to but not in excess of ten percent (10%) of the
gross space in the Improvements with no consent or approval of Landlord being
required or necessary ("Preapproved Sublet"). Other than pursuant to
------------------
Preapproved Sublets, at no time during the Term shall subleases for more than
ten percent (10%) of the gross space in the Leased without the prior written
consent of Landlord which consent shall be granted or withheld based on a review
of the Review Criteria as they relate to the proposes sublessee and the terms of
the proposed sublease. Landlord and Lender shall be deemed to have acted
reasonably in granting or withholding consent if such grant or disapproval is
based on their review of the Review Criteria using prudent business judgment.
(c) If Tenant assigns all its rights and interest under this Lease,
the assignee under such assignment shall expressly assume all the obligations of
Tenant hereunder, actual or contingent, including obligations of Tenant which
may have arisen on or prior to the date of such assignment, by a written
instrument delivered to Landlord at the time of such assignment. Each sublease
of any of the Leased Premises shall be subject and subordinate to the provisions
of this Lease. No assignment or sublease shall affect or reduce any of the
obligations of Tenant hereunder, and all such obligations shall continue in full
force and effect as obligations of a principal and not as obligations of a
guarantor, as if no assignment or sublease had been made. No assignment or
sublease shall impose any additional obligations on Landlord under this Lease.
(d) Tenant shall, within ten (10) days after the execution and
delivery of any assignment or sublease consented to by Landlord, deliver a
duplicate original copy thereof to Landlord which, in the event of an
assignment, shall be in recordable form.
(e) As security for performance of its obligations under this Lease,
Tenant hereby grants, conveys and assigns to Landlord all right, title and
interest of Tenant in and to all subleases now in existence or hereafter entered
into for any or all of the Leased Premises, any and all extensions,
modifications and renewals thereof and all rents, issues and profits therefrom.
Landlord hereby grants to Tenant a license to collect and enjoy all rents and
other sums of money payable under any sublease of any of the Leased Premises,
provided, however, that Landlord shall have the absolute right to revoke said
license and to collect such rents and sums of money and to retain the same with
all such amounts being applied against any Monetary Obligation otherwise payable
by Tenant. Tenant shall not consent to, cause or allow any modification or
alteration of any of the terms, conditions or covenants of any of the
24
<PAGE>
subleases or the termination thereof, without the prior written approval of
Landlord, which consent shall not be unreasonably withheld, nor shall Tenant
accept any rents more than thirty (30) days in advance of the accrual thereof
nor do nor permit anything to be done, the doing of which, nor omit or refrain
from doing anything, the omission of which, will or could be a breach of or
default in the terms of any of the subleases.
(f) Tenant shall not have the power to mortgage, pledge or otherwise
encumber its interest under this Lease or any sublease of the Leased Premises,
and any such mortgage, pledge or encumbrance made in violation of this Paragraph
21 shall be void and of no force and effect. Notwithstanding the foregoing, in
the event Tenant pledges or encumbers any of its personal property and/or
equipment to any lender, Landlord, at the request of such lender, shall enter
into a lien waiver agreement with such lender in form reasonably satisfactory to
Landlord.
(g) Landlord may sell or transfer the Leased Premises at any time
without Tenant's consent to any third party (each a "Third Party Purchaser").
----------------------
In the event of any such transfer, Tenant shall attorn to any Third Party
Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify
Tenant in writing of such transfer and such Third Party Purchaser shall assume
all of the obligations of Landlord under this Lease. At the request of Landlord,
Tenant will execute such documents confirming the agreement referred to above
and such other agreements as Landlord may reasonably request, provided that such
agreements do not increase the liabilities and obligations of Tenant hereunder.
22. Events of Default.
-----------------
(a) The occurrence of any one or more of the following (after
expiration of any applicable cure period as provided in Paragraph 22(b)) shall,
at the sole option of Landlord, constitute an "Event of Default" under this
Lease:
(i) a failure by Tenant to make any payment of any Monetary
Obligation, regardless of the reason for such failure;
(ii) a failure by Tenant duly to perform and observe, or a
violation or breach of, any other provision hereof not otherwise specifically
mentioned in this Paragraph 22(a);
(iii) any representation or warranty made by Tenant herein or in
any certificate, demand or request made pursuant hereto proves to be incorrect,
now or hereafter, in any material respect;
(iv) a default beyond any applicable cure period or at maturity
by Tenant in any payment of principal or interest on any obligations for
borrowed money having an original principal balance of $500,000 or more in the
aggregate, or in the performance of any other provision contained in any
instrument under which any such obligation is created or secured (including the
breach of any covenant thereunder), (x) if such payment is a payment at maturity
or a final payment, or (y) if an effect of such default is to cause such
obligation to become due prior to its stated maturity;
(v) a default by Tenant beyond any applicable cure period in
the payment of rent under, or in the performance of any other material provision
of, any other lease or leases that have, in the aggregate, rental obligations
over the terms thereof of $500,000 or more;
25
<PAGE>
(vi) a final, non-appealable judgment or judgments for the
payment of money in excess of $500,000 in the aggregate shall be rendered
against Tenant and the same shall remain undischarged for a period of sixty (60)
consecutive days unless Tenant's insurance carrier advises Landlord in writing
that it is obligated to pay such judgment or judgments;
(vii) The breach of any Covenant shall occur;
(viii) Tenant shall (A) voluntarily be adjudicated a bankrupt or
insolvent, (B) seek or consent to the appointment of a receiver or trustee for
itself or for the Leased Premises, (C) file a petition seeking relief under the
bankruptcy or other similar laws of the United States, any state or any
jurisdiction, (D) make a general assignment for the benefit of creditors, or (E)
be unable to pay its debts as they mature;
(ix) a court shall enter an order, judgment or decree
appointing, without the consent of Tenant, a receiver or trustee for it or for
any of the Leased Premises or approving a petition filed against Tenant which
seeks relief under the bankruptcy or other similar laws of the United States,
any state or any jurisdiction, and such order, judgment or decree shall remain
undischarged or unstayed ninety (90) days after it is entered;
(x) the Leased Premises shall have been vacated or abandoned;
(xi) Tenant shall be liquidated or dissolved or shall begin
proceedings towards its total or substantial liquidation or towards dissolution;
(xii) the estate or interest of Tenant in any of the Leased
Premises shall be levied upon or attached in any proceeding and such estate or
interest is about to be sold or transferred or such process shall not be vacated
or discharged within sixty (60) days after it is made;
(xiii) a failure by Tenant to perform or observe, or a violation
or breach of, or a misrepresentation by Tenant under any provision of any
Assignment or any other document between Tenant and Lender, if such failure,
violation, breach or misrepresentation gives rise to a default beyond any
applicable cure period with respect to any Loan;
(xiv) a failure by Tenant to maintain in effect any other
license or permit necessary for the use, occupancy or operation of the Leased
Premises.
(b) No notice or cure period shall be required in any one or more of
the following events: (A) the occurrence of an Event of Default under clause (i)
(except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii),
(ix), (x), (xi), (xii), (xiii) or (xiv) of Paragraph 22(a); (B) the default
consists of a failure to pay Basic Rent, a failure to provide any insurance
required by Paragraph 16 or an assignment or sublease entered into in violation
of Paragraph 21; or (C) the default is such that any delay in the exercise of a
remedy by Landlord could reasonably be expected to cause irreparable harm to
Landlord. If the default consists of the failure to pay any Basic Rent under
clause (i) of Paragraph 22(a), the applicable cure period shall be three (3)
days from the date on which notice is given, but Landlord shall not be obligated
to give notice of, or allow any cure period for, any such default more than one
(1) time within any Lease Year. If the default consists of the failure to pay
any Monetary Obligation under clause (i) of Paragraph 22(a) other than Basic
Rent, the applicable cure period shall be three (3) days from the date on which
notice is given, but Landlord shall not be obligated to give notice of, or allow
any cure period for, any such default more than three (3) times within any Lease
Year. If the default consists of a default under clause (ii) of Paragraph 22(a),
other than the events specified in clauses (B) and (C) of the first sentence of
this Paragraph 22(b), the applicable cure period shall
26
<PAGE>
be thirty (30) days from the date on which notice is given, or, if the default
cannot be cured within such thirty (30) day period, or such longer cure period
as provided to Landlord by Lender, and delay in the exercise of a remedy would
not (in Landlord's reasonable judgment) cause any material adverse harm to
Landlord or any of the Leased Premises, the cure period shall be extended for
the period required to cure the default (but such cure period, including any
extension, shall not in the aggregate exceed such period as is provided to
Landlord by Lender), provided that Tenant shall commence to cure the default
within the said thirty-day period, and shall actively, diligently and in good
faith proceed with and continue the curing of the default until it shall be
fully cured.
23. Remedies and Damages Upon Default.
---------------------------------
(a) If an Event of Default shall have occurred and is continuing,
Landlord shall have the right, at its sole option, then or at any time
thereafter, to exercise its remedies and to collect damages from Tenant in
accordance with this Paragraph 23, subject in all events to applicable Law,
without demand upon or notice to Tenant except as otherwise provided in
Paragraph 22(b) and this Paragraph 23.
(i) Landlord may give Tenant notice of Landlord's intention to
terminate this Lease on a date specified in such notice. Upon such date, this
Lease, the estate hereby granted and all rights of Tenant hereunder shall expire
and terminate. Upon such termination, Tenant shall immediately surrender and
deliver possession of the Leased Premises to Landlord in accordance with
Paragraph 26. If Tenant does not so surrender and deliver possession of the
Leased Premises, Landlord may re-enter and repossess the Leased Premises, upon
obtaining a judicial order to such effect or by summary proceedings, ejectment
or any other lawful means or procedure through order of a court of competent
jurisdiction. Upon or at any time after taking possession of the Leased
Premises, Landlord may, by peaceable means or legal judicial process, remove any
Persons or property therefrom. Landlord shall be under no liability for or by
reason of any such entry, repossession or removal. Notwithstanding such entry or
repossession, Landlord, may (A) exercise the remedy set forth in and collect the
damages permitted by Paragraph 23(a)(iii) or (B) collect the damages set forth
in Paragraph 23(b)(i) or 23(b)(ii).
(ii) After repossession of the Leased Premises pursuant to
clause (i) above, Landlord shall have the right to relet any of the Leased
Premises to such tenant or tenants, for such term or terms, for such rent, on
such conditions and for such uses as Landlord in its sole discretion may
determine, and collect and receive any rents payable by reason of such
reletting. Landlord may make such Alterations in connection with such reletting
as it may deem advisable in its sole discretion. Notwithstanding any such
reletting, Landlord may collect the damages set forth in Paragraph 23(b)(ii).
(iii) Landlord may, upon notice to Tenant, require Tenant to
make an irrevocable offer to terminate this Lease upon payment to Landlord of an
amount (the "Default Termination Amount") specified in the next sentence. The
--------------------------
"Default Termination Amount" shall be the greatest of (A) the Fair Market Value
of the Leased Premises, (B) the sum of the Acquisition Cost and Prepayment
Premium which Landlord will be required to pay in prepaying any Loan with
proceeds of the Default Termination Amount or (C) an amount equal to the Present
Value of the entire Basic Rent from the date of such purchase to the date on
which the Term would expire, assuming that the Term has been extended for all
extension periods, if any, provided for in this Lease. Upon such notice to
Tenant, Tenant shall be deemed to have made such offer and shall, if requested
by Landlord, within ten (10) days following such request deposit with Landlord
as payment against the Default Termination Amount the amount described in (B)
above and Landlord and Tenant shall promptly commence to determine Fair Market
Value. Within thirty (30) days after the Fair Market Value Date, Landlord shall
accept or reject
27
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such offer. If Landlord accepts such offer then, on the tenth (1Oth) business
day after such acceptance, Tenant shall pay to Landlord the Default Termination
Amount and, at the request of Tenant, Landlord will convey the Leased Premises
to Tenant or its designee in accordance with Paragraph 20. Any rejection by
Landlord of such offer shall have no effect on any other remedy Landlord may
have under this Lease.
(iv) Landlord may declare by notice to Tenant the entire Basic
Rent (in the amount of Basic Rent then in effect) for the remainder of the then
current Term to be immediately due and payable. Tenant shall immediately pay to
Landlord all such Basic Rent discounted to its Present Value, all accrued Rent
then due and unpaid, all other Monetary Obligations which are then due and
unpaid and all Monetary Obligations which arise or become due by reason of such
Event of Default (including any Costs of Landlord). Upon receipt by Landlord of
all such accelerated Basic Rent and Monetary Obligations, this Lease shall
remain in full force and effect and Tenant shall have the right to possession of
the Leased Premises from the date of such receipt by Landlord to the end of the
Term, and subject to all the provisions of this Lease, including the obligation
to pay all increases in Basic Rent and all Monetary Obligations that
subsequently become due, except that (A) no Basic Rent which has been prepaid
hereunder shall be due thereafter during the said Term, and (B) Tenant shall
have no option to extend or renew the Term.
(b) The following constitute damages to which Landlord shall be
entitled if Landlord exercises its remedies under Paragraph 23(a)(i) or
23(a)(ii):
(i) If Landlord exercises its remedy under Paragraph 23(a)(i)
but not its remedy under Paragraph 23(a)(ii) (or attempts to exercise such
remedy and is unsuccessful in reletting the Leased Premises) then, upon written
demand from Landlord, Tenant shall pay to Landlord, as liquidated and agreed
final damages for Tenant's default and in lieu of all current damages beyond the
date of such demand (it being agreed that it would be impracticable or extremely
difficult to fix the actual damages), an amount equal to the Present Value of
the excess, if any, of (A) all Basic Rent from the date of such demand to the
date on which the Term is scheduled to expire hereunder in the absence of any
earlier termination, re-entry or repossession over (B) the then fair market
rental value of the Leased Premises for the same period. Tenant shall also pay
to Landlord all of Landlord's Costs in connection with the repossession of the
Leased Premises and any attempted reletting thereof, including all brokerage
commissions, reasonable legal expenses, attorneys' fees, employees' expenses,
costs of Alterations and expenses and preparation for reletting, including the
installation of a sprinkler system for office use.
(ii) If Landlord exercises its remedy under Paragraph 23(a)(i)
or its remedies under Paragraph 23(a)(i) and 23(a)(ii), then Tenant shall, until
the end of what would have been the Term in the absence of the termination of
the Lease, and whether or not any of the Leased Premises shall have been relet,
be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed
current damages all Monetary Obligations which would be payable under this Lease
by Tenant in the absence of such termination less the net proceeds, if any, of
any reletting pursuant to Paragraph 23(a)(ii), after deducting from such
proceeds all of Landlord's Costs (including the items listed in the last
sentence of Paragraph 23(b)(i) hereof) incurred in connection with such
repossessing and reletting; provided, that if Landlord has not relet the Leased
Premises, such Costs of Landlord shall be considered to be Monetary Obligations
payable by Tenant. Tenant shall be and remain liable for all sums aforesaid, and
Landlord may recover such damages from Tenant and institute and maintain
successive actions or legal proceedings against Tenant for the recovery of such
damages. Nothing herein contained shall be deemed to require Landlord to wait to
begin such action or other legal proceedings until the date when the Term would
have expired by its own terms had there been no such Event of Default.
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(c) Notwithstanding anything to the contrary herein contained, in
lieu of or in addition to any of the foregoing remedies and damages, Landlord
may exercise any remedies and collect any damages available to it at law or in
equity. If Landlord is unable to obtain full satisfaction pursuant to the
exercise of any remedy, it may pursue any other remedy which it has hereunder or
at law or in equity.
(d) Landlord shall not be required to mitigate any of its damages
hereunder unless required to by applicable Law. If any Law shall validly limit
the amount of any damages provided for herein to an amount which is less than
the amount agreed to herein, Landlord shall be entitled to the maximum amount
available under such Law.
(e) No termination of this Lease, repossession or reletting of the
Leased Premises, exercise of any remedy or collection of any damages pursuant to
this Paragraph 23 shall relieve Tenant of any Surviving Obligations.
(f) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD HEREUNDER,
LANDLORD AND TENANT WAIVES ANY RIGHT TO A TRIAL BY JURY.
(g) Upon the occurrence of any Event of Default, Landlord shall
have the right (but no obligation) to perform any act required of Tenant
hereunder and, if performance of such act requires that Landlord enter the
Leased Premises, Landlord may enter the Leased Premises for such purpose.
(h) No failure of Landlord (i) to insist at any time upon the
strict performance of any provision of this Lease or (ii) to exercise any
option, right, power or remedy contained in this Lease shall be construed as a
waiver, modification or relinquishment thereof. A receipt by Landlord of any sum
in satisfaction of any Monetary Obligation with knowledge of the breach of any
provision hereof shall not be deemed a waiver of such breach, and no waiver by
Landlord of any provision hereof shall be deemed to have been made unless
expressed in a writing signed by Landlord.
(i) Tenant hereby waives and surrenders, for itself and all those
claiming under it, including creditors of all kinds, (i) any right and privilege
which it or any of them may have under any present or future Law to redeem any
of the Leased Premises or to have a continuance of this Lease after termination
of this Lease or of Tenant's right of occupancy or possession pursuant to any
court order or any provision hereof, and (ii) the benefits of any present or
future Law which exempts property from liability for debt or for distress for
rent.
(j) Except as otherwise provided herein, all remedies are cumulative
and concurrent and no remedy is exclusive of any other remedy. Each remedy may
be exercised at any time an Event of Default has occurred and is continuing and
may be exercised from time to time. No remedy shall be exhausted by any exercise
thereof.
24. Notices. All notices, demands, requests, consents, approvals, offers,
-------
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
given and received for all purposes either (a) upon actual receipt when
delivered in person or by Federal Express or other reliable 24-hour delivery
service or by registered or certified mail, return receipt requested, postage
prepaid, addressed to the other party at its address stated above or (b) when
delivery is refused. A copy of any notice given by Tenant to Landlord shall
simultaneously be given by Tenant to Reed Smith Shaw & McClay LLP, 2500 One
Liberty Place, Philadelphia, PA 19103, Attention: Chairman, Real Estate
Department and an additional copy to Landlord, Attention: Director, Asset
Management. A copy of any notice given by Landlord to Tenant shall
simultaneously be
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<PAGE>
given by Landlord to Strasburger & Price, L.L.P., 901 Main Street, Suite 4300,
Dallas, Texas 75202-3794, Attention: Fred Fowler, Esq. For the purposes of this
Paragraph, any party may substitute another address stated above (or substituted
by a previous notice) for its address by giving fifteen (15) days' notice of
the new address to the other party, in the manner provided above.
25. Estoppel Certificate. At any time upon not less than ten (1O) days'
--------------------
prior written request by either Landlord or Tenant (the "Requesting Party")
----------------
to the other party (the "Responding Party"), the Responding Party shall
----------------
deliver to the Requesting Party a statement in writing, executed by an
authorized officer of the Responding Party, certifying (a) that, except as
otherwise specified, this Lease is unmodified and in full force and effect, (b)
the dates to which Basic Rent, Additional Rent and all other Monetary
Obligations have been paid, (c) that, to the knowledge of the signer of such
certificate and except as otherwise specified, no default by either Landlord or
Tenant exists hereunder, (d) such other matters as the Requesting Party may
reasonably request, and (e) if Tenant is the Responding Party that, except as
otherwise specified, there are no proceedings pending or, to the knowledge of
the signer, threatened, against Tenant before or by any court or administrative
agency which, if adversely decided, would materially and adversely affect the
financial condition and operations of Tenant. Any such statements by the
Responding Party may be relied upon by the Requesting Party, any Person whom the
Requesting Party notifies the Responding Party in its request for the
Certificate is an intended recipient or beneficiary of the Certificate, any
Lender or their assignees and by any prospective purchaser or mortgagee of any
of the Leased Premises. Any certificate required under this Paragraph 25 and
delivered by Tenant shall state that, in the opinion of each person signing the
same, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to the subject matter of such certificate,
and shall briefly state the nature of such examination or investigation.
26. Surrender. Upon the expiration or earlier termination of this
---------
Lease, Tenant shall peaceably leave and surrender the Leased Premises to
Landlord in the same condition in which the Leased Premises was at the
commencement of this Lease, except as repaired, rebuilt, restored, altered,
replaced or added to as permitted or required by any provision of this Lease,
and except for ordinary wear and tear. Upon such surrender, Tenant shall (a)
remove from the Leased Premises all property which is owned by Tenant or third
parties other than Landlord and (b) repair any damage caused by such removal.
Property not so removed shall become the property of Landlord, and Landlord may
thereafter cause such property to be removed from the Leased Premises. The cost
of removing and disposing of such property and repairing any damage to any of
the Leased Premises caused by such removal shall be paid by Tenant to Landlord
upon demand. Landlord shall not in any manner or to any extent be obligated to
reimburse Tenant for any such property which becomes the property of Landlord
pursuant to this Paragraph 26.
27. No Merger of Title. There shall be no merger of the leasehold
------------------
estate created by this Lease with the fee estate in any of the Leased Premises
by reason of the fact that the same Person may acquire or hold or own, directly
or indirectly, (a) the leasehold estate created hereby or any part thereof or
interest therein and (b) the fee estate in any of the Leased Premises or any
part thereof or interest therein, unless and until all Persons having any
interest in the interests described in (a) and (b) above which are sought to be
merged shall join in a written instrument effecting such merger and shall duly
record the same.
28. Books and Records.
-----------------
(a) Tenant shall keep adequate records and books of account with
respect to the finances and business of Tenant generally and with respect to the
Leased Premises, in accordance with generally accepted accounting principles
("GAAP") consistently applied, and
----
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<PAGE>
shall permit Landlord and Lender by their respective agents, accountants and
attorneys, upon reasonable notice to Tenant, to visit and inspect the Leased
Premises and examine (and make copies of) the records and books of account
relating to the Leased Premises and to discuss the finances and business with
the officers of Tenant, at such reasonable times as may be requested by
Landlord. Upon the request of Lender or Landlord (either telephonically or in
writing), Tenant shall provide the requesting party with copies of any
information to which such party would be entitled in the course of a personal
visit.
(b) Tenant shall make available to Landlord and to Lender within
ninety-one (91) days of the close of each fiscal year, annual audited financial
statements of Tenant prepared by a nationally recognized firm of independent
certified public accountants. Tenant shall also make available to Landlord
within forty-six (46) days after the end of each of the three remaining quarters
unaudited financial statements and all other quarterly reports of Tenant,
certified by Tenant's chief financial officer, and all filings, if any, of Form
1O-K, Form 1O-Q and other required filings with the Securities and Exchange
Commission pursuant to the provisions of the Securities Exchange Act of 1934, as
amended, or any other Law. All annual financial statements shall be accompanied
(i) by an opinion of said accountants stating that (A) there are no
qualifications as to the scope of the audit and (B) the audit was performed in
accordance with GAAP and (ii) by the affidavit of the president or a vice
president of Tenant, dated within five (5) days of the delivery of such
statement, stating that (C) the affiant knows of no Event of Default, or event
which, upon notice or the passage of time or both, would become an Event of
Default which has occurred and is continuing hereunder or, if any such event has
occurred and is continuing, specifying the nature and period of existence
thereof and what action Tenant has taken or proposes to take with respect
thereto and (D) except as otherwise specified in such affidavit, that Tenant has
fulfilled all of its obligations under this Lease which are required to be
fulfilled on or prior to the date of such affidavit.
29. Determination of Value.
----------------------
(a) Whenever a determination of Fair Market Value is required
pursuant to any provision of this Lease, such Fair Market Value shall be
determined in accordance with the following procedure:
(i) Landlord and Tenant (or Third Party Purchaser with respect
to a determination under clause (D) below) shall endeavor to agree upon such
Fair Market Value within thirty (30) days after the date (the "Applicable
----------
Initial Date") on which (A) Tenant provides Landlord with notice of its
- ------------
intention to terminate this Lease and purchase the Leased Premises pursuant to
Paragraph 18, (B) Landlord provides Tenant with notice of its intention to
redetermine Fair Market Value pursuant to Paragraph 20(c), (C) Landlord provides
Tenant with notice of Landlord's intention to require Tenant to make an offer to
terminate this Lease pursuant to Paragraph 23(a)(iii), or (D) Landlord elects to
convey to Tenant the Excess Land under Paragraph 36(a)(iii). Upon reaching such
agreement, the parties shall execute an agreement setting forth the amount of
such Fair Market Value.
(ii) If the parties shall not have signed such agreement within
thirty (30) days after the Applicable Initial Date, Landlord and Tenant shall
within fifty (50) days after the Applicable Initial Date each select an
appraiser and notify the other party in writing of the name, address and
qualifications of such appraiser. Such two appraisers shall endeavor to agree
upon Fair Market Value based on a written appraisal made by each of them (and
given to Landlord by Tenant) as of the Relevant Date. If such two appraisers
shall agree upon a Fair Market Value, the amount of such Fair Market Value as so
agreed shall be binding and conclusive upon Landlord and Tenant.
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(iii) If such two appraisers shall be unable to agree upon a
Fair Market Value within twenty (20) days after the selection of both
appraisers, then such appraisers shall advise Landlord and Tenant of their
respective determination of Fair Market Value and shall select a third appraiser
to make the determination of Fair Market Value. The selection of the third
appraiser shall be binding and conclusive upon Landlord and Tenant.
(iv) If such two appraisers shall be unable to agree upon the
designation of a third appraiser within ten (10) days after the expiration of
the twenty (20) day period referred to in clause (iii) above, or if such third
appraiser does not make a determination of Fair Market Value within twenty (20)
days after his selection, then such third appraiser or a substituted third
appraiser, as applicable, shall, at the request of either party hereto, be
appointed by the President or Chairman of the American Arbitration Association
in New York, New York. The determination of Fair Market Value made by the third
appraiser appointed pursuant hereto shall be made within twenty (20) days after
such appointment.
(v) If a third appraiser is selected, Fair Market Value shall
be the average of the determination of Fair Market Value made by the third
appraiser and the determination of Fair Market Value made by the appraiser
(selected pursuant to Paragraph 29(a)(ii) hereof) whose determination of Fair
Market Value is nearest to that of the third appraiser. Such average shall be
binding and conclusive upon Landlord and Tenant.
(vi) All appraisers selected or appointed pursuant to this
Paragraph 29(a) shall (A) be independent qualified MAI appraisers (B) have no
right, power or authority to alter or modify the provisions of this Lease, (C)
utilize the definition of Fair Market Value hereinabove set forth above, and (D)
be registered in the State if the State provides for or requires such
registration. The Cost of the procedure described in this Paragraph 29(a) above
shall be borne entirely by Tenant.
(b) If, by virtue of any delay, Fair Market Value is not determined
by the expiration or termination of the then current Term, then the date on
which the Term would otherwise expire or terminate shall be extended to the date
specified for termination in the particular provision of this Lease pursuant to
which the determination of Fair Market Value is being made.
(c) In determining Fair Market Value as defined in clause (b) of the
definition of Fair Market Value, the appraisers shall add (a) the present value
of the Rent for the remaining Term, provided, however, that in the event Fair
Market Value is being determined in accordance with Paragraph 23 the Term shall
be assumed to have been extended for all extension periods provided herein,
(with assumed increases in the CPI to be determined by the appraisers) using a
discount rate (which may be determined by an investment banker retained by each
appraiser) based on the creditworthiness of Tenant and (b) the present value of
the Leased Premises as of the end of such Term, provided, however, that in the
event Fair Market Value is being determined in accordance with Paragraph 23 the
Term shall be assumed to have been extended for all extension periods provided
herein. The appraisers shall further assume that no default then exists under
the Lease, that Tenant has complied (and will comply) with all provisions of the
Lease, and that Tenant has not violated (and will not violate) any of the
Covenants.
30. Non-Recourse as to Landlord. Anything contained herein to the contrary
---------------------------
notwithstanding, any claim based on or in respect of any liability of Landlord
under this Lease shall be enforced only against the Leased Premises and not
against any other assets, properties or funds of (i) Landlord, (ii) any
director, officer, member, general partner, shareholder, limited partner,
beneficiary, employee or agent of Landlord or any general partner of Landlord or
any of its members or general partners (or any legal representative, heir,
estate, successor or assign of
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any thereof), (iii) any predecessor or successor partnership or corporation (or
other entity) of Landlord or any of its general partners, shareholders,
officers, directors, members, employees or agents, either directly or through
Landlord or its general partners, shareholders, officers, directors, employees
or agents or any predecessor or successor partnership or corporation (or other
entity), or (iv) any Person affiliated with any of the foregoing, or any
director, officer, employee or agent of any thereof.
31. Financing.
---------
(a) Tenant agrees to pay all reasonable out-of-pocket costs and
expenses incurred by Landlord in connection with the purchase, leasing and
initial financing of the Leased Premises including, without limitation, the cost
of appraisals, environmental reports, title insurance, transfer and recording
fees and taxes, surveys, legal fees and expenses, Lender's commitment fees and
any "points" charged by Lender which "points" shall not exceed the
amount of $125,000. In no event shall Tenant be obligated to pay costs and
expenses incurred by Landlord in the refinancing of any Loan.
(b) Tenant agrees to pay, within ten (10) business days of written
demand therefor, any cost, charge or expense (other than the principal of the
Note and interest thereon at the contract rate of interest specified therein)
imposed upon Landlord by Lender pursuant to the Note, the Mortgage or the
Assignment which is not caused solely by the gross negligence or willful
misconduct of Landlord and which is not otherwise reimbursed by Tenant to
Landlord pursuant to any other provision of this Lease.
(c) If Landlord desires to obtain or refinance any Loan, Tenant
shall negotiate in good faith with Landlord concerning any request made by any
Lender or proposed Lender for changes or modifications in this Lease. In
particular, Tenant shall agree, upon request of Landlord, to supply any such
Lender with such notices and information as Tenant is required to give to
Landlord hereunder and to extend the rights of Landlord hereunder to any such
Lender and to consent to such financing if such consent is requested by such
Lender. Tenant shall provide any other consent or statement and shall execute
any and all other documents that such Lender requires in connection with such
financing, including any environmental indemnity agreement and subordination,
non-disturbance and attornment agreement, so long as the same do not in any
material respect adversely affect any right, benefit or privilege of Tenant
under this Lease or in any material respect increase Tenant's obligations under
this Lease. Such subordination, nondisturbance and attornment agreement may
require Tenant to confirm that (a) Lender and its assigns will not be liable for
any misrepresentation, act or omission of Landlord and (b) Lender and its
assigns will not be subject to any counterclaim, demand or offset which Tenant
may have against Landlord.
32. Subordination, Non-Disturbance and Attornment. Provided that a
----------------------------------------------
suitable non-disturbance agreement is entered into by any Lender, in a form
reasonably acceptable to Tenant, this Lease and Tenant's interest hereunder
shall be subordinate to any Mortgage or other security instrument hereafter
placed upon the Leased Premises by Landlord, and to any and all advances made or
to be made thereunder, to the interest thereon, and all renewals, replacements
and extensions thereof, provided that any such Mortgage or other security
instrument (or a separate instrument in recordable form duly executed by the
holder of any such Mortgage or other security instrument and delivered to
Tenant) shall provide for the recognition of this Lease and all Tenant's rights
hereunder unless and until an Event of Default exists or Landlord shall have the
right to terminate this Lease pursuant to any applicable provision hereof.
33. Financial Covenants. Tenants hereby covenants and agrees to comply
-------------------
with all the covenants and agreements described in Exhibit "E" hereto.
-----------
33
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34. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that
------------------------
each shall treat this transaction as a true lease for state law purposes and
shall report this transaction as a Lease for Federal income tax purposes. For
Federal income tax purposes each shall report this Lease as a true lease with
Landlord as the owner of the Leased Premises and Equipment and Tenant as the
lessee of such Leased Premises and Equipment including: (1) treating Landlord as
the owner of the property eligible to claim depreciation deductions under
Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with
respect to the Leased Premises and Equipment, (2) Tenant reporting its Rent
payments as rent expense under Section 162 of the Code, and (3) Landlord
reporting the Rent payments as rental income.
35. Restrictive Covenant Issues. One of the Permitted Encumbrances
-----------------------------
encumbering the Leased Premises is the Amended and Restated Declaration of
Covenants, Conditions, Restrictions, Easements, Charges and Liens on and for
Lake Forest Addition filed by Forest/Hillcrest Partners dated effective April
16, 1998 (such instrument, as amended from time to time, being the
"Declaration"), which is recorded at Volume 98148, Page 3823 of the Real Estate
Records of Dallas County, Texas. The terms, "Association," "Board," "Class B
Member," "Member," "Office Tract," "Owner," and "OTARC" shall have the same
meanings as are set forth in the Declaration. The parties agree that, so long as
this Lease remains in force and effect:
(a) All monetary obligations of Landlord as the Class B Member and
Owner of the Office Tract pursuant to the Declaration shall constitute Monetary
Obligations hereunder and shall be borne by Tenant;
(b) Landlord shall upon the execution of this Lease and thereafter
as and when requested by Tenant to do so, give irrevocable instructions to the
Association and the Board that all written notices to which the Class B Member
and Owner of the Office Tract are entitled to receive pursuant to the
Declaration shall be given jointly to Tenant and Landlord. In addition, Landlord
will promptly furnish Tenant with copies of all notices it receives pursuant to
the Declaration;
(c) shall have the right: As long as no Event of Default hereunder is
continuing, Tenant
(i) to serve as the Class B Member on the Board, as the Class
B Member on the committee known as OTARC, and on all such other committees as
the Class B Member and/or Owner of the Office Tract is entitled to have
representation pursuant to the Declaration,
(ii) to vote as the Class B Member in person or by proxy at
meetings of Members, and
(iii) to exercise all rights of every nature (including without
limitation voting rights and the rights of approval, consent, review and
inspection) which are accorded to the Class B Member and to Owner of the Office
Tract pursuant to the Declaration.
In furtherance of the foregoing, Landlord hereby grants to Tenant an irrevocable
proxy coupled with an interest to exercise, as long as no Event of Default
hereunder is continuing, all of the rights, powers and remedies of the Class B
Member and Owner of the Office Tract under the Declaration, and the proxy herein
granted shall continue during the Term of this Lease and all renewals; provided,
however, that in no event shall the grant of such proxy and the exercise thereof
by Tenant be deemed, in any way, to modify any of the terms of this Lease.
Landlord shall promptly execute and deliver to Tenant, the Association and/or
the Board such proxies and other designations as Tenant, the Association or the
Board may from time to time request in order to effectuate the foregoing.
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36. Excess Land.
------------
In the event Tenant desires to construct additional improvements on
the Excess Land, and no Event of Default then exists, Landlord, at its sole
option, (i) shall construct or cause to be constructed such improvements and
lease such improvements to Tenant upon terms and conditions reasonably
satisfactory to Landlord and subject to this Lease or (ii) shall cause the
Excess Land to be released from the terms of this Lease and conveyed to an
affiliate of Landlord who shall construct or cause to be constructed such
improvements and lease such improvements to Tenant upon terms and conditions
reasonably satisfactory to Landlord, or (iii) shall convey the Excess Land to
Tenant for a price ("Excess Land Price") equal to the greater of $2,052,356 plus
-----------------
the applicable Prepayment Premium or the sum of the Fair Market Value of the
Excess Land (as Fair Market Value is defined in clause (a) of the definition
thereof) plus the applicable Prepayment Premium provided that the following
conditions are satisfied: (A) the Leased Premises shall have been subdivided in
compliance with all applicable subdivision laws, Legal Requirements and Easement
Agreements so that the Excess Land and the remainder of the Leased Premises (the
"Retained Premises") are separate tracts, (B) after such sale both the Excess
- -------------------
Land and the Retained Premises shall comply with all applicable Laws, Legal
Requirements and Easement Agreements, (C) the release of the Excess Land does
not materially impact the functional use, legal use or viability of the Retained
Premises, (D) Tenant shall have complied with all requirements of Lender set
forth in the Mortgage with respect to the release of the Excess Land, (E) all
parking located on the Excess Land as of the Commencement Date has been
relocated to the Retained Premises in a manner satisfactory to Landlord and (F)
all Costs of Landlord, Lender and Tenant in connection with the conveyance of
the Excess Land and in complying with the above conditions, including reasonable
attorneys' fees, shall be borne solely by Tenant. Landlord, as record title
holder to the Excess Land, shall cooperate with Tenant in obtaining a lawful
subdivision of the Leased Premises with separate parcels consisting of the
Excess Land and the Retained Premises, at no cost to Landlord. If Landlord
conveys the Excess Land under clauses (ii) or (iii) above, then, except for
Surviving Obligations this Lease shall terminate with respect to the Excess
Land, but shall remain in full force and effect with respect to the Retained
Premises, provided, however, that in no event will the release of the Excess
Land from this Lease amend, reduce or modify any of the obligations and
liabilities of Tenant hereunder, including the obligations to pay Basic Rent in
the amount set forth in Exhibit "D" hereto.
-----------
37. Miscellaneous.
--------------
(a) The paragraph headings in this Lease are used only for
convenience in finding the subject matters and are not part of this Lease or to
be used in determining the intent of the parties or otherwise interpreting this
Lease.
(b) As used in this Lease, the singular shall include the plural and
any gender shall include all genders as the context requires and the following
words and phrases shall have the following meanings: (i) "including" shall mean
"including without limitation"; (ii) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge,
encumbrance, title retention agreement, pledge, security interest, mortgage
and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty,
agreement, liability, covenant and/or condition"; (v) "any of the Leased
Premises" shall mean "the Leased Premises or any part thereof or interest
therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or
interest therein"; (vii) "any of the Improvements" shall mean "the Improvements
or any part thereof or interest therein"; (viii) "any of the Equipment" shall
mean "the Equipment or any part thereof or interest therein"; and (ix) "any of
the Adjoining Property" shall mean "the Adjoining Property or any part thereof
or interest therein".
35
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(c) Any act which Landlord is permitted to perform under this Lease
may be performed at any time and from time to time by Landlord or any person or
entity designated by Landlord. Each appointment of Landlord as attomey-in-fact
for Tenant hereunder shall be effective as long as an Event of Default has
occurred and is continuing and is irrevocable and coupled with an interest.
Except as otherwise specifically provided herein, Landlord shall not
unreasonably withhold or delay its consent whenever such consent is required
under this Lease, provided, however, with respect to Paragraph 21, Landlord
shall be deemed to act reasonably if such consent is governed by the terms set
forth in Paragraph 21. Time is of the essence with respect to the performance by
each of Tenant and Landlord of its respective obligations under this Lease.
(d) Landlord shall in no event be construed for any purpose to be a
partner, joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to any of the Leased Premises
or otherwise in the conduct of their respective businesses.
(e) This Lease and any documents which may be executed by Tenant
on or about the effective date hereof at Landlord's request constitute the
entire agreement between the parties and supersede all prior understandings and
agreements, whether written or oral, between the parties hereto relating to the
Leased Premises and the transactions provided for herein. Landlord and Tenant
are business entities having substantial experience with the subject matter of
this Lease and have each fully participated in the negotiation and drafting of
this Lease. Accordingly, this Lease shall be construed without regard to the
rule that ambiguities in a document are to be construed against the drafter.
(f) This Lease may be modified, amended, discharged or waived only
by an agreement in writing signed by the party against whom enforcement of any
such modification, amendment, discharge or waiver is sought.
(g) The covenants of this Lease shall run with the land and bind
Tenant, its successors and assigns and all present and subsequent encumbrancers
and subtenants of any of the Leased Premises, and shall inure to the benefit of
Landlord, its successors and assigns. If there is more than one Tenant, the
obligations of each shall be joint and several.
(h) If any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(i) This Lease shall be governed by and construed and enforced in
accordance with the Laws of the State.
36
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed under seal as of the day and year first above written.
LANDLORD:
DELAWARE COMP LLC,
a Delaware limited liability company
By: COMP (TX) QRS 11-42, INC.,
Managing Member '
By: /s/ Gordon F. DuGan
-------------------
Name: Gordon F. DuGan
Title: Executive Vice President
TENANT:
COMPUCOM SYSTEMS, INC.,
a Delaware corporation
By: /s/ Daniel L. Celoni
--------------------
Name: Daniel L. Celoni
Title: Vice President, Finance-Treasurer
[SIGNATURE PAGE TO LEASE AGREEMENT]
<PAGE>
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided for in Paragraphs 2, 3
----------
and 4 below, Basic Rent payable in respect of the Term shall be $3,914,000 per
annum, payable quarterly in advance on each Basic Rent Payment Date, in equal
installments of $978,500 each.
2. CPI Adjustments to Basic Rent. The Basic Rent shall be subject to
-----------------------------
adjustment, in the manner hereinafter set forth, for increases in the index
known as United States Department of Labor, Bureau of Labor Statistics, Consumer
Price Index, Dallas-Fort Worth, Texas, All Items, (1982-84=100) ("CPI") or the
---
successor index that most closely approximates the CPI. If the CPI shall be
discontinued with no successor or comparable successor index, Landlord and
Tenant shall attempt to agree upon a substitute index or formula, but if they
are unable to so agree, then the matter shall be determined by arbitration in
accordance with the rules of the American Arbitration Association then
prevailing in New York City. Any decision or award resulting from such
arbitration shall be final and binding upon Landlord and Tenant and judgement
thereon may be entered in any court of competent jurisdiction. In no event will
the Basic Rent as adjusted by the CPI adjustment be less than the Basic Rent in
effect for the three (3) year period immediately preceding such adjustment.
3. Effective Dates of CPI Adjustments. Basic Rent shall not be adjusted
----------------------------------
to reflect changes in the CPI until the third (3rd) anniversary of the Basic
Rent Payment Date on which the first full quarterly installment of Basic Rent
shall be due and payable (the "First Full Basic Rent Payment Date"). As of the
-----------------------------------
third (3rd) anniversary of the First Full Basic Rent Payment Date and thereafter
on the sixth (6th), ninth (9th), twelfth (12th), fifteenth (15th), eighteenth
(18th) and, if the initial Term is extended, on the twenty-first (21st), twenty-
forth (24th), and twenty-seventh (27th) anniversaries of the First Full Basic
Rent Payment Date, Basic Rent shall be adjusted to reflect increases in the CPI
during the most recent three (3) year period immediately preceding each of the
foregoing dates (each such date being hereinafter referred to as the " Basic
-----
Rent Adjustment Date").
- ---------------------
4. Method of Adjustment for CPI Adjustment
---------------------------------------
(a) As of each Basic Rent Adjustment Date when the average CPI
determined in clause (i) below exceeds the Beginning CPI (as defined in this
Paragraph 4(a)), the Basic Rent in effect immediately prior to the applicable
Basic Rent Adjustment Date shall be multiplied by a fraction, the numerator of
which shall be the difference between (i) the average CPI for the three (3) most
recent calendar months (the "Prior Months") ending prior to such Basic Rent
------------
Adjustment Date for which the CPI has been published on or before the forty-
fifth (45th) day preceding such Basic Rent Adjustment Date and (ii) the
Beginning CPI, and the denominator of which shall be the Beginning CPI. An
amount equal to the lesser of (x) the product of such multiplication or 13.30%
of the Basic Rent in effect immediately prior to such Basic Rent Adjustment Date
shall be added to the Basic Rent in effect immediately prior to such Basic Rent
Adjustment Date. As used herein, "Beginning CPI" shall mean the average CPI for
-------------
the three (3) calendar months corresponding to the Prior Months, but occurring
three (3) years earlier. If the average CPI determined in clause (i) is the same
or less than the Beginning CPI, the Basic Rent will remain the same for the
ensuing three (3) year period.
(b) Effective as of a given Basic Rent Adjustment Date, Basic Rent
payable under this Lease until the next succeeding Basic Rent Adjustment Date
shall be the Basic Rent in effect after the adjustment provided for as of such
Basic Rent Adjustment Date.
(c) Notice of the new annual Basic Rent shall be delivered to Tenant
on or before the tenth (10th) day preceding each Basic Rent Adjustment Date, but
any failure to
1
<PAGE>
do so by Landlord shall not be or be deemed to be a waiver by Landlord of
Landlord's rights to collect such sums. Tenant shall pay to Landlord, with ten
(10) days after a notice of the new annual Basic Rent is delivered to Tenant,
all amounts due from Tenant, but unpaid, because the stated amount as set forth
above was not delivered to Tenant at least (10) days preceding the basic Rent
Adjustment Date in question.
2
<PAGE>
EXHIBIT 10.KK
CONTRACT OF SALE
This Contract of Sale (the "Contract') is made and entered into to be
effective as of the date determined in accordance with Section 12.14 hereof (the
-------------
"Effective Date") by and between COMPUCOM SYSTEMS, INC., a Delaware corporation
("Seller"), and MCSI REALTY CO., LLC, a Kentucky limited liability company
("Purchaser").
SECTION 1. DEFINED
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 Boone County, Kentucky.
"Closing" means the consummation of the purchase of the Property by
Purchaser from Seller in accordance with the terms and provisions of Section 8.
---------
"Closing Date" means the date specified in Section 8.1 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 8.2.
-----------
"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 determined in accordance with Section 12.14
-------------
hereof.
"Environmental Laws" means any and all federal, state and/or local laws,
regulations and legal requirements that exist on the Closing Date pertaining to
(A) the protection of health, safety and the indoor and outdoor environment, (B)
the conservation, management or use of natural resources and wildlife, (C) the
protection or use of surface water and groundwater, (D) the management,
manufacture, possession, presence, use, generation, transportation, treatment,
storage, disposal, Release, threatened Release, abatement, removal, remediation
or handling of, or exposure to, any Hazardous Material of (E) pollution
(including, without limitation, any Release to air, land, surface water and
groundwater), and includes, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendment and Reauthorization Act of 1986,42 U.S.C. 6901 et seq.; the Solid
Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of
1976 and the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. 2601 et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. App. 1801 et seq.;
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. 651 et
seq.; the Oil Pollution Act of 1990, 33 U.S.C. 2701 et seq.; the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq.; the
National Environmental Policy Act of 1969, 42 U.S.C. 400(f) et seq.; any
similar, implementing or successor law to any of the foregoing and any
amendment, rule, regulation, order or directive issued thereunder, and any
similar law, rule or regulation of the State of Kentucky.
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 1
<PAGE>
"Hazardous Material" means any substance, chemical, compound, product,
solid gas, liquid, waste, byproduct, pollutant, contaminant or material that is
hazardous or toxic, and includes, without limitation, (A) asbestos,
polycholorinated biphenyls and petroleum; and (B) any such material classified
or regulated as "hazardous" or "toxic" or as a "contaminant" or "pollutant"
under the laws of the State of Kentucky or any Environmental Law.
"Inspection Period" means the fifteen (15) day period described in Section
-------
5.1 hereof.
- ---
"Land" means all of that certain lot, tract or parcel of land, containing
approximately 15.4 acres, located in Boone County, Kentucky and being more fully
described on Exhibit "A", on which is constructed a warehouse and an attached
-----------
office building located at 4281 Olympic Boulevard, Erlanger, Kentucky, 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 (a) 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, and (b)
-----------
building restrictions and zoning regulations heretofore or hereafter adopted by
any municipal or other public authority related to the Property, and (c) taxes
for the year 1999 and subsequent years.
"Project" means the building and improvements situated upon the Land.
"Property" means, collectively, the Land and the Project.
"Purchase Price" means the total consideration to be paid by Purchaser to
Seller for the purchase of the Property.
"Release" means any soiling, migrating, seeping, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of any Hazardous Material into the indoor or outdoor environment,
including, without limitation, the abandonment or discarding of barrels, drums,
containers, tanks and other receptacles containing or previously containing any
Hazardous Material.
"Title Company" means Chicago Title Insurance Company, 1950 Citizens Plaza,
Louisville, Kentucky 40202, Attention Mr. Kelly Terwillinger (Phone 502-585-
2567; Fax 502-584-3619).
"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.
SECTION 2. AGREEMENT OF PURCHASE AND SALE
- --------------------------------------------------------------------------------
Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 2
<PAGE>
On and subject to the terms and conditions stated in this Contract and for
the consideration stated herein, Seller hereby sells and agrees to convey the
Property to Purchaser, and Purchaser hereby agrees to purchase and acquire the
Property from Seller. Property shall be conveyed subject to the Permitted
Exceptions.
SECTION 3. PURCHASE PRICE
3.1 Purchase Price. The purchase price shall be SEVEN MILLION FIVE HUNDRED
--------------
FORTY-ONE THOUSAND AND NO/100 DOLLARS ($7,541,000.00) (the "Purchase Price").
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 TWO HUNDRED
FIFTY THOUSAND AND NO/1OO DOLLARS ($250,000.00). The Title Company is hereby
instructed to hold the Earnest Money Deposit in an interest bearing account. 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 be 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 by cashier's check or by wire
transfer 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.
SECTION 4. TITLE AND SURVEY
4.1 Tide Commitment; Exception Documents.
------------------------------------
(a) Within fifteen (15) days after the Effective Date, Seller 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. The cost and
expense of the Title Commitment shall be paid by Purchaser.
(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
- --------------------------------------------------------------------------------
Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 3
<PAGE>
Documents") that create or evidence Title Exceptions affecting the
Property, including those described in Schedule B, Section 2, of the Title
Commitment.
(c) Within fifteen (15) days after the Effective Date, Seller shall
cause to be furnished to Purchaser a copy of an environmental site
assessment of the Property prepared by The Payne Firm, Inc. of Cincinnati,
Ohio, Project #0763.01, dated March 12, 1999.
4.2 Survey. Seller shall, within twenty (20) days after the Effective
------
Date, deliver to Purchaser and the Title Company three (3) prints of an ALTA as-
built survey of the Property (the "Survey"). The certificate of the surveyor
shall run to the Title Company, Seller and Purchaser. The cost of the Survey
shall be shared equally between Seller and Purchaser.
4.3 Review of Title Commitment, Survey and Exception Documents. Purchaser
----------------------------------------------------------
shall have a period of fifteen (15) 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. Any item contained in the Title Commitment, the Exception Documents or
the Survey to which Purchaser does not object during the Title Review Period
shall be deemed a Permitted Exception.
4.4 Seller's Obligation to Cure; Purchaser's Right to Terminate. If
-------------------------------------------------------------
Purchaser timely notifies Seller in writing of Objections to the Title
Commitment, the Exception Documents or the Survey prior the expiration of the
Title Review Period, then Seller may, within ten (10) business days after
Seller's receipt of Purchaser's notice (the "Cure Period"), but shall not be
required to, cure or remove such Objection. If Seller fails either to cure or
remove any Objections prior to the expiration of the Cure Period, then Purchaser
shall have the option of either (i) waiving the unsatisfied 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 Tide Policy. At the Closing, Seller shall cause a standard ALTA Owner
-----------
Policy of Title Insurance with extended coverage (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 title to the Property, subject only to the Permitted Exceptions. The
Title Policy shall contain the following endorsements: survey, access, tax lot,
subdivision and 3.0 zoning. Seller shall cause the Title Policy to be issued to
Purchaser subject to the Permitted Exceptions and free and clear of all standard
or general exceptions. The cost of the Title Policy shall be paid by Purchaser,
and Purchaser shall bear the cost and expense of any endorsements in addition to
those specified above.
SECTION 5. INSPECTION PERIOD
5.1 Inspection Period. During the period commencing with the Effective
-----------------
Date and ending fifteen (15) days thereafter (the "Inspection Period"),
Purchaser shall have access to the Property at reasonable times agreed upon by
Purchaser and Seller to conduct such physical inspections and other tests,
- --------------------------------------------------------------------------------
Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 4
<PAGE>
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 conduct any
such physical inspections, tests, examinations, studies, and appraisals in a
manner that will not 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 presence of
a representative of Seller.
5.2 Indemnification. 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 from and
against 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 Closing or termination of this
-----------
Contract for any reason.
5.3 Right of Termination. 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, 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 5.3, 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 5.3
-----------
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.
-----------
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
6.1 Representations and Warranties of Seller. Seller makes those
----------------------------------------
representations and warranties to Purchaser as are set forth in paragraphs (a)
through (p) of this Section 6. 1. These representations and warranties are made
------------
as of the Effective Date and as of the Closing Date, except where specific
reference is made to another date or dates. Representations and warranties set
forth in this Section 6.1 which are qualified with the phrase "to the knowledge
-----------
of Seller" or words of similar import mean the current, actual knowledge of only
M. Lazane Smith, Senior Vice President Finance and Chief Financial Officer of
Seller, Shelly Christenson, Manager of Real Estate Services of Seller, and Chris
Rahschulte, Manager of Inventory Control of Seller, without any investigation of
the facts being represented to verify whether they are true and correct.
(a) Seller is a corporation, duly organized, validly existing and in
good standing under the laws of Delaware.
(b) This Contract has been duly authorized by all requisite action by
Seller. Neither the execution and delivery of this Contract nor the
consummation of the sale provided for herein will constitute a violation or
breach by Seller of any provision of any agreement or other
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 5
<PAGE>
instrument to which Seller is a party or, to the knowledge of Seller, by
which the Property is bound.
(c) There are no parties in possession of the Property, except
Seller.
(d) Seller has, and at the Closing Date Seller shall have, and shall
convey to Purchaser by general warranty deed, good and indefeasible fee
simple title to the Property, subject only to the Permitted Exceptions.
(e) 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.
(f) 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;
(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) There are no tenant leases or tenancy contracts affecting the
Property.
(j) There are no equipment leases or service, maintenance, management
or other similar contracts affecting the Property except those expressly
permitted by Section 6.3(a) hereof
--------------
(k) The consummation of the sale provided for herein will not result
in or constitute a violation or breach of any judgment, order, writ,
injunction or decree issued against Seller.
(1) There are no attachments, levies, executions, assignments for the
benefit of creditors, receivership, conservatorship, or involuntary
proceedings in bankruptcy (or pursuant to any other applicable insolvency
or relief laws) pending or, to Seller's knowledge threatened in writing
against Seller, nor has Seller filed any involuntary bankruptcy
proceedings.
(m) Except for a common area charge imposed by Circleport III on a
monthly basis, Seller has neither received nor has any knowledge of any
pending or threatened lien or special assessment to be made against the
Property by any governmental authority.
(n) No person, firm, corporation or other entity of any kind has any
right of first refusal or similar right or option to acquire the Property
from Seller or to use the Property. To the knowledge of Seller, from and
after May 10, 1999 (which is the date Seller acquired the Property), no
labor has been performed on, and no material has been furnished for, the
Property or any part thereof, on behalf of Seller, for which Seller has not
heretofore fully paid.
(o) Except as may be set forth in that certain environmental site
assessment prepared by The Payne Firm, Inc. of Cincinnati, Ohio (Project
#0763.01) dated March 12, 1999, to the knowledge of Seller, (1) Seller has
not received any written communication that alleges that Seller
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 6
<PAGE>
is not in full compliance with any applicable Environmental Law, (2) Seller
has not caused any Release or threatened Release of any Hazardous Material
in, on, under or from the Property, (3) the Property does not contain any
underground storage tanks, and (4) Seller has not generated, treated,
stored, or disposed of, or otherwise deposited in or located on, or
released on or to the Property, any Hazardous Material.
(p) Seller has experience in financial and business matters that
enables it to evaluate the risks and merits of the transactions
contemplated hereby.
6.2 Survival Beyond Closing. The representations set forth in paragraphs
-----------------------
(a), (b) and (f) of this Section 6.1 shall survive the Closing. The other
-----------
representations and warranties set forth above shall survive the Closing to the
date occurring nine (9) months after the Closing Date, at which time such
representations and warranties shall terminate and be of no further force or
effect.
6.3 Covenants and Agreements of Seller. Seller hereby covenants with
----------------------------------
Purchaser that subsequent to the Effective Date Seller will not, without the
prior written approval of Purchaser, enter into any contracts, leases or other
commitments that will survive Closing other than the following:
(a) Seller may enter service contracts that are terminable without
penalty on thirty (30) days notice or less; or
(b) Seller may enter contracts for 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),
(c) Between the Effective Date and the Closing Date, Seller shall
maintain the Property in its present repair, order and condition
(reasonable wear and use excepted),
(d) Between the date of this Contract and the Closing Date, Seller,
at Seller's sole expense, shall keep all of the Property fully insured on a
basis presently maintained by Seller, and
(e) Between the date of this Contract and the Closing Date, Seller
shall materially comply with all laws applicable to the use of any of the
Property or to the conduct of the respective business conducted with
relation to the Property.
SECTION 7. 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 is a limited liability company, duly organized, validly
existing and in good standing under the laws of Maryland.
(b) This Contract has been duly authorized by all requisite action by
Purchaser. Neither the execution and delivery of this Contract nor the
consummation of the sale provided for herein will constitute a violation or
breach by Purchaser of any provision of any agreement or other instrument
to which Purchaser is a party.
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 7
<PAGE>
(c) 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;
(d) Purchaser has experience in financial and business matters that
enable it to evaluate the risks and merits of the transactions contemplated
hereby; and
(e) 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.
SECTION 8. CLOSING
8.1 Date and Place of Closing. The Closing shall take place at the offices
-------------------------
of the Title Company on or before the twentieth (20th) day after the end of the
Inspection Period (or the nearest Business Day thereafter in the event said
twentieth (20th) day is not a Business Day). By mutual written agreement, Seller
and Purchaser may select an earlier or later date as the Closing Date
8.2 Conditions Precedent to Purchaser's Obligation to Close.
-------------------------------------------------------
(a) Purchaser's obligations under this Contract to close the purchase
and sale of the Property are subject to the satisfaction of all of the
following conditions at or before the Closing Date; provided, however, that
satisfaction of any of the following conditions may be waived by Purchaser:
(i) No suit, action, action or other proceeding shall be
threatened or pending before any court or governmental agency seeking
to restrain or prohibit or to obtain damages or other relief in
connection with this Contract or the consummation of any of the
transactions contemplated hereby.
(ii) The representations and warranties of Seller contained in
this Contract shall be true and correct in all material respects as if
made at and as of the Closing Date.
(iii) On the Closing Date, all of the covenants, conditions,
agreements, requirements and obligations of Seller contained in this
Contract and required to be performed before the Closing by Seller
shall have been duly performed in all material
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 8
<PAGE>
respects, and Seller shall have materially complied with all terms and
conditions applicable to Seller under this Contract.
(iv) Since the Effective Date of this Contract, there shall have
occurred no material loss, damage or destruction to any of the
Property or any other event that materially adversely affects or
threatens to materially adversely affect the ability of Purchaser to
use the Property in the manner presently used by the Seller.
(b) Seller's obligations under this Contract to close the purchase
and sale of the Property are subject to the satisfaction of all of the
following conditions at or before the Closing Date; provided, however, the
satisfaction of any of the following conditions may be waived by the
Seller:
(i) All representations and warranties of Purchaser contained in
this Contract shall be true and correct in all material respects as if
made at and as of the Closing Date.
(ii) On the Closing Date, all of the covenants, conditions,
contracts, requirements and obligations of Purchaser contained in this
Contract and required to be performed before the Closing Date by
Purchaser shall have been performed, and Purchaser shall have
materially complied with all terms or conditions of this Contract
applicable to Purchaser.
8.3 Seller's Obligations at Closing. At Closing, Seller shall:
-------------------------------
(a) deliver to Purchaser a General Warranty Deed (the "Deed") in the
form of Exhibit B attached hereto and made a part hereof for all purposes,
---------
executed and acknowledged by Seller and in recordable form, conveying the
Real Property to Purchaser free and clear of all encumbrances except the
Permitted Exceptions;
(b) deliver to Purchaser a FIRPTA Affidavit (the "FIRPTA Affidavit")
in the form of Exhibit C attached hereto and made a part hereof for all
---------
purposes, duly executed by Seller, stating that Seller is not a "foreign
person" as defined in the federal Foreign Investment in Real Property Tax
Act of 1980 and the 1984 Tax Reform Act, and in the event Seller is unable
or unwilling to deliver the FIRPTA Affidavit, in lieu thereof the funds
payable to Seller shall be adjusted in such a manner as to comply with the
withholding provisions of such statutes;
(e) deliver to Purchaser possession and occupancy of the Property,
subject to the Permitted Exceptions;
(d) deliver to Purchaser all available keys to the Property in
Seller's possession; and
(e) deliver to Purchaser such evidence as Purchaser's counsel and/or
the Title Company may reasonably require as to the authority of the person
or persons executing documents on behalf of Seller.
8.4 Purchaser's Obligations at Closing. At Closing, Purchaser shall:
----------------------------------
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 9
<PAGE>
(a) pay to Seller the Purchase Price in cash pursuant to Section 3.3
-----------
above, it being agreed that the Earnest Money shall be delivered to Seller
at Closing and applied towards payment of such amount;
(b) join with Seller in execution of the Deed; and
(c) deliver to Seller such evidence as Seller's counsel and/or the
Title Company may reasonably require as to the authority of the person or
persons executing documents on behalf of Purchaser.
8.5 Adjustments at Closing. The following items shall be adjusted or
----------------------
prorated between Seller and Purchaser with respect to the Property:
(a) Real estate 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. Seller shall not be responsible
for all subsequent assessments for prior years due to change in land usage
or ownership. Payments after the Closing Date shall be made in immediately
available funds to the applicable party at its address set forth in Section
-------
12.2.
----
(b) All other taxes (other than the Kentucky transfer tax),
including, without limitation, personal property, business, and occupation
taxes, if any (based on the most current available information) shall be
prorated as of 12.01 a.m. on the Closing Date, or charged on the basis of
applicable governmental records, and shall be readjusted when the actual
bills are available, if necessary.
(c) Telephone contracts and contracts for the supply of heat, steam,
electric power, gas, lighting, water and sewer and any other utility
service shall be prorated as of 12.01 a.m. on the Closing Date. All
deposits, if any, made by Seller as security under any such public service
contract shall be credited to Seller if the same remain on deposit for the
benefit of Purchaser. Where possible, cut-off meter readings shall be
secured for all utilities as of 12.01 a.m. on the Closing Date.
(d) Fees paid or payable for transferable licenses shall be prorated
as of 12.01 a.m. on the Closing Date.
(e) With respect to the Project, Seller's insurance shall be canceled
on the Closing Date, and Seller shall retain all prepaid premiums.
Purchaser shall arrange for immediate effectiveness of Purchaser's own
insurance coverage as of the Closing Date.
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 10
<PAGE>
(f) As of 12:01 a.m. on the Closing Date, such other items shall be
prorated as are provided for in this Contract or as are normally prorated
and adjusted in the sale of real property, including, without limitation,
all deposits and prepaid items that inure to the benefit of Purchaser
(including, but not limited to, prepaid insurance). In making
apportionments, all rents and similar items shall be prorated on the basis
of the number of days of occupancy before and after the time set for such
adjustments to be made, and all prepaid taxes, charges and impositions
shall be prorated on the basis of the number of days of the applicable tax
year, or on the basis of unit costs or, if this is not practicable, on the
basis of the number of days before and after that time.
(g) 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.
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. All such corrections requested
within this 180 day period shall be resolved within 60 days of request.
8.6 Possession and Closing. Possession of the Property shall be delivered
----------------------
to Purchaser by Seller at the Closing, subject only to the Permitted Exceptions.
8.7 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 (a) one-half
(1/2) of the applicable Kentucky transfer tax, (b) one-half (1/2) of the cost of
the Survey, (c) one-half (1/2) of the Title Company's escrow fees, (d) one-half
(1/2) of the fees for recording the Deed, the Bill of Sale, and any other
instrument used to convey the Property to Purchaser, and (e) the other fees,
costs, and expenses identified herein as being the responsibility of Seller.
Purchaser shall be responsible for (a) one-half (1/2) of the applicable Kentucky
transfer tax, (b) the entire cost of the premium for the Title Policy, including
all of the premiums for endorsements not specified in Section 4.5, (c) one-half
-----------
(1/2) of the cost of the Survey, (d) one-half (1/2) of the Title Company's
escrow fees, (e) one-half (1/2) of the fees for recording the Deed, the Bill of
Sale, and any other instrument used to convey the Property to Purchaser, and (f)
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. This Section 8.6 shall survive the
Closing for all purposes.
8.8 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 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.
SECTION 9. DEFAULTS AND REMEDIES
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 11
<PAGE>
9.1 Default by Purchaser. In the event that Purchaser should fail to
--------------------
consummate this Agreement for any reason, except Seller's default or the
termination of this Agreement by either Seller or Purchaser as herein expressly
provided, Seller shall be entitled, as its sole remedy, to terminate this
Agreement and receive the Earnest Money, as liquidated damages for the breach of
this Agreement, it being agreed between Seller and Purchaser that the actual
damages to Seller in the event of such breach are impractical to ascertain and
the amount of the Earnest Money is a reasonable estimate thereof.
9.2 Default by Seller. In the event that Seller should fail to consummate
-----------------
this Agreement for any reason, except Purchaser's default or the termination of
this Agreement by either Seller or Purchaser, as herein expressly provided,
Purchaser shall be entitled, as its only remedies, either (a) to enforce
specific performance of this Agreement, or (b) to the return of the Earnest
Money, which return shall operate to terminate this Agreement and release Seller
from any and all liability hereunder. Purchaser shall determine, in its sole
discretion, which of the two remedies described in the preceding sentence it
shall elect.
9.3 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.
SECTION 10. BROKERAGE COMMISSIONS
Each party hereby warrants that it has not engaged any broker in connection
with this transaction. Each party (the "Indemnifying Party") hereby indemnities
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 real estate broker, finder,
agent or other party in connection with this transaction. The provisions of this
Section shall survive the Closing.
SECTION 11. "AS IS" NATURE OF TRANSACTION
The Purchaser acknowledges that, Purchaser will have ample opportunity to
inspect and examine the Property to the extent deemed necessary by Purchaser in
order to enable Purchaser to evaluate the purchase of the Property. Purchaser
represents that it is a knowledgeable purchaser of real estate and that it is
relying solely on its own expertise and that of its consultants, and Purchaser
may in its discretion conduct such investigations and inspections of the
Property including but not limited to the physical and environmental conditions
thereof, and will rely upon same and upon Seller's representations in Section
-------
6.1, and shall assume the risk of any adverse matters that may not have been
- ---
revealed by Purchaser's inspections and investigation. PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT PURCHASER IS ACQUIRING THE PROPERTY ON AN "AS IS,
WHERE IS" BASIS AND WITH ALL FAULTS, WITHOUT REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY KIND OR NATURE, EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN SECTION 6.1 HEREOF. PURCHASER FURTHER ACKNOWLEDGES THAT EXCEPT AS
OTHERWISE PROVIDED HEREIN, SELLER IS NOT MAKING AND HAS NOT AT ANY
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 12
<PAGE>
TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE (OTHER THAN SELLER'S WARRANTY OF TITLE TO BE SET FORTH
IN THE DEED), ZONING, TAX CONSEQUENCES, OPERATING HISTORY OR PROJECTIONS,
VALUATION, GOVERNMENTAL APPROVALS, GOVERNMENTAL REGULATIONS, THE TRUTH, ACCURACY
OR COMPLETENESS OF THE ITEMS OR ANY OTHER INFORMATION PREPARED BY THIRD PARTIES
WHICH IS PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER OR ANY OTHER MATTER OR
THING REGARDING THE PROPERTY. Except with respect to those representations of
Seller set forth in Section 6.1 hereof, Purchaser waives and relinquishes all
-----------
rights and privileges arising out of, or with respect or in relation to, any
representations or warranties, whether express or implied, which may have been
made or given, or may have been deemed to have been made or given, by Seller or
any employee, agent, contractor, broker or third party employed by or a
consultant to Seller. From and after Closing, Purchaser assumes all risk and
liability (and agrees that Seller shall not be liable for any special, direct,
indirect, consequential or other damages) resulting or arising from or relating
to the ownership, use, condition, location, maintenance, repair, or operation of
the Property. Notwithstanding any seeming contradiction, it is agreed and
understood that the provisions of this Section are limited so as not to be
construed as diminishing or negating (a) any of the warranties of Seller set
forth in Section 6.1 hereof, and (b) any warranty of title set forth in the Deed
-----------
and other conveyance documents to be delivered by Seller to Purchaser. SHOULD
ANY CLEAN-UP RF,MEDIATION OR REMOVAL OF HAZARDOUS MATERIALS OR OTHER
ENVIRONMENTAL CONDITIONS ON THE PROPERTY PLACED OR OCCURRING ON THE PROPERTY ON
OR AFTER THE CLOSING DATE BE REQUIRED AFTER THE DATE OF CLOSING, IT IS HEREBY
UNDERSTOOD AND AGREED THAT SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE
RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF
PURCHASER. THE TERMS, CONDITIONS, OBLIGATIONS AND INDEMNITIES OF THIS SECTION
SHALL EXPRESSLY SURVIVE THE CLOSING AND NOT MERGE THEREIN AND SHALL BE INCLUDED
IN THE DEED.
SECTION 12. MISCELLANEOUS
12.1 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 via facsimile
transmission with confirmation mailed by regular United States Mail, or whether
actually received or not, upon the deposit of both the original and the copy, as
provided below, with FedEx 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: Ms. Shelly Christenson
Telecopier (972) 856-7721
Copies to: Daniel F. Susie, Esq.
Strasburger & Price, L.L.P.
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 13
<PAGE>
Suite 4300
901 Main Street
Dallas, Texas 75202-3714
Telecopier: (214) 651-4330
If to Purchaser: MCSI Realty Co.,
LLC 4750 Hempstead Station
Dayton, Ohio 45429
Attn: Ira Stanley
Telecopier: (937) 291-8250
Copies to: Bradley W. Evers, Esq.
Chernesky, Heyman & Kress P.L.L.
10 Courthouse Plaza Southwest, Suite 1100
Dayton, Ohio 45402
Telecopier: (937) 463-4947
12.2 Governing Law. THIS CONTRACT IS BEING EXECUTED AND DELIVERED, AND IS
-------------
INTENDED TO BE PERFORMED, IN THE STATE OF KENTUCKY, AND THE LAWS OF KENTUCKY
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF TIES
CONTRACT, UNLESS OTHERWISE SPECIFIED HEREIN. TIES CONTRACT IS PERFORMABLE IN,
AND THE EXCLUSIVE VENUE FOR ANY ACTION BROUGHT WITH RESPECT HERETO, SHALL LIE
IN, BOONE COUNTY, KENTUCKY.
12.3 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.
12.4 Parties Bound. This Contract is binding on and inures to the benefit
-------------
of Seller and Purchaser, and their respective heirs, executors, administrators,
permitted successors and assigns.
12.5 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.
The provisions of this Section shall survive the Closing.
12.6 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.
12.7 Time of the Essence. It is expressly agreed by Seller and
-------------------
Purchaser that time is of the essence with respect to this Contract.
12.8 Modification. This Contract cannot under any circumstances be
------------
modified orally, and no agreement shall be effective to waive, change, modify or
discharge this Contract in whole or in part unless such agreement is in writing
and signed by both Seller and Purchaser.
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 14
<PAGE>
12.9 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, $50,000 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 $50,000 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 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 $50,000 to repair; or
(b) the taking or condemnation of a portion of the Property which
would not diminish the value of the Property by $50,000 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
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.
12.10 Assignment. Except as hereinafter provided, Purchaser may not assign
----------
its rights under this Contract without the prior written consent of Seller,
which consent may be given or withheld in Seller's sole discretion. Purchaser
may assign its rights under this Contract to a related entity provided (a) the
transferee assumes all of the obligations of Purchaser hereunder pursuant to
documentation and in a manner satisfactory to Seller, and (b) any such
assignment shall not release or relieve Purchaser of any liability hereunder.
12.11 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.
12.12 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 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
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 15
<PAGE>
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.
12.13 Effective Date of Contract. Upon execution of this Contract by
--------------------------
Seller, this Contract shall constitute an offer by Seller to sell the Property.
The offer by Seller herein contained shall automatically be withdrawn and become
of no force or effect unless this Contract is accepted and executed by Purchaser
and delivered to the Title Company on or before 5:00 p.m. (Central Daylight
Time) on the fifth (5"') Business Day after Seller executes this Contract. The
date of delivery to the Title Company, as evidenced by the Title Company's
notation below, shall be deemed to be the effective date of this Agreement
("Effective Date").
12.14 Discharge of obligations. The acceptance of the Deed and the Bill of
------------------------
Sale by Purchaser at Closing shall be deemed to be a full performance and
discharge of every agreement and obligation on the part of Seller to be
performed pursuant to the provisions of this Contract, except those which are
herein specifically stated to survive Closing.
12.15 Confidentiality. Purchaser recognizes, understands and agrees that
---------------
pursuant to this Agreement it will become aware of certain information regarding
the ownership, operation and management of the Property, including,
specifically, without limitation, the information to be provided by Seller in
connection with this transaction. Purchaser agrees that it shall not disclose
any such information to any third party or parties other than those that
Purchaser consults with and/or engages to assist in connection with its
evaluation, inspection, and financing of the Property.
12.16 Exhibits and Schedules. The following schedules or exhibits attached
----------------------
hereto (collectively, the "Exhibits") shall be deemed to be an integral part of
this Contract:
(a) Exhibit A - legal description of Land.
(b) Exhibit B - form of general warranty deed.
(c) Exhibit C - form of FIRPTA Affidavit.
12.17 Entire Agreement. This Contract, including the Exhibits, contains the
----------------
entire agreement between Seller and Purchaser pertaining to the subject matter
hereof and fully supersedes all prior agreements and understandings between
Seller and Purchaser pertaining to such subject matter.
12.18 Captions. The captions appearing at the commencement of the Sections
--------
hereof are descriptive only and/or for convenience in reference to this Contract
and in no way whatsoever define, limit or describe the scope of intent of this
Contract or in any way affect this Contract.
12.19 Severability. If any term, provision, covenant or condition or this
------------
Contract, or any application thereof, is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 16
<PAGE>
the remaining provisions, covenants and conditions of this Contract, and all
applications thereof, not held invalid, void or unenforceable, shall continue in
full force and effect and shall in no way be affected, impaired or invalidated
thereby.
12.20 Publicity. Except as may be required by law or regulation, before the
---------
Closing Date, no party hereto shall make or cause to be made any press release
or public announcement with respect to any of the transactions contemplated by
this Contract or the execution of this Contract or otherwise communicate with
any news media with respect thereto without the prior written consent of the
other party hereto. If any such announcement is so required by law or
regulation, then Purchaser and Seller shall cooperate as to the timing and
contents of any such press release or public announcement.
[This space is left intentionally blank. The next page is the signature page.]
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Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 17
<PAGE>
Executed by Seller on the 9 SELLER:
day of December, 1999. ------
COMPUCOM SYSTEMS, INC.,
a Delaware corporation
By: /s/ M. Lazane Smith
--------------------------------
M. Lazane Smith
Senior Vice President Finance
and Chief Financial Officer
Executed by Purchaser on the 9 BUYER:
day of December, 1999. -----
MCSI REALTY CO., LLC,
a Kentucky limited liability company
By: /s/ Michael E. Peppel
--------------------------------
Michael E. Peppel
Member and Attorney in Fact
- --------------------------------------------------------------------------------
Contract of Sale/Erlanger Distribution Facility - CompuCom Systems, Inc. Page 18
<PAGE>
EXHIBIT 10.VV
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated November 1, 1999 is made and entered into by and
between CompuCom Systems, a Delaware corporation ("Employer" or "Company"), and
Edward Coleman ("Executive").
Recitals
Employer desires to employ Executive in an executive capacity in order to
provide the necessary leadership and senior management skills that are important
to the success of Employer, and Executive desires to accept such employment
pursuant to the terms and conditions of this Agreement.
Agreement
NOW, THEREFORE, in consideration of 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 1. Term; Employment Commencement Date.
1.1. The term of employment of Executive shall commence on December 1,
1999 ("Employment Commencement Date") and shall continue until the employment
relationship is terminated for reasons outlined in this Agreement.
Section 2. General Duties of Employer and Executive.
2.1. 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 Chief
Executive Officer.
2.2. 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
<PAGE>
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 full 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/her by the Board of Directors of
Employer, or any duly authorized committee thereof.
2.3. 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/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 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 3. Compensation and Benefits.
3.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$44,583.33. 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, beginning in 2000, 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.
3.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him/her 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.
3.3. 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.
3.4. 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
<PAGE>
arrangement of Employer now or hereafter existing for the benefit of
executive officers of Employer.
3.5. 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.
3.6. 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.
3.7. 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.
3.8. On the Employment Commencement Date, Employer will pay Executive a
one-time signing bonus in the amount of $100,000, subject to payroll and
withholding deductions as may be required by law.
3.9. Employer will reimburse Executive for his reasonable costs incurred
in connection with his relocation from Annapolis, Maryland to the Dallas, Texas
area to commence employment as follows:
(i) his temporary, duplicative housing costs, including rent and
utilities, in the Dallas, Texas area until the earlier of six (6) months
after the Employment Commencement Date or Executive moves into a new home
there.
(ii) the normal closing costs of buying a new home in the Dallas,
Texas area and of selling Executive's home in Annapolis, Maryland;
(iii) the reasonable cost of moving the household belongings of
Executive and his immediate family from Annapolis Maryland to the Dallas,
Texas area; and
(iv) reasonable travel expenses of Executive between Annapolis,
Maryland and the Dallas, Texas area, as necessary, for the period of time
set forth in clause (i) above.
3.10. On the Employment Commencement Date, Employer will grant Executive a
non-qualified stock option, under the Company's current Option Plan, to purchase
800,000 shares of the Company's common stock, at the exercise price per shall
equal to the closing price of the Company's common stock on the Nasdaq National
Market system on the Employment Commencement Date. The option will become
exercisable for the purchase of the shares in equal increments on each of the
first four (4) anniversaries of the date of grant,
<PAGE>
and will expire on the earlier of the tenth anniversary of the date of grant or
(i) immediately upon Executive's voluntary termination of employment with
Employer; (ii) immediately upon termination by Employer for "due cause" pursuant
to Subsection 5.2; (iii) 90 days after Executive's termination of employment
without due cause pursuant to Subsection 5.3 or due to Executive's disability
and (iv) 180 days after Executive's death. The option will also contain other
customary terms and conditions which shall be reasonably satisfactory to
Employer and Executive. In the alternative, at the election of Executive, the
entire option will immediately become exercisable on the Employment Commencement
Date, and then only if Executive immediately exercises all such options. In such
event, the option shares obtained by such exercise will be subject to repurchase
at the cost thereof by the Company in the event Executive's employment with the
Company terminates for any reason as follows: 100% until one year after the
Employment Commencement Date; 75% until two years after the Employment
Commencement Date; 50% until three years after the Employment Commencement Date;
and, 25% until four years after the Employment Commencement Date. In connection
with this accelerated exercise of the entire option, Employer will lend
Executive the aggregate option exercise price, pursuant to the terms of a
promissory note with a term of 4 years and at an interest rate equal to the rate
of Employer for its present lending facility used to fund such note on the date
thereof (the "Loan"). The Loan will be secured by a pledge agreement from
Executive to Employer under which the option shares will be pledged as
collateral for the Loan. The promissory note and the pledge agreement will
contain other customary terms and conditions which shall be reasonably
satisfactory to Employer and Executive.
Section 4. Preservation of Business; Fiduciary Responsibility.
4.1. 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 5. Termination. 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 illegal 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 2 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.
<PAGE>
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 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 salary compensation (payable in
the manner as prescribed in the second sentence of Subsection 3.1) for a two
year period beginning on the date of termination.
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 2.1 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 3 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 two years salary. 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 3.1 immediately prior to the Constructive Termination plus (ii) the
targeted cash annual bonuses or other cash incentive compensation paid to
Executive (based upon most recent position) by Employer.
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 voluntary or involuntary
termination of employment, by either party and for any reason described herein
(the "Restricted Period"), he shall not, directly or indirectly, individually or
as an
<PAGE>
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 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
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.
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/her from
earning a livelihood and will not cause an undue hardship upon him/her.
Executive hereby acknowledges that $20,000 of his monthly salary described in
Subsection 3.1 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 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
<PAGE>
outstanding common shares of the Company and/or the effective control of the
Board of Directors. It is also understood that the 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 targeted 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.
<PAGE>
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. 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/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 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
<PAGE>
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.
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:
J. Edward Coleman
1829 Hidden Point Road
Annapolis, MD 21401
<PAGE>
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.
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/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.
<PAGE>
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 establishing and maintaining an employment
relationship with Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
EMPLOYER:
CompuCom Systems, Inc.
By: /s/ Harry Wallaesa
------------------
Its: Chairman
EXECUTIVE:
/s/ J. Edward Coleman
---------------------
Edward Coleman
<PAGE>
EXHIBIT 10.XX
April 30, 1999
Dan Brown
760 Maegus Drive
Woodbury, NJ 08096
Dear Dan:
This letter agreement sets forth the terms of the separation agreement
package between you and your employer, CompuCom Systems, Inc. (the "Company").
Please sign one of the two copies of this letter where indicated and return it
to me, keeping the other one for your own personal files. You have been given
an opportunity to review the terms of this agreement with your own attorney and,
indeed, are encouraged to do so. You and the Company are entering this
agreement with knowledge of the consequences and voluntarily.
The terms of the Agreement are as follows:
I. The Company and you have agreed to the following terms with respect to the
remainder of your active employment and your separation from the Company's
employment. Several of the below benefits to you, including the amount of
severance pay, are over and above what would be required for a terminating
employee in your situation. In exchange for these additional elements of
the separation package, you have waived and released the Company with
respect to any claims you might have, as set forth in the attached General
Release and Agreement and you understand that this letter agreement only is
effective upon the effectiveness of that General Release and Agreement.
The terms of your remaining employment and separation are as follows:
1. You hereby confirm your resignation from the Company, effective
October 22, 1998 and you hereby confirm your resignation from the
Board of Directors of the Company and all its affiliated companies,
effective October 22, 1998, including ClientLink, CIC Acquisition
Corp., and Dataflex Acquisition Corp.
2. Severance will be 24 months' base salary ($ 28,150 / month), payable
at times regular salary otherwise would be paid in November, 1998
through November, 2000 (the "Severance Period").
3. Your health insurance benefits will continue through the Severance
Period unless in the interim you find new employment which provides
comparable health insurance benefits. Your COBRA notice will be given
and any COBRA benefits will commence as of your date of resignation,
October 22, 1998.
<PAGE>
Please be advised that you may request a Certificate of Creditable
Coverage at the following times: (i) immediately upon termination of
your employment with the Company, (ii) at the time you elect not to
extend your health insurance coverage under COBRA and (iii) at the
time you terminate your health insurance coverage under COBRA.
4. Remaining Vacation Pay: This severance package covers all back
vacation days not taken by you.
5. The Company will pay the $10,700 supplemental life insurance policy
premium due July 1, 1999; will continue your car allowance of $700 per
month through the Severance Period; no other benefits will be
provided, including participation in the Employee Stock Purchase Plan,
401(k) Plan or other insurnace programs, or payment of any club dues.
6. The Company will pay the two remaining payments on the house your
purchased in Kiawah, each in the amount of $170,000 and to be made in
May, 1999 and May, 2000, respectively.
7. Your loan to the Company evidenced by a Note in the principal amount
of $661,251, dated June 16, 1997, and the $50,000 additional advance
pursuant to that Note (which you hereby agree is to be amended to
reflect this advance) plus interest will remain due on June 17, 2000;
the Note will be modified to eliminate acceleration on termination of
employment.
II. Options
1. You were granted options for shares of stock in the Company. The
schedule of your options, the vesting and the option prices are set
forth on the attached schedule. Normally, the options must be
exercised within 3 months of the termination of your employment.
However, we will extend this time of exercise for the Severance
Period. As a result all of your options will be treated as Non-
Qualified Stock Options and you will be deemed a consultant of the
Company during the Severance Period, being available on reasonable
notice and with your consent, and for reasonable cost and expense
payments, to provide consultation services to the Company.
IV. Non-Compete and Confidentiality; Non-Disparagement
1. In further consideration of this severance package, you will execute
the Confidentiality, Non-Compete and Non-Solicitation Agreement which
is attached. The Company's obligations under this Severance Agreement
are conditions on your adherence to this Agreement, including
paragraph IV 2 hereof, and the Confidentiality, Non-Compete and Non-
Solicitation Agreement.
2. You further agree not to disparage or otherwise criticize the Company,
its officers, directors, employees, shareholders, affiliates, agents
or representatives.
<PAGE>
III. Miscellaneous terms of our agreement are as follows:
1. Except as required of the Company to be disclosed by law, the Company
and you agree that the terms of this agreement will be kept
confidential by both parties except that you may advise your family
and confidential advisers, and the Company may advise those people
needing to know in implementation of the above terms.
2. Any questions that you may have respecting details or implementation
of the agreement should be directed to Lazane Smith, as Chief
Financial Officer of the Company.
4. This letter agreement and the General Release and Agreement contain
all the terms relevant to your termination and the benefits of
termination and replaces or supersedes any previous agreements or
terms that may have existed with respect to these subject matters.
This agreement can only be amended by a written amendment executed by
both parties.
5. The letter agreement will be governed in accordance with the laws of
the State of Texas.
<PAGE>
I convey the very best wishes for your future career efforts. My
signature below is the Company's commitment to the terms above.
Sincerely yours,
CompuCom Systems, Inc.
By: /s/ M. Lazane Smith
-------------------
Title: SVP / CFO
Agreed as to the separation package
and other terms set forth above:
/s/ Daniel F. Brown
-------------------------
<PAGE>
GENERAL RELEASE AND AGREEMENT
-----------------------------
NOTICE:
- -------
Various state and federal laws, including the Civil Rights Acts of 1964 and
1991 and the Age Discrimination in Employment Act, prohibit employment
discrimination based on age, sex, race, color, national origin, religion,
disability and veteran status. These laws are enforced through the Equal
Employment Opportunity Commission (EEOC), the Department of Labor and state
civil rights agencies.
If you sign this General Release and Agreement and accept the agreed-upon
special severance allowance and other termination benefits described in the
letter addressed to you which accompanies this release, you are giving up your
right to file a lawsuit pursuant to the aforementioned federal, state and local
laws in local, state or federal courts against [CompuCom Systems, Inc. and its
affiliates (the "Releasees") with respect to any claims relating to your
employment or termination therefrom which arise up to the date this Agreement is
executed.
This Agreement does not prevent you from filing a charge of discrimination
with the Equal Employment Opportunity Commission, although by signing this
Agreement you waive your right to recover any damages or other relief in any
claim or suit brought by or through the Equal Employment Opportunity Commission
or any other state or local agency on your behalf under any federal or state
discrimination law, except where prohibited by law. You agree to release and
discharge each Releasee not only from any and all claims which you could make on
your own behalf but also specifically waive any right to become, and promise not
to become, a member of any class in any proceeding or case in which a claim or
claims against a Releasee may arise, in whole or in part, from any event which
occurred as of the date of this Agreement.
<PAGE>
You agree to pay for any legal fees or cost incurred by any Releasee as a result
of any breach of the promises in this paragraph. The parties agree that if you,
by no action of your own, become a mandatory member of any class from which you
cannot, by operation of law or order of court, opt out, you shall not be
required to pay for any legal fees or costs incurred by a Releasee as a result.
We encourage you to discuss the following release language with an attorney
prior to executing this Agreement. In any event, you should thoroughly review
and understand the effect of the release before acting on it. Therefore, please
take this release home and consider it for twenty-one (21) days before you
decide to sign it.
<PAGE>
GENERAL RELEASE AND AGREEMENT
-----------------------------
As consideration for the special severance allowance and other termination
benefits offered to me by CompuCom Systems, Inc. (hereinafter referred to as
the "Company") specified in the letter that accompanies this General Release and
Agreement, I release and discharge the Company, its directors, officers, agents,
employees, subsidiaries, divisions and any and all affiliate companies, as well
as any successor to the Company, from all claims, liabilities, demands and
causes of action, arising up to the date of execution of this Agreement, fixed
or contingent, known or unknown, which I may have or claim to have against the
Company arising from my employment or as a result of my termination from
employment, and do hereby covenant not to file a lawsuit to assert such claims.
This includes but is not limited to claims arising pursuant to the Age
Discrimination in Employment Act, or any other federal, state or local law or
regulation relating to discrimination in employment or equal opportunity or any
claims growing out of any legal restriction on the Company's right to terminate
its employees.
I agree that I will not at any time publicize, write about, divulge or
discuss the existence of the General Release and Agreement, with any person or
entity whatsoever, other than my attorneys in this matter.
I understand that this Agreement is revocable by me for a period of 7 days
following execution of the Agreement. This Agreement shall not become effective
or enforceable until this 7 day revocation period has ended.
I have carefully read and fully understand all the provision of the Notice,
General Release and Agreement which set forth the entire agreement between me
and, and I acknowledge that I have not relied upon any representation or
statement, written or oral, not set forth in this document.
IN WITNESS WHEROF, I have set my hand and seal this 30th day of April
1999.
/s/ Daniel F. Brown
-------------------
<PAGE>
CompuCom Systems, Inc.
EMPLOYEE NON-DISCLOSURE
NON-SOLICITATION AND NON-COMPETITION AGREEMENT
In consideration of the letter agreement providing for my termination of
employment with CompuCom Systems, Inc. (the "Company"), I hereby agree with the
Company as follows:
1. I will not at any time reveal to any person or entity any of the
trade secrets or confidential information of the Company or of any third party
which the Company is under an obligation to keep confidential (including but not
limited to trade secrets or confidential information respecting inventions,
products, designs, methods, know-how, techniques, systems, processes, software
programs, works of authorship, customer lists, projects, plans and proposals),
and I shall keep secret all matters that have been entrusted to me and shall not
use or attempt to use any such information in any manner which may injure or
cause loss or may be calculated to injure or cause loss whether directly or
indirectly to the Company.
The above restrictions shall not apply to: (i) information that at the
time of disclosure is in the public domain through no fault of mine; (ii)
information received from a third party outside of the Company that was
disclosed without a breach of any confidentiality obligation; (iii) information
approved for release by written authorization of the Company; or (iv)
information that may be required by law or an order of any court, agency or
proceeding to be disclosed; provided, I shall provide the Company notice of any
such required disclosure once I have knowledge of it and will help the Company
to the extent reasonable to obtain an appropriate protective order.
Further, I represent that during my employment I have not taken, used
or permitted to be used any notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials of any nature relating to any matter within the scope of the business
of the Company or concerning any of its dealings or affairs otherwise than for
the benefit of the Company. I further agree that I shall not, after the
termination of my employment, use or permit to be used any such notes,
memoranda, reports, lists, records, drawings, sketches, specifications, software
programs, data, documentation or other materials, it being agreed that all of
the foregoing shall be and remain the sole and exclusive property of the Company
and that immediately upon the termination of my employment I shall deliver all
of the foregoing, and all copies thereof, to the Company, at its main office.
2. Until after November 30, 2000, two years after termination of my
employment, I agree that I will not:
(i) directly or indirectly solicit, entice or induce any
Customer (as defined below) to become a client, customer, OEM distributor or
reseller of any other person,
<PAGE>
firm or corporation with respect to products and/or services then sold or under
development by the Company or to cease doing business with the Company, and I
shall not approach any such person, firm or corporation for such purpose or
authorize or knowingly approve the taking of such actions by any other person;
(ii) directly or indirectly solicit, recruit or hire any
employee of the Company to work for a third party other than the Company or
engage in any activity that would cause any employee to violate any agreement
with the Company; or
(iii) whether alone or as a partner, officer, director,
consultant, agent, employee or stockholder of any company or other commercial
enterprise, directly or indirectly engage in any business or other activity in
the United States or Canada which is or may be competitive with or render
services to any firm or business organization which competes with the Company
in, the products or services being manufactured, marketed, distributed, planned
in writing or developed by the Company at the time of termination of such
employment. I shall be permitted to own securities of a public company not in
excess of five percent (5%) of any class of such securities and to own stock,
partnership interests or other securities of any entity not in excess of five
percent (5%) of any class of such securities and such ownership shall not be
considered to be in competition with the Company.
For purposes of this Paragraph 2, a Customer means any person or
entity which at the time of determination shall be, or shall have been within
two (2) years prior to such time, a client, customer, OEM, distribution or
reseller of the Company.
3. I agree that any breach of this Agreement by me will cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of my obligations hereunder.
4. Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
5. I hereby acknowledge that the type and periods of restriction
imposed in the provisions of this Agreement are fair and reasonable and are
reasonably required for the protection of the Company and the goodwill
associated with the business of the Company. I further agree that each provision
herein shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. Moreover, if one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to scope, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate judicial body by
limiting and reducing it or them, so as to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear.
6. My obligations under this Agreement shall survive the termination
of my employment regardless of the manner of such termination and shall be
binding upon my heirs, executors, administrators and legal representatives.
<PAGE>
7. The term "Company" shall include CompuCom Systems, Inc. and any of
its subsidiaries, subdivisions or affiliates. The Company shall have the right
to assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns.
8. This Agreement shall be governed by and construed in accordance
with the laws of State of Texas.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as a sealed
document as of the 30th day of April, 1999.
/s/ Daniel F. Brown
-------------------
Signature
Daniel F. Brown
---------------
Name - Please Print
760 Maegus Drive
----------------
Woodbury, NJ 08096
-------------------
Address
<PAGE>
EXHIBIT 10.YY
February 12, 2000
John Lyons
66 Vine Road
Larchmont, NY 10538
Dear John:
This letter evidences the agreement between you and CompuCom Systems, Inc.
("CompuCom"), effective as of the date of your acceptance as indicated by your
signature on the last page hereof, as to the following matters:
1. Termination of Employment: Effective as of the close of business on
--------------------------
January 14, 2000, you resigned your position as an officer of
CompuCom. You and CompuCom mutually, willingly and voluntarily
terminated your employment relationship effective January 14, 2000.
(a) Continuation Pay: Subject to the limitations of, and in
----------------
consideration of this agreement, you will receive payments of
$10,576.92 bi-weekly through January 14, 2001. All future
payments in consideration of this agreement will cease
immediately upon your accepting employment of any kind with any
company considered to be a competitor of CompuCom and will also
cease if you become an owner or shareholder (more than 5%),
director, lender or consultant to any entity considered to be a
competitor of CompuCom. It is your responsibility to notify
CompuCom when you obtain a new position. You further agree not to
disparage or otherwise criticize CompuCom, its officers,
directors, employees, shareholders, affiliates, agents or
representatives.
(b) Stock Options: All unvested stock options will be terminated as
-------------
of January 14, 2000.
2. Benefits: Current medical and dental insurance benefits will extend
--------
through January 14, 2001 or until alternate employment is obtained and
medical and dental coverage is available through a new employer. All
other benefits will end January 14, 2000.
3. COBRA: Commencing January 14, 2001, you may elect to continue your
-----
medical insurance through COBRA for up to eighteen (18) months.
CompuCom will provide you with the forms pursuant to which you can
elect to continue this coverage. If you elect to continue your current
medical coverage through COBRA, you will be responsible for paying the
cost of such continuing coverage.
4. Solicitation of CompuCom Employees: In consideration of this
----------------------------------
agreement, you agree that for a period of one year following the
termination date, you will not, either voluntarily or otherwise, for
yourself or on behalf of any other person, partnership or corporation,
solicit for employment or employ any employee of CompuCom or any of
its affiliates.
<PAGE>
Page 2
January 24, 2000
John Lyons
5. Solicitation of CompuCom Customers: Until after January 14, 2001, one
----------------------------------
year after the termination of my employment, I agree that I will not
directly or indirectly solicit, entice or induce any Customer to
become a client, customer, OEM distributor or reseller of any other
person, firm or corporation with respect to products and/or services
then sold or under development by CompuCom or to cease doing business
with CompuCom, and I shall not approach any such person, firm or
corporation for such purpose or authorize or knowingly approve the
taking of such actions by any other person. For purposes of this
paragraph, Customer means any person or entity which at the time of
termination shall be, or shall have been within two (2) years prior to
such time, a client, customer, OEM, distributor or reseller of the
company or any current customer of CompuCom, including customers
acquired in the TASD acquisition and those TASD customers currently on
the "Protected List".
6. Confidential Information: You recognize and agree that documents,
------------------------
files, records, data and other information developed and acquired by
CompuCom and its affiliates as to which you have had access constitute
"trade secrets" under applicable law and that under no circumstances
or for any reason will you utilize such confidential business
information, and such confidential business information shall remain
the sole property of CompuCom and its affiliates. You further agree to
keep confidential and not use or disclose to any third party without
the prior written consent of CompuCom any confidential information
known or possessed by you pertaining to CompuCom, its past and present
officers, directors, agents, employees, attorneys, representatives,
affiliates, predecessors, successors and assigns, if any, including,
without limitation all documents, memoranda, records, reports, notes,
notebooks, manuals, business plans, data, written information,
computer information, tapes, film and other material of any kind
containing or comprising confidential information in your possession
or control, all of which you acknowledge to be the exclusive property
of CompuCom and agree to deliver to CompuCom on or prior to the
effective date of this Agreement.
7. Release: You do hereby for yourself and for your heirs,
--------
representatives, executors, administrators, successors and assigns
irrevocably and unconditionally waive, release and forever discharge
CompuCom and its past, present and future officers, directors, agents,
employees, attorneys, representatives, affiliates, predecessors,
successors and assigns, if any, together with any employee benefit
plan sponsored by any such person, corporation or other entity, and
any fiduciary of any such employee benefit plan (hereinafter referred
to as "Releasees"), and each of them, from any and all claims,
obligations, rights of action, suits, agreements, damages, attorneys'
fees, costs and all other liabilities of any kind or description
whatsoever, either in law or in equity, whether known or unknown,
suspected or unsuspected, from the beginning of time to the date of
execution hereof. This release specifically includes, but is not
limited to, all claims arising out of or related in any manner to your
employment with CompuCom or any of its affiliates, your claims, if
any, under Title VII of the Civil Rights Act of 1964 (42 U.S.C.
(S)2000(e), et seq), the Age Discrimination in Employment Act of 1967,
-- ---
as amended (29 U.S.C. (S) 621, et seq) (the "ADEA"), including the
-- ---
Older Workers' Benefits Protection Act of 1990 amendment to the ADEA,
the Americans With Disabilities Act of 1990 (42 U.S.C. (S) 12101, et
--
seq), the Employee Retirement Income Security Act (29
----
<PAGE>
Page 3
January 24, 2000
John Lyons
U.S.C. (S) 1140), and the Texas Commission on Human Rights Act (as
codified in the Texas Labor Code), or any claim for wrongful
discharge or other violation of public policy, or any claim for breach
of contract, or for claims for alleged libel, slander, or defamation
of character, or any other claim based on your employment. You
further agree not to file a claim or suit of any kind against
CompuCom, or any of its affiliates, their respective officers, agents
or representatives, past or present, relating to your employment or to
participate voluntarily in any employment related claim brought by any
party against CompuCom or any of its affiliates. You expressly
acknowledge that you are unaware of any fact that would provide a
basis for any claim, liability or cause of action against Releases
that you are waiving and releasing under this Section .
8. No Compensation Owing: You expressly acknowledge that, as of the date
----------------------
of this letter, you have received all wages, commissions and/or other
compensation of any kind owed to you by CompuCom except as otherwise
-------------------
provided for in this letter. Additionally you agree that as of the
----------------------------
effective date of this agreement, all CompuCom property, including
computer hardware, software, pagers, cell phones, keys, access badges,
travel cards, credit cards, etc. has been returned to CompuCom and
will not be used by you and that any debt owed to CompuCom by you has
been settled. You also expressly acknowledge that all confidential
information of any kind has been returned to CompuCom and that you
have not retained paper copies, data files, electronic data, etc. of
any CompuCom proprietary or confidential information.
9. Non-Disclosure: You agree that you will not disclose, other than
--------------
under mandate of a court of competent jurisdiction or governmental
agency, to any person other than confidentially to your immediate
family, financial advisor and attorney any provision of this letter.
10. Binding Effect: The terms of this letter shall be binding upon you,
--------------
your heirs, beneficiaries, administrators, executors, successors and
assignees and upon CompuCom and its respective successors and
assignees.
11. Entire Agreement: The terms of this letter constitute the entire
-----------------
agreement of the parties regarding the subject matter hereof, and any
and all prior and contemporaneous statements, representations,
negotiations, commitments or agreements, oral or written, relating to
the subject matter contained in this letter are merged herein and
superseded hereby and are of no legal force or effect whatsoever.
<PAGE>
Page 4
January 24, 2000
John Lyons
12. Miscellaneous:
--------------
(a) You acknowledge that the terms of this letter not only are
understandable, but that they are fully understood by you.
(b) You acknowledge that you have 21 days to review this agreement
before executing; that CompuCom advised you in writing to consult
with an attorney before executing this letter; that you had an
adequate opportunity to review this letter with an attorney, that
you fully understand its terms; that you were not coerced into
signing this letter, and that you have signed this letter
knowingly and voluntarily.
(c) In order to revoke the terms of this letter, you must notify Dave
Loeser, Sr. VP Human Resources, of CompuCom, in writing, of your
decision to revoke; and such notice must be received within 7
days of the execution date of this agreement.
If this letter correctly sets forth our agreements with respect to the subject
matter hereof, please indicate your acceptance in the space provided below and
return one copy to Dave Loeser whereupon it shall constitute a binding agreement
between you and CompuCom. If this letter is not executed by you and delivered
to CompuCom on or before Monday, February 7, 2000 the provisions hereunder shall
be null and void, having no force or effect.
Sincerely,
COMPUCOM SYSTEMS, INC. ACCEPTED AND AGREED TO
By: /s/David A. Loeser /s/John Lyons
------------------- ----------------------
John Lyons
the 24th day of January, 2000
Its: Sr. Vice President, Human Resources Date: February 4, 2000
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 21
Subsidiaries of the Registrant
Exclusive of inactive subsidiaries, the Registrant as of February 23,
2000 had the following subsidiaries:
Place of
Name Incorporation
---- -------------
CompuCom Properties, Inc. Delaware
The Computer Factory Inc. New York
International Micronet Systems California
CSI Funding, Inc. Delaware
Dataflex Corporation Florida
Computer Integration Corporation 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, No. 33-85268, No. 333-58623, No. 333-
69051 and No. 333-69043) 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
February 14, 2000, related to the consolidated balance sheets of CompuCom
Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999, which report appears in the December 31,
1999 annual report on Form 10-K of CompuCom Systems, Inc.
KPMG LLP
Dallas, Texas
February 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,060
<SECURITIES> 0
<RECEIVABLES> 223,617
<ALLOWANCES> 5,095
<INVENTORY> 129,076
<CURRENT-ASSETS> 370,896
<PP&E> 65,704
<DEPRECIATION> 35,986
<TOTAL-ASSETS> 498,052
<CURRENT-LIABILITIES> 274,240
<BONDS> 0
0
15,000
<COMMON> 480
<OTHER-SE> 207,492
<TOTAL-LIABILITY-AND-EQUITY> 498,052
<SALES> 2,607,967
<TOTAL-REVENUES> 2,911,889
<CGS> 2,396,720
<TOTAL-COSTS> 2,597,739
<OTHER-EXPENSES> 271,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,195
<INCOME-PRETAX> 18,977
<INCOME-TAX> 7,403
<INCOME-CONTINUING> 11,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,574
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
</TABLE>
