<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934,
For the quarterly period ended July 30, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15995
MICROAGE, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0321346
(State of incorporation) (I. R. S. Employer
Identification No.)
2400 South MicroAge Way
Tempe, AZ 85282
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 804-2000
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 and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
---
The number of shares of the registrant's Common Stock (par value $.01 per share)
outstanding at August 31, 1995 was 14,304,808.
<PAGE> 2
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- July 30, 1995 and October 30, 1994.
Consolidated statements of income -- Quarters ended July 30, 1995 and
July 31, 1994; 39 weeks ended July 30, 1995 and July 31, 1994.
Consolidated statements of cash flows -- 39 weeks ended ended July
30, 1995 and July 31, 1994.
Notes to consolidated financial statements -- July 30, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
Assets
<TABLE>
<CAPTION>
July 30, October 30,
1995 1994
-------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents 14,085 11,074
Accounts and notes receivable, net 114,632 136,736
Inventory, net 319,893 306,584
Other 1,857 1,478
------- -------
Total current assets 450,467 455,872
Property and equipment 44,734 31,607
Intangible assets 14,609 9,377
Other 15,222 13,343
------- -------
Total assets 525,032 510,199
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 327,519 325,673
Accrued liabilities 11,080 12,206
Current portion of long-term obligations 5,998 1,245
Other 3,153 2,862
------- -------
Total current liabilities 347,750 341,986
Long-term obligations 3,835 2,054
Stockholders' equity:
Preferred stock, par value $1.00 per share;
Shares authorized: 5,000,000
Issued and outstanding: none -- --
Common stock, par value $.01 per share;
Shares authorized: 40,000,000
Issued: July 30, 1995 - 14,436,737
October 30, 1994 - 14,267,700 144 143
Additional paid-in capital 122,094 121,249
Retained earnings 55,263 49,298
Loan to ESOT (931) (1,408)
Note receivable - stock purchase agreement (2,000) (2,000)
Treasury stock, at cost;
Shares: July 30, 1995 - 150,434
October 30, 1994 - 150,434 (1,123) (1,123)
------- -------
Total stockholders' equity 173,447 166,159
------- -------
Total liabilities and stockholders' equity 525,032 510,199
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended 39 weeks ended
---------------------------------------------
July 30, July 31, July 30, July 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue 759,082 583,375 2,176,861 1,583,413
Cost of sales 720,324 554,516 2,064,580 1,500,043
---------------------------------------------
Gross profit 38,758 28,859 112,281 83,370
Operating expenses 33,480 22,237 89,734 59,153
---------------------------------------------
Operating income 5,278 6,622 22,547 24,217
Other expense - net 3,911 1,561 11,947 3,020
---------------------------------------------
Income before income taxes 1,367 5,061 10,600 21,197
Provision for income taxes 705 1,953 4,635 8,403
---------------------------------------------
Net income 662 3,108 5,965 12,794
=============================================
Net income per common share 0.05 0.23 0.42 0.98
=============================================
Weighted average common and
common equivalent
shares outstanding 14,424 13,653 14,315 12,996
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
39 weeks ended
----------------------
July 30, July 31,
1995 1994
----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income 5,965 12,794
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 10,962 6,530
Provision for losses on accounts and notes receivabl 3,820 2,391
Changes in assets and liabilities, net of business acquisitions:
Accounts and notes receivable 18,303 (7,550)
Inventory (12,595) (101,444)
Other current assets (323) (431)
Other assets (2,462) (5,454)
Accounts payable 1,717 69,802
Accrued liabilities (1,431) 3,265
Other liabilities 291 688
---------------------
Net cash provided by (used in) operating activities 24,247 (19,409)
Cash flows from investing activities:
Purchases of property and equipment (18,308) (12,860)
Purchases of businesses and investments
in unconsolidated companies (2,550) (5,016)
Increases in intangible assets - (68)
---------------------
Net cash used in investing activities (20,858) (17,944)
Cash flows from financing activities:
Amounts received from ESOT 477 444
Proceeds from issuance of stock, net of issuance costs 846 40,361
Principal payments on debt (1,701) (991)
---------------------
Net cash (used in) provided by financing activities (378) 39,814
---------------------
Net increase in cash and cash equivalents 3,011 2,461
Cash and cash equivalents at beginning of period 11,074 14,504
---------------------
Cash and cash equivalents at end of period 14,085 16,965
=====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MicroAge, Inc.
(the "Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair statement of results for the periods
have been included. Operating results for the 39 weeks ended July 30, 1995 are
not necessarily indicative of the results that may be expected for the year
ending October 29, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended October 30, 1994.
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following:
<TABLE>
<CAPTION>
Quarters ended 39 weeks ended
-------- -------- -------- --------
July 30, July 31, July 30, July 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ 690 $ 476 $ 2,916 $ 660
Expense from sale of
accounts receivable 2,810 953 7,573 2,085
Other 411 132 1,458 275
------ ------ ------- ------
$3,911 $1,561 $11,947 $3,020
====== ====== ======= ======
</TABLE>
NOTE C - FINANCING ARRANGEMENTS
In December 1994, the Company amended its February 1993 agreement (the
"Agreement") to increase its financing facility from $200 million to $250
million; and in August 1995, the financing capacity under the Agreement was
increased to $400 million.
NOTE D - STOCKHOLDERS' EQUITY
Associate Stock Purchase Plan
In March 1995, the Board of Directors and stockholders approved an associate
stock purchase plan (the "Associate Plan"). The Associate Plan provides a
means for the Company's employees to authorize payroll deductions up to 10% of
their earnings to be used for the periodic purchase of the Company's common
stock. Under the Associate Plan, the Company will initially sell shares to
participants at a price equal to the lesser of 85% of the fair market value of
the common stock at the beginning of a six month subscription period or 85% of
fair market value at the end of the subscription period. The Associate Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended. The maximum number of shares
that may be purchased under the Associate Plan is 500,000. The initial
subscription period began July 1, 1995.
5
<PAGE> 7
Director Incentive Plan
In March 1995, the Board of Directors and stockholders approved an incentive
plan for those Directors who are not officers or employees of the Company or
its subsidiaries (the "1995 Director Plan"). Under the 1995 Director Plan, on
November 1 of each year, commencing in 1995 and ending in 2004, each eligible
Director will automatically be granted (i) 1,000 shares of the Company's common
stock subject to certain restrictions and (ii) options to purchase 1,000 shares
of the Company's common stock.
The aggregate number of shares of the Company's common stock available for
awards under the 1995 Director Plan is 80,000.
NOTE E - LITIGATION
On July 14 through July 19, 1994, seven class action complaints were filed in
the United States District Court for the District of Arizona against the
Company, certain of its officers and directors, and, in three of the lawsuits,
one of the underwriters of the Company's June 16, 1994 public offering of
common stock. On December 5, 1994, the Court consolidated the seven actions
into a single action. On February 16, 1995, plaintiffs filed and served an
amended, consolidated complaint against the Company, certain officers and
directors of the Company, and three of the underwriters of the Company's June
16, 1994 public offering of common stock ("the Complaint"). The Complaint
purports to be brought on behalf of a class of purchasers of the Company's
common stock during the period April 13, 1994 through July 14, 1994. The
complaint alleges, among other things, that the Company violated federal
securities laws by making misleading public statements and omitting material
facts regarding the Company's operations and financial results, which the
plaintiffs contend to have artificially inflated the price of the Company's
common stock during the alleged class period. The complaint seeks unspecified
compensatory damages as well as fees and costs. On April 28, 1995, the Company
filed a motion to dismiss the Complaint in its entirety. The motion was heard
on July 31, 1995; no decision has yet been issued. Discovery has been served
and is expected to commence in October. The Company and the individual
defendants deny the plaintiffs' allegations of wrongdoing and intend to
vigorously defend themselves in these actions. The proceeding is in its early
stages, however, and its outcome cannot be predicted with certainty at this
time.
NOTE F - SUBSEQUENT EVENT
Subsequent to July 30, 1995, the Company approved and began to implement actions
targeted at reducing the Company's future cost structure and improving its
profitability. These actions include, among other things, (i) a reduction in
the number of the Company's employees and (ii) the sale of the Company's memory
distribution subsidiary. As a result of these actions, and the recognition
of other restructuring charges, the Company will recognize one-time charges to
earnings during the fourth fiscal quarter. Although the amount of these charges
has not yet been determined, the Company expects to incur a loss during the
fourth fiscal quarter as a result of the charges.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------- 39 weeks 39 weeks
July 30, April 30, Jan. 29, Oct. 30, July 31, ended ended
1995 1995 1995 1994 1994 July 30, 1995 July 31, 1994
-------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue (in thousands) $759,082 $743,460 $674,319 $637,403 $583,375 $2,176,861 $1,583,413
Cost of sales 94.9% 94.7% 94.9% 94.9% 95.1% 94.8% 94.7%
-------- -------- -------- -------- -------- ---------- ----------
Gross profit 5.1 5.3 5.1 5.1 4.9 5.2 5.3
Operating expenses 4.4 4.1 3.8 3.8 3.8 4.1 3.8
-------- -------- -------- -------- -------- ---------- ----------
Operating income 0.7 1.2 1.3 1.3 1.1 1.1 1.5
Other expenses - net 0.5 0.6 0.6 0.4 0.3 0.6 0.2
-------- -------- -------- -------- -------- ---------- ----------
Income before income taxes 0.2 0.6 0.7 0.9 0.8 0.5 1.3
Provision for income taxes 0.1 0.3 0.3 0.3 0.3 0.2 0.5
-------- -------- -------- -------- -------- ---------- ----------
Net income 0.1% 0.3% 0.4% 0.6% 0.5% 0.3% 0.8%
======== ======== ======== ======== ======== ========== ==========
</TABLE>
Total Revenue. Total revenue increased $175.7 million, or 30%, to $759.1
million for the quarter ended July 30, 1995 as compared to the quarter ended
July 31, 1994. This revenue increase included a $69.7 million, or 33%, increase
in sales to large accounts (including Company-owned location revenue) and a
$106.0 million, or 29%, increase in sales to resellers.
Total revenue increased $593.4 million, or 38%, to $2.2 billion for the 39 weeks
ended July 30, 1995 as compared to the 39 weeks ended July 31, 1994. This
revenue increase included a $243.4 million, or 43%, increase in sales to large
accounts and a $350.1 million, or 35%, increase in sales to resellers.
Revenue growth was primarily attributable to sales to resellers added since
July 31, 1994, same location sales growth (including sales to large accounts),
the Company's focus on large account sales, increased demand for the Company's
major vendors' products and the Company's addition of new product lines.
Gross Profit Percentage. The Company's gross profit percentage increased to
5.1% for the quarter ended July 30, 1995 from 4.9% for the quarter ended July
31, 1994. The gross profit percentage decreased from 5.3% for the 39 weeks
ended July 31, 1994 to 5.2% for the 39 weeks ended July 30, 1995.
Future gross profit percentages may be affected by market pricing pressures,
the introduction of new Company programs; changes in revenue mix; the
availability and the Company's utilization of early payment discount
opportunities; vendor pricing actions and other competitive and economic
factors.
7
<PAGE> 9
Operating Expense Percentage. As a percentage of revenue, operating expenses
were 4.4% for the quarter ended July 30, 1995 compared to 3.8% for the quarter
ended July 31, 1994. Operating expenses increased $11.2 million to $33.5
million for the quarter ended July 30, 1995, as compared to the quarter ended
July 31, 1994.
As a percentage of revenue, operating expenses increased to 4.1% for the 39
weeks ended July 30, 1995 compared to 3.8% for the 39 weeks ended July 31,
1994. Operating expenses increased $30.6 million to $89.7 million for the 39
weeks ended July 30, 1995, as compared to the 39 weeks ended July 31, 1994.
The operating expense increase as a percentage of revenue was primarily due to
costs incurred in anticipation of revenue increases that did not materialize to
the extent expected, capacity expansion and the addition of a Company-owned
location. See "Fourth Fiscal Quarter Charges" below for a discussion of
actions being taken to reduce the Company's cost structure.
Other Expenses - Net. Other expenses - net increased to $3.9 million for the
quarter ended July 30, 1995 from $1.6 million for the quarter ended July 31,
1994. Other expenses - net increased to $11.9 million for the 39 weeks ended
July 30, 1995 from $3.0 million for the 39 weeks ended July 31, 1994. These
increases were primarily due to an increase in net financing costs.
These financing costs included expense from the sale of receivables under a
financing facility, increased interest expense due to higher average borrowings
and increased interest rates during the quarter and 39 weeks ended July 30,
1995, and costs from financing subsidies provided to lenders who finance
product purchases from the Company's customers. The higher borrowings were
primarily a result of increased accounts receivable and inventory levels during
the period. If the Company is successful in achieving continued revenue
growth, its working capital requirements and related financing costs are likely
to continue to increase.
Income Before Income Taxes. As a percentage of revenue, income before income
taxes decreased from 0.8% for the quarter ended July 31, 1994 to 0.2% for the
quarter ended July 30, 1995. Income before income taxes decreased as a
percentage of revenue from 1.3% for the 39 weeks ended July 31, 1994 to 0.5%
for the 39 weeks ended July 30, 1995. The decreases from prior year amounts
were due primarily to the operating expense increases and financing costs
described above. The factors discussed above will continue to have an impact
on the Company's income before income taxes during fiscal year 1995.
Marketing Development Funds. The Company receives funds from certain vendors
which are earned through marketing programs, meeting established purchasing
objectives or meeting other objectives determined by the vendor. There can be
no assurance that these programs will be continued by the vendors. A
substantial reduction in the vendor funds available to the Company would have
an adverse effect on the Company's results of operations.
Fourth Fiscal Quarter Charges. Subsequent to July 30, 1995, the Company
approved and began to implement actions targeted at reducing the Company's
future cost structure and improving its profitability. These actions include,
among other things, (i) a reduction in the number of the Company's employees
and (ii) the sale of the Company's memory distribution subsidiary. As a result
of these actions, and the recognition of other restructuring charges, the
Company will recognize one-time charges to earnings during the fourth fiscal
quarter. Although the amount of these charges has not yet been determined, the
Company expects to incur a loss during the fourth fiscal quarter as a result of
the charges.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs to date primarily through
working capital financing facilities, bank credit lines, common stock offerings
and cash generated from operations. The primary uses of cash have been to fund
increases in inventory and accounts receivable resulting from increased sales.
If the Company is successful in achieving continued revenue growth, its working
capital requirements are likely to increase.
In order to establish or solidify its presence in strategic markets or in
response to competitive pressures, the Company may make acquisitions of, or
investments in, reseller locations. These acquisitions or investments may be
made utilizing cash, stock or a combination of cash and stock.
For the 39 weeks ended July 30, 1995, $24.2 million of cash was provided by
operating activities. Net cash provided by operating activities included a
decrease in accounts receivable of $18.3 million, net income of $6.0 million,
non-cash depreciation, amortization and bad debt charges of $14.8 million, and
an increase in accounts payable of $1.7 million, offset by an increase in
inventory of $12.6 million and an increase in other assets of $2.5 million.
The Company's annualized inventory turnover rate increased from 8 times at
October 30, 1994 to 9 times at July 30, 1995. The number of days cost of sales
in ending accounts payable decreased from 47 days at October 30, 1994 to 41
days at July 30, 1995. The number of days sales in ending accounts receivable
decreased from 20 days at October 30, 1994 to 14 days at July 30, 1995,
primarily due to accounts receivable that were sold under a financing facility
(see discussion below). The receivables days adjusted for sold receivables
were 33 days at July 30, 1995 compared to 31 days at October 30, 1994. For the
39 weeks ended July 30, 1995, $20.9 million used in investing activities
consisted primarily of $18.3 million for the purchase of property and equipment
and $2.6 million for a business purchase.
In August 1995, the Company amended its financing agreement (the "Agreement")
to increase its financing facility from $250 million to $400 million. The
Agreement includes two major components: an accounts receivable facility (the
"A/R Facility") and an inventory facility (the "Inventory Facility"). The
Agreement expires in August 1997.
Under the amended A/R Facility, the Company has the right to sell certain
accounts receivable from time to time, on a limited recourse basis, up to an
aggregate amount of $250 million sold at any given time. At July 30, 1995, the
net amount of sold accounts receivable was $167 million.
The Inventory Facility provides for borrowings up to $150 million. Within the
Inventory Facility, the Company has a line of credit for the purchase of
inventory from selected product suppliers ("Inventory Line of Credit") of $50
million and a line of credit for general working capital requirements
("Supplemental Line of Credit") of $100 million. Payments for products
purchased under the Inventory Line of Credit vary depending upon the product
supplier, but generally are due between 45 and 60 days from the date of the
advance. No interest or finance charges are payable on the Inventory Line of
Credit if payments are made when due. At July 30, 1995, the Company had $24
million outstanding under the Inventory Line of Credit (included in the
accounts payable in the accompanying Balance Sheet), and no amounts outstanding
under the Supplemental Line of Credit.
Of the $400 million of financing capacity represented by the Agreement, $209
million was unused as of July 30, 1995. Utilization of the unused $209 million
is dependent upon the Company's collateral availability at the time the funds
would be needed.
9
<PAGE> 11
The Agreement is secured by substantially all of the Company's assets and
contains certain restrictive covenants, including working capital and tangible
net worth requirements, and ratios of debt to tangible net worth and current
assets to current liabilities. At July 30, 1995, the Company was in compliance
with these covenants.
The Company also maintains trade credit arrangements with its vendors and other
creditors to finance product purchases. Several major vendors maintain
security interests in their products sold to the Company.
The unavailability of a significant portion of, or the loss of, the Agreement
or trade credit from vendors would have a material adverse effect on the
Company.
INFLATION
The Company believes that inflation has generally not had a material impact on
its operations.
10
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note E of Notes to Consolidated Financial Statements (Unaudited)
for information regarding a consolidated class action lawsuit against the
Company, its directors, certain of its officers, and three of the underwriters
of the Company's June 16, 1994 public offering of Common Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Split-Dollar Insurance Agreement
dated as of December 14, 1994, by and between
MicroAge, Inc. and Jeffrey D. McKeever
10.2 Lease Agreement dated November 18, 1994, by and
between Duke Realty Limited partnership and Kenco
Group, Inc.
10.2.1 Assignment and Assumption of Lease Agreement dated
July 18, 1994 to Lease dated November 18, 1994, by
and between Kenco Group, Inc. and MicroAge Computer
Centers, Inc.
10.3 Restated and Amended Purchase Agreement dated as of
August 3, 1995, by and among MicroAge Computer
Centers, Inc., et al and Deutsche Financial Services
Corporation
10.3.1 Second Restated Agreement for Wholesale Financing
Agreement dated as of August 3, 1995, by MicroAge
Computer Centers, Inc. and Deutsche Financial
Services Corporation
10.4 Agreement for Wholesale Financing dated as of
December 17, 1993, by MicroAge Computer Centers, Inc.
and IBM Credit Corporation (Incorporated by reference
to Exhibit 10.9 to the Quarterly Report on Form 10-Q
for MicroAge, Inc. for the quarter ended May 1, 1994)
10.4.1 Amendment No. 1 to Addendum dated as of August 3,
1995 to Agreement for Wholesale Financing dated as of
December 17, 1993, by MicroAge Computer Centers, Inc.
and IBM Credit Corporation
11.1 Primary EPS Detail Calculation
11.2 Fully Diluted EPS Detail Calculation
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K
during the quarter ended July 30, 1995.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROAGE, INC.
(Registrant)
Date: September 13, 1995 By: /s/ Jeffrey D. McKeever
-------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: September 13, 1995 By: /s/ James R. Daniel
-------------------------
James R. Daniel
Senior Vice President and
Chief Financial Officer
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1 Amended and Restated Split-Dollar Insurance Agreement dated as of December 14, 1994, by and between MicroAge, Inc.
and Jeffrey D. McKeever
10.2 Lease Agreement dated November 18, 1994, by and between Duke Realty Limited partnership and Kenco Group, Inc.
10.2.1 Assignment and Assumption of Lease Agreement dated July 18, 1994 to Lease dated November 18, 1994, by and between
Kenco Group, Inc. and MicroAge Computer Centers, Inc.
10.3 Restated and Amended Purchase Agreement dated as of August 3, 1995, by and among MicroAge Computer Centers, Inc.,
et al and Deutsche Financial Services Corporation
10.3.1 Second Restated Agreement for Wholesale Financing Agreement dated as of August 3, 1995, by MicroAge Computer
Centers, Inc. and Deutsche Financial Services Corporation
10.4 Agreement for Wholesale Financing dated as of December 17, 1993, by MicroAge Computer Centers, Inc. and IBM Credit
Corporation (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for
the quarter ended May 1, 1994)
10.4.1 Amendment No. 1 to Addendum dated as of August 3, 1995 to Agreement for Wholesale Financing dated as of December
17, 1993, by MicroAge Computer Centers, Inc. and IBM Credit Corporation
11.1 Primary EPS Detail Calculation
11.2 Fully Diluted EPS Detail Calculation
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Amended and Restated
Split-Dollar Insurance Agreement
THIS AGREEMENT is amended and restated in its entirety this 14th day of
December 1994 by and between MicroAge, Inc., a Delaware corporation (the
"Company"), and Jeffrey D. McKeever (the "Executive");
WHEREAS, the Company has agreed to increase the death benefit to the
Executive during the term of his employment with the Company from $2,000,000 to
$3,000,000; and
WHEREAS, the Company and the Executive agree that this death benefit will
be provided under two life paid up at age 65 policies (collectively hereinafter
referred to as the "Policy") issued by the Northwestern Mutual Life Insurance
Company (the "Insurer") and which are described on Schedule A attached hereto;
and
WHEREAS, the Company shall receive the Policy Cash Value (as defined
herein) or the face value of the Policy in excess of $3,000,000 in the event
the Executive incurs a Substantial Risk of Forfeiture (as defined herein); and
WHEREAS, the Company has also agreed to provide the Executive with
retirement benefits which will accrue annually under and in accordance with the
Supplemental Executive Retirement Plan of MicroAge, Inc. (the "SERP") during
the period of his employment under the Employment Agreement; and
WHEREAS, this Agreement is being entered into pursuant to Section 2.4 (a)
of the Employment Agreement dated as of October 21, 1992, by and between the
Company and Executive ("Employment Agreement"). Terms not otherwise defined
herein shall have the meanings attributed to them in the Employment Agreement;
NOW, THEREFORE, effective as of the date hereof, the Company and the
Executive agree as follows:
SECTION 1
ISSUANCE, OWNERSHIP, PREMIUMS
The Insurer shall issue the Policy to the Executive, who shall own the
Policy, subject to the Company's rights recited hereinafter. The Company shall
pay all required annual premiums of at least $192,000 during the term of the
Policy, but not after death, Retirement, Total Disability or other termination
of employment of the Executive under the Employment Agreement. The Executive
agrees to report taxable income attributable to the Policy as required under
applicable rulings of the Internal Revenue Service. The total death benefit
under the Policy shall be of whatever amount is selected by the Company, so long
as the proceeds of the Policy are at least adequate to pay Executive's
designated beneficiary the $3,000,000 death benefit. The Policy shall be
dividend-bearing, and the dividends shall be used to purchase additional amounts
of paid-up life insurance on the Executive's life. Neither an insured amount in
excess of the $3,000,000 nor the additional amounts provided by application of
dividends shall expand the Company's obligation to provide the stated death
benefit of $3,000,000. Photostatic copies of the Policy, including the policy
application therefor, shall be attached as exhibits to this Agreement. During
the term of this Agreement, the Company will not exercise nor withhold its
consent to the exercise by Executive of any rights, privileges or options
conferred by the terms of the Policy of the Insured other than the right to
borrow (which shall require the prior written consent of the Company) against
the aggregate cash value in the Policy (subject to the rights of the Company as
set forth herein). With the prior written consent of the Executive, the Company
may borrow against the aggregate cash value in the Policy.
<PAGE> 2
SECTION 2
DEATH
The Policy shall be appropriately endorsed to provide that at the death of
the Executive his designated beneficiary shall be paid $3,000,000 and the excess
of the policy proceeds shall be paid to the Company.
SECTION 3
POLICY CASH VALUE AND
SUBSTANTIAL RISK OF FORFEITURE
For all purposes of this Agreement, the term "Policy Cash Value" shall
mean the lesser of (i) the aggregate premiums paid by the Company or (ii) the
total cash value of the Policy on the date the Policy Cash Value is determined.
For all purposes of this Agreement, "Substantial Risk of Forfeiture" means (i)
in the event of Executive's death prior to age 65, the death proceeds of the
Policy in excess of $3,000,000; (ii) in the event of Executive's Total
Disability, the Policy Cash Value; and (iii) in the event of Executive's
termination of employment for any reason other than death or Total Disability,
the excess, if any, of the Policy Cash Value over the Company's obligation to
Executive under the SERP determined as of Executive's termination of
employment.
SECTION 4
RETIREMENT, ETC.
At the Executive's age 65 (or earlier termination of his employment under
the Employment Agreement by the Company other than for death or Total
Disability), the Policy Cash Value shall be applied to reduce the Company's
obligation to the Executive under the SERP, provided that if the Policy Cash
Value exceeds the Company's obligations under the SERP, the Company shall be
paid the excess. Nothing herein shall relieve the Company of the balance of
its obligation, if any, under the SERP if the Policy Cash Value is inadequate
to provide the SERP benefit.
The Company shall receive its value, if any, in cash and the Policy shall
become solely the property of the Executive. Any cash value in excess of the
Policy Cash Value shall be the property of the Executive.
SECTION 5
DISABLEMENT
Because the Company and the Executive have made provision for disability
income to the Executive pursuant to the Employment Agreement, the Executive is
not entitled to any SERP benefit upon Total Disability. Accordingly, Total
Disability of the Executive prior to age 65 shall be treated hereunder as a
termination, and the Policy Cash Value shall be forfeited and returned to the
Company.
SECTION 6
COLLATERAL ASSIGNMENT
Notwithstanding that the Executive is the owner of the Policy, the Company
has certain rights thereto as provided herein. The Executive has a right to
(i) $3,000,000 in death proceeds if he dies prior to his termination of
employment, (ii) to so much of the Policy Cash Value as equals his accrued
retirement benefit under the SERP and (iii) any cash value in excess of the
Policy Cash Value. So much of the Policy proceeds upon Executive's death as
exceeds $3,000,000 shall be paid by the Insurer to the Company, so much of the
Policy Cash Value, if any, as exceeds the Company's obligation to Executive
under the SERP shall be paid by the Insurer to the Company, and, upon
Executive's Total Disability, the Policy Cash Value shall be paid by the
<PAGE> 3
\
Insurer to the Company. These rights of the Company shall be written into a
collateral assignment of the Policy, which shall be executed by the Executive,
delivered to the Company and made a part of this Agreement.
SECTION 7
MISCELLANEOUS
(1) This Agreement shall terminate at termination of the Executive's
employment under the Employment Agreement.
(2) This Agreement may be amended only in a writing signed by the Company
and the Executive. Executive agrees not to amend the Policy without the
written consent of the Company.
(3) This Agreement shall be construed in accordance with the laws of the
State of Arizona.
(4) If any provision hereof is deemed unenforceable, said provision shall
be interpreted in a manner which approximates the desired outcome. The
unenforceability of any provision hereunder shall not affect the other
provisions hereunder.
(5) This Agreement may not be assigned by either party without the
consent of the other, except that a corporate successor to the Company may
accede to the Company's rights and obligations hereunder.
(6) Except as otherwise expressly provided for herein, the provisions of
Section 7 of the Employment Agreement are incorporated herein and made a part
hereof.
(7) The Insurer shall be bound only by the provisions of any endorsements
on the Policy, and any payments made or action taken by it in accordance
therewith shall fully discharge it from all claims, suits and demands of all
persons whatsoever. Except as specifically provided by endorsement on the
Policy, it shall in no way be bound by the provisions of this Agreement.
SECTION 8
FIDUCIARY PROVISION
(1) The party designated as the "named fiduciary" for the Split-Dollar
Plan established by this Agreement shall have the authority to control and
manage the operation and administration of such plan provided, however, the
Insurer shall be the fiduciary of the plan solely with regard to the review and
final decision on a claim for benefits under its Policy as provided in Section
9 Claims Procedure, set forth below.
(2) The Fiduciary may allocate his responsibilities for the operation and
administration of the Split-Dollar Plan, including the designation of persons
to carry out fiduciary responsibilities under any such plan. He shall effect
such allocation of his responsibilities by delivering to the Company a written
instrument signed by him that specifies the nature and extent of the
responsibilities allocated, including, the persons who are designated to carry
out these fiduciary responsibilities under the Split- Dollar Plan, together
with a signed acknowledgement of their acceptance.
<PAGE> 4
SECTION 9
CLAIMS PROCEDURE
The following claims procedure shall apply to the Split-Dollar Plan:
(1) The beneficiary of such Policy shall make a claim for the benefits
provided under the Policy in the manner provided in the Policy.
(2) With respect to a claim for benefits under said Policy, the Insurer
shall be the entity which reviews and makes decisions on claim denials.
(3) If a claim is wholly or partially denied, notice of the decision,
meeting the requirements of subparagraph (4) below, shall be furnished to the
claimant within a reasonable period of time after the claim has been filed.
(4) The Insurer shall provide to any claimant who is denied a claim for
benefits, written notice setting forth in a manner calculated to be understood
by the claimant, the following:
(a) The specific reasons for the denial;
(b) Specific reference to the pertinent Policy or plan provisions
on which the denial is based;
(c) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary;
(d) An explanation of the plan's claim review procedure, as set
forth in paragraphs (5) and (6) below.
(5) The purpose of the review procedure set forth in this paragraph and
in paragraph (6) below, is to provide a procedure by which a claimant under the
Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a
claim for a full and fair review. To accomplish that purpose, the claimant or
his duly authorized representative:
(a) May request a review upon written application to the Insurer;
(b) May review pertinent plan documents or agreements; and
(c) May submit issues and comments in writing.
A claimant (or his duly authorized representative) shall request a review by
filing a written application for review at any time within sixty (60) days after
receipt by the claimant of written notice of the denial of his claim.
(6) A decision on review of a denial of a claim shall be made in the
following manner:
(a) The decision on review shall be made by the Insurer, which may
in its discretion hold a hearing on the denied claim. The Insurer shall make
its decision promptly, unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not alter than one hundred twenty
(120) days after receipt of the request for review.
(b) The decision on review shall be in writing and shall include
specific reasons for the decisions, written in a manner calculated to be
understood by the claimant, and specific references to the pertinent Policy or
plan provision on which the decision is based.
<PAGE> 5
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amended and Restated Agreement on this 14th day of December 1994, at Tempe,
Arizona.
By: /s/ Jeffrey D. McKeever
-------------------------------
Jeffrey D. McKeever
("Executive")
MICROAGE, INC.
("Company")
By: /s/ Curtis J. Scheel
-------------------------------
Name: Curtis J. Scheel
Title: Vice President-Treasurer
<PAGE> 6
SCHEDULE A
FACE AMOUNT: $3,451,913
POLICY NUMBERS: 12329147
12442966
PLAN OF INSURANCE: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY LIFE
PAID UP AT 65.
COLLATERAL ASSIGNMENT
Under Policy Numbers 12329147 and 12442966 (the "Policy")
Issued by the Northwestern Mutual Life Insurance Company
Policy Owner and Insured: Jeffrey D. McKeever
In compliance with the Employment Agreement dated as of October 1, 1992,
executed by and between MicroAge, Inc. (the "Company") and Jeffrey D. McKeever
(the "Policy Owner") and a split-dollar insurance agreement of even date
herewith between the Policy Owner and the Company, Policy Owner hereby agrees to
assign the following interests in the Policy to the Company:
(1) If Policy Owner dies prior to his termination of employment with the
Company, The Northwestern Mutual Life Insurance Company ("NML") shall pay any
death benefit in excess of $3,000,000 to the Company.
(2) In the event of the Total Disability of Policy Owner prior to
termination of employment with the Company, NML shall pay the policy Cash Value
(i.e., the lesser of the total cash value of the Policy or the aggregate amount
of premiums paid by the Company) to the Company.
(3) In the event of Policy Owner's retirement or earlier termination of
employment with the Company prior to his death or Total Disability, NML shall
pay to the Company the excess, if any, of the Policy Cash Value over the
Company's obligation to Policy Owner under the Supplemental Executive Retirement
Plan of MicroAge, Inc. ("SERP"). The Company shall notify NML of its aggregate
SERP obligation to Policy Owner within thirty days of Policy Owner's retirement
or earlier termination of employment with the Company.
(4) The Policy Owner shall be the owner of the policy, subject to the
interests assigned to the Company herein. The Policy Owner alone may exercise
all of the rights and privileges specified in the Policy, except neither Policy
Owner nor Company may borrow against the aggregate cash value in the Policy
without the written consent of both parties.
DATED: December 14, 1994
/s/ Jeffrey D. McKeever
---------------------------
Jeffrey D. McKeever
MICROAGE, INC.
By: /s/Curtis J. Scheel
---------------------------
<PAGE> 1
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT, executed this 18th day of November, 1994, by and
between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
("Lessor") and KENCO GROUP, INC., a Tennessee Corporation ("Lessee").
WITNESSETH:
1. BASIC LEASE PROVISIONS. The following constitute the "Basic Lease
Provisions" of this Lease:
A. Building Name/Number: World Park Building No.____ Address: 5389
Provident Drive, Cincinnati, Ohio 45246.
B. Rentable Area: 304,000 square feet, to be constructed as specified on
Exhibit B hereto.
C. Building Expenses Percentage: 100%.
D. Minimum Annual Rent:
<TABLE>
<S> <C>
Year 1 $ 613,320.00
Year 2 $ 774,516.00
Years 3-5 $ 935,712.00 per year
Years 6-0 $1,029,960.00 per year
</TABLE>
E. Monthly Rental Installments:
<TABLE>
<S> <C>
Months 1-18 $51,110.00 per month
Months 19-60 $77,976.00 per month
Months 61-121 $85,830-00 per month
</TABLE>
F. Lease Term: Ten (10) years and Zero (0) months.
G. Commencement Date: See Section 35 herein.
H. Base Amount: Not applicable.
I. Security Deposit: $0.00.
J. Broker(s): Duke Realty Limited Partnership, representing Lessor, and
CB Commercial, representing Lessee.
K. Address for payments and notices as follows:
Lessor: Duke Realty Limited Partnership
8044 Montgomery Road, Suite 400
Cincinnati, Ohio 45236
With Rent Duke Realty Limited Partnership
Payments Department 00432
to: Cincinnati, Ohio 45263
With copy Duke Realty Limited Partnership
to: 8888 Keystone Crossing, Suite 1200
Indianapolis, Indiana 46240
Attention: Legal Department
<PAGE> 2
Lessee: KENCO Group, Inc.
P.O. Box 829
Chattanooga, TN 37401
Attn: James D. Kennedy, III
With copy MicroAge Computer Centers, Inc.
to: 2308 South 55th Street
Tempe, Arizona 85282
Attn: Vice President of Administration
2. THE LEASED PREMISES. Lessor hereby leases and demises to Lessee and Lessee
agrees to lease from Lessor a certain building described in Item A of the Basic
Lease Provisions (the "Building"). The Building hereby leased to Lessee has a
gross area of approximately the square footage shown in Item B of the Basic
Lease Provisions, and is outlined in red on the floor plan attached hereto as
Exhibit A which is incorporated herein by reference (the "Leased Premises").
Lessor also grants to Lessee, the right to use the parking area adjoining the
Building.
3. TERM.
(a) The term of this Lease shall be for the period shown in Item F of the
Basic Lease Provisions (the "Lease Term") commencing on the Commencement Date.
(b) The Commencement Date shall be the date established by Section 35 of
this Lease.
4. MINIMUM RENT.
(a) Lessee agrees to pay as minimum rent for the Leased Premises the sum
of the Minimum Annual Rent as set forth in Item D of the Basic Lease Provisions
payable in Monthly Rental Installments as set forth in Item E of the Basic
Lease Provisions without deduction or setoff, except as provided in Section
11(c), the Monthly Rental Installments to be paid in advance beginning on the
Commencement Date and on the first day of each month thereafter for the term of
this Lease (the "Minimum Rent"). The Monthly Rental Installments for partial
months shall be prorated based on the number of the days in such month which
are included within the Lease Term divided by thirty (30).
(b) Lessee acknowledges that late payment by Lessee to Lessor of Minimum
Rent and Additional Rent (as hereinafter defined) as provided for under this
Lease shall cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges and
late charges that may be imposed on Lessor by the terms of any encumbrances and
notes secured by any encumbrances covering the Leased Premises, or late charges
and penalties by virtue of late payment of taxes due on the Leased Premises.
Therefore, if any installment of Minimum Rent or Additional Rent or any other
charge due from Lessee is not received by Lessor within ten (10) days of the
date due, Lessee shall pay to Lessor an additional sum of five percent (5%) of
the amount due as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the cost that Lessor will incur by
reason of the late payment by Lessee. Acceptance of any late charge shall not
constitute a waiver of Lessee's default with respect to the overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies available
to Lessor. In addition, in the event Tenant fails to pay within thirty (30)
days after the same is due and payable any installment of Minimum Rent or any
other sum or charge required to be paid by Lessee to Lessor under this Lease,
such unpaid amount shall bear interest from the due date thereof to the date of
payment at the rate of prime rate as published in
<PAGE> 3
The Wall Street Journal plus four percent (4%) per annum (but not in excess of
the highest rate of interest permissible under Ohio law).
5. ADDITIONAL RENT.
(a) Lessee agrees to pay as "Additional Rent" the amount paid or incurred
by Lessor during the Lease Term, for real estate taxes, insurance premiums and
common area maintenance expenses for the Building (collectively "Operating
Expenses"). Operating Expenses shall include, so long as they are in
accordance with generally accepted accounting principles, all expenses for
operation, repair, replacement and maintenance as necessary to keep the
Building in good order, condition and repair, including but not limited to,
utilities (to the extent such are not separately metered) , expenses associated
with the driveways and parking areas (including repaving and snow, trash and
ice removal), security systems, lighting facilities, landscaped areas,
walkways, directional signage, curbs, drainage strips, sewer lines, all charges
assessed against the Building pursuant to any applicable easements, covenants
or development standards, management fees (equal annually to fifteen percent
(15%) of the total Operating Expenses for the Building for such year).
Operating Expenses shall not include the costs for capital improvements unless
such costs result in a decrease in the Operating Expenses of the Building, are
required by any governmental authority or are replacements of improvements, nor
shall they include costs or expenses for repairs or damages to the Building
which are compensated by Lessor's insurance or which are uninsured losses (but
not including such uninsured losses which are a result of Lessee's occupancy of
the Leased Premises or reasonable insurance deductibles). Lessor represents
that the Additional Rent for the calendar year 1995 is estimated to be Seven
Thousand Eight Hundred Dollars (7,800.00) per month as such estimate is more
particularly set forth on Exhibit C attached hereto. The proportionate share
to be paid by Lessee shall be a percentage based upon the proportion that the
square footage of the Leased Premises bears to the total square footage of the
Building, which proportion shall be the amount set forth as the Building
Expense Percentage in Item C of the Basic Lease Provisions. Lessor shall be
entitled to estimate the total amount of Additional Rent to be paid by Lessee
during each calendar year and, upon notice to Lessee of such estimate, to
collect such estimate in twelve (12) equal installments, each such installment
due with the Monthly Rental Installment payable under this Lease. Within one
hundred fifty (150) days after the end of such calendar year, Lessor shall
submit to Lessee a statement of the actual amount of Operating Expenses and the
Additional Rent due from Lessee hereunder, and subject to Lessee's right to
protest as set forth in Section 5(c) within thirty (30) days after receipt of
such statement, Lessee shall pay any deficiency between the actual amount owed
and the estimates paid during such calendar year, or in the event of
overpayment, Lessor shall credit the amount of such overpayment toward the next
Monthly Rental installments of Minimum rent. It is not intended, however, that
Lessee be required to pay its share of any increased tax assessments resulting
from additional improvements constructed for other lessees in the Building
after the Building has been fully completed and assessed.
(b) As used herein, the term "real estate taxes" shall include any form
of real estate tax or assessment, general, special ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Leased Premises by any authority having the direct or indirect power to tax,
including any city, state or federal government or any school, agricultural,
sanitary, fire, street, drainage or other improvement district hereof, or
against Lessor's business of leasing the Leased Premises. Lessor's reasonable
determination thereof, in good faith, shall be conclusive. The building
housing the Leased Premises shall be located on a separate tax parcel. In the
event of any increase in the real estate tax assessment of the Building, Lessor
shall notify Lessee, if Lessor does not intend to appeal such assessment. With
the prior written consent
<PAGE> 4
of Lessor, which shall be exercised in Lessor's reasonable discretion, the
Lessee may, without postponing payment thereof, as aforesaid, bring proceedings
to contest the validity or the amount of any such assessment. The Lessee shall
indemnify and hold harmless the Lessor against and from any expense arising out
of any such action. The Lessor shall, upon written request by the Lessee and
consent thereto being granted by Lessor, cooperate with the Lessee in taking any
such action, provided that the Lessee indemnifies and holds harmless the Lessor
against and from any expense or liability arising out of such cooperation.
Lessee shall pay, prior to delinquency, all taxes assessed against and levied
upon trade fixtures, furnishings, equipment and all other personal property of
Lessee contained in the Leased Premises or elsewhere. Lessee shall cause such
trade fixtures, furniture, equipment and all other personal property to be
assessed and billed separately from the Leased Premises.
(c) Lessor's statement shall be conclusive subject to correction only
for: (i) mathematical errors; (ii) adjustment upon resolution of any appeals
relating to real estate taxes; and (iii) audit as provided in this Section. If
Lessee does not agree with Lessor's statement, then Lessee shall have the
right, not later than 30 days following receipt of such statement by Lessee, if
the parties are unable to resolve any disagreement by negotiation, to object to
such statement and to cause an audit to be made of Lessor's records concerning
real estate taxes and Operating Expenses. Such audits shall be conducted by an
independent certified public accountant designated by Lessee from a list of the
"Big Six: accounting firms. Such audit shall be completed not later than 60
days following Lessee's receipt of such statement. Any such audit shall be at
the expense of Lessee, unless such audit discloses an overstatement of real
estate taxes and operating expenses in excess of ten percent (10%), in which
event such audit shall be at the expense of Lessor. The results of any such
audit shall be binding upon Lessor and Lessee. If Lessee does not object to
any statement within 30 days following Lessee's receipt of such statement, then
such statement shall be conclusively deemed to have been approved and accepted
by Lessee. Pending resolution of any dispute with respect to a statement,
Lessee shall pay the sums shown as due on such statement, and, if it shall be
finally determined that any portion of such sum was not properly due or greater
payments were due, Lessor shall immediately refund any overpayment to Lessee,
or Lessee shall immediately pay any shortfall to Lessor.
6. UTILITIES. Lessee shall pay the costs of all utilities serving the Leased
Premises. Gas and electric service to the Leased Premises shall be separately
metered from other portions of the Building.
7. INTENTIONALLY DELETED.
8. USE OF LEASED PREMISES. The Leased Premises are to be used by Lessee for
office use, configuration and assembly of computers, warehousing, storage and
MicroAge technology related purposes, and for no other purposes without the
prior written consent of Lessor, which shall not be unreasonably withheld.
Lessee shall not use the Leased Premises or fail to maintain them in any manner
constituting a violation of the covenants affecting the building applicable to
the industrial park in which the Building is located, or any applicable
ordinance, statute, regulation or order of any governmental authority,
including but not limited to those governing zoning, health, safety and
occupational hazards, and pollution and environmental control. The covenants
primarily address maintenance of common facilities, setbacks, landscaping, etc.
A copy of all such covenants shall be provided upon request. Lessee shall not
maintain or permit any nuisance to occur on the Leased Premises, nor shall
Lessee's use of the Leased Premises unreasonably interfere with the reasonable
use of the Building or the common parking areas associated therewith by other
lessees.
<PAGE> 5
Lessee covenants and agrees that Lessee will use, maintain and occupy the
Leased Premises in a careful, safe and proper manner for its intended uses and
will not commit waste thereon.
9. MAINTENANCE AND REPAIRS.
(a) Condition of Premises. Lessor warrants to Lessee that the plumbing,
lighting, heating, and loading doors on the Leased Premises shall be in good
operating condition on the Commencement Date. In the event that any of such
items are not in good operating condition on the Commencement Date, Lessee
shall give Lessor written notice of such condition within thirty (30) days
following the Commencement Date and Lessor shall promptly, at its sole cost,
diligently effect necessary repairs, and if, and only if, the condition of the
Leased Premises materially interferes with the conduct of Lessee's business, or
the health, safety and welfare of Lessee's employees, agents and invitees,
Lessee's Monthly Rental Installments shall be abated proportionately to
Lessee's ability to utilize the space during the period it takes Lessor to
effect the necessary repairs. Lessee's failure to give such written notice to
Lessor within thirty (30) days after the Commencement Date shall terminate
Lessor's repair obligations under this subparagraph.
(b) Lessor Representations.
(i) Lessor hereby represents and warrants that to the best of its
knowledge, as of the date Lessee takes possession of the Leased Premises,
and for the Term hereof (and any extension or renewal thereof), the Lease
Premises are structurally sound and free of all defects, except for those
items for which Lessee has expressly assumed responsibility hereunder,
provided, however, that if any problem or defect exists, which by its
nature could not reasonably be discovered or detected by Lessee by an
inspection of the Leased Premises on the date Lessee takes possession, then
such problems or defects remain the sole responsibility of the Lessor.
(ii) Lessor hereby further represents and warrants that to the best
of its knowledge, as of the date Lessee takes possession of the Leased
Premises, the Leased Premises are in good working order and in compliance
with all applicable orders, regulations, requirements and laws of the
federal, state, county and municipal governments.
(c) Lessee's Obligations. Lessee shall, at its own cost and expense,
maintain in good condition and repair the interior of the Leased Premises,
including but not limited to the electrical systems, heating, air conditioning
and ventilation systems, plate glass, windows and doors, sprinkler and plumbing
systems. Lessee's obligations to repair and maintain the Leased Premises shall
include without limitation all plumbing and sewage facilities within the Leased
Premises; fixtures; interior walls; floors, cases; all electrical facilities and
equipment including cases; skylights; all electrical facilities and equipment
including without limitation lighting fixtures, lamps, fans and any exhaust
equipment and systems; electrical motors; and all other appliances and equipment
of every kind and nature located in, upon or about the Leased Premises except as
to such maintenance and repair as is the Lessor's obligation pursuant to Section
9(a), (b) or (d) herein. All glass, both interior and exterior, is at the sole
risk of Lessee; and any broken glass shall be promptly replaced at Lessee's
expense by glasses in kind, size and quality. Lessee shall obtain a preventive
maintenance contract on the heating, ventilating and air conditioning systems
which shall be subject to the reasonable approval of Lessor and paid for by
Lessee.
(d) Unless the same is caused solely by the negligence or willful
misconduct of Lessor, Lessor shall not be liable to Lessee or to any other
person for any
<PAGE> 6
damage occasioned by failure in any utility system or by the bursting or leaking
of any vessel or pipe in or about the Leased Premises, or for any damage
occasioned by water coming into the Leased Premises or arising from the acts or
neglects of occupants of adjacent property or the public.
10. ASSIGNMENT AND SUBLEASE.
(a) Except as hereinafter expressly provided, Lessee shall not assign this
Lease in whole or in part or sublet the Leased Premises in whole or in part
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld, so long as the provisions of Section 10(b) have been
satisfied to Landlord's sole and reasonable discretion. Unless the provisions
of Section 10(d) are applicable, if Lessor consents to such assignment or
subletting, Lessee shall remain primarily liable to perform all of the covenants
and conditions contained in this Lease, including but limited to payment of
Minimum Rent and Additional Rent as provided herein. The acceptance of rent
from any other person shall not be deemed to be a waiver of any of the
provisions of this Lease or to be a consent to the assignment of this Lease or
the subletting of the Leased Premises.
(b) Without in any way limiting Lessor's right to refuse to give consent
to any assignment or subletting of this Lease, Lessor reserves the right to
refuse to give such consent if in Lessor's discretion and opinion (i) the use
of the Lease Premises is or may be in any way adversely affected; or (ii)
Lessee and such proposed assignee or subtenant do not execute and deliver to
Lessor the agreement by such assignee or subtenant that it assumes and shall be
bound to Lessor by all the terms and conditions of the Lease. Lessor further
expressly reserves the right to refuse to give its consent to any subletting if
the proposed rent is to be less than the then current rent for similar premises
in the development of which the Building is a part (the "Development").
(c) If Lessee, having obtained Lessor's consent, shall assign this Lease
or sublet the Leased Premises or any part thereof at a rental or for other
consideration in excess of the Minimum Rent or pro rata portion thereof due and
payable by Lessee under this Lease, then Lessee shall pay to Lessor as
additional rent fifty percent (50%) of such excess rent or other monetary
consideration within ten (10) days of the receipt thereof from said assignee or
sublessee. If only a portion of the Leased Premises is being sublet, the
Minimum Rent due under the terms of this Lease shall be allocated on a square
foot basis to the portion so sublet, and fifty percent (50%) of such excess
rent or other consideration due from the sublessee for such month over the
portion of the Minimum Rent so allocated shall be paid to Lessor within ten
(10) days of the receipt thereof. It is agreed, however, that Lessor shall not
be responsible for any deficiency if Lessor shall not be responsible for any
deficiency if Lessee shall assign this Lease or sublet the Leased Premises or
any part thereof at a rental rate less than provided for herein.
(d) Lessor hereby acknowledges that it is aware of an agreement between
Lessee and MicroAge Computer Centers, Inc. ("MicroAge") concerning the
warehousing and distribution services being provided by Lessee to MicroAge.
Notwithstanding any other provision herein to the contrary, Lessee, without
Lessor's approval, may assign this Lease or sublease all or any part of the
Lease Premises to (i) MicroAge, (ii) Lessee's or MicroAge's parent, subsidiary,
affiliate, or successor by merger, consolidation, reorganization or pooling of
interests (collectively, a "Related Party"), or (iii) a third party providing
similar services to MicroAge as those provided by Kenco in the event of a
termination of the Lessee/MicroAge Warehouse Services agreement ("Agreement"),
or (iv) an assignment of the Lease pursuant to either Section 4.12 or Section
5.1.4 of such Agreement, provided that Lessee or MicroAge notifies Lessor in
writing of such assignment of the Lease or sublease of the premises not less
than 30 days prior to the effective date of the
<PAGE> 7
assignment of the Lease or sublease of the premises; provided, however, if the
effective date of the assignment of the Lease or sublease of the premises is
less than 30 days from the date of notice or the event causing the assignment of
the Lease or the sublease of the premises, then the Lessee or MicroAge shall
immediately notify Lessor of said assignment of the Lease or sublease of the
premises. In the event of an assignment of the Lease or sublease of the Leased
Premises under this Section 10(d), the Lessee shall be released and fully
discharged from all duties, obligations, liabilities, covenants, and conditions
imposed upon Lessee by this Lease after the effective date of the assignment of
the Lease or sublease of the premises. Furthermore, an assignment of the Lease
or sublease of the premises hereunder does not release MicroAge, as guarantor of
the Lease, from its obligations under the Lease Guaranty Agreement executed by
MicroAge.
(e) Notwithstanding anything to the contrary contained in this Section
10, upon any assignment or sublease of all or any part of the Leased Premises
by Lessee, whether with or without Lessor's consent and regardless or whether
Lessor's consent is required, the obligations of MicroAge under the Lease
Guaranty Agreement executed by MicroAge shall not be released, altered,
discharged, reduced or otherwise impaired in any fashion.
11. DEFAULT AND REMEDY.
(a) Tenant's Defaults. The occurrence of any of the following shall be
deemed an "Event of Default":
(i) Failure by Lessee to pay the Minimum Rent as herein provided
within ten (10) days of when due.
(ii) Failure by Lessee to pay any Additional Rent, costs or
expenses as may be provided in this Lease within ten (10) days of when due.
(iii) Failure by Lessee to perform any act to be performed by Lessee
hereunder or to comply with any condition or covenant contained herein and
such failure shall continue for thirty (30) days after written notice
thereof from Lessor to Lessee, provided, however, that if the nature of
Lessee's default is such that more than thirty (30) days are reasonably
required to cure, then Lessee shall not be deemed to be in default if
Lessee commences such cure within such thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(iv) The adjudication of Lessee as a bankrupt; the making by Lessee
or any guarantor of the Lease of a general assignment for the benefit of
creditors; Lessee's or any guarantor of the Lease is taking the benefit of
any insolvency action or law; the appointment of a permanent receiver or
trustee in bankruptcy for Lessee or any guarantor of the Lease or its
assets; the appointment of a temporary receiver for Lessee or any guarantor
of the Lease, or its assets if such temporary receivership has not been
vacated or set aside within ninety (90) days from the date of such
appointment; the initiation of an arrangement or similar proceeding for the
benefit of creditors by or against Lessee or any guarantor of the Lease;
dissolution or other termination of Lessee's or any guarantor's corporate
charter if Lessee or such guarantor is a corporation.
(v) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any successor in interest of Lessee or any guarantor of
Lessee obligations hereunder, was materially false.
(vi) If Lessee is in default of its obligations with MicroAge or
Lessee's agreement with MicroAge, referenced in section 10(d) hereof, is
<PAGE> 8
terminated for any reason.
(b) Lessor's Remedies. Upon the occurrence of any Event of Default as
defined above, which remains uncured, Lessee's right to possession under this
Lease shall terminate at the option of Lessor. Lessee's liability for rent and
damages shall survive any such termination.
Upon the occurrence of any Event of Default as defined above, Lessor may at any
time thereafter, either with or without notice or demand, and without limiting
Lessor in the exercise of any rights or remedies which Lessor may have by
reason of such default of breach:
(i) Terminate Lessee's right to possession of the Leased Premises
by any lawful means, in which case this Lease shall terminate and Lessee
shall immediately surrender possession of the Leased Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by Lessee's default hereunder including, but not
limited to, the cost of recovering possession of the Leased Premises;
reasonable expenses of re-letting, including necessary renovation and
alteration of the Leased Premises; reasonable attorneys' fees and any real
estate commission actually paid; the worth at the time of the award by the
court having jurisdiction thereof of the amount by which the unpaid rent
for the balance of the Lease Term after the time of the award exceeds the
amount of such rent lost for the same period that Lessee proves could be
reasonably avoided; and that portion if any leasing commission paid by
Lessor applicable to the unexpired term of this Lease.
(ii) Maintain Lessee's right of possession, in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned
the Leased Premises. In such event, Lessor shall be entitled to enforce
all of Lessor's rights and remedies under this Lease, including the right
to recover the rent as it becomes due hereunder.
(iii) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the State of Ohio.
(iv) However, Lessor acknowledges that it has an affirmative duty
to mitigate its damages upon each and any Event of Default.
(c) Lessor's Defaults. It shall be a default under and breach of this
Lease by Lessor if it shall fail to perform or observe any term, condition,
covenant or obligation required to be performed or observed by it under this
Lease for a period of thirty (30) days after written notice thereof from
Lessee; provided, however, that if the term, condition, covenant or obligation
to be performed by Lessor is of such nature that the same cannot reasonably be
performed within such thirty-day period and Lessor has commenced performance to
cure such default during the thirty-day period and thereafter diligently
undertakes to complete the same, and further provided that Lessor shall not be
in default if Lessor's failure to perform or observe some term, condition,
covenant, or obligation under this Lease is de to causes beyond the reasonable
control of Lessor. Upon the occurrence of any such default, Lessee may sue for
injunctive relief or to recover damages for any loss resulting from the breach,
but Lessee shall not be entitled to terminate this Lease. If Lessee prevails,
Lessee may offset rent equal to the court awarded damages. In the event Lessor
does not pay the real estate taxes on the building housing the Leased Premises,
the Lessee may pay the taxes due and offset rent equal to the taxes paid.
(d) No Waiver. The failure of Lessor or Lessee to exercise any option
herein provided on account of any default shall not constitute a waiver of the
same or any subsequent default, and no waiver of any condition or covenant of
this
<PAGE> 9
Lease by either party shall be deemed to constitute a waiver by either party of
any default for the same or any other condition or covenant.
12. ALTERATIONS. Lessee shall not permit alterations of or upon any part of
the Leased Premises or additions to the Leased Premises without first obtaining
the written consent of Lessor which consent shall not be unreasonably withheld.
However, Lessee may make up to $35,000 of non-structural alterations without
Lessor's prior approval. As a condition of such consent, Lessor may require
Lessee to remove the alterations and restore the Leased Premises upon
termination of this Lease. Any alterations, improvements or utility
installations in, on or about the Leased Premises that Lessee shall desire to
make which require the consent of Lessor shall be presented to Lessor in
written form with proposed detailed plans. If Lessor shall give its consent,
such consent shall be deemed conditioned upon (i) Lessee's acquiring a permit
to do so from appropriate governmental agencies, (ii) the furnishing of a copy
thereof to Lessor prior to the commencement of the work and (iii) the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner. All alteration and additions to the Leased Premises shall
be made in accordance with all applicable laws and Lessee shall indemnify and
save harmless Lessor from all costs, loss or expense in connection with any
construction or installation. All alterations, additions or improvements shall
be installed at Lessee's sole expense in compliance with all applicable laws
and by a licensed contractor approved in writing by Lessor which such approval
shall not be unreasonably withheld. No person shall be entitled to any lien
directly or indirectly derived through or under Lessee or through or by virtue
of any act or omission of Lessee upon the Leased Premises for any improvements
or fixtures made thereon or installed therein or for or on account of any labor
or material furnished to the Leased Premises or for or on account of any matter
or thing whatsoever; and nothing in this Lease contained shall be construed to
constitute a consent by Lessor to the creation of any lien. In the event any
lien is filed against the Leased Premises, or any part thereof, for work
claimed to have been done for or material claimed to have been furnished to
Lessee, Lessee shall cause such lien to be discharged of record within thirty
(30) days after filing by bonding or as provided or required by law or in any
other lawful manner. Lessee shall indemnify and save harmless Lessor from all
costs, losses, expenses and reasonable attorneys' fees in connection with any
such lien.
13. INSPECTION. Lessor and its authorized representatives shall have the
right, with reasonable notice to Lessee, to enter the Building or Leased
Premises at all reasonable times for any of the following purposes: (i) to
determine whether the Leased Premises are in good condition and whether Lessee
is complying with its obligations under this Lease; (ii) to do any necessary
maintenance and to make any repairs or alterations to the Leased Premises or the
Building that Lessor has the right or obligation to perform; (iii) to show the
Premises to prospective brokers, agents, buyers, tenants or persons interested
in a purchase lease or exchange, at any time during the Term; (iv) to repair,
maintain or improve the Building and to erect scaffolding and protective
barricades around and about the Leased Premises; and (v) to any other act or
thing necessary for the safety or preservation of the Leased Premises or the
Building. Lessor shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance or other damage arising out of Lessor's
entry into the Premises as provided in this Section 13 and in Section 9, unless
such damage is caused by Lessor's negligence. Lessor, its agents, brokers,
buyers or tenants shall conduct their activities on the Premises as provided
herein in a manner that will cause the least inconvenience, annoyance or
disturbance to Lessee. Lessee agrees that it shall use its best efforts to
accommodate Lessor's activities during regular business hours. All such
activities shall be conducted in a manner which shall minimize disruption to
Lessee's business operation. In the event such activities significantly effect
Tenant's business operations, Landlord shall conduct such activities during
non-business hours. To the extent permitted, the costs associated with Lessor's
inspection, repair and maintenance, excluding
<PAGE> 10
additional costs necessitated by non-business hour repairs, shall be included in
Operating Expenses and paid in accordance with Section 5 herein.
14. LESSOR'S RIGHT TO MORTGAGE. Lessee agrees at any time, and From time to
time, to execute a consent to the assignment of this Lease by Lessor to its
mortgagee. Lessee's rights shall be subject and subordinate to any bonafide
mortgage now existing upon or hereafter placed upon the Leased Premises by
Lessor; provided, however, that if the mortgagee shall take title to the Leased
Premises through foreclosure or deed in lien of foreclosure, Lessee shall be
allowed to continue in possession of the Leased Premises as provided for in
this Lease and all other terms and conditions hereof shall remain 4@--i full
force and effect so long as Lessee shall not be in default of any material
provisions hereunder. Lessor will use reasonable efforts to obtain a
nondisturbance agreement for Lessee from any current or future mortgages.
15. FIRE AND EXTENDED COVERAGE INSURANCE. During the Term of this Lease (and
any extension or renewal thereof), Lessor shall maintain fire and extended
coverage insurance and other endorsements deemed advisable to Lessor on the
Building (the premiums for which shall be included in Operating Expenses), but
shall not protect Lessee's personal property, merchandise, trade fixtures,
furnishings, equipment, floor coverings, alterations, additions and
improvements on the Leased Premises, and Lessor shall not be liable for any
damage to Lessee's property, however caused. Lessee agrees to maintain
insurance on all of its property on the Leased Premises. Lessee hereby
expressly waives any right of recovery against Lessor (or any other tenant of
the Building unless caused by such tenant's negligence or willful misconduct)
for damage to any property of Lessee located in or about the Leased Premises,
however caused, and Lessor hereby expressly waives any rights of recovery
against Lessee for damage to the Leased Premises or the Building resulting from
the perils insured against under Lessor's fire and extended coverage insurance.
Lessor shall obtain and keep in effect during the Term (and any extension or
renewal thereof) hereof, public liability and property damage insurance with
respect to the Building and the operation of the Building by Lessor (the
premiums for which shall be included in Operating Expenses) including Lessor's
own negligence in amounts not less than the minimum amounts required by
Lessor's lender or other reasonable standard. All insurance policies
maintained by Lessor or Lessee as provided in this Section shall contain an
agreement by the insurer waiving the insurer's right of subrogation against the
other party to this Lease or agreeing not to acquire any rights of recovery
which the insured has expressly waived prior to loss.
Lessee shall not use the Leased Premises in any manner or store anything in or
upon the Leased Premises which would result in an increase in the premiums for
the fire and extended coverage insurance.
16. FIRE AND OTHER CASUALTY. In the event of total or partial destruction of
the Leased Premises by fire or other casualty insured under the fire and
extended coverage insurance provided pursuant to the terms of this Lease, and
in the event that the insurance proceeds are released by any mortgagee entitled
to such proceeds, Lessor agrees to promptly restore and repair the Leased
Premises at Lessor's expense; provided, however that in the event that the
insurance proceeds are not released by any mortgagee or the Leased Premises are
(i) so destroyed that they cannot be repaired or rebuilt within one hundred
eighty (180) days after the date of the damage or destruction, or (ii)
destroyed by a casualty which is not covered by the insurance required
hereunder, then, in the case of a clause (i) casualty, either Lessor or Lessee
may, or, in the case of a clause (ii) casualty, then Lessor may, upon thirty
(30) days written notice to the other party, terminate and cancel this Lease,
and all further obligations hereunder shall thereupon cease and terminate. Any
proceeds from the fire and extended coverage insurance policies not utilized by
Lessor in restoring or repairing the Leased Premises shall be the sole property
of the Lessor. Rent shall proportionately
<PAGE> 11
abate during the time that the Leased Premises or part thereof are unusable by
reason of any such damage thereto.
17. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE. Lessee shall obtain and
pay the premiums for a policy or policies of insurance from companies
reasonably satisfactory to Lessor, and shall keep the same in force during the
Term (and any Renewal or extension thereof) and shall furnish to Lessor a
certificate thereof (or such other document or duplicate policy evidencing such
insurance in a form satisfactory to Lessor and any first mortgagee of the
Leased Premises) protecting Lessor, any first mortgagee of the Leased Premises
(if requested by Lessor) and Lessee from the following risks and in the
following amounts:
(a) Public liability and property damage insurance in standard form with
limits of liability for injury or death to any ($1,000,000.00); for injury or
death of more than one person in any one occurrence in an amount of not less
than One Million Dollars ($1,000,000.00); and for damage to property in an
amount of not less than Five Hundred Thousand Dollars ($500,000.00).
(b) Such Additional risks or greater coverage of the above risks as shall
be reasonably required by Lessor or any first mortgagee of the Leased Premises.
(c) Lessee shall insure its fixtures, equipment and tenant improvements.
Any insurance required hereunder shall be in companies holding a "general
policyholder's rating" of at least A- (or such other rating as may be
reasonably approved by Lessor) as set forth in the most current issue of "Bests
Insurance Guide" or such other rating as may be required by a lender having a
lien on the Leased Premises.
18. EMINENT DOMAIN. If all or any part of the Leased Premises shall be
acquired by the exercise of eminent domain by any public or quasi-public body in
such a manner that the Leased Premises shall become unusable by Lessee for the
purpose it is then using the Leased Premises, this Lease may be terminated by
either party by giving written notice to the other within fifteen (15) days
after possession of the Leased Premises or part thereof is so taken. In the
event that no termination occurs or such taking does not render the Leased
Premises unusable, then this Lease shall continue in full force and effect for
the remaining portion of the Leased Premises, and all rent and other payment due
hereunder shall be reduced on a pro rata basis as of the date that title vests
in the condemning authority, except that Lessor may, at its option, elect to
terminate the lease be giving Tenant written notice within sixty (60) days of
the final adjudication of condemnation, and all rent and other payments
hereunder shall be paid through the date of termination. In the event the
taking does not result in a termination of the Lease, Lessor will, to the extent
of the award it receives, restore the Leased Premises to be near its former
condition as is possible under the circumstances. Lessee shall have no claim
against Lessor on account of any such acquisition for the value of any unexpired
lease remaining after possession of the Leased Premises is taken. All damages
awarded shall belong to and be the sole property of Lessor; provided, however,
that Lessee shall be entitled to any award expressly made to Lessee by any
governmental authority for the cost of or the removal of Lessee's stock,
equipment and fixtures. Lessor agrees that it will provide notice to Lease of
any action or threatened action by a public or quasi-public body that may affect
the Leased Premises so that Lessee may protect its interest in its stock,
equipment and fixtures located in the Leased Premises.
19. INTENTIONALLY DELETED.
20. LESSOR'S NON-LIABILITY. Lessor shall not be liable for damage either to
any person or property due to the condition of the Leased Premises and the
Building or to the occurrence of any accident in or about the Leased Premises
and the
<PAGE> 12
associated common areas or due to any act or neglect of Lessee or any other
occupant of the Leased Premises or of any person except for the damage resulting
directly from any negligent act or omission of Lessor. Lessee shall not be
responsible and liable for any damage or loss covered by the fire and extended
coverage insurance. Lessee shall save Lessor harmless from any or all liability
to any person for damage to any person or property resulting from use or
occupancy of the Leased Premises and the associated common areas and shall
protect against such liability with public liability insurance in the amounts
required herein.
21. SURRENDER. Upon the expiration or other termination of this Lease, Lessee
shall quit and surrender to Lessor the Leased Premises, together with all other
property affixed to the Leased Premises (subject to the provisions of Section
12 hereof), broom clean, and in good order and condition, ordinary wear and
tear, fire and similar casualty excepted. Any damage caused to the Leased
Premises by removal of any property by Lessee, its agents, employees or
contractors shall be promptly repaired by Lessee. Lessee shall remove all
property of Lessee as directed by Lessor, and failing to do so, Lessor may
cause all of said property to be removed at the expense of Lessee, and Lessee
hereby agrees to pay all the costs and expenses thereby reasonably incurred.
Lessee's obligation to observe or perform this covenant shall survive the
expiration or other termination of this Lease.
Lessee shall, prior to the expiration of the Lease Term, remove all of the
Lessee's trade fixtures and equipment, and any damage to the Leased Premises
shall be promptly repaired, provided, however, that all alterations or
additions to the Leased Premises shall, if such alterations proposed by Lessee
have been identified by Lessor at the time of installation, become a part of
the Building and the property of Lessor.
If Lessee shall remain in possession of all or any part of the Leased Premises
after the expiration of the Lease Term, then Lessee shall be deemed a lessee of
the Leased Premises from month to month with the Minimum Rent being increased
to an amount equal to 125% of the Minimum Rent in effect at the end of the
Lease Term. All other terms and conditions of this Lease shall remain in full
force and effect during such time Lessee remains in possession of all or any
part of the Leased Premises.
22. WAIVER. No waiver of any covenant or condition or the breach of any
covenant or condition of this Lease by either party hereto shall be taken to
constitute a waiver of any subsequent breach of such covenant or condition nor
justify or authorize a non- observance on any other occasion of such covenant
or condition or any other covenant or condition; nor shall the acceptance of
rent by Lessor at any time when Lessee is in default of any covenant or
condition hereof be construed as a waiver of such default or of Lessor's right
to terminate this Lease on account of such default.
23. COVENANT OF QUIET ENJOYMENT. Lessor agrees that if Lessee shall perform
all of the covenants and agreements herein provided to be performed on Lessee's
part, Lessee shall, at all times during the Term (and any renewal or extension
thereof), have the peaceable and quiet enjoyment of possession of the Leased
Premises without any manner of hindrance from Lessor or any persons lawfully
claiming under Lessor, except as may be provided in this Lease.
24. NOTICE. Any notice required or permitted to be given or served by either
party to this Lease shall be deemed to have been given or served by either
party to this Lease when made in writing and mailed, by certified or registered
mail, or by nationally recognized overnight delivery service, addressed to the
addresses set forth in Item K of the Basic Lease Provisions. All rental
payments shall be made to Lessor at the above address. The addresses may be
changed from time to time by either party by serving notice as above provided.
<PAGE> 13
25. BENEFIT OF LESSOR AND LESSEE. This Lease and all of the terms and
provisions hereof shall inure to the benefit of and be binding upon Lessor and
Lessee and their respective heirs, successors, assigns and legal
representatives.
26. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the State of Ohio. This Lease and the Exhibits
hereto constitute the entire agreement between the parties with respect to the
Leased Premises and the Building and, as of its effective date, supersedes all
prior and contemporaneous agreements, negotiations, representations and
proposals, written or oral, related to its subject matter. Its terms cannot be
modified, supplemented, or rescinded, except by a written agreement signed by
an authorized representative of each party. When required by the context of
this Lease, the singular shall include the plural, and the masculine shall
include the feminine and/or neuter. "Party" shall mean Landlord or Tenant, the
obligations imposed upon that party shall be joint and several. The
enforceability, invalidity or illegality of any provisions shall not render the
other provisions unenforceable, invalid or illegal.
27. ATTORNEY'S FEES. The non-prevailing party shall be liable for and hereby
agree to pay any and all expenses, including reasonable attorneys' fees,
incurred by the other party in connection with any default under the terms,
covenants and conditions contained in this Lease.
28. SIGNS. Lessee may, at its own expense, erect a sign concerning the
business of Lessee on the exterior face of the Leased Premises which shall be
in keeping with the decor and other signs on the Building. All signage
(including the signage described in the preceding sentence) in or about the
Leased Premises shall be first approved by Lessor and in compliance with the
applicable codes and any recorded restrictions applicable to the Building.
Lessee agrees to maintain any sign in good state of repair, and upon expiration
of the Lease Term, Lessee shall promptly remove such signs and repair any
resulting structural damage to the Leased Premises.
29. ESTOPPEL CERTIFICATE. Lessee shall, within ten (10) days following
receipt of a request from Lessor, execute, acknowledge and deliver to Lessor,
or to any lender, holder of any mortgage, purchaser or prospective lender or
purchaser designated by Lessor, a written statement in such form as Lessor may
reasonably request certifying (i) that this Lease is in full force and effect
and unmodified (or, if modified, stating the nature of such modification); (ii)
the date to which the Minimum Rent, Additional Rent, and other charges have
been paid; and (iii) that there are not, to Lessee's knowledge, any uncured
defaults (or specifying such defaults if any are claimed). Any such statement
may be relied upon by any prospective purchaser or mortgagee. Lessee's failure
to deliver such statement within such period shall be conclusive upon Lessee
that this Lease is in full force and effect and unmodified and that there are
no uncured defaults in Lessor's performance hereunder.
30. BROKER. Lessee has engaged no brokers who would be entitled to any
commission or fee based on the execution of this lease, other than those set
forth in Item J of the Basic Lease Provisions. All brokerage commissions are
to be paid by Lessor.
31. WAIVER OF SUBROGATION. Lessor and Lessee each hereby release and relieve
the other and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against or which are
required to be insured against pursuant to the terms of this Lease, which
perils occur in, on or about the Leased Premises.
32. LIMITATION OF LESSOR'S LIABILITY. If Lessor shall fail to perform or
observe any term, condition, covenant or obligation required to be performed or
observed
<PAGE> 14
by it under this Lease and if Lessee shall, as a consequence thereof, recover a
money judgment against Lessor, Lessee agrees that it shall look solely to
Lessor's right, title and interest in and to the Building for the collection of
such judgment, that being the sole asset to which Lessee may look for payment of
any such judgment; and Lessee further agrees that no other assets of Lessor,
wherever situate, shall be subject to levy, execution or other proceeds for the
satisfaction of Lessee's judgment and that Lessor shall not be liable for any
deficiency.
The references to "Lessor" in this Lease shall be limited to mean and include
only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a
mortgage or other transfer as security for a debt), the "Lessor" named herein,
or, in the case of a subsequent transfer, the transferor, shall, after the date
of such transfer, be automatically released from all personal liability for the
performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Lessor here, and the transferee shall
be deemed to have assumed all of such terms, conditions, covenants and
obligations.
33. HAZARDOUS MATERIALS.
(a) Lessee shall not in any manner use, maintain or allow the use or
maintenance of the Leased Premises in violation of any law, ordinance, statute,
regulation, rule or order (collectively "laws") of any governmental authority,
including but not limited to Laws governing zoning, health, safety (including
fire safety), occupational hazards, and pollution and environmental control.
Lessee shall not use, maintain or allow the use or maintenance of the Leased
Premises or any part thereof to threat, store, dispose of, transfer, release,
convey or recover hazardous, toxic or infectious waste nor shall Lessee
otherwise, in any manner, possess or allow the possession of any hazardous,
toxic or infectious waste on or about the Leased Premises; provided, however,
any toxic material lawfully permitted and generally recognized as necessary and
appropriate for general office, warehouse and distribution use may be stored
and used on the Leased Premises so long as (i) such storage and use is in the
ordinary course of Lessee's business permitted under this Lease; (ii) such
storage and use is performed in compliance with all applicable Laws and in
compliance with the highest standards prevailing in the industry for the
storage and use of such materials; (iii) Lessee delivers prior to written
notice to Lessor of the identity of and information regarding such materials as
Lessor may require; and (iv) Lessor consents thereto. For purposes of this
Section 33(a), Hazardous, toxic or infectious waste shall mean any solid,
liquid or gaseous waste, substance or emission or any combination thereof which
may (i) cause or significantly contribute to an increase in mortality or in
serious illness, or (ii) pose the risk of a substantial present or potential
hazard to human health, to the environmental or otherwise to animal or plant
life, and shall include without limitation hazardous substances and materials
described in the Comprehensive Environmental Response, compensation and
Liability Act of 1980, as amended; the Resource Conservation and recovery Act,
as amended; and any other applicable federal, state or local laws. Lessee
shall immediately notify Lessor of the presence or suspected presence of any
hazardous, toxic or infectious waste on or about the Leased Premises and shall
deliver to Lessor any notice received by Lessee relating thereto.
Lessor and its agents shall have the right, but not the duty, in accordance
with Section 13 hereof, to inspect the Leased Premises and conduct tests
thereon at any time to determine whether or the extent to which there is
hazardous, toxic or infectious waste on the Leased Premises. Lessor shall have
the right to immediately enter upon the Leased Premises to remedy any
contamination found thereon. In exercising its rights herein, Lessor shall use
reasonable efforts to minimize interference with Lessee's business but such
entry shall not constitute
<PAGE> 15
an eviction of Lessee, in whole or in part, and Lessor shall not be liable for
any interference, loss, or damage to Lessee's property or business caused
thereby. If any lender or governmental agency shall ever require testing to
ascertain whether there has been a release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Lessee to Lessor upon demand as
Additional Rent only to the extent such requirement arose because of Lessee's
use of the Leased Premises. Lessee shall execute affidavits, representations
and the like from time to time, at Lessor's request, concerning Lessee's best
knowledge and belief regarding the presence of any hazardous, toxic or
infectious waste on the Leased Premises or Lessee's intent to store or use toxic
materials on the Leased Premises. Lessee shall indemnify and hold harmless
Lessor from any and all claims, loss, liability, costs, expenses or damage,
including reasonable attorneys' fees and costs of remediation, incurred by
Lessor in connection with any breach by Lessee of its obligations under this
section. The covenants and obligations of Lessee hereunder shall survive the
expiration of earlier termination of this Lease.
(b) Lessor hereby represents and warrants that neither Lessor nor, to the
best of its knowledge, any other person, has ever caused or permitted any
Hazardous Material (as currently defined in any Environmental Law) to be
placed, held, located or disposed of, on, under or at the Building or the
Leased Premises or any part thereof, or into the atmosphere or any watercourse,
body of water or wetlands, if any, located on or under the Leased Premises or
Building, and neither the Leased Premises or the Building nor any part thereof,
has ever been used by the Lessor as a treatment, storage or disposal site
(whether permanent or temporary) for any Hazardous Material.
For purposes of this Section 33(b): (i) "Hazardous Material" means and
includes any material or substance which is defined or listed as hazardous
material or substance, or as a pollutant or contaminant, under any
Environmental Law (as hereinafter defined), including, without limitation,
asbestos or any substance or compounds containing asbestos; (ii) "Environmental
Law" means the Resource Conservation and Recovery Act of 1976, as amended; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended; the Superfund Amendments and Reauthorization Act of 1986, as
amended; the Clean Water Act, as amended, the Clean Air Act, as amended; the
Toxic Substances Control Act, as amended; the Ohio Environmental Quality Act,
as amended; any so- called "superfund" or "superlien" law; and any other
Federal, state or local statute, law, ordinance, code, rule, regulation, order,
or decrees regulating, relating to, or imposing liability or standards of
conduct concerning any hazardous, toxic, or dangerous waste, substance, or
material, including, without limitation, asbestos or any substance or compound
containing asbestos, as now or at any time hereinafter in effect.
34. ADDITIONAL PARAGRAPHS.
(a) Lessee shall repair and pay for any damage caused by the negligence
of Lessee, or Lessee's employees, agents or invitees, or caused by Lessee's
default hereunder. Such repairs to include damage to downspouts, gutters, dock
boards, bumpers, truck doors, exterior stairways, paying, exterior doors, but
not limited to these items, ordinary wear and tear excluded.
(b) Outside storage including without limitation, trucks and other
vehicles, is prohibited without Lessor's prior written consent.
(c) Lessor shall, in accordance with Section 13 hereof, have the right to
enter and inspect the Leased Premises at any reasonable time, for the purpose
of ascertaining the condition of the Leased Premises or in order to make such
repairs as may be required or permitted to be made by Lessor under the terms of
this Lease. Lessee shall give written notice to Lessor at least thirty (30)
days prior
<PAGE> 16
to vacating the Leased Premises and shall arrange to meet with Lessor for a
joint inspection of the Leased Premises prior to vacating. In the event of
Lessee's failure to give such notice or arrange such joint inspection, Lessor's
inspection at or after Lessee's vacating the Leased Premises shall be
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration.
(d) Because the Leased Premises are on the open market and are presently
being shown, this Lease shall be treated as an offer with the Leased Premises
being subject to prior lease and such offer subject to withdrawal or
non-acceptance by Lessor or to other use of the Leased Premises without notice,
and this Lease shall not be valid or binding unless and until accepted by
Lessor in writing and a fully executed copy delivered to both parties hereto.
(e) Lessee acknowledges having reviewed and signed the attached Agency
Disclosure Statement and Lessee acknowledges that said statement is signed and
attached hereto as Exhibit D. Duke Realty Limited Partnership, its agent and
employees, have represented only the Lessor, and have not in any way
represented the Lessee, in the marketing, negotiation, and completion of this
Lease transaction.
(f) Upon request, Lessor shall execute after review by Landlord any
reasonable landlord lien waivers as requested by any guarantor of the Lease, in
such form as may be reasonably approved by Lessor.
(g) Any and all additional provisions to this Lease are set forth in the
Addendum to Lease attached hereto.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed and ensealed this
Lease the day and year first written above.
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments, Inc.,
as General Partner
By: /s/ Daniel C. Staton
--------------------------------
Daniel C. Staton
Executive Vice President
WITNESSES:
/s/ Kimberly Bush
--------------------------------------
Kimberly Bush
(Printed)
/s/ Bill Poffenberger
--------------------------------------
Bill Poffenberger
(Printed)
KENCO GROUP, INC.
By: /s/ Jim Kennedy
--------------------------------------
Printed: Jim Kennedy, III
Title: President
WITNESSES:
/s/ George Shuford
--------------------------------------
George Shuford
(Printed)
/s/ Kristi Montgomery
--------------------------------------
Kristi Montgomery
(Printed)
<PAGE> 18
ADDENDUM TO LEASE
This ADDENDUM TO LEASE is made this 18th day of November, 1994, by and between
Duke Realty Limited Partnership, an Indiana limited partnership ("Lessor') and
Kenco Group, Inc., a Tennessee corporation ("Lessee") and is incorporated into
the above and foregoing Lease Agreement by and between Lessor and Lessee of the
date herewith as if stated verbatim therein.
The Lease Agreement is amended by adding the following additional Sections:
35. CONSTRUCTION OF THE LEASED PREMISES. The scope of the work to be
performed by Lessor is set forth in the preliminary plans and specifications
and written descriptions thereto all of which are listed on the attached
Preliminary Exhibit B. Lessor will prepare final plans and specifications and
actual working drawings which will be mutually agreed to by both Lessee and
Lessor and upon completion, substituted and attached hereto as Exhibit B
("Plans and Specifications"). Lessor shall construct in a good workmanlike
manner the Leased Premises on a "turn-key" basis which shall include the
installation of landscaping, parking lots, driveways and all improvements as
shown on the Plans and Specifications for the benefit of the Leased Premises.
Lessor shall provide Lessee with an allowance equal to Three Hundred Seventy
Five Thousand Dollars ($375,000.00) ("Lessor Allowance"). Lessor's Allowance
shall be applied solely toward the cost of constructing and completing the
office area of the Leased Premises including interior finishes, electric,
plumbing and heating ventilating and air-conditioning work as more particularly
set forth in the Plans and Specifications. All work to be performed by Lessor
pursuant to the Plans and Specifications shall be competitively bid by Lessor.
Lessor's construction management fee of seven percent (7%) shall not be charged
to the work paid for out of the Lessor's Allowance. Any unused portion of
Lessor's Allowance may be applied to the cost of Lessee requested change orders
as provided below, or to future improvements, or to abate rent due hereunder
(during the first twelve (12) months of the Lease Term only), at Lessee's
written election to Landlord.
Lessee shall have the right to request in writing that Lessor make changes from
time to time in the Plans and Specifications, and Lessor shall not unreasonably
refuse to do SO. Any additional cost associated with said changes shall be
deemed Additional Rent and will be promptly paid by Lessee to Lessor within
thirty (30) days of completion of the work associated with the applicable change
order. The cost or credit to Lessee resulting from a change order shall be
quoted to Lessee by Lessor within five (5) days (or less if possible) after
submission, and Lessee may then decide whether or not it desires to proceed with
such change order. Change orders which result in a credit may at the written
election of Lessee be either applied toward the cost of additional current or
future work, or to abate rent due hereunder. Lessor shall competitively bid the
cost of all change order work and allowance work and Lessee and Lessor shall
mutually agree upon the
<PAGE> 19
acceptable bid and subcontractor which shall perform such change order work and
allowance work. Prior to proceeding with a change order, Lessee and Lessor shall
also agree on the delay, if any, associated with such change order work. A
construction management fee equal to seven percent (7%) shall be added to all
change order work which shall increase the costs associated with the
construction of the Leased Premises. A construction management fee shall not be
charged against any change order work which shall decrease the cost associated
with the construction of the Leased Premises.
Lessor shall apply for and obtain, at its sole cost and expense, all permits,
licenses and certificates necessary for the construction of the Leased Premises
and for the occupancy thereof by Lessee. Lessor shall be obligated to obtain a
permanent certificate of occupancy regardless of whether a temporary
certificate shall have first been issued. Lessor represents that the Leased
Premises shall be constructed, and when completed shall be in compliance with
all local, state and federal laws (including the Americans With Disabilities
Act), rules, orders, regulations and ordinances and the Plans and
Specifications. Within one hundred twenty (120) days of the Commencement Date
(as defined herein) Lessor shall provide to Lessee complete "As Built" drawings
of the Building which at the written election of Lessee, Lessor shall provide
on CAD disk format.
The Leased Premises shall be deemed to be substantially completed at such time
as (i) Lessor shall certify in writing to Lessee that said Leased Premises have
been completed in substantial accordance with the Plans and Specifications
described above subject only to minor punch list items (i.e., the cumulative
cost of which shall not exceed $50,000.00, or such unfinished items shall not
impair Tenant's ability to use the Leased Premises in the manner intended by
the Lease) to be mutually agreed to and identified by Lessee and Lessor during
a joint inspection of the Leased Premises prior to substantial completion, the
completion of which will not materially affect Lessee's use and occupancy of
the Leased Premises), (ii) Lessor shall have obtained all necessary
governmental approvals and inspections, that all systems are fully operational,
and that sufficient utilities are available to service the Leased Premises and
are connected to mains and all meters are set and activated, (iii) a licensed
architect or engineer in good standing in the locality where the Leased
Premises are located shall certify in writing to Lessee pursuant to and in
accordance with form AIA- G704 as to those same matters in (i) and (ii)
immediately preceding, and (iv) the issuance of a temporary certificate of
occupancy which the parties agree will be in writing. At such time as the last
of the foregoing requirements shall have been satisfied, Lessor shall deliver
possession of the Leased Premises to Lessee. It is agreed by the parties
hereto that possession may be delivered by the Lessor exclusive of the
completion of exterior painting or landscaping which shall be completed as
expeditiously as possible, weather permitting, but no later than thirty (30)
days after the Commencement Date. The date upon which Lessor shall deliver
possession of the Leased Premises to Lessee in substantially completed
condition is herein called the "Commencement Date". All punch list items shall
be completed by Lessor with-in ninety (90) days of the Commencement Date unless
otherwise agreed to by both Lessee and Lessor in writing.
The Commencement Date shall occur thirty (30) days after the Fixturing Date (as
defined below). Upon notice from Lessor, but not later.than May 1, 1995,
Lessee shall have access to the Leased Premises for purposes of fixturing same
and preparing the Leased Premises for occupancy ("Fixturing Date"). The
Fixturing Date shall be delayed on a day-for-day basis for Tenant's failure to
meet the "Critical Date,, obligations set forth in Exhibit B-1 attached hereto.
The Commencement Date and Fixturing Date shall be subject to change as a result
of delays in the construction of the Leased Premises caused by war, invasion of
hostility; work stoppages, boycotts, slow downs or strikes; shortage of steel
or structural members, precast panels, or energy; man made or natural
casualties;
<PAGE> 20
acts or omissions of governmental or political bodies; civil disturbances or
riots; Lessee caused delays; or delays caused by Lessee requested change orders
(together "Excusable Delays"). All claims for extensions of the foregoing dates
shall be made in writing by Lessor to Lessee not more than three (3) days after
the occurrence of an Excusable Delay. In the case of a continuing delay only
one (1) claim is necessary. Lessee may contest in good faith any claims for an
Excusable Delay made by Lessor. Such claim shall be made in accordance with the
rules of the American Arbitration Association applicable to construction and
lease issues.
Notwithstanding the foregoing, Lessee shall arrange its schedule so as not to
unreasonably interfere with or delay other work of Lessor or any permitting or
inspection process being carried on at the same time; and provided further that
neither Lessor nor any of Lessor's affiliates shall have any responsibility or
liability for any injury (including death) to persons or loss or damage to any
of Lessee's leasehold improvements, fixtures, equipment or any other materials
installed or left in the Leased Premises prior to the Completion Date, except
for that damage caused by the gross negligence or willful misconduct of Lessor.
In the event the Leased Premises shall not be at a stage of completion to allow
Lessee to fixture the Leased Premises by the Fixturing Date, excepting
Excusable Delays, Lessor shall pay to Lessee as liquidated damages the sum of
Two Thousand Dollars ($2,000.00) per day for the first twenty-one (21) days of
noncompletion and the sum of Five Thousand Dollars ($5,000.00) per day beyond
such initial twenty-one (21) day period. For purposes herein, the Leased
Premises shall be deemed to be at a stage of completion to allow Lessee the
ability to fixture the Leased Premises at such time as the foundation, slabs,
walls and roof deck have been completed to allow the Lessee to commence the
installation of its racking system in an agreed upon location within the Leased
Premises.
With respect to the foregoing, the parties agree that Lessee caused delays
shall not extend the Commencement Date and such date shall be deemed to have
occurred despite any such Lessee caused delays.
Lessor hereby warrants for a period of one (1) year from the Commencement Date,
the Leased Premises against defects in materials and workmanship, routine
maintenance (except as to Lessor's obligations herein) and ordinary wear and
tear excepted. Upon the Commencement Date of the Leased Premises, Lessor shall
enforce for the benefit of Lessee all warranties and guarantees relating to the
Leased Premises and any and all systems contained therein. Lessee shall not
take any action which shall invalidate any of the foregoing warranties or
guarantees and shall provide Lessor with written notice of all warranty claims.
In addition to the foregoing, Lessor agrees that during the original Lease
Term, it shall be responsible, at Lessor's sole cost and expense, for the
maintenance of the exterior walls, roof, foundation and exterior paint or stain
of the Leased Premises. Lessor shall use its best efforts to keep the roof,
skylights and other Lessor installed roof penetration free from leaks at all
times. In addition to the foregoing, Lessor hereby warrants the structural
integrity of the walls, roof or foundation of the Leased Premises. Lessor
shall, at its sole cost and expense, remedy any structural defects unless the
structural defects or necessary maintenance are due to the acts, omissions or
negligence of Lessee. Structural defects shall mean those defects in
workmanship or materials relating to the walls, roof or foundation which could
cause loss of income or additional expense to Lessee or otherwise could effect
the health and safety of the workers or occupants within the Leased Premises.
This warranty does not cover consequential damages such as lost profits or
opportunity incurred by Lessee with respect to any such structural failures.
Any repairs required under this warranty, will be mutually agreed to by the
Lessee and Lessor and will be performed so as to minimize disruption of the
Lessee's business operations.
<PAGE> 21
With respect to the walls, this warranty includes only panel joint caulking,
which Lessor agrees to repair at its cost during the initial Lease Term of the
Leased Premises. After the expiration of such initial Lease Term, the cost
associated with such repairs shall be included in Operating Expenses and paid
in accordance with Section 5 herein.
Lessee will notify Lessor promptly upon discover of any potential problems
which may be covered under the,foregoing warranties. This warranty covers all
materials, labor and equipment for repairs necessitated by structural failure
but does not cover consequential damages, such as lost profits or opportunity,
incurred by the Lessee. Any repairs required under this warranty will be
mutually agreed to between Lessor and Lessee.
36. FORCE MAJEURE. Lessor and Lessee shall be excused for the period of any
delay in the performance of any obligation hereunder (except in the case of
Lessee, the payment @ rent) when such delay is occasioned by causes beyond its
control; war, invasion or hostility; work stoppages, boycotts, slowdowns or
strikes; shortages of steel or structural members, precast panels or energy;
man- made or natural casualties; acts or omissions of governmental or political
bodies; or civil disturbances or riots. Lessee and Lessor shall have the right
to contest in good faith a force majeure event hereunder in accordance with the
rules of the American Arbitration Association applicable to construction
issues.
37. GUARANTY OF LEASE. In consideration of Lessor's leasing the Leased
Premises to Lessee, Lessee shall provide Lessor with a Lease Guaranty Agreement
in the form attached hereto as Exhibit E which shall be executed
contemporaneously with this lease by MICROAGE COMPUTER CENTERS, INC., as
guarantor of this Lease.
38. OPTION TO EXPAND.
(a) Provided Lessee is not in material default beyond applicable cure
periods herein, Lessee shall have the option (subject to the terms in this
Section 38) to cause Lessor to expand the Leased Premises by constructing an
addition to the Building of not more than Two Hundred Sixty Thousand (260,000)
square feet (the "Expansion") as pictorially described in Exhibit F. The
Expansion will entail the use of the "Additional Land" described in Exhibit F.
In that respect, Lessor. guarantees for a period of forty-two (42) months from
the Commencement Date or twenty-four (24) months from the Tenant's complete
occupancy of the Leased Premises, whichever shall occur earlier, that the
Additional Land shall be available for that purpose. In the event Lessee
decides to expand by virtue of this option, the minimum term for the Expansion
and Leased Premises shall be ten (10) years. The term for the Leased Premises
shall be extended by the period of time required to make the term for the
Expansion and Leased Premises coterminous (the "Extended Term") and Lessee's
Option Periods pursuant to Section 40 shall be adjusted accordingly.
The minimum Rent for the Extended Term for the original gross area of the
Building shall be the rent established for the original Lease Term and the
Option Period pursuant to Section 40 herein, whichever may be applicable. To
the extent the term shall be greater than the Option Period, the Minimum Rent
for the Leased Premises shall be equal to ninety-five,percent (95%) of the
"Market Rate" for such space as determined by agreement of the parties.
Failing to so agree, the determination of "Market Rate" shall be determined by
the Appraisal Process set forth in Section 39 herein.
The Minimum Rent for the Expansion ("Expansion Rent") shall be calculated in
accordance with the following formula:
Total Project Cost per square foot multiplied by a Rental Factor equals the
Expansion Rent. The Rental Factor shall equal a constant determined by a
twenty
<PAGE> 22
(20) year amortization schedule (based upon the 20 year Treasury Bill rate).
Total Project Costs shall include all hard and soft costs associated with the
Expansion including the costs associated with the Additional Land ($65,000.00
per acre in 1995 and increased at 2% per annum thereafter), architectural and
engineering fees, builder's risk insurance, site work, demolition, new
construction, renovation to existing facility, construction management fees,
survey, title, closing costs and commitment fees (capped at 2% of Total Project
Costs) brokerage fees and fees for any construction consultants hired by
Lessee, if any.
The following shall serve as an example of the foregoing formula and is used
for explanation purposes only:
Assumptions:
Cost of Building-
soft and hard cost excluding land: $20.00/Sq. Ft.
Cost of land (if any): $ 2.84/Sq. Ft.
Total Project cost per square foot: $22.84/Sq. Ft.
Size of Addition: 260,000/Sq. Ft.
Total Cost: $5,938,400.00
Cost of Debt - 20 years - 8.5% - 1041 Constant (assuming the 20-year
Treasury Bill rate at the exercise of the Expansion is 7%):
x .1041
-----------------------
$596,215.00
Coverage Ratio - Given:
x 1.15
-----------------------
$ 685,648.00/260,000.00
TOTAL: $2.64/Sq. Ft.
Lessee's Option Period rent described herein shall not apply to the Expansion.
The Expansion Rent shall remain constant for the properly exercised option
Period.
(b) The plans and specifications for the Expansion shall meet Lessee's
requirements, but shall be subject to Lessor's prior approval, which approval
shall not be unreasonably withheld provided the design of the Expansion is in
keeping with the original design of the Leased Premises as a warehouse
facility. It is contemplated by the parties hereto that the Expansion will
consist of predominately warehouse/distribution space. Lessor shall complete
the Expansion within one (1) year of Lessee's notice of its exercise of this
expansion option, subject to Excusable Delays as defined in Section 35 herein.
The plans and specifications for the Expansion shall be prepared by Lessor and
shall be included within the Total Project Costs. Lessor shall calculate the
construction costs estimate based on said plans and specifications for the
Expansion. Lessee shall have thirty (30) business days from receipt of notice
of the construction costs estimate to accept said costs and proceed with the
Expansion or rescind its notice to so expand. In the event Lessee so rescinds,
Lessee agrees to pay to Lessor all reasonable and customary costs and expenses
Lessor incurred in the preparation of the plans and specifications for the
Expansion up to the date of receipt of Lessee's notice to so rescind.
<PAGE> 23
Lessee will begin paying Expansion Rent upon the completion of the Expansion,
as such requirements for completion are more particularly set forth under
Section 35 herein.
(c) Solely with respect to Lessor's obligation to construct the Expansion
to the Building, such obligation of Lessor shall not be binding upon a
successor which has obtained or is in the process of obtaining fee title
interest to the Leased Premises as a result of a foreclosure of any mortgage or
a deed in lieu thereof.
(d) The obligation of Lessor hereunder shall be contingent upon Lessor
procuring, in Lessor's sole and absolute discretion using commercially
reasonable standards, adequate and appropriate financing for the construction
of the Expansion which Lessor shall use reasonable efforts to procure from one
or more financing services reasonably acceptable to Lessor. In the event
Lessor is unable to procure such financing on terms and conditions and with
financing sources reasonably acceptable to Lessor, Lessor (i) shall be relieved
of its obligations under this Section 38 and neither party shall have any
further liability to the other for any matters relating to this Section 38 or,
at Lessee's election, (ii) Lessee shall have the option to finance or provide
financing for the Expansion Space pursuant to terms acceptable to Lessor
including a debt service and an amortization schedule which is not greater on a
per square foot basis than that set forth in subparagraph (a) above.
39. Appraisal Process. If the parties are unable to agree on the Market Rate
for the Extended Term in question within Section 38 or the Market Rate of the
Leased Premises in question within Section 40 within forty-five (45) days
following Lessor's receipt of the applicable notice to exercise such option,
then each party, at its cost and by giving notice to the other party, shall
have twenty (20) days within which to appoint an MAI certified real estate
appraiser with at least five (5) years' full-time commercial appraisal
experience in the area in which the Leased Premises are located, to appraise
and set the Market Rate in accordance with the then Market Rate for a
comparable use of the Leased Premises. If a party does not appoint an
appraiser within such twenty (20) day period, the single appraiser appointed
shall be the sole appraiser and shall set the Market Rate. If two appraisers
are appointed by the parties as stated in this Section 39, they shall meet
promptly and attempt to set the Market Rate. If they are unable to agree
within forty-five (45) days after the second appraiser has been appointed, they
shall attempt to elect a third appraiser meeting the qualifications stated in
this paragraph within twenty (20) days after the last day the two appraisers
are given to set the Market Rate. If they are unable to agree on the third
appraiser, either of the parties to this Lease, by giving ten (10) days notice
to the other party, can apply to the presiding judge of the superior court of
that county for the selection of a third appraiser who meets the qualifications
stated in this Section 39. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either party.
Within twenty (20) days after the selection of the third appraiser, a majority
of the appraisers shall set the market rate in question. If a majority of the
appraisers are unable to set the Market Rate. Within the stipulated period of
time, the two closest appraisers shall be added together and their total
divided by two; the resulting quotient shall be the market rate.
40. OPTION TO RENEW. Provided that the Lessee is not in material default
hereunder, Lessee shall have the option to renew the term of this Lease for one
(1) additional period of five (5) years ("Option Period"). Such renewal shall
be upon the same terms and conditions contained in the Lease for the Lease Term
except for this provision granting the renewal option and subject to the
<PAGE> 24
adjustment of Minimum Rent (as such term is so defined in Section 4(a) herein).
Such option shall be exercised by Lessee giving written notice to Lessor of its
intention to renew the term of this Lease no later than six (6) months prior to
the expiration of the Lease Term. Lessee's failure to exercise this option to
renew on a timely basis shall cause such option to be waived and of no further
force or effect.
The Minimum Rent for the Option Period shall be an amount equal to ninety-five
percent (95%) of the then current "Market Rate" for the Leased Premises. The
term "Market Rate" shall mean an annual rental rate per rentable square foot
for the rental of "Comparable Premises" (as defined herein) for a period of
time equal to the length of the Option Period assuming an arms length
transaction. As used herein, "Comparable Premises" shall mean premises which
are (incomparable in size to the Leased Premises, (ii) of similar age, quality
and size as the Leased Premises, and (iii) within the same geographical area as
the Leased Premises. The Market Rate shall exclude subleases or other
properties which due to distressed conditions may be offered for lease at an
artificially low rental rate below the true market rental rates. In the event
that the Lessee and Lessor are unable to agree to the Market Rate within thirty
(30) days of receipt of Lessee's notice to exercise this option to renew, the
parties agree to adhere to the Appraisal Process set forth in Section 39
herein, which process shall be bound by items (i), (ii) and (iii) above.
41. OPTIONS TO CANCEL. Provided Lessee is not in material default hereunder,
Lessee shall have the right to cancel this Lease in accordance with the
following terms and conditions:
(a) In the event that Lessee has not extended its right to expand the
Leased Premises in accordance with Section 38 herein, Lessee shall have the
option to cancel this Lease as of the expiration of the fifth (5th) year of the
Lease Term. Such option shall be exercised by (i) Lessee's giving written
notice to Lessor of its intention to so terminate at least nine (9) months
prior to the effective date of such termination (i.e., nine (9) months prior to
the expiration of the fifth (5th) year of the Lease Term), and (ii) Lessee's
payment to Lessor of an amount equal to Four Hundred Seventy-One Thousand One
Hundred Fifty-Eight Dollars ($471,158.00), which shall accompany the notice
provided for in (i) above.
(b) in the event that Lessee has exercised its right to expand the Leased
Premises in accordance with the terms of Section 38 herein, Lessee shall have
the option to cancel the Lease as of the expiration date of the seventh (7th)
year of the Expansion Term. Such option shall be exercised by (i) Lessee's
giving written notice to Lessor of its intention to terminate this Lease at
least nine (9) months prior to the effective date of the termination (i.e.,
nine (9) months prior to the expiration of the seventh (7th) year of the
Expansion Term), and (ii) the payment of Lessee to Lessor of an amount equal to
six (6) months of Minimum Rent for the Expansion Space, which payment shall
accompany the notice in (ii) above.
(c) The foregoing cancellation payments are made in consideration for
Lessor's grant of these options to terminate, to compensate Lessor for rental
and other concessions granted to Lessee, and for rather good and valuable
consideration. Neither payment shall in any manner affect Lessee's obligation
to pay rent or perform its obligation under the Lease up to and including the
date of the termination of this Lease.
(d) Failure to timely and properly exercise the foregoing options shall
forever waive and extinguish them. If either such option is validly exercised
then upon such termination, each party shall be released from further liability
hereunder and this Lease shall be null and void; provided, however, that such
termination shall not affect any right or obligations arising prior to such
termination.
<PAGE> 25
42. TEMPORARY SPACE. The parties acknowledge hereby that upon the date of the
execution of this Lease, Lessee is the occupant of 102,400 square feet of space
in that certain building owned by Lessor known as Building No. 14 at World Park
Corporate Center ("Old Premises") as such tenancy is set forth in that certain
Lease Agreement dated December 17, 1992 by and between Lessee and Lessor ("Old
Lease"). Provided Lessee is not in default under the terms of this Lease or
the Old Lease, Lessor shall, within thirty (30) days of receipt of written
notice from Lessee that it desires to lease temporary space, provide Tenant
with temporary space within World Park Corporate Center totalling approximately
thirty thousand (30,000) contiguous square feet. Lessee agrees that it shall
pay all cost and expenses, including rent and operating expenses, associated
with leasing such temporary space.
43. TERMINATION OF OLD LEASE. Lessee agrees that it shall vacate and abandon
the Old Premises in accordance with the terms set forth in the Old Lease. Upon
Tenant's vacation and abandonment of the old Premises, which shall include the
removal of all racking and/or racking systems, and the repair of any damage
caused thereby, Lessee shall, at no cost to Lessee, be relieved of all of its
obligations under the Old Lease. Notwithstanding the foregoing, nothing herein
shall be interpreted to relieve the Lessee of any obligations or
responsibilities attributable to that period of time prior to the date the Old
Lease shall be deemed null and void.
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed and ensealed this
Addendum to Lease the day and year first written above.
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: /s/ Daniel C. Staton
------------------------
Daniel C. Staton, Executive Vice President
WITNESSES:
/s/ Kimberly Bush
------------------------
Kimberly Bush
(Printed)
/s/ Bill Poffenberger
------------------------
Bill Poffenberger
(Printed)
KENCO GROUP, INC.
By: /s/ Jim Kennedy
------------------------
Jim Kennedy, III
Title: President
WITNESSES:
/s/ George Shuford
------------------------
George Shuford
(Printed)
/s/ Kristi Montgomery
------------------------
Kristi Montgomery
(Printed)
<PAGE> 1
EXHIBIT 10.2.1
ASSIGNMENT AND ASSUMPTION OF LEASE
FOR AND IN CONSIDERATION of receipt of One Dollar ($1.00) and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, KENCO GROUP, INC., a Tennessee corporation (hereinafter referred
to as "Assignor") hereby assigns to MICROAGE COMPUTER CENTERS, INC., a Delaware
corporation (hereinafter referred to as "Assignee") all of its right, title and
interest in and to a certain Lease Agreement dated on or about November 21, 1994
(the "Lease") by and between Assignor as "Tenant" and Duke Realty Limited
Partnership, an Indiana limited partnership as "Landlord," for the lease of
certain property located at World Park Corporate Center, 5389 Provident Drive,
Cincinnati, Ohio and for the continued lease of certain property located at
World Park Corporate Center, 5443 Duff Drive, Cincinnati, Ohio and commonly
known as Building No. 14.
Assignee hereby accepts this Assignment and Assumption of Lease and hereby
agrees to be bound by all of the rights and obligations of Assignor as Tenant
under the Lease and acknowledges that all provisions of the Lease remain in full
force and effect.
Pursuant to Section 10.(d) of the Lease, Assignor shall be released and
fully discharged from all duties, obligations, liabilities, covenants and
conditions imposed upon Assignor by this Lease, excluding, however, the
obligations of Assignor attributable to any period of the Lease prior to the
Effective Date of this Assignment.
This Assignment and Assumption of Lease shall not be construed to modify,
waive, impair or affect any of the terms, provisions or conditions of the Lease.
This Assignment and Assumption of Lease shall not constitute a consent to
any further assignment of the Lease or subletting of the premises demised
thereby.
This Assignment and Assumption of Lease may be executed in three or more
counterparts, each of which shall be deemed an original. All such counterparts
shall together constitute one and the same instrument.
This Assignment and Assumption of Lease shall be effective as of July 10,
1995.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Assumption of Lease as of the day and date first above written.
"Assignor"
WITNESSES: KENCO GROUP, INC.,
a Tennessee corporation
/s/ Robert G. Russell
--------------------------
Robert G. Russell
(Printed) By: /s/ James D. Kennedy
--------------------------
James D. Kennedy, III
President
/s/Sam R. Anderson Dated: July 12, 1995
--------------------------
Sam R. Anderson
(Printed)
<PAGE> 2
"Assignee"
WITNESSES: MICROAGE COMPUTER CENTERS, INC.,
a Delaware corporation
/s/ Kristine Olson
------------------------- By:/s/ Al R. L yons
Kristine Olson --------------------------
(Printed) Printed: Alan R. Lyons
Title: Vice President Administration
/s/ James Domaz
-------------------------
James Domaz
(Printed) Dated: July 19, 1995
STATE OF TENNESSEE )
) SS:
COUNTY OF HAMILTON )
Before me a Notary Public in and for said County and State, personally
appeared James D. Kennedy, III by me known to be the President of Kenco Group,
Inc., a Tennessee corporation, who acknowledged the execution of the foregoing
"Assignment and Assumption of Lease" on behalf of said corporation.
Witness my hand and Notarial Seal this 12th day of July, 1995.
/s/Julia P. Miller
--------------------------
Notary Public
James D. Kennedy, III
(Printed Signature)
My Commission Expires: January 26, 1998
My County of Residence: Walker County
STATE OF ARIZONA )
) SS:
COUNTY OF MARICOPA )
Before me, a Notary Public in and for said County and State, personally
appeared Al R. Lyons by me known to be the Vice President - Administration of
MicroAge Computer Centers, Inc., a Delaware corporation, who acknowledged the
execution of the foregoing "Assignment and Assumption of Lease" on behalf of
said corporation.
Witness my hand and Notarial Seal this 19th day of July, 1995.
/s/ Faye C. Fitzpatrick
--------------------------
Notary Public
Al R. Lyons
(Printed Signature)
My Commission Expires: July 15, 1996
My County of Residence: Maricopa County
<PAGE> 3
CONSENT AND ACCEPTANCE
DUKE REALTY LIMITED PARTNERSHIP, an Indiana Limited partnership, as landlord
under the Lease, hereby consents to the assignment of the Lease as set forth
above. Pursuant to Section 10.(d) of the Lease, Landlord acknowledges that
Assignor is released and fully discharged from all its duties, obligations,
liabilities, covenants and conditions imposed upon Assignor by the Lease
excluding, however, the obligations of Assignor attributable to any period of
the Lease prior to the Effective Date. Landlord further acknowledges that all
provisions of the Lease remain in full force and effect.
"Landlord"
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments, Inc.,
its General Partner
By: /s/ Thomas L. Hefner
---------------------------------
Thomas L. Hefner
Chief Executive Officer
Dated: July 19, 1995
STATE OF INDIANA )
) SS:
COUNTY OF MARION )
Before me, a Notary Public in and for said County and State, personally
appeared Thomas L. Hefner, by me known to be the Chief Executive Officer of
Duke Realty Investments, Inc., general partner of Duke Realty Limited
Partnership, an Indiana limited partnership, who acknowledged the execution of
the foregoing "Assignment and Assumption of Lease" on behalf of said
partnership.
Witness my hand and Notarial Seal this 19th day of July, 1995.
/s/ Peggy H. Gardner
----------------------------
Notary Public
My Commission Expires: August 17, 1995
My County of Residence: Hamilton County
<PAGE> 1
EXHIBIT 10.3
RESTATED AND AMENDED PURCHASE AGREEMENT
THIS RESTATED AND AMENDED PURCHASE AGREEMENT (the "Agreement") is dated as
of the 3rd day of August, 1995, by and among MICROAGE COMPUTER CENTERS, INC., a
Delaware corporation ("MCCI"), MICROAGE SOLUTIONS, INC., a Delaware
corporation, MCSA, INC., a Delaware corporation, MCSB, INC., a Delaware
corporation, MCSJ, INC., a Delaware corporation, MCSP, INC., a Delaware
corporation, MCSQ, INC., a Delaware corporation, KELLY MICRO SYSTEMS, INC., a
California corporation and MCST, INC., a Delaware corporation (individually and
collectively, the "Seller"), and DEUTSCHE FINANCIAL SERVICES CORPORATION
(formerly known as ITT Commercial Finance Corp.), a Nevada corporation (the
"Purchaser").
R E C I T A L S
A. The Seller sells computer products and provides services related to
such computer products in the ordinary course of its business (the "Products"
and the "Services", respectively, or collectively, the "Goods") to customers.
B. The Seller may sell and the Purchaser may purchase from time to time,
for cash, on the terms and conditions set forth herein, all of Seller's right,
title and interest in and to payment for the Products sold and Services rendered
by the Seller (collectively the "Receivables" or, individually, a "Receivable").
C. The Purchaser wishes to employ the Seller as the Purchaser's initial
Collection Agent with respect to Receivables sold by Seller, subject to the
provisions of Section 3.1.D hereof, in connection with the collection of the
amounts owing on the Receivables, and wishes to pay the Seller a Collection Fee
or Fees, as herein defined, in return for the Seller's services as Collection
Agent.
D. The Seller and the Purchaser desire to enter into this Agreement to
govern the purchase and sale of the Receivables, the administration and
collection thereof, and related matters.
E. MCCI has requested that Purchaser provide to it (i) an inventory
floorplan credit facility (the "Regular Line of Credit") in the amount of
$50,000,000, and (ii) a supplemental inventory credit facility (the
"Supplemental Line of Credit") and an accounts receivable purchase facility (the
"A/R Facility") in the aggregate amount of $350,000,000.00 (the "Aggregate A/R
and Supplemental Inventory Limit"). Pursuant to this Purchase Agreement,
Purchaser is agreeing to provide the A/R Facility requested by MCCI. The
Regular Line of Credit and the Supplemental Line of Credit are being provided
pursuant to the terms of that certain Second Restated Agreement for Wholesale
Financing dated even date herewith (the "AWF").
F. Seller and Purchaser desire to amend and restate in its entirety that
certain Purchase Agreement dated as of February 25, 1993, as amended, by and
among Seller and Purchaser (the "Original Agreement").
NOW, THEREFORE, in consideration of the agreements contained herein and for
other good and valuable consideration, the parties hereto mutually agree that
the Original Agreement is hereby amended and restated in its entirety to read as
follows:
<PAGE> 2
ARTICLE 1
Definitions
Section 1.1. Definitions.
Except as otherwise specified in this Agreement, all references (i) to any
Person, other than the Seller, shall be deemed to include such Person's
successors and assigns, and (ii) to any law, agreement, statute or contract
specifically defined or referred to in this Agreement shall be deemed references
to such law, agreement, statute or contract as the same may be supplemented,
amended, waived, consolidated, replaced or modified from time to time, but only
to the extent permitted by, and effected in accordance with, the terms hereof.
The words "herein," "hereof" and "hereunder" and words of similar import, when
used in this Agreement shall refer to this Agreement as a whole and not to any
provision of this Agreement, and "Article," "Section," "paragraph," "Schedule"
and respective references are to this Agreement unless otherwise specified.
Whenever the context so requires, words importing any gender include the other
genders. Any of the terms defined in this Article 1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference; the singular includes the plural and the plural includes the
singular. All references to "Seller" shall mean all of the entities set forth
on the first page of this Agreement as included in the definition of such term,
jointly and severally.
All terms defined in this Article 1 shall have the defined meanings when
used in this Agreement or, except as otherwise expressly stated therein, any
certificate, opinion or other document delivered pursuant to this Agreement.
All accounting terms not otherwise defined in this Article 1 or elsewhere
in this Agreement shall have the meanings assigned them in conformity with GAAP.
All terms used in Article 9 of the UCC and not specifically defined in
this Article 1 or elsewhere in this Agreement shall be defined herein as such
terms are defined in the UCC as in effect in the State of Arizona on the date
hereof.
References to "writing" include printing, typing, lithography and other
means of reproducing words in a tangible visible form. References to "written"
include "printed," "typed," "lithographed" and other adjectives relating to
words reproduced in a tangible visible form consistent with the preceding
sentence. The words "including," "includes" and "include" shall be deemed to
be followed by the words "without limitation."
Aging Schedule. Collectively, the detail and summary schedules maintained
by the Seller with respect to collections on the Seller's Receivables,
substantially in the form of Exhibit V.
A/R and Supplemental Inventory Limit. As defined in Clause E of the
Recitals.
Assignment. An agreement in the form attached as Exhibit I assigning and
transferring from the Seller to the Purchaser the interests of the Seller in
the Receivables described in the schedule to that Assignment.
Billing Date. The date on which a sale of Goods occurs resulting in the
creation of a Receivable.
Business Day. Any day excluding Saturday, Sunday and any day which is a
day on which the Purchaser is closed or national banking institutions are
authorized or required by law or other governmental action to close.
Calendar Quarter. A three-month period ending on the last day of any
March, June, September or December.
<PAGE> 3
Charged Off. A Sold Receivable on which any payment is 91 days or more
past due and which either (i) if owned by the Seller, would have been charged
off by Seller in accordance with its customary credit and collection policies
or (ii) has been charged off by the Purchaser in accordance with its customary
credit and collection policies.
Closing Date. The date that the Purchaser makes its initial Purchase of
Receivables, in accordance with Section 2.1.
Collection Agent. A Person that is selected and appointed by the
Purchaser, in accordance with Section 3.1, to act on the Purchaser's behalf in
the administration, servicing and collection of the Sold Receivables. Such
Person may be the Seller.
Collection Fee. A fee equal to twenty-five one-hundredths of one percent
(0.25%) of that portion of the Outstanding Balance of all Sold Receivables
which Seller has elected to receive (if Seller has received any or all of the
amount due prior to Collection of such Sold Receivables by Purchaser) pursuant
to the third sentence of Section 2.1.B, as reflected on each Receivables
Purchase Settlement Statement, times the fraction, the numerator of which is
the actual number of days from the Settlement Date on which such Receivables
Purchase Settlement Statement was issued to the date of the next Settlement
Date, and the denominator of which is 360, to be paid by the Purchaser to the
Seller as Collection Agent in consideration of Seller's agreement to serve as a
Collection Agent and as compensation for such Collection Agent's services,
payable to the extent provided in the Receivables Purchase Settlement Statement
relating to such Receivables.
Collections. All amounts received by a Collection Agent or the Purchaser
from any Obligor as a payment with respect to a Sold Receivable.
Collections Account. An account or accounts established for the purpose
of depositing Collections pursuant to this Agreement.
Contract. An agreement pursuant to which an Obligor agrees to pay money
to the Seller for Products sold or Services rendered by the Seller in the
ordinary course of its business.
Credit Adjustment. Any refund, rebate, credit or other adjustment granted
to an Obligor with respect to a Sold Receivable.
Defaulted Receivable. (i) A Sold Receivable that the Collection Agent
determines in good faith to be uncollectible, and (ii) a Sold Receivable which
remains unpaid 61 days following the due date, as established by the Seller at
the time of the creation of the Receivable, or that remains unpaid 91 days from
the Billing Date, whichever occurs first.
Depositary. Any bank or banks chosen by the Purchaser, and approved by
the Seller.
Dollars. Lawful money of the United States of America.
Event of Default. As defined in Section 12.1.
Federal Bankruptcy Code. The bankruptcy code of the United States of
America codified in Title 11 of the United States Code, as amended.
Financing Statement. The financing statements that are properly filed
with the various Secretaries of State or other jurisdictions to perfect
security interests in any property described by such financing statements.
Funding Date. The first Business Day immediately following each
Settlement Date.
<PAGE> 4
GAAP. Generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
Indemnitees. As defined in Section 10.1.
Investment Grade. A corporation which has (or parent of which has)
long-term debt rated BBBor higher by Standard & Poor's Corporation or Baa3 or
higher by Moody's Investors Service, Inc.
Lien. A mortgage, pledge, lien, security interest or other charge or
encumbrance of any kind (including without limitation any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
Net Purchase Price. With respect to any Sold Receivable, the total
outstanding principal balance of such Sold Receivable, minus the Deferred
Purchase Price, as defined in Section 4.2, attributable to such Sold
Receivable, as determined as of the Settlement Date.
Non-investment Grade. A corporation which is not Investment Grade.
Notices. All notices, requests, demands and other communications provided
for under this Agreement.
Obligor. A customer to whom the Seller has sold Products or provided
Services and who has agreed to pay money to the Seller therefor whether or not
pursuant to a Contract.
Officer's Certificate. A certificate executed on behalf of the Seller by
its chief financial officer, treasurer or other authorized officer.
Outstanding Balance. With respect to any Receivable, the total
outstanding principal balance thereof, together with all accrued and unpaid
interest thereon.
Party. Seller or Purchaser, as defined.
Person. Natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, incorporated or
unincorporated associations, companies, limited liability companies, trusts or
other organizations, whether or not legal entities, and governments and
agencies and political subdivisions thereof, or any other entity of any kind.
Prime Rate. With respect to any calendar month, the rate of interest
announced by Chase Manhattan Bank at its New York City offices as being its
prime commercial lending rate on the last Business Day of the preceding
calendar month; provided, however, that for purposes of this Purchase
Agreement, the Prime Rate shall not be deemed to be less than five and three
fourths percent (5.75%) per annum.
Proportion. As defined in Section 6.6.
Purchase. A purchase of Receivables made by the Purchaser pursuant to
Section 2.1.
Receivables Purchase Settlement Statement. A statement substantially in
the form of Exhibit IV to be prepared by the Purchaser.
<PAGE> 5
Receivables Servicing Settlement Statement. A statement substantially in
the form of Exhibit III to be prepared by the Seller.
Releases. The termination statements or other documents that are filed
with the various Secretaries of State or other jurisdictions for the purpose of
releasing any security interests that have been filed or perfected through the
filing of one or more Financing Statements.
Repurchase. The repurchase by the Seller in immediately available funds
of any Sold Receivable at a price equal to the Outstanding Balance thereof as
of the date such Sold Receivable is repurchased.
Request for Information or Copies. The documents that are submitted to
the various Secretaries of State or other jurisdictions for the purpose of
ascertaining whether or not any financing statements, tax liens, judgment liens
or other filings have been filed with respect to some item of property.
Secretary of State. Any Secretary of State, or any person acting in an
official capacity for such person or for other jurisdictions, elected or
appointed, to receive filings of Financing Statements, articles of
incorporation or other documents pertaining to the business structure or
operation of any of the entities referred to in this Agreement.
Settlement Date. Each Tuesday of each week, or the immediately following
Business Day if such Tuesday is not a Business Day, and such other dates as may
be agreed to by the Seller and the Purchaser.
Settlement Statements. Any Receivables Purchase Settlement Statement or
any Receivables Servicing Settlement Statement, as defined.
Sold Receivable. A Receivable purchased by the Purchaser until either
Repurchased by the Seller, or paid in full by the Obligor.
Subsidiary. With respect to any Person, any corporation, association or
other business entity of which more than 50% of the total voting power of
shares of common stock or units of ownership or beneficial interest entitled to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person.
Termination Date. As defined in Section 11.1.
UCC. The Arizona Uniform Commercial Code and, if applicable, the Uniform
Commercial Code in effect in the state in which the place of business of the
Seller of the respective Receivable is located, or, if such Seller has more
than one place of business, the state in which such Seller has its chief
executive office.
ARTICLE 2
Amount and Terms of Purchase Commitments
Section 2.1. Purchase of Receivables.
A. Sale; Effective Date of Sale. On the Closing Date, and on each Funding
Date thereafter, the Purchaser shall, subject to Section 7.3 hereof, Purchase
Receivables from the Seller. Purchases made on Funding Dates shall relate to
all Receivables of the Seller arising since the period covered by the
Settlement Statements delivered in connection with the immediately preceding
Funding Date. A condition of each Purchase on any Funding Date shall be
delivery by the Seller of the Receivables Servicing Settlement Statement
required pursuant to Section 3.2.C on the Settlement Date immediately preceding
such Funding Date. The Purchase on the Closing Date shall relate to Receivables
owned by the Seller on the day immediately
<PAGE> 6
preceding the Closing Date. No Purchase shall occur after the Termination Date
as defined in Section 11.1 or if the Purchaser exercises its rights under
Section 12.2.
B. Purchase; Transfer of Receivables. Each Purchase hereunder: (i) shall
take place on the Funding Date at the office of the Purchaser at 1501 W.
Fountainhead Parkway, Suite 600, Tempe, Arizona 85282, or such other place as
may be mutually agreed upon by the Seller and the Purchaser; and (ii) shall
include only interests in Receivables that (a) satisfy the requirements of this
Agreement, including Section 7.3 hereof; and (b) arise out of sales of Products
or Services by the Seller meeting the requirements set forth on Schedule B
hereto. The Purchaser shall purchase the Receivables included in such Purchase
and shall pay or credit to the Seller the Net Purchase Price of such Purchase in
the manner described in the Receivables Purchase Settlement Statement prepared
by the Purchaser in connection with such Purchase as of the Settlement Date and
delivered to the Seller on the Funding Date immediately following the date of
creation of such Receivables. Notwithstanding such Purchase and anything else
contained in this Agreement to the contrary, Seller may elect to receive any or
all of the amount due Seller on the Funding Date, as reflected on the
Receivables Purchase Settlement Statement issued in connection with such Funding
Date. Seller shall advise Purchaser on each Settlement Date whether or not
Seller elects to receive any or all of such amount due from Purchaser.
Notwithstanding that Seller may, with respect to any Funding Date, elect not to
receive any or all of the amount due thereon, title to all Receivables which
satisfy the requirements of this Agreement, acquired by Seller since the period
covered by the Settlement Statements delivered in connection with the
immediately preceding Funding Date, shall pass to Purchaser on such Funding
Date. The sum at any time of (i) the aggregate Net Purchase Price of Sold
Receivables that Seller has elected to receive prior to the Collection thereof
by Purchaser, plus (ii) the aggregate outstanding balance of all advances made
by Purchaser to or for the benefit of MCCI under the Supplemental Line of
Credit, shall not exceed the Aggregate A/R and Supplemental Inventory Limit.
C. Assignment. On each Funding Date, the Seller shall deliver to the
Purchaser an Assignment, dated such date, assigning and transferring to the
Purchaser all right, title and interest of the Seller in and to the Sold
Receivables described in the schedule attached to such Assignment, free and
clear of all security interests, liens, charges, encumbrances and rights of
others other than the respective Obligor's interest in the Products and/or
Services, as appropriate, relating thereto and other than as may be permitted
by, and subject to the terms and conditions of, the Subordination Agreements
referenced in Section 9.1.H hereof. Each Seller hereby appoints MCCI as its
duly authorized agent for purposes of executing each Assignment, and each such
Assignment duly executed by MCCI and delivered to Purchaser shall for all
purposes be deemed executed and delivered by each Seller.
D. Repurchase Obligation. The Seller shall be obligated to effect a
Repurchase of any Sold Receivable in the event that, (i) such Sold Receivable
does not at any time, either at or after the time of sale of such Sold
Receivable to Purchaser, satisfy the requirements of this Agreement, including
Section 7.3 hereof (such Repurchases to be effected with respect to each such
Sold Receivable on the next Funding Date or, at Purchaser's option, on the
third Business Day following the dispatch of written notice by the Purchaser
notifying the Seller of the details relating thereto); (ii) the Seller fails to
comply in any material respect with any covenant or agreement made hereunder
with respect to such Sold Receivable or any representation or warranty made by
the Seller with respect to such Sold Receivable hereunder is not true in any
material respect or the Seller fails to comply with any covenants or agreements
contained in Section 7.5 (such Repurchases to be effected with respect to each
such Sold Receivable on the next Funding Date, or, at the Purchaser's option on
the third Business Day following the dispatch
<PAGE> 7
of written notice by the Purchaser notifying the Seller of the details relating
thereto); (iii) if the Seller is the Collection Agent and allows a Credit
Adjustment on behalf of the Purchaser with respect to such Sold Receivable and
the Seller fails to pay or cause to be credited an amount equal to such Credit
Adjustment to the Purchaser on the Funding Date immediately following such
Credit Adjustment pursuant to Section 3.1.B(3) hereof (such Repurchase to be
effected with respect to each such Sold Receivable on the Business Day
immediately following such Funding Date); or (iv) notwithstanding any other
provision of this Agreement, including but not limited to provisions regarding
or limiting the Seller's covenants and representations and warranties, payment
or the collection of payment underlying such Sold Receivable is, in whole or in
part, overturned, disallowed or required to be refunded, or such Sold Receivable
is in any way held illegal, invalid or unenforceable by any court or any other
authority or tribunal (such Repurchase to be effected with respect to each such
Sold Receivable not later than the third Business Day following dispatch of
written notice by the Purchaser notifying the Seller of such event), provided,
however, that no Repurchase shall be required in the case of an event specified
in clause (iv) if the Seller effects a Credit Adjustment and payment to the
Purchaser in the amount thereof in accordance with Section 3.1.B(3). In
addition, the Seller shall be obligated to effect a Repurchase of all Sold
Receivables if an Event of Default (as defined in Section 12.1 below) occurs and
the Purchaser exercises its rights to cause such a Repurchase in accordance with
Section 12.2 (such Repurchase to be effected with respect to each Sold
Receivable on the date specified by Purchaser in a written notice to Seller that
it is exercising such right). Upon any Repurchase made pursuant to this Section
2.1.D, the Purchaser shall assign and transfer to the Seller all right, title
and interest of the Purchaser in and to each Sold Receivable to be so
Repurchased, free and clear of all Liens and rights of others permitted or
created by the Purchaser or any Collection Agent (other than the Seller acting
as Collection Agent) other than any Lien or right of any other Person in respect
of any claim against the Seller and other than any interest of Purchaser
pursuant to Section 5.1 of this Agreement or pursuant to the AWF, but without
any other warranty on the part of the Purchaser. The provisions of this Section
2.1.D shall survive termination of this Agreement.
ARTICLE 3
Collections; Maintenance of Records
Disbursements of Collections
Section 3.1. Collection Procedure.
A. Appointment of Seller as Collection Agent. The Purchaser hereby
appoints the Seller to act as Collection Agent with respect to Sold Receivables
and the Seller hereby accepts such appointment.
B. Duties and Standard of Care as Collection Agent.
(1) The Collection Agent will endeavor to collect the amount owing
to the Purchaser on each Sold Receivable, as and when the same becomes due, at
the Seller's cost and expense and as agent for the Purchaser, but subject at any
time to the right of the Purchaser in its reasonable discretion to direct and
control such activities.
(2) In performing its functions and duties on behalf of the
Purchaser as the Collection Agent, the Seller shall exercise the same care that
it would exercise in the collection of Receivables for its own account, which
standard of care shall not be less than either the standard of care prevalent in
the industry in which the Seller engages or the standard of care that a
reasonably prudent lender would exercise in the conduct of its business.
<PAGE> 8
(3) The Collection Agent may allow such Credit Adjustments for the
Purchaser's account as the Collection Agent may determine in good faith to be
either (i) appropriate to facilitate maximum Collections or (ii) required by
applicable law or any applicable Contract and may receive any Products relating
thereto, subject to the Purchaser's aforesaid interests, as may be returned or
rejected by, or repossessed from, the Obligors; provided, however, that any
Credit Adjustment shall be reflected on each Receivables Servicing Settlement
Statement prepared for the period in which the Credit Adjustment was made. To
the extent the Seller does not effect a Repurchase as a result of such Credit
Adjustment pursuant to the provisions of Section 2.1.D hereof, the amount of any
Credit Adjustments shall be paid (or credited) by the Seller, if the Seller is
the Collection Agent, to the Purchaser as of the Settlement Date immediately
following the day on which such Credit Adjustment occurs, subject to the
provisions of any Receivables Purchase Settlement Statement prepared by the
Purchaser for such Settlement Date. With respect to each Defaulted Receivable,
the Collection Agent shall have the power and authority, on behalf of the
Purchaser, to take action in accordance with the Seller's standard collection
policies (including, in the case of any such Receivable in respect of which a
security interest in Products shall have been obtained, the repossession and
resale of such Products). The Purchaser may request from time to time
information relating to any such Defaulted Receivable. A Collection Agent other
than the Seller may also make Credit Adjustments for the Purchaser's account
with the consent of the Purchaser and if but only if Seller preapproves in
writing such Credit Adjustment. Such Credit Adjustment shall be treated the
same as a Credit Adjustment made by Seller as Collection Agent, including for
purposes of requiring payment or credit by the Seller.
(4) In the enforcement or collection of any Sold Receivable, the
Collection Agent shall sue thereon in its own name without stating that it is an
agent of the Purchaser, if possible, or, if, but only if, the Purchaser consents
in writing, the Collection Agent may sue thereon stating that it is bringing
such action as an agent of the Purchaser; provided, however, that nothing
contained herein shall limit the Purchaser's right, exercisable in its sole
discretion, to sue or proceed against any Obligor in its own name.
(5) The Purchaser may at any time with contemporaneous notice to
Seller: (i) notify any Obligor of the purchase by the Purchaser of any Sold
Receivable hereunder; (ii) contact any Obligor for any purpose, including
without limitation the performance of audits and verification analyses, and the
determination of account balances and other data maintained by the Seller; (iii)
direct any Obligor to make all payments in respect of Sold Receivables directly
to the Purchaser at an address designated by the Purchaser, or to a third party
or a bank or depositary designated by the Purchaser; and/or (iv) proceed
directly against any Obligor with respect to the collection of any Sold
Receivable or any related matter. In no event shall the Collection Agent
knowingly take any action that would make the Purchaser a party to any
litigation without the Purchaser's express prior written consent. In no event
shall the Purchaser knowingly take any action that would make the Seller, solely
in its capacity as Collection Agent, a party to any litigation (except for an
action, suit or proceeding by the Purchaser against the Seller), without the
Seller's express prior written consent.
(6) Payments of any and all amounts from Obligors (regardless of the
existence of any other obligation or indebtedness of such Obligors then owed to
Seller or any other person or entity) shall be treated as Collections and shall
be applied against Sold Receivables as set forth herein. Any moneys collected
by the Collection Agent shall be deposited into the Collections Account and,
unless Purchaser shall otherwise direct the Collection Agent, applied as a
payment for the Purchase of Sold Receivables on the next Funding Date. To the
extent not so applied or if the Collection Agent is otherwise directed by the
Purchaser, such moneys shall be segregated by the Collection
<PAGE> 9
Agent, held in trust by the Collection Agent for the Purchaser and remitted or
credited to the Purchaser on the next Funding Date, subject to the provision of
any Receivables Purchase Settlement Statement prepared by the Purchaser for such
Settlement Date. All funds deposited into the Collections Account shall be
handled in accordance with Section 4.1 hereof. All payments and all amounts
received in settlement, adjustment or liquidation of any Sold Receivable will be
credited by the Purchaser (subject to final collection thereof) after allowing
two (2) Business Days for collection of checks or other instruments. All
payments in respect of Sold Receivables of a particular Obligor shall be applied
against specific items of Sold Receivables as specifically identified in writing
by the Obligor thereon. If an Obligor fails to so specify, then the Collection
Agent shall use its best efforts, including contacting such Obligor, to
determine the appropriate application of the payment. If the proper application
cannot be determined, all payments in respect of Sold Receivables shall be
applied in the order of maturity thereof.
C. Power of Attorney. The Seller hereby grants to the Purchaser an
irrevocable power of attorney, with full power of substitution, coupled with an
interest, to take in the name of the Seller or in the Purchaser's own name all
steps necessary or advisable to endorse, negotiate or otherwise realize on any
writing or other right of any kind held or owned by the Seller or transmitted to
or received by the Purchaser as payment on account or otherwise in respect of
any Sold Receivable.
D. Termination of Appointment. The Purchaser may at any time terminate
the Seller's functions as the Collection Agent by delivery of a notice of such
termination in writing to the Seller. Upon the termination of the Seller as the
Collection Agent, without limitation, (i) the Purchaser, or a third party
designated by the Purchaser, shall administer the administrative, servicing and
collection functions with respect to Purchases from the Seller in any manner the
Purchaser deems fit; (ii) the Purchaser shall, at any time thereafter, be
entitled to notify the Obligors on any Sold Receivables to make payment of
amounts due thereunder directly to the Purchaser at an address designated by the
Purchaser or to such third party or to a bank or other depositary designated by
the Purchaser; and (iii) the Seller shall, at its own expense, (x) if so
requested by the Purchaser, endorse each instrument, if any, evidencing any Sold
Receivable to the Purchaser in such manner as the Purchaser shall direct and (y)
perform any and all acts and execute any and all documents as may be requested
by the Purchaser in order to effect the purposes of this Agreement and the
Purchase of Receivables and to perfect and protect the ownership interest of the
Purchaser in the Sold Receivables. Any successor Collection Agent appointed
hereunder shall be held to the same standard of care as is described in Section
3.1.B(2) hereof.
Section 3.2. Records and Reports.
A. Maintenance of Records. The Purchaser shall have the right (but
not the obligation), for the purposes hereunder described, to enter upon the
Seller's premises from time to time during the term of this Agreement (such
entrance to occur during normal business hours of the Seller) upon not less
than twenty-four (24) hours notice to the Seller; provided, however, that if an
Event of Default has occurred and is continuing, the Purchaser may enter the
Seller's premises immediately (upon not less than one (1) hour's notice and
without waiting for any time to cure such default to expire) during the normal
business hours of the Seller. Seller hereby agrees that any representative or
agent of any Person purchasing an undivided economic participation in the A/R
Facility and the Supplemental Line of Credit may accompany Purchaser during any
entry onto Seller's premises, as contemplated herein. The purposes for which
the Purchaser may enter pursuant to the terms of this Section 3.2 are as
follows: (i) to inspect, audit, check and make abstracts from the Seller's
books, accounts, records or other papers
<PAGE> 10
pertaining to Sold Receivables; (ii) to examine the Collateral (as defined in
Section 5.1 below); (iii) to appraise the Collateral as security; (iv) to verify
the condition and non-use of the Collateral; (v) to verify that all Collateral
has been properly accounted for; (vi) to verify that the Seller is in compliance
with all terms and provisions of this Agreement; and (vii) to examine and make
copies (at the Purchaser's sole expense) of the Seller's books and records
relating to the transactions which are the subject of this Agreement, and for no
other purposes. From time to time upon the reasonable written request of the
Purchaser, the Seller, at its own expense, will deliver to the Purchaser or any
agent selected by the Purchaser, as the case may be: (i) a schedule of the Sold
Receivables (or Sold Receivables relating to such Obligors as the Purchaser may
specify) sold by the Seller to the Purchaser indicating as to each such Sold
Receivable information as to the Obligor thereon, the Outstanding Balance
thereof, the location of any Contract evidencing such Sold Receivable and such
other information as the Purchaser may deem appropriate; and (ii) any such
Contract and such records and invoices pertaining thereto and evidence thereof
as the Purchaser may deem necessary to enable Purchaser to enforce its rights
thereunder. At the Purchaser's request, the Seller shall: (a) identify and
hold as agent for the Purchaser at the offices of the Seller listed in Schedule
A hereto (including without limitation for the purpose of protecting the
Purchaser's ownership interest therein) all books, records and documents
evidencing or relating to the Sold Receivables, including any underlying
Contracts, and maintain a current record of all Sold Receivables owned by the
Purchaser at any time in such reasonable detail and in form and substance
satisfactory to the Purchaser; (b) mark the legend "Receivables owned by
Deutsche Financial Services Corporation, as purchaser under a Restated and
Amended Purchase Agreement, dated as of August 3, 1995" on the Seller's Aging
Schedule; (c) make such additional notations on such books, records and
documents as may be requested by the Purchaser to evidence the Purchaser's
interest therein and, if so requested, to store the same in separate filing
cabinets so marked or deliver the same to the Purchaser; and/or (d) maintain and
implement administrative and operating procedures (including without limitation
an ability to recreate records evidencing the Sold Receivables in the event of
the destruction of the original records), and keep and maintain all documents,
books, records and other information reasonably necessary for the collection of
the Sold Receivables for the Purchaser.
B. Status Reports. On each Settlement Date, the Seller shall submit to
the Purchaser an Aging Schedule and such other reports as the Purchaser shall
request.
C. Receivables Servicing Settlement Statements. On each Settlement Date,
the Seller shall provide to the Purchaser a Receivables Servicing Settlement
Statement setting forth a summary of all Collections, Credit Adjustments and any
Defaulted Receivables hereunder since the period covered by the Settlement
Statements submitted on the immediately preceding Settlement Date together with
such other information as the Purchaser may reasonably request for the purposes
of effecting an accounting and settlement hereunder.
D. Receivables Purchase Settlement Statements. On each Funding Date, the
Purchaser shall deliver to the Seller a Receivables Purchase Settlement
Statement, which shall incorporate the information contained in the Receivables
Servicing Settlement Statement and which shall set forth, among other things, a
summary of all Sold Receivables Purchased as of such Funding Date, the
Outstanding Balance of Sold Receivables Purchased prior to such Funding Date,
the Deferred Purchase Price and any moneys due either the Purchaser or the
Seller.
Section 3.3. Collection Fees. In consideration of its agreement to
act as a Collection Agent, Seller shall be paid a Collection Fee which will be
payable in installments as agreed to by the Purchaser and the Collection Agent
<PAGE> 11
and which shall be specified in the applicable Receivables Purchase Settlement
Statement. Collection Fees shall be set forth in such Receivables Purchase
Settlement Statements; provided that any expenses incurred or assumed by the
Purchaser in connection with the collection of the Receivables sold by the
Seller, or any other amounts due the Purchaser from the Seller hereunder, may be
deducted from any Collection Fee and credited to the Purchaser. The Collection
Fees are provided as compensation for services rendered and expenses incurred by
the Seller in connection with its function as the Purchaser's Collection Agent.
Following the termination of the Seller as a Collection Agent, the Seller shall
not continue to earn any Collection Fees.
Section 3.4. Manner and Time of Payments.
A. Payments to Seller. The Purchaser shall pay the amounts that are
payable to the Seller hereunder, if any, on the Funding Date in immediately
available funds deposited to the account of the Seller listed in Section 13.2
hereof, subject to the provisions of any Receivables Purchase Settlement
Statement prepared by the Purchaser in connection with any Purchase effected on
or prior to such date.
B. Payments to Purchaser. The Seller shall pay the amounts that are
payable by the Seller to the Purchaser hereunder, if any, on the Funding Date in
immediately available funds, deposited to the account of the Purchaser listed in
Section 13.2 hereof, no later than 11:00 a.m., Arizona time, subject to the
provisions of any Receivables Purchase Settlement Statement prepared by the
Purchaser in connection with any Purchase effected on or prior to such date.
C. Monthly Reconciliation. On the fifteenth (15th) day of each calendar
month, the parties shall reconcile all settlements made during the immediately
preceding calendar month. If any adjustments need to be made to any such
settlement, it shall occur as of the next Funding Date following the
reconciliation.
ARTICLE 4
Collections Account and Deferred Purchase Price
Section 4.1. Collections Account. Pursuant to an agreement in form and
substance satisfactory to the Purchaser, the Seller will authorize the
Depositary to operate a lockbox (the "Lockbox") under which moneys collected by
the Seller will be presented and collected for the benefit of the Purchaser. The
Seller shall request its customers to forward remittances to it addressed to the
Lockbox assigned to it by the Depositary. The Seller shall also maintain in its
name the Collections Account at the Depositary, which shall be blocked in favor
of the Purchaser pursuant to an agreement in form and substance satisfactory to
Purchaser so that the only disbursements to be made against the Collection
Account will be in favor of the Purchaser, and which shall contain moneys
collected in the Lockbox. So long as this Agreement is in effect and until all
Sold Receivables shall have either been collected in full or otherwise
discharged in a manner satisfactory to the Purchaser, the Seller shall have no
right to withdraw any funds in the Collections Account.
Section 4.2. Deferred Purchase Price.
(1) The Deferred Purchase Price (the "Deferred Purchase Price")
shall at all times be an amount equal to a percentage of the Outstanding
Balances of all Sold Receivables as determined in accordance with Schedule B
attached hereto, and the Seller shall be obligated to replenish the Deferred
Purchase Price so that the Deferred Purchase Price at all times meets the
requirements of this Section 4.2 and Schedule B. A calculation of the then
current Deferred Purchase Price shall be set forth in each Receivables
<PAGE> 12
Purchase Settlement Statement, the form of which is attached as Exhibit IV
hereto. Seller hereby acknowledges that all fees and charges payable by Seller
in connection with the Purchase of the Sold Receivables described in subpart (e)
of Schedule B are in addition to any discounts, interest and/or payment delay
periods payable by Seller or granted in favor of Purchaser as the case may be,
in connection with Purchaser's financing of the purchase of Products by the
Obligor which result in the Sold Receivables, the terms of which have been
separately disclosed and agreed to by Seller.
(2) The Purchaser shall maintain records with respect to the
Deferred Purchase Price for Purchases by the Purchaser hereunder, the amount of
adjustments to the Deferred Purchase Price and the amount of any Deferred
Purchase Price paid or credited to the Seller.
(3) During the term of this Agreement, the Purchaser may offset the
Deferred Purchase Price against any amounts due to the Purchaser from the Seller
under this Agreement (i.e., the Charged Off amount of any Sold Receivables), and
upon the termination of this Agreement in accordance with Article 11 and subject
to the provisions of Article 12, any portion of the Deferred Purchase Price
remaining after such offset and after the liquidation of the Sold Receivables,
shall be paid by the Purchaser to the Seller within thirty (30) days of the
completion of such liquidation; provided, however, that the Purchaser's exercise
of its right to offset shall in no way limit the Seller's obligations under this
Agreement, and such exercise by the Purchaser shall not limit the exercise by
the Purchaser of any other rights or remedies contained herein.
Section 4.3. Investment Earnings. The Lockbox and the Collections Account
may be interest bearing, and the Seller shall be entitled to any interest earned
thereon and subject to Articles 5 and 12 below, the Purchaser shall not have any
interest in such earnings, nor shall the Purchaser be deemed to have guaranteed
any minimum return. The Seller shall be responsible for all costs and expenses
associated with or incurred in connection with the establishment or maintenance
of the Lockbox and the Collections Account, and all taxes accruing on the
interest earned on the funds in the Collections Account.
ARTICLE 5
Security Interest
Section 5.1. Sale; Grant of Security Interest. The parties hereto
intend that the Purchase by Purchaser of Sold Receivables pursuant to this
Agreement shall constitute a sale under all applicable laws. Notwithstanding
such intent, if for any reason the Sold Receivables are not under applicable
law deemed to have been Purchased by Purchaser, Purchaser shall be deemed to
have made a loan to Seller in the amount of the purchase price paid to Seller,
as secured by the following grant of security in Seller's assets. To secure
all of Seller's current and future debts to Purchaser, whether under this
Agreement or any current or future guaranty or other agreement, including
without limitation all obligations of Seller arising in connection with this
Agreement, whether now or hereafter existing, due or to become due, direct or
indirect, or absolute or contingent, including Repurchase obligations pursuant
to Section 2.1.D, indemnification obligations pursuant to Section 10.1 and
payments on account of Collections received, the Seller hereby assigns and
grants to the Purchaser a security interest in all of the Seller's right, title
and interest now or hereafter existing in, to and under all inventory,
equipment, fixtures, accounts (including without limitation all Sold
Receivables), contract rights, chattel paper, instruments, documents of title,
deposit accounts, reserves and general intangibles, now owned or hereafter
acquired, and all attachments, accessions, parts, accessories, substitutions
and replacements thereto, and all proceeds thereof, and to the extent related
to the property described above, all books, correspondence, credit files,
<PAGE> 13
records, invoices and other papers and documents, including without limitation,
to the extent so related, all tapes, cards, computer runs, computer programs and
other papers and documents in the possession or control of Seller or any
computer bureau from time to time acting for Seller, and to the extent so
related, all rights in, to and under all policies of insurance, including claims
of rights to payments thereunder and proceeds therefrom, including any credit
insurance, and all proceeds thereof (the "Collateral"). To the extent so
defined, the above assets shall have the same meanings as in Article 9 of the
UCC as adopted by the State of Arizona. The Seller will hold all of the
Collateral in trust for the Purchaser and will account for and remit directly to
the Purchaser all such proceeds when payment is required under terms of this
Agreement. The Purchaser's lien or security interest will not be impaired by
any payments the Seller may make to any other person or entity. This Agreement
shall constitute a security agreement under applicable law with regard to the
security interest granted pursuant to this Section 5.1.
ARTICLE 6
Seller's Affirmative Covenants
The Seller covenants and agrees that, unless the Purchaser shall otherwise
give its express prior written consent, until each Sold Receivable has been
Repurchased, Charged Off or paid in full, the Seller shall comply with and
perform in accordance with all covenants contained in this Article 6.
Section 6.1. Financial Statements and Other Reports. The Seller is a
member of a consolidated group of entities for financial reporting purposes
consisting of MicroAge, Inc., and its Subsidiaries (the "Consolidated Group").
The Seller will cause the Consolidated Group to maintain a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements of the Consolidated Group in
conformity with GAAP. The Seller will deliver to the Purchaser such financial
statements and other reports and certifications relating to the Consolidated
Group or the Receivables as the Purchaser may reasonably request from time to
time (the Seller shall advise, in writing, its independent auditors, that the
Seller is providing copies of its certified financial statements to the
Purchaser), as well as:
(i) promptly upon any officer of the Seller obtaining knowledge or
becoming aware of a material adverse change in the business, operations,
properties, business prospects, or condition (financial or otherwise) of
MicroAge, Inc. and its Subsidiaries, taken as a whole, or of an occurrence of a
breach of Seller's obligations under this Agreement, an Officer's Certificate
specifying the nature and period of existence of any such breach, condition or
event, or specifying the notice given or action taken by such holder or Person
and the nature of such claimed breach, event or condition, and what action, if
any, MicroAge, Inc. or the Seller has taken, is taking and proposes to take with
respect thereto;
(ii) thirty days' notice prior to the Seller's changing its name or
any name under which it does business or relocating its chief executive offices
(within the meaning of Section 47-9103(C)(4) of the UCC) or relocating the
books, records and documents evidencing the Receivables owned or to be purchased
by the Purchaser hereunder;
(iii) prior to the implementation of any material change in the
Seller's policies, procedures or practices with respect to extending credit to
its customers, making Credit Adjustments or collecting amounts owed by
customers, a written description of such proposed change at least thirty (30)
days in advance of such change;
(iv) with reasonable promptness, such other information, reports or
documents concerning the Receivables which are owned or to be purchased by the
<PAGE> 14
Purchaser hereunder, the underlying Contracts, or the credit or collection
policies, practices and procedures of the Seller, as the Purchaser may from time
to time reasonably request; and
(v) such other information respecting the financial condition or
operations of the Consolidated Group and Seller as the Purchaser may from time
to time reasonably request.
Section 6.2. Financial Covenants. Seller covenants and agrees with
Purchaser that:
(i) The Consolidated Group shall at all times maintain, on a
consolidated basis, a Tangible Net Worth plus Subordinated Debt in a combined
amount of not less than the sum of (a) One Hundred Forty Five Million Dollars
($145,000,000) plus (b) seventy- five percent (75%) of the cumulative positive
consolidated Net Income for each fiscal quarter, commencing with the fiscal
quarter beginning August 1, 1995 (Net Losses for any fiscal quarter shall not,
however, reduce the minimum amount required under this clause (i)). For
purposes of this Section 6.2: (w) "Tangible Net Worth" means the net book value
of the Consolidated Group's assets and liabilities, determined on a consolidated
basis, in accordance with GAAP consistently applied, excluding from such assets
all Intangibles; (x) "Intangibles" means and includes general intangibles (as
that term is defined in the Uniform Commercial Code), good will, prepaid
expenses, deposits, licenses, covenants not to compete, the excess of cost over
book value of acquired assets, franchise fees, organizational costs, capitalized
research and development costs, accounts receivables and advances due from
officers, directors, employees, stockholders and affiliated companies, leasehold
improvements in excess of Five Million Dollars ($5,000,000), net of depreciation
and such similar items as Purchaser may from time to time determine; (y)
"Subordinated Debt" means the indebtedness of the Consolidated Group which is
subordinated to payment of its liabilities to the Purchaser, as agreed to in
writing by the Purchaser, and (z) "Net Income" and "Net Loss" mean the net
income or net loss of the Consolidated Group for such period determined in
conformity with GAAP.
(ii) The Consolidated Group shall at all times maintain, on a
consolidated basis, Net Working Capital of not less than (a) Ninety Million
Dollars ($90,000,000) plus (b) fifty percent (50%) of the cumulative positive
consolidated Net Income for each fiscal quarter commencing with the fiscal
quarter beginning August 1, 1995 (Net Losses for any fiscal quarter shall not,
however, reduce the minimum amount required under this clause (ii)). "Net
Working Capital", for purposes of this Agreement, means the excess of current
assets over current liabilities, both determined in accordance with GAAP,
provided that there shall not be included in current assets, any loans or
advances made by the Consolidated Group to any person or entity, nor any asset
(except Collateral in process of delivery) located outside the United States,
Canada and Puerto Rico; but there shall be included in current assets, amounts
owing by persons or entities located outside the United States, Canada and
Puerto Rico, which arise from sales made by the Consolidated Group in the
ordinary course of business.
(iii) The Consolidated Group shall at all times maintain, on a
consolidated basis, a ratio of (a) the sum of (I) total liabilities plus (II)
that portion of the Outstanding Balance of all Sold Receivables which Seller
has elected to receive if Seller has received any or all of the amount due
prior to Collection of such Sold Receivables by Purchaser pursuant to the third
sentence of Section 2.1.B, to (b) Tangible Net Worth, of less than five (5) to
one (1) (the "Leverage Ratio").
(iv) The Consolidated Group shall at all times maintain, on a
consolidated basis, a ratio of (a) the sum of (I) current assets, plus (II) the
Outstanding Balance of all Sold Receivables to (b) the sum of (III)
<PAGE> 15
current liabilities plus (IV) that portion of the Outstanding Balance of all
Sold Receivables which Seller has elected to receive if Seller has received any
or all of the amount due prior to Collection of such Sold Receivables by
Purchaser pursuant to the third sentence of Section 2.1.B, of not less than one
and one tenth (1.1) to one (1).
(v) Without Purchaser's prior written consent, no member of the
Consolidated Group will (a) redeem, retire, purchase or otherwise acquire
directly or indirectly any of the capital stock of MicroAge, Inc. in an amount
greater than ten percent (10%) of the Consolidated Group's Tangible Net Worth
immediately prior to the date of any such transaction; or (b) make any stock
dividend payments in an amount greater than ten percent (10%) of the
Consolidated Group's Tangible Net Worth immediately prior to the date of any
such transaction. The provisions of this Subsection (v) will in no way be
deemed a waiver of any of the financial covenants contained in Section 6.2.
(vi) The Seller shall provide the Purchaser with monthly
internally prepared profit and loss statements, cash flow statements and balance
sheets for the Consolidated Group within thirty (30) days following the end of
each calendar month during the term of this Agreement (except for the month of
the Seller's fiscal year end when such statements shall be provided to the
Purchaser in accordance with the filing of the Consolidated Group's Annual
Report on Form 10-K with the United States Securities and Exchange Commission).
The Purchaser acknowledges that the parent entity of the Consolidated Group,
MicroAge, Inc., is a publicly held company, and that all information provided to
the Purchaser under this Section 6.2 will not be available to the public and
shall be subject to the provisions of Section 13.9. The Purchaser's receipt of
such information subjects it to the provisions of the Securities Act of 1933, as
amended and the Securities Exchange Act of 1934, as amended, including Section
10(b) of such Act and Rule 10b-5 promulgated thereunder.
(vii) Article 12 notwithstanding, a breach by the Seller under this
Section 6.2 shall be deemed to be a nonmonetary Event of Default, and, upon
receipt of a written notice of default from the Purchaser that it is in default
under this Section 6.2, the Seller shall have sixty (60) days to cure such
default. The Seller shall notify the Purchaser as soon as practicable should
its ability to maintain any of the covenants under this Section 6.2 be
materially jeopardized.
(viii) If the Seller changes one or more of the accounting
principles used in the preparation of its financial statements, because of a
change mandated by the Financial Accounting Standards Board or GAAP, then an
Event of Default relating to financial covenants contained in this Section 6.2
shall not be considered an Event of Default if the required ratio or amount
would have been complied with had the Seller continued to use GAAP employed at
the date of the most recently audited financial statements prior to the date of
this Agreement. Immediately upon any such change, the Seller and the Purchaser
shall adjust the affected covenant to most accurately restate the affected
covenant under the new accounting principles. The Seller represents that it
has no knowledge of the existence of any such change currently mandated or
proposed to be mandated by the Financial Accounting Standards Board or GAAP.
Section 6.3. Corporate Existence, etc. Subject to Section 7.5 hereof,
the Seller will at all times preserve and keep in full force and effect its
corporate existence and all licenses, rights and privileges relating to Sold
Receivables, and qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is necessary or desirable in view of
its business and with respect to better assuring the validity, enforceability
and collectibility of Sold Receivables.
<PAGE> 16
Section 6.4. Compliance with Laws, etc. The Seller will comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would adversely affect the
validity, enforceability or collectibility of Sold Receivables.
Section 6.5. Transfer of Receivables. The Seller shall take all steps
necessary or, in the opinion of the Purchaser, advisable to validate or protect
the ownership interest of the Purchaser in, or to defeat the assertion by any
third party of any adverse claims with respect to, the Sold Receivables or any
underlying Contracts; and the Seller hereby irrevocably authorizes the Purchaser
to execute and deliver, in the Seller's name and on the Seller's behalf, such
instruments and documents (including bills of sale and assignments) necessary or
desirable to evidence or protect the Purchaser's ownership interest in the Sold
Receivables and, if an Event of Default by the Seller hereunder has occurred and
is continuing, to execute and file, in the Seller's name and on the Seller's
behalf, financing statements (including amendments and continuation statements)
under the UCC (or similar law where the UCC is not enacted) in such
jurisdictions where it may be necessary to validate or protect the Purchaser's
position as owner of such Sold Receivables. The Seller shall execute and
deliver such additional documents and shall take such further action as the
Purchaser may reasonably request to effect or evidence the transfer of the Sold
Receivables and shall execute and deliver to the Purchaser such
powers-of-attorney as may be necessary or appropriate to enable the Purchaser to
endorse for payment any check, draft or other instrument delivered in payment of
any amount under or in respect of a Sold Receivable. If, at any time, the Seller
receives any cash or checks, drafts or other instruments for the payment of
money on account or otherwise in respect of Sold Receivables, the Seller shall
segregate such cash and other items, hold such cash and other items (properly
endorsed, where required, so that such items may be collected by the Purchaser)
in trust for the Purchaser, and promptly deposit same in the Collections
Account.
Section 6.6. Assignment of Contracts. The Seller hereby assigns to the
Purchaser the Proportion (as defined below) of all rights of the Seller under
each Contract underlying a Sold Receivable relating to the collectibility of
payments thereunder, security interests and other liens created in connection
therewith and the enforcement thereof, but the Purchaser does not and shall not
thereby assume any obligations of the Seller under any such Contract.
"Proportion" as used in the preceding sentence means the percentage (including
100%) which the Purchaser's interest in the relevant Receivable bears to one
hundred percent (100%) thereof; if the Proportion assigned to the Purchaser
hereunder is less than one hundred percent (100%), such Proportion shall
represent an undivided interest in all such rights. Such assignment shall
include without limitation security interests in favor of the Seller in any
property (including without limitation any Goods) securing any Sold Receivable,
whether pursuant to the contract underlying such Sold Receivables or otherwise,
and all terms and conditions of this Agreement shall be deemed applicable to
such assigned security interests generally in the same manner and to the same
extent as applied to the related Sold Receivable.
ARTICLE 7
Seller's Negative Covenants
Until each Sold Receivable has been Repurchased, Charged Off or paid in
full, unless the Purchaser shall otherwise give prior written consent, the
Seller will perform all covenants contained in this Article 7.
Section 7.1. Character of Business. The Seller will make no material
change (i) in the character of the business carried on by it, or (ii) in its
general policies, procedures or practices with respect to extending credit to
its customers or collecting amounts owed by customers, in each case, as in
<PAGE> 17
effect on the date of this Agreement, that in any case referred to in clause (i)
or (ii) would adversely affect the validity, enforceability or collectibility of
the Sold Receivables or materially adversely affect the ability of the Seller to
perform its obligations hereunder.
Section 7.2. Modification of Contracts. Except as set forth in Section
3.1.B(3), the Seller will not amend, modify or waive any term or condition of
any Contract underlying any Sold Receivable, which amendment, modification or
waiver would adversely affect the validity, enforceability or collectibility of
such Receivable or adversely affect the Purchaser's right to collect any Sold
Receivables.
Section 7.3. Quality of Receivables. The Seller will not sell to the
Purchaser any Receivable that: (i) is not, prior to sale, owned by the Seller;
or (ii) relates to Contracts or contractual obligations not entered into by the
Seller in the ordinary course of business. The Seller will not sell to the
Purchaser any Receivable, and the Seller shall Repurchase in accordance with
Section 2.1.D any Sold Receivable that: (i) is not generated by the sale of
Products or the rendering of Services meeting or maintaining the requirements
set forth in Schedule B hereto; (ii) is, or becomes, evidenced by a promissory
note or other document or instrument (other than a Contract); (iii) does not
conform with applicable laws, rules or regulations or is based on a Contract
that does not conform with applicable laws, rules or regulations; (iv) is, or
becomes, a Defaulted Receivable; (v) all Receivables of any Obligor if fifty
percent (50%) or more of the Outstanding Balance of all such Obligor's
Receivables are, or become, Defaulted Receivables; (vi) is, or becomes, a
Receivable with respect to which the Seller is engaged in any dispute or
warranty claim or which is subject to any lien, claim, security interest (other
than as may be permitted by, and subject to the terms and conditions of, the
Subordination Agreements referenced in Section 9.1.H hereof), offset,
counterclaims or defense; (vii) permits the Obligor to pay less than the
Outstanding Balance for any reason other than a Credit Adjustment; (viii) does
not satisfy the requirements of Sections 8.5 and 8.9 hereof in all respects;
(ix) if the Obligor is Investment Grade, will cause the sum of the Outstanding
Balances of the Sold Receivables of such Obligor, its parent, subsidiaries and
affiliates, to exceed ten percent (10%) of the sum of the Outstanding Balances
of all Sold Receivables then owned by the Purchaser; (x) if the Obligor is
Non-Investment Grade, will cause the sum of the Outstanding Balances of the Sold
Receivables of such Obligor to exceed four percent (4%) of the Outstanding
Balances of all Sold Receivables then owned by the Purchaser; (xi) the Purchase
of which by the Purchaser, or the sale of which by the Seller, is subject to any
order, judgment or decree of any court, arbitrator or similar tribunal or
governmental authority, or is the subject of any proceedings before any such
court, arbitrator or similar tribunal or governmental authority, purporting to
enjoin or restrain the Purchaser from making any Purchase, the Seller from
selling such Receivable or the Collection Agent or the Purchaser from making any
Collection of such Receivables. The Purchaser may from time to time, in its
discretion, upon notification to the Seller, withdraw its approval of any or all
of the Obligors.
Section 7.4. Financial Statements. The Seller will not permit the
Consolidated Group to prepare any financial statements which shall account for
the transactions contemplated hereby in a manner that is inconsistent with the
Purchaser's ownership interest in the Sold Receivables.
Section 7.5. Restriction on Fundamental Changes. The Seller will not
enter into any transaction of merger or consolidation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) or sell, lease or
otherwise dispose of its assets as an entirety or substantially as an entirety,
without the express prior written consent of the Purchaser, which consent shall
not be unreasonably withheld; except that the Seller may be
<PAGE> 18
merged with any direct or indirect wholly-owned Subsidiary of the Seller without
the express prior written consent of the Purchaser, provided that, in the case
of such a merger, the Seller shall be the continuing or surviving corporation
and the Seller shall have given the Purchaser not less than 3 days prior written
notice thereof.
Section 7.6. Seller's Interest. The Seller will not retain any interest
in any Sold Receivable hereunder and each sale of a Sold Receivable hereunder
shall be of all of Seller's right, title and interest in such Sold Receivable.
ARTICLE 8
Seller's Representations and Warranties
In order to induce the Purchaser to enter into this Agreement and to make
the Purchases, the Seller represents and warrants to the Purchaser that the
following statements are true, correct and complete:
Section 8.1. Organization, Powers and Good Standing.
A. Organization and Powers. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. The Seller has all requisite corporate power and authority to
own and operate its properties, to carry on its business as such business is now
conducted and as it is proposed to be conducted hereunder, to enter into this
Agreement and to carry out the transactions contemplated hereby.
B. Good Standing. The Seller is in good standing wherever necessary to
carry on its present business and operations, except in jurisdictions in which
the failure to be in good standing has and will have no material adverse effect
on the conduct of the business of the Seller or any adverse effect on the
validity, enforceability or collectibility of any Sold Receivable.
Section 8.2. Authorization of Sales, etc.
A. Authorization of Sales. The execution, delivery and performance of
this Agreement and the sales of Receivables sold and to be sold to the Purchaser
hereunder and the grant of the security interest in the Collateral have been
duly authorized by all necessary corporate action by the Seller.
B. No Conflict. The execution, delivery and performance by the Seller of
this Agreement and the sales of Receivables do not and will not: (i) violate
any provision of law applicable to the Seller, the Certificate of Incorporation
or Bylaws of the Seller, or any order, judgment or decree of any court or other
agency of government binding on the Seller; (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under or permit an acceleration or increased amortization of any obligation of
the Seller; (iii) result in or require the creation or imposition of any Lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of the Seller except as provided herein; or (iv) require any approval of
stockholders or any approval or consent of any Person under any obligation of
the Seller or Contract to which the Seller is a party other than approvals or
consents that have been obtained and disclosed in writing to the Purchaser.
C. Governmental Consents. The execution, delivery and performance by the
Seller of this Agreement and the Purchases of Receivables do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other governmental authority or
regulatory body or other Person, other than a filing with certain Secretaries of
State and other jurisdictions evidencing the Purchase of
<PAGE> 19
Receivables hereunder, and no transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
D. Binding Obligation. This Agreement creates and constitutes legal,
valid and binding obligations of the Seller, enforceable in accordance with its
terms.
Section 8.3. No Material Adverse Change. Since October 30, 1994, there
has been no change in the business, operations, properties, business prospects
or condition (financial or otherwise) of the Consolidated Group or Seller that
could reasonably be expected to have a materially adverse effect on the
Consolidated Group, taken as a whole, or on the Seller.
Section 8.4. Governmental Regulation. The Seller is not subject to any
regulation pursuant to any federal, state or other statute or regulation or
similar restriction limiting its ability to sell Receivables or otherwise to
consummate the transactions contemplated hereby.
Section 8.5. Protection of Ownership Interest. All filings or other
actions under the UCC have been made or taken in each jurisdiction that are
necessary or appropriate to validate and protect the Purchaser's ownership
interest in and rights to collect any and all Sold Receivables and the proceeds
thereof; the Purchaser has a valid and protected ownership interest in the Sold
Receivables and the proceeds thereof, free and clear of all security interests,
liens, charges, encumbrances or rights of others except as otherwise provided
herein; and no effective financing statement or other instrument similar in
effect covering all or any part of the Sold Receivables has been filed or
recorded at any location except as has been filed or recorded from time to time
in favor of the Purchaser in accordance with this Agreement and except such as
may be permitted by, and subject to the terms and conditions of, the
Subordination Agreements referenced in Section 9.1.H hereof.
Section 8.6. Office Locations. As of the date hereof, the chief executive
office of the Seller is located at the address of the Seller's business office
appearing in Schedule A hereof, and the books, records and documents evidencing
the Receivables to be sold hereunder are located at the Seller's business
offices located at the addresses appearing in Schedule A hereof.
Section 8.7. Taxes, etc. There is no federal, state or local law or
ordinance under which any Receivable which is to be sold to the Purchaser under
this Agreement shall be subjected to any property, excise, sales or other tax,
assessment or governmental charge. To the extent any such Receivable is or
becomes subject to any such tax, assessment or governmental charge, the Seller
hereby agrees to pay all such taxes, assessments and governmental charges.
Section 8.8. Disclosure. No representation or warranty of the Seller
contained in this Agreement or any other document, certificate or written
statement furnished to the Purchaser by or on behalf of the Seller (or known to
the Seller in the case of any document not furnished by or on behalf of the
Seller) in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading. There
is no fact known to the Seller (other than matters of a general economic nature)
that materially adversely affects the business, operations, property, assets or
condition (financial or otherwise) of the Seller and its Subsidiaries, taken as
a whole, that has not been disclosed herein or in such other documents,
certificates and statements furnished to the Purchaser for use in connection
with the transactions contemplated hereby.
<PAGE> 20
All information the Seller has supplied to the Purchaser to permit the Purchaser
to make its own independent investigation of the financial condition and affairs
of the Seller, the Receivables and the Obligors to the best of Seller's
knowledge in connection with the making of the Purchases hereunder is true and
correct and contains no untrue statement of a material fact and does not omit to
state any material fact to the best of Seller's knowledge required to be stated
therein or necessary to make the statements contained therein, in the light of
the circumstances under which they were made, not misleading.
Section 8.9. Receivables Valid and Binding; No Litigation. Each
Receivable which is to be sold to the Purchaser hereunder constitutes or will at
the time of sale constitute the legal, valid and binding obligation of the
Obligor with respect thereto. Each such Receivable complies and will at the
time of sale comply with the provisions of all applicable laws and regulations,
whether federal, state or local, applicable thereto, other than provisions as to
which the failure to comply would not adversely affect the validity,
enforceability or collectibility of the Receivables, and satisfies and will at
the time of sale satisfy the requirements of Section 7.3 hereof in all respects.
Each such Receivable is denominated and payable in Dollars.
There are no known counterclaims or rights of set-off limiting the right of the
Purchaser to collect the Outstanding Balance, as adjusted for Credit
Adjustments, of each such Receivable. To the best of the Seller's knowledge,
there is no order, judgment or decree of any court, arbitrator or similar
tribunal or governmental authority purporting to enjoin or restrain the
Purchaser from making any Purchase, the Seller from selling any Receivable or
the Collection Agent or the Purchaser from making any Collection, or which
might otherwise adversely affect the Seller's ability to perform its
obligations hereunder. To the best of the Seller's knowledge, there are no
proceedings before any court, arbitrator or similar tribunal or governmental
authority seeking to enjoin or restrain the Purchaser from making any Purchase,
the Seller from selling any Receivable or the Collection Agent or the Purchaser
from making any Collection, or which might otherwise adversely affect the
Seller's ability to perform its obligations hereunder.
Section 8.10. Satisfaction of Conditions Precedent. At the time of each
Purchase hereunder, each of the conditions precedent to such Purchase will have
been (i) waived in writing by the Purchaser, or (ii) satisfied.
ARTICLE 9
Conditions To Purchases
Section 9.1. Conditions to Initial Purchases. The obligation of the
Purchaser to make its initial Purchase is, in addition to the conditions
precedent specified in Sections 9.2 and 9.3 hereof, subject to prior or
concurrent satisfaction of the following conditions. On or before the Closing
Date, the Seller shall deliver to the Purchaser:
A. Evidence satisfactory to the Purchaser that the Seller is duly
organized and existing under the laws of the Seller's state of incorporation,
along with evidence satisfactory to the Purchaser that the Seller is in good
standing wherever necessary to carry on its present business and operations,
except in jurisdictions in which the failure to be in good standing has and will
have no material adverse effect on the conduct of the business of the Seller or
any adverse effect on the validity, enforceability or collectibility of any Sold
Receivable;
B. Resolutions of the Board of Directors of the Seller approving and
authorizing the execution, deliver and performance of this Agreement and the
sales of Receivables to be made hereunder, certified as of the Closing Date by
its corporate secretary or an assistant secretary;
<PAGE> 21
C. Signature and incumbency certificates of the officers of the Seller
executing this Agreement;
D. A certificate copy of each Request for Information or Copies (Form
UCC-11) (or a similar search report certified by the appropriate filing officer
or a similar certificate of counsel admitted to practices in the appropriate
jurisdiction) listing the Financing Statements filed with respect to any
Receivables (or similar search reports for jurisdictions where the UCC is not
enacted), and showing that no Financing Statements have been filed with respect
to, and presently cover, such Receivables (except those filed pursuant to this
Agreement or as may be otherwise approved by the Purchaser);
E. Executed copies of this Agreement;
F. Original executed copies of one or more favorable written opinions of
counsel, substantially in the form of Exhibit II hereto, satisfactory to the
Purchaser, dated as of the Closing Date;
G. The Purchaser shall have received from the Seller acknowledgement
copies of all Financing Statements (Form UCC-1) filed with respect to
Receivables sold hereunder on the Closing Date in each jurisdiction where
necessary or appropriate to perfect the Purchaser's ownership interest in such
Receivables (or evidence of the satisfaction of such similar filing or other
requirements as may be so necessary in each jurisdiction where the UCC is not
enacted);
H. The Purchaser shall have received duly executed Subordination
Agreements, in form and substance satisfactory to Purchaser in its sole
discretion, which Subordination Agreements shall completely subordinate the
right, title and interest of such other persons in and to any Receivables which
are sold to the Purchaser hereunder to the right, title and interest of the
Purchaser in and to the Purchaser's interest in such Sold Receivable; and
I. As of the close of business on the day immediately preceding the
Closing Date, the Seller shall deliver the reports required by Section 3.2.C
with respect to the Receivables to be purchased on the Closing Date.
Section 9.2. Conditions to All Purchases. The obligation of the Purchaser
to make each Purchase, including the initial Purchase, is subject to the
following further conditions precedent:
A. The Purchaser shall have received, in accordance with the provisions of
Section 2.1 as of any Settlement Date, an originally executed Assignment
relating to such Purchase, signed by the chief executive officer, the chief
financial officer, the treasurer, the general counsel or any other authorized
officer or designee of the Seller on behalf of the Seller.
B. As of the date of any Purchase:
1. The representations and warranties of the Seller contained herein shall be
true, correct and complete in all material respects on and as of the date of
Purchase to the same extent as though made on and as of that date;
2. All Receivables sold by the Seller hereunder shall comply in all
respects with Section 7.3 hereof;
3. No event shall have occurred and be continuing or would result from the
consummation of the Purchase contemplated by such Assignment that would
constitute an Event of Default or permit the acceleration or the increased
amortization of the obligations created, or but for the passage of time or the
giving of notice or both would constitute an Event of Default or permit the
acceleration or the increased amortization of the obligations created, under
<PAGE> 22
this Agreement or any other agreement to which the Seller or the Purchaser is a
party;
4. The Seller shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed by it
on or before such date of Purchase; and
5. There shall not have occurred and be continuing an Event of Default by the
Seller under this Agreement.
C. Anything in this Agreement to the contrary notwithstanding, Purchaser
shall have no obligation to make any Purchase unless one or more financial
institution(s) acceptable to Purchaser shall have entered into, and performs its
obligations under, a participation agreement(s) mutually acceptable to Purchaser
and such financial institution(s) pursuant to which the Purchaser shall sell to
such financial institution(s) an undivided economic participation in that
portion of the aggregate A/R Facility and Supplemental Line of Credit and the
Regular Line of Credit which exceeds $200,000,000.00. The Purchaser may only
exercise its rights under this Section 9.2.C (absent the failure of any other
conditions to Purchase) upon ninety (90) days' prior Notice to the Seller, and
at the end of any such ninety (90) day period, the Aggregate A/R and
Supplemental Inventory Limit and the Regular Line of Credit will be
automatically reduced by the amount of the terminated or nonperforming
participation agreement(s), as the case may be. The Purchaser and the Seller
hereby agree that notwithstanding the participation agreement between the
Purchaser and any participant, the Seller shall have no duty or obligation to
communicate to any such participant, and all Notices, reports, and other
communications between the Seller and the Purchaser shall be made without regard
to any such participant.
Section 9.3. Conditions to Certain Purchases. The obligation of the
Purchaser to make Purchases, including the initial Purchase, from the Seller
hereunder is subject to the Purchaser's receipt, on the Closing Date, and upon
the reasonable request of the Purchaser thereafter, of original executed copies
of one or more favorable written opinions of counsel, as to the manner of
perfection of the Purchaser's ownership interest in the Sold Receivables,
satisfactory to the Purchaser and dated as of such Closing Date, or subsequent
Settlement Date with respect to subsequent opinions.
ARTICLE 10
Indemnities By The Seller
Section 10.1. Right to Indemnification. Without prejudice to any other
rights that the Purchaser may have hereunder or under applicable law, the Seller
agrees to indemnify, pay and hold the Purchaser and the employees and agents of
the Purchaser (collectively called the "Indemnitees") harmless from and against,
any and all liabilities, obligations, losses, damages (including consequential
damages with respect to (i) below only), penalties, actions, judgments, suits,
claims, costs and expenses (including without limitation the reasonable fees and
disbursements of counsel for such Indemnitees and costs of investigation and
accountants), which may be imposed on, incurred by, or asserted against that
Indemnitee in connection with: (i) any actions taken by the Seller individually
or as the Collection Agent, in connection with the collection of Sold
Receivables; (ii) any dispute, claim, offset or defense of any Obligor (other
than as a result of the Obligor's bankruptcy or insolvency) to the payment of
any Receivable owned by the Purchaser (including without limitation a defense
based on such Receivable or the underlying Contract not being the legal, valid
and binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms), in either case other than as a result of an act or
omission of the Purchaser not required or permitted under this Agreement; (iii)
any other claim resulting from the sale of the Products and Services underlying
the Receivable
<PAGE> 23
(including without limitation any warranty or product liability claims); or (iv)
any breach by the Seller of any of the terms, covenants, conditions or
representations of this Agreement; provided that the Seller shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of that Indemnitee. The
obligations of the Seller pursuant to this Section 10.1 shall survive any
termination of this Agreement.
The Purchaser agrees to indemnify and hold the Seller and the employees
and agents of the Seller harmless from and against any claims, demands, damages
or assertions of liability asserted by any third parties (excluding any
affiliated companies of the Seller) of any kind or nature whatsoever, including
reasonable attorneys' fees, resulting from any breach by the Purchaser of any
of the terms, covenants, conditions or representations of this Agreement;
provided that the Purchaser shall have no obligation hereunder with respect to
indemnificated liabilities arising from the gross negligence or willful
misconduct of the Seller, or any of its employees or agents. The obligations
of the Purchaser pursuant to this Section 10.1 shall survive any termination of
this Agreement.
Section 10.2. Notification of Potential Liability. Each party will make
good faith efforts to identify potential situations involving possible liability
under this Article 10, and to determine the amount, if any, of such liability or
obligations, and will, upon learning of such potential situations, promptly
advise the the party.
Section 10.3. Litigation. The Seller agrees at its expense, at the
Purchaser's request, to cooperate with the Purchaser in any action, suit or
proceeding brought by or against the Purchaser relating to any of the
transactions contemplated by this Agreement or to any of the Sold Receivables
owned by the Purchaser (other than an action, suit or proceeding by the Seller
against the Purchaser). In addition, the Seller agrees to notify the Purchaser
and the Purchaser agrees to notify the Seller, at the Seller's expense, promptly
upon learning of any pending or threatened action, suit or proceeding if the
judgment or expenses of defending such action, suit or proceeding would be
covered by Section 10.1 and (except for an action, suit or proceeding by the
Seller against the Purchaser) to consult with the Purchaser, concerning the
defense and prior to settlement; provided, however, that if (i) the Seller shall
have acknowledged that Section 10.1 would cover any judgment or expenses in any
action, suit or proceeding and (ii) in the Purchaser's sole determination, the
Seller has the financial ability to satisfy such judgment or expenses, then the
Seller shall have the right, on the Purchaser's behalf but at the Seller's
expense, to defend such action, suit or proceeding with counsel selected by the
Seller and shall have sole discretion as to whether to litigate, appeal or enter
into an exclusively monetary settlement; and provided further that (i) the
Purchaser's failure to provide any notice pursuant to this Section 10.3 shall
not affect the indemnification of any party by the Seller hereunder, and (ii)
the Seller's sole and exclusive remedy in the event of any such failure to give
notice by the Purchaser shall be a separate action against the Purchaser for
damages actually incurred by the Seller as a direct result of the Purchaser's
failure to provide such notice.
Section 10.4. Seller to Remain Obligated. Anything herein to the
contrary notwithstanding: (i) the Seller shall remain responsible and liable
under the Sold Receivables (and any Contracts relating thereto) to the extent
set forth in such Contracts or otherwise to perform all of its duties and
obligations thereunder to the same extent as if such Sold Receivables had not
been sold to the Purchaser hereunder; (ii) the exercise by the Purchaser of any
of its rights hereunder shall not release the Seller from any of its duties or
obligations under such Sold Receivables or Contracts; and (iii) the Purchaser
shall not have any obligation or liability under such Sold Receivables or
Contracts by reason of the purchase of such Sold Receivables
<PAGE> 24
hereunder, nor shall the Purchaser be obligated to perform any of the
obligations or duties of the Seller thereunder.
ARTICLE 11
Termination
Section 11.1. Termination. Absent termination of this Agreement pursuant
to Article 12, this Agreement shall continue in full force and effect through
August 2, 1998. Thereafter, this Agreement will remain in full force and effect
until the date which is ninety (90) days after a Party gives written notice to
the other that this Agreement is terminated upon the expiration of such ninety
(90) days (the "Termination Date" shall be the date of termination of the
Agreement pursuant to this Article 11). Subject to the provisions of Article
12, no termination of this Agreement under this Article 11 shall affect any
other obligations hereunder of any Party (including Repurchase obligations,
performance of collection services and the requirements to deliver Settlement
Statements or other documents) other than the Purchaser's obligation to make
further Purchases, and payments of any and all amounts from Obligors with
respect to Sold Receivables (regardless of the existence of any other obligation
or indebtedness of such Obligors then owed to the Seller or any other person or
entity) to the Seller shall continue to be treated as Collections and shall be
applied to repayment of Sold Receivables as set forth herein.
ARTICLE 12
Events of Default
Section 12.1. Events of Default. Any of the following events will
constitute an Event of Default by the Seller under this Agreement:
(i) The Seller materially breaches any of the terms, warranties
or representations contained in this Agreement;
(ii) Any representation, statement, report or certificate made or
delivered on behalf of the Seller by any of its representatives, employees or
agents to the Purchaser to the terms of this Agreement is not true and correct
in any material aspect;
(iii) The Seller fails to pay any of the liabilities or
indebtedness owed to the Purchaser when and as due and payable under this
Agreement;
(iv) The Purchaser determines in good faith that it is materially
insecure with respect to any of the Collateral;
(v) The Seller abandons any material portion of the Collateral;
(vi) An attachment, sale or seizure is issued against the
Collateral in an amount greater than One Million Dollars ($1,000,000.00);
(vii) The Collateral in an amount greater than One Million Dollars
($1,000,000.00) is seized or taken in execution;
(viii) The Seller ceases or suspends normal business operations;
(ix) The Seller becomes insolvent or voluntarily or involuntarily
becomes subject to the Federal Bankruptcy Code, any state insolvency law or
similar law, or makes a general assignment for the benefit of creditors, and
with respect to any such case or proceeding that is involuntary, such case or
proceeding is not dismissed within ninety (90) days of the filing thereof;
provided, however, that any Purchases to be made during such ninety (90) day
period shall only be made upon receipt of the applicable court's approval;
<PAGE> 25
(x) The Seller misrepresents in any material aspect, its
financial condition or organizational structure;
(xi) The Seller is in default under any of its obligations to the
Purchaser under any other agreement between them (including, without limitation,
the AWF) and the applicable cure period thereunder, if any, has expired; or
(xii) The Seller is in default under any of its obligations to IBM
Credit Corporation under any agreement between them (including, without
limitation, any Agreement for Wholesale Financing) and the applicable cure
period thereunder, if any, has expired.
Section 12.2. Remedies. In the Event of Default by the Seller under
Section 12.1, either before the Termination Date or after the Termination Date
but before all Sold Receivables have either been collected in full or otherwise
discharged in a manner satisfactory to the Purchaser, except as provided in
Section 6.2 hereof, the Purchaser shall notify the Seller in writing that the
Seller is in default under this Agreement and the Seller shall have three (3)
Business Days after receiving such notice to cure any monetary defaults, and
thirty (30) Business Days after receiving such notice to cure any nonmonetary
defaults; provided, however, that notwithstanding that any cure period
applicable to an Event of Default as provided above is in effect, the Seller
shall not be entitled to any cure period with respect to, and an immediate Event
of Default shall be deemed to have occurred upon the occurrence of, the Events
of Defaults described in Section 12.1 (viii), (ix),(xi), or (xii). If any Event
of Default is not cured within the time period specified above, if any (with
respect to 12.1 (viii), (ix), (xi), or (xii) Purchaser may act immediately upon
the occurrence of the Event of Default): (i) Purchaser may, at any time of its
election, without notice or demand to the Seller, do any one or more of the
following: (i) cease making Purchases hereunder; (ii) demand that the Seller
immediately Repurchase all of the Sold Receivables, (iii) apply a default
interest charge to the Seller's outstanding indebtedness to the Purchaser
hereunder equal to the lesser of six and one-half percent (6.5%) per annum in
excess of the Prime Rate, or the highest lawful contract rate of interest
permitted by applicable law, (iv) offset any amounts due to the Seller hereunder
from the Purchaser against any amounts due to the Purchaser from the Seller
under any other agreement between them, or (v) exercise any or all rights under
applicable law, including without limitation, the right to foreclose on the
Collateral (including the Deferred Purchase Price) and apply it to the Seller's
Repurchase obligation. All the Purchaser's rights and remedies are cumulative.
The Purchaser's failure to exercise any of its rights or remedies hereunder will
not waive any of its rights or remedies as to any past, current or future Event
of Default. If the Purchaser sells any of the Collateral, the commercial
reasonableness of such sale shall be determined in accordance with the
provisions of the UCC as adopted by the State of Arizona.
Section 12.3. Default by the Purchaser. If the Purchaser fails to
materially perform any of the obligations required by it hereunder, or if the
Purchaser materially breaches any of the terms, warranties or representations
contained herein, and after written notification of such default is received by
the Purchaser, the Purchaser shall have (i) three (3) Business Days after
receiving such notice to cure any monetary default and (ii) thirty (30) Business
Days after receiving such notice to cure any nonmonetary default. If the
Purchaser fails to cure any such default within the time period specified in
this Section 12.3, then the Seller may immediately terminate this Agreement.
Such termination, however, shall not affect any other obligations hereunder of
any party (including performance of collection services and the requirements to
deliver Settlement Statements or other documents) other than the obligation of
the Seller to sell to Purchaser Receivables after such termination, and payments
of any and all amounts from Obligors with respect to
<PAGE> 26
Sold Receivables (regardless of the existence of any other obligation or
indebtedness of such Obligors then owed to the Seller or any other person or
entity) to the Seller shall be treated as Collections and shall be applied as
set forth herein. In addition, any expenses incurred by the Seller as a result
of a default by the Purchaser hereunder shall be the responsibility of, and
immediately upon demand be reimbursed by, the Purchaser.
ARTICLE 13
Miscellaneous
Section 13.1. Costs, Expenses and Taxes. The Seller agrees to pay on
demand all reasonable costs and expenses in connection with the preparation and
review, execution, delivery, filing, recording and administration of this
Agreement and the other documents to be delivered hereunder, including (a) all
reasonable costs and expenses of the Purchaser in connection with the
maintenance by the Purchaser of, and the obligations of the Purchaser in
connection with, the Collections Account and (b) all other costs and expenses of
the Purchaser in connection with enforcement hereof and the other documents to
be delivered hereunder and the collection of the Receivables purchased
hereunder, including accountants' and attorneys' fees and expenses. In
addition, the Seller shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing, and recording hereof and the other documents to be delivered hereunder,
and agrees to defend and to save the Purchaser, and its agents (including
without limitation any Person other than the Seller acting as Collection Agent)
and employees harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or any omission to pay such taxes and
fees. The obligations of the Seller under this Section 13.1 shall survive the
termination of this Agreement. Seller shall not be responsible for any costs or
expenses incurred by any of Purchaser's participants.
Section 13.2. Addresses. All Notices provided for hereunder shall be in
writing (including facsimile transmissions or telegraphic or telex
communications) and mailed (return receipt requested), telecopied, telegraphed,
telexed or delivered, as appropriate, to each party at the address set forth as
follows or at such other address as the party affected may designate in a
written notice to the other parties hereto complying as to delivery with the
terms of this Article 13 (all such notices delivered to MCCI in accordance with
this Section 13.2 shall be deemed delivered to each Seller). All such Notices
and fund transfers shall be effective when received.
If Notice to the Purchaser:
Deutsche Financial Services Corporation
1501 W. Fountainhead Parkway, Suite 600
Tempe, Arizona 85282
Attention: Regional Vice President
Facsimile No.: (602)968-3639
With a copy to:
Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.: (314) 523-3190
<PAGE> 27
If Notice to the Seler:
MicroAge Computer Centers, Inc.
2400 S. MicroAge Way
Tempe, Arizona 85282
Attention: Corporate Counsel
With a copy to:
Vice President and Treasurer
2400 S. MicroAge Way
Tempe, Arizona 85282
Facsimile No.: (602) 929-2467
And a copy to:
Senior Vice President and Chief Financial Officer
2400 S. MicroAge Way
Tempe, Arizona 85282
Facsimile No.: (602) 929-2467
All funds transfers shall be made as follows:
If Funds Transfer to the Purchaser:
First Interstate Bank of Arizona, N.A.
Scottsdale, Arizona 85252
ABA 555501009
Account No. 230412443
If Funds Transfer to the Seller:
First Interstate Bank of Arizona, N.A.
Tempe, Arizona
ABA 122100011
Account No. 082318819
Section 13.3. Further Cooperation. The Seller agrees that from time to
time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable or that the Purchaser may reasonably request, in order to perfect,
protect or more fully evidence the Purchaser's right, title and interest in and
to the Sold Receivables owned by the Purchaser hereunder or to enable the
Purchaser to exercise or enforce any such rights. The Purchaser, at the expense
of the Seller, will promptly execute and deliver any release or termination
statement required under the UCC when this Agreement shall have terminated and
all Sold Receivables shall have either been collected in full or otherwise
discharged in a manner satisfactory to the Purchaser.
Section 13.4. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall, to the extent permitted by law, not in any way be affected or impaired
thereby.
Section 13.5. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Seller
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Seller and the Purchaser, and then such waiver or consent
shall be effective only in the specified instance and for the specific purpose
for which given.
Section 13.6. Cumulative Rights. All rights and remedies of the parties
hereto under this Agreement shall, except as otherwise specifically
<PAGE> 28
provided herein, be cumulative and nonexclusive of any rights and remedies which
they may have under any other agreement or instrument, by operation of law, or
otherwise.
Section 13.7. Effectiveness; Governing Law. This Agreement shall become
effective when it shall have been executed and delivered by all parties hereto
and thereafter shall be binding upon and inure to the benefit of the Seller and
the Purchaser and their respective successors and assigns, except that the
Seller shall have no right to assign its rights hereunder or any interest herein
without the prior written consent of the Purchaser, which consent may in the
discretion of the Purchaser be withheld. Purchaser may assign or participate a
portion of Purchaser's interest in the A/R Facility and the Supplemental Line of
Credit to a third party without Seller's consent so long as Purchaser's
remaining interest in the A/R Facility and Supplemental Line of Credit after
such assignment or participation is at least One Hundred Million Dollars
($100,000,000.00); provided, however, that Purchaser may assign or participate a
portion of its interest in the A/R Facility and the Supplemental Line of Credit
to a third party (other than an affiliate of the Purchaser) which would result
in Purchaser retaining, after such assignment or participation, less than a One
Hundred Million Dollar ($100,000,000.00) interest in the A/R Facility and
Supplemental Line of Credit, only with the prior written consent of the Seller.
This Agreement shall be governed by, and construed in accordance with, the law
of the State of Arizona applicable to contracts made and performed in such
state, except to the extent that the validity, enforceability or collectibility
of any Sold Receivable, the treatment as a sale of any Purchase of Receivables
or the enforceability of any remedies in respect thereof are governed by the
laws of a jurisdiction other than the State of Arizona and would be adversely
affected by the application of the laws of the State of Arizona, in which event
and to such extent this Agreement shall be governed by the laws of the
jurisdiction other than the State of Arizona to which such matters are subject.
Section 13.8. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
Section 13.9. Confidentiality. The Purchaser and the Seller each shall
hold all non-public information obtained pursuant to this Agreement and the
transactions contemplated hereby or effected in connection herewith in
accordance with customary procedures for handling confidential information of
this nature and in any event may make disclosure reasonably required by any bona
fide transferee or prospective transferee in connection with the contemplated
transfer of any Sold Receivable or participation in this Agreement by the
Purchaser or as required or requested by any governmental agency or
representative thereof or pursuant to legal process; provided that, unless
specifically prohibited by applicable law or court order, each party hereto
shall notify the other parties hereto of any request by any governmental agency
or representative thereof (other than any such request in connection with an
examination of the financial condition of the Purchaser by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information to permit the party affected to contest such disclosure, if
possible; provided further that in no event shall the Purchaser be obligated or
required to return any materials furnished by the Seller.
Section 13.10. No Affiliation. The Purchaser and the Seller each hereby
represents and warrants that neither the Purchaser nor the Seller is under
common control or ownership with the other. Neither the Seller nor the
Purchaser shall have any right or authority to bind the other or create any
obligation or responsibility, express or implied, on behalf of the other, or
<PAGE> 29
in the other's name, except as may be herein expressly permitted. Nothing
stated in this Agreement shall be construed as constituting the Seller and the
Purchaser as partners or joint venturers, or as creating the relationship of
employer and employee, master and servant, franchisor and franchisee, or
principal and, except for Seller being Collection Agent, agent between the
Seller and the Purchaser.
Section 13.11. List of Schedules and Exhibits. The following Schedules
and Exhibits are attached to this Agreement and are incorporated herein by this
reference:
Schedule A - Seller's Business Offices
Schedule B - Customer Requirements
Exhibit I - Form of Notice of Assignment
Exhibit II - Form of Opinion of Counsel
Exhibit III - Form of Receivables Servicing Settlement Statement
Exhibit IV - Form of Receivables Purchase Settlement Statement
Exhibit V - Aging Schedule
Section 13.12. Joint and Several Liability. Each Seller shall be
obligated and responsible for the performance of each other Seller under this
Agreement, and a default by any Seller shall be a default by each other Seller.
Section 13.13. Limitation on Damages. Except as may be expressly provided
for in this Agreement or any other agreement between them, neither the Purchaser
nor the Seller shall be liable to the other for consequential or punitive
damages.
Section 13.14. Original Agreement. This Agreement amends and supplements
the Original Agreement. If the terms hereof conflict with the terms of the
Original Agreement, the terms of this Agreement will govern.
Section 13.15. WAIVER OF JURY TRIAL. EACH OF SELLER AND PURCHASER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH SELLER AND PURCHASER ARE
PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT
OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement by their officers thereunto duly authorized as of the date first above
written.
SELLER MICROAGE COMPUTER CENTERS, INC.
By: /s/ Curtis J. Scheel
--------------------------------
Title: Vice President and Treasurer
MICROAGE SOLUTIONS, INC.
By: /s/ Curtis J. Scheel
--------------------------------
Title: Vice President and Treasurer
MCSA, INC.
By: /s/ Curtis J. Scheel
--------------------------------
Title: Vice President and Treasurer
MCSB, INC.
<PAGE> 30
By: /s/ Curtis J. Scheel
----------------------------------
Title: Vice President and Treasurer
MCSJ, INC.
By: /s/ Curtis J. Scheel
----------------------------------
Title: Vice President and Treasurer
MCSP, INC.
By: /s/ Curtis J. Scheel
----------------------------------
Title: Vice President and Treasurer
MCSQ, INC.
By: /s/ Curtis J. Scheel
----------------------------------
Title: Vice President and Treasurer
KELLY MICRO SYSTEMS, INC.
By: /s/ Curtis J. Scheel
----------------------------------
Title: Vice President and Treasurer
MCST, INC.
By: /s/ Curtis J. Scheel
-----------------------------------
Title: Vice President and Treasurer
PURCHASER DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Stephen H. Patyk
--------------------------------------
Title: AGM Vice President
<PAGE> 31
SCHEDULE A
CHIEF EXECUTIVE OFFICES
MicroAge Computer Centers, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282
MCSA, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282
MCSB, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282
MCSJ, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282
MicroAge Solutions, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282
MCSP, INC.
2400 S. MicroAge Way, Tempe, Arizona 85282
MCSQ, INC.
2400 S. MicroAge Way, Tempe, Arizona 85282
KELLY MICRO SYSTEMS, INC.
2400 S. MicroAge Way, Tempe, Arizona 85282
25 Musick, Irvine, California 90701 (Accounts records)
MCST, INC.
2400 S. MicroAge Way, Tempe, Arizona 85282
<PAGE> 32
SCHEDULE B
CUSTOMER REQUIREMENTS
In order to qualify for Purchase, Receivables must fall into one of the
following categories:
a. Receivables generated by sale of Goods taking place under the MicroAge
Computer Centers, Inc. HQF (Headquarters Financed) or LAS (Large Account
Services) programs (including MIS, MicroAge Infosystems Services).
b. Receivables generated by sale of Goods by MicroAge Solutions, Inc.,
MCSA, Inc., MCSB, Inc., MCSJ, Inc., MCSQ, Inc., MCSP, Inc. and MCST, Inc.,
collectively known as MAS.
c. Receivables generated by sale of Goods by MicroAge Computer Centers,
Inc. to a member of its reseller network.
d. Receivables generated by sale of Goods by Kelly Micro Systems, Inc.
e. Receivables generated by sale of Goods by MicroAge Computer Centers,
Inc. to a member of its reseller network which sale is financed for such member
by Purchaser or IBM Credit Corporation and which Receivables represent the
obligation of Purchaser or IBM Credit Corporation to MicroAge Computer Centers,
Inc. as a result of the financed sale of Goods as described.
The Deferred Purchase Price on each category shall be as follows:
a. 15%
b. 15%
c. 15%
d. 15%
e. 5%
<PAGE> 1
EXHIBIT 10.3.1
SECOND RESTATED AGREEMENT FOR WHOLESALE FINANCING
(Security Agreement)
TO: DEUTSCHE FINANCIAL SERVICES CORPORATION Date: August 3, 1995
(formerly known as ITT Commercial Finance Corp. ("DFS"),
a Nevada corporation
1501 W. Fountainhead Parkway
P.O. Box 1750, Suite 600
Tempe, Arizona 85282 (P.O. Box Zip Code: 85280-1750)
Facsimile No.: (602)968-3639
WHEREAS, in the ordinary course of business, MicroAge Computer Centers,
Inc., a Delaware corporation ("MCCI") with its principal place of business
located at 2400 S. MicroAge Way, Tempe, Arizona 85282-1824, Facsimile No.:
(602)929-2467, may acquire inventory from manufacturers, vendors and
distributors who have approved an inventory financing program for MCCI under
terms which are acceptable to DFS ("Inventory"); and
WHEREAS, on October 31, 1988 DFS and MCCI entered into that certain
Agreement For Wholesale Financing (Security Agreement) (the "Original
Agreement") pursuant to which the parties agreed that DFS would finance MCCI's
purchase of such Inventory in accordance with the terms and conditions of said
Original Agreement; and
WHEREAS, the Original Agreement was amended by mutual agreement of DFS
and MCCI on September 29, 1989 and August 15, 1990; and
WHEREAS, the Original Agreement was restated on October 31, 1990; and
WHEREAS, the Original Agreement was restated on February 25, 1993; and
WHEREAS, DFS and MCCI desire to continue, amend and restate the Original
Agreement so that DFS will continue to finance MCCI's purchase of Inventory.
NOW, THEREFORE, IT IS AGREED THAT the Original Agreement is hereby amended
and restated in its entirety as follows:
1. Pursuant to a Restated and Amended Purchase Agreement dated even date
herewith, between DFS, as purchaser, and MCCI and certain affiliates as sellers,
DFS has agreed to provide an accounts receivable purchase facility (the "A/R
Facility") requested by MCCI. DFS does hereby agree, for the term of this
Agreement, to provide MCCI with (a) a line of credit to finance the purchase of
Inventory by MCCI (the "Regular Line of Credit") in an amount up to Fifty
Million Dollars ($50,000,000.00), and (b) a supplemental line of credit
providing lending availability against inventory extended to MCCI subject to the
terms of Subparagraph 9(a) of this Agreement (the "Supplemental Line of Credit")
in an amount up to One Hundred Million Dollars ($100,000,000.00) (the
"Supplemental Inventory Limit"), provided that the sum of (i) the aggregate
outstanding balance of payments by DFS with respect to all receivables purchased
by DFS under the A/R Facility that DFS has not collected, plus (ii) the
aggregate outstanding balance under the Supplemental Line of Credit, does not
exceed Three Hundred Fifty Million Dollars ($350,000,000.00) (the "Aggregate A/R
and Supplemental Inventory Limit").
2. Subject to the terms of this Agreement, DFS shall extend credit to MCCI
pursuant to the Regular Line of Credit to purchase Inventory from DFS approved
vendors. DFS shall provide MCCI with the following statements (the
"Statements"): (a) a Statement of Transaction which details advances of credit
made to MCCI by DFS and the payment due dates of such invoices, to be provided
within a reasonable time after DFS approves the financing of an invoice for
Inventory purchased by MCCI; and (b) by the tenth (10th) day of every calendar
<PAGE> 2
month during the term of this Agreement, a monthly Billing Statement, which
details amounts owed by MCCI to DFS under the Regular Line of Credit. MCCI will
be deemed to have acknowledged the debts as stated on such Statements to be an
account stated, and MCCI will be deemed to have agreed to the terms of such
Statements, unless MCCI notifies DFS of any question or objection to any such
Statement within ten (10) business days after the mailing of any such Statement,
and such Statements will be incorporated herein by reference, will be made a
part hereof as if originally set forth herein and will constitute an addendum
hereto.
For purposes of this Agreement, the term "business day" means any day excluding
Saturday, Sunday and any day which is a day on which DFS is closed or national
banking institutions are authorized or required by law or other governmental
action to close. Unless otherwise agreed in writing, if MCCI executes any
instrument or document for the amount of any advance or extension of credit
hereunder, it shall be evidence of MCCI's obligation to pay and shall not be
payment.
3. To secure payment of all current and future debts owed to DFS by MCCI,
whether under this Agreement or any current or future guaranty or other
agreement, MCCI grants to DFS a security interest in all inventory, equipment,
fixtures, accounts, contract rights, chattel paper, instruments, documents of
title, deposit accounts, reserves and general intangibles, now owned or
hereafter acquired, and all attachments, parts, accessories, accessions,
substitutions and replacements thereto, and all proceeds thereof, and to the
extent related to the property described above, all books, correspondence,
credit files, records, invoices and other papers and documents, including
without limitation, to the extent so related, all tapes, cards, computer runs,
computer programs and other papers and documents in the possession or control
of MCCI or any computer bureau from time to time acting for MCCI, and, to the
extent so related, all rights in, to and under all policies of insurance,
including claims of rights to payments thereunder and proceeds therefrom,
including any credit insurance, and all proceeds thereof (the "Collateral").
To the extent so defined, the above assets shall have the same meanings as in
Article 9 of the Uniform Commercial Code as adopted by the State of Arizona.
MCCI agrees to execute a UCC-2 which is identical in form and substance to the
form attached hereto as Exhibit A. MCCI will hold all of the Collateral in
trust for DFS and will account for and remit directly to DFS all such proceeds
when payment is required under terms of this Agreement. DFS' lien or security
interest will not be impaired by any payments MCCI may make to the seller or
any other person or entity.
4. MCCI will not, without DFS' prior written consent, rent, lease, lend,
demonstrate, pledge, transfer or secrete any of the Collateral, except
Permitted Liens (as defined below) or use any of the Collateral for any purpose
other than exhibition and sale to buyers in the ordinary course of business.
Each financial statement that MCCI is required to submit to DFS shall be
materially correct and will accurately represent MCCI's financial condition.
MCCI will execute those documents DFS may reasonably request to confirm or
perfect DFS' security interest in Collateral.
"Permitted Lien" shall mean:
(i) security interests and/or liens in favor of DFS;
(ii) liens and/or security interests in favor of lenders who have
entered into an Intercreditor Agreement and/or Subordination Agreement with DFS
with respect to the property covered by such agreements;
(iii) liens for taxes not delinquent or being contested in good faith and
in appropriate proceedings in an aggregate amount not to exceed Two Hundred
Fifty Thousand Dollars ($250,000.00);
<PAGE> 3
(iv) mechanics', workmen's, materialmen's, carriers', warehousemen's or
other like liens arising in the ordinary course of business and with respect to
obligations which are not due or which are being contested in good faith and in
appropriate proceedings in an aggregate amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000.00);
(v) minor encumbrances or transfers or sales of assets that do not in
the aggregate materially detract from the value of the property or assets or
materially impair the use and the operation of the business of MCCI in an
aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00);
or
(vi) liens securing capital leases arising out of or relating to MCCI's
ordinary course of business.
5. MCCI will pay all taxes, license fees, assessments and charges on the
Collateral for which MCCI is responsible when and as due, except for Permitted
Liens. MCCI will notify DFS as soon as practicable after MCCI learns of any
loss, theft or destruction of or damage to any of the Collateral in excess of
Two Hundred Fifty Thousand Dollars ($250,000.00). MCCI will keep the Collateral
insured for its full insurable value (less an appropriate deductible) against
loss or damage under an "all risks" insurance policy with an insurance company
that is rated "A" or better according to the most current Best's Key Rating
Guide. MCCI also agrees that such insurance will contain a loss-payee clause
payable to DFS to the extent of any loss to the Collateral in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00). MCCI agrees to provide DFS with
written evidence of insurance coverage. If MCCI fails to initiate an insurance
claim with its insurance carrier within sixty (60) days of its knowledge of any
loss, theft or destruction of or damage to all or any portion of the Collateral,
DFS may, upon notice to MCCI, thereupon file all papers, forms and documents to
such claim on behalf of MCCI, and MCCI gives DFS a limited power of attorney for
that purpose, and only that purpose. If MCCI fails to pay any of the
above-referenced costs, charges or insurance premiums, or if MCCI fails to
insure the Collateral, DFS shall have the right (but not the obligation), upon
prior notice to MCCI, to pay such costs, charges and insurance premiums, and the
amounts paid will be considered an additional advance by DFS to MCCI under this
Agreement.
6. MCCI represents that it conducts its business as a corporation. MCCI
agrees to notify DFS of any change in its identity, name, form of ownership, or
of any material change in its senior management, and of any change in its
principal place of business. The Collateral will be kept at MCCI's places of
business as identified on Exhibit B attached hereto and incorporated herein by
this reference and at the places of business of those certain MCCI affiliates as
identified on said Exhibit B ("the Affiliate(s)"), but at no other affiliates'
locations without the prior written consent of DFS, until sold in the ordinary
course of business. In addition, MCCI will not allow any third party to control
the Collateral at any of the locations on Exhibit B (or any other locations)
except upon documentation acceptable to DFS. MCCI agrees to immediately notify
DFS in writing if any Collateral is kept at any other address. MCCI has done
business during the six (6) month period immediately preceding the date of this
Agreement only under the corporate name of MicroAge Computer Centers, Inc. This
Paragraph 6 is for informational purposes only, and is not in any manner
intended to expand or limit the extent of the security interest in the
Collateral granted to DFS hereunder.
7. DFS shall have the right (but not the obligation), for the purposes
hereinafter described, to enter upon MCCI's premises from time to time during
the term of this Agreement (such entrance to occur during the normal business
hours of MCCI) upon not less than twenty four (24) hours notice to MCCI;
provided, however, that if an Event of Default (as defined below) by MCCI occurs
and is continuing, DFS may enter MCCI's premises immediately (upon not
<PAGE> 4
less than one (1) hour's notice and without waiting for any time permitted to
cure such default to expire) during the normal business hours of MCCI. MCCI
hereby agrees that any representative or agent of any entity purchasing an
undivided economic participation in the A/R Facility and the Supplemental Line
of Credit may accompany DFS during any entry on to MCCI's premises, as
contemplated herein. The purposes for which DFS may enter pursuant to the terms
of this Paragraph 7 are as follows: (i) to examine the Collateral; (ii) to
appraise the Collateral as security; (iii) to verify the condition and non-use
of the Collateral; (iv) to verify that all Collateral has been properly
accounted for; (v) to verify that MCCI is in compliance with all terms and
provisions of this Agreement; and (vi) to examine and make copies (at DFS' sole
expense) of MCCI's books and records relating to the transactions which are the
subject of this Agreement, and for no other purposes.
8. (a) MCCI shall repay all advances made by DFS under the Regular Line of
Credit upon such program terms as are agreed to from time to time by DFS and
MCCI. Anything in this Agreement to the contrary notwithstanding, DFS shall be
under no obligation to make any advances under the Regular Line of Credit except
pursuant to mutually agreed program terms.
(b) The following will be the payment terms for the Supplemental Line
of Credit:
(i) Any advance of funds made to or on behalf of MCCI under the
Supplemental Line of Credit will be due and owing to DFS by MCCI on the
thirtieth (30th) day from the date of such advance.
(c) (i) Except as otherwise agreed to in writing between the parties, no
finance charges shall accrue on payments received timely in accordance with this
Paragraph 8. (ii) For amounts under the Regular Line of Credit that remain
outstanding after the expiration of any interest free period, as reflected in
the Statement of Transaction, and for which MCCI does not timely remit payments
in accordance with the Statement of Transaction, and for amounts under the
Supplemental Line of Credit that remain outstanding after thirty (30) days from
the date of any advance thereunder and for which MCCI does not timely remit
payments in accordance with this Paragraph 8, a finance charge shall accrue at a
per annum rate equal to the Prime Rate plus Six and One-Half Percent (6.5%)
while such amounts remain unpaid. For purposes of this Agreement, "Prime Rate"
means, as to any calendar month, the rate of interest announced by Chase
Manhattan Bank at its New York City office as being its prime commercial lending
rates on the last business day of the preceding calendar month; provided,
however, that for purposes of this Agreement, the Prime Rate shall not be deemed
to be less than Five and Three Fourths Percent (5.75%) per annum. If any
vendor, manufacturer or distributor of any Collateral provides a finance charge
subsidy which covers the charges, if any, under this Paragraph 8, MCCI, in its
sole discretion, may provide that any such subsidy shall be credited to MCCI's
account. Notwithstanding any other provision herein to the contrary, DFS and
MCCI agree that any programs which may be offered by a vendor, manufacturer or
distributor of any Collateral being financed by DFS under the Regular Line of
Credit to DFS from time to time shall be made available to MCCI and that the
terms of such programs may be changed from time to time. DFS shall provide MCCI
written notice prior to the effective date of any such program change; provided,
however, that if the terms of any such program are less favorable than those in
effect on the effective date of this Agreement, MCCI shall have the right, in
its sole discretion, to (I) accept the less favorable program; (II) seek
alternative financing options; or (III) terminate the Regular Line of Credit
immediately.
(d) All payments shall be presented to DFS at its Tempe, Arizona branch
office, or such other location as DFS may specify in writing. Any
<PAGE> 5
checks or other instruments delivered to DFS to be applied against outstanding
obligations of MCCI will constitute conditional payment until the funds
represented by such instruments are actually received by DFS. Further, DFS may
apply principal payments to the oldest (earliest) invoice for the Collateral
financed by DFS, but in any case, all principal payments shall first be applied
to such Collateral which is sold, lost, stolen, destroyed, damaged or otherwise
disposed of (except as may otherwise be expressly provided for herein, this
provision shall not be construed in any manner to accelerate the payment of any
payment due dates). Any discount, rebate, bonus, or credit related to the
Collateral which may be granted to MCCI will not, in any way, reduce the debt
owed to DFS by MCCI, until DFS shall have received payment.
9. (a) MCCI agrees that, until all of its outstanding indebtedness to DFS
under this Agreement is paid in full, MCCI will deliver to DFS' Tempe, Arizona
branch office, or such other location as DFS may specify in writing, each
Tuesday during the term of this Agreement, an inventory warehouse status report
(the "Inventory Warehouse Status Report"), in the form attached hereto as
Exhibit C, listing, by make, all inventory in the actual possession of MCCI as
of the close of business on the preceding Monday. On the receipt of each
Inventory Warehouse Status Report, DFS will calculate MCCI's Excess Inventory.
"Excess Inventory" will mean all inventory now owned or hereafter acquired by
MCCI which is new, unopened in the original container and which is located in
MCCI's Tempe, Arizona and Cincinnati, Ohio Distribution Centers, excluding
therefrom: (i) all brands of Inventory being financed from time to time by DFS
pursuant to the Regular Line of Credit (the "Regular Inventory"); (ii)
encumbered inventory, which is defined as inventory subject to a security
interest asserted by any third party which security interest is superior to the
lien of DFS (either pursuant to operation of law or pursuant to an intercreditor
or subordination agreement between such third party and DFS); and (iii)
inventory which has been owned by MCCI for a period of longer than one hundred
twenty (120) days. Loans will be made available under the Supplemental Line of
Credit in an aggregate amount at any one time outstanding not to exceed:
(i) sixty percent (60%) of the remainder of (A) the wholesale invoice
price to MCCI of the Excess Inventory as reflected in the Inventory Warehouse
Status Report, minus (B) an obsolescence reserve in the amount of Three Percent
(3%) of the wholesale invoice price to MCCI of the Excess Inventory, or such
other obsolescence reserve amount as DFS deems reasonably necessary from time to
time; minus (C) any Deficit Net Collateral Value of the Regular Inventory and
any Deficit Net Collateral Value of the IBM Credit Inventory, as calculated
pursuant to clause (ii) below, and minus (D) the Guaranty Reserve Amount as
defined in clause (iii) below (the "Net Excess Inventory Availability");
(ii) The Net Collateral Value of the Regular Inventory as at any time
will be an amount equal to (A) the then current aggregate wholesale invoice
price to MCCI of the brands of Inventory financed by DFS under the Regular Line
of Credit, as reflected on the then current Inventory Warehouse Status Report,
minus (B) the outstanding balance under the Regular Line of Credit as of the
close of business on the day immediately preceding the date of DFS' then current
calculation of Excess Inventory. The Net Collateral Value of the IBM Credit
Inventory as at any time will be an amount equal to (C) the aggregate wholesale
invoice price to MCCI of all inventory manufactured or sold by or bearing any
trademark or trade name of, International Business Machines Corporation and any
other brands of inventory financed by IBM Credit, the interest of DFS in which
has been subordinated in DFS' sole discretion to IBM Credit pursuant to a
subordination agreement between DFS and IBM Credit ("IBM Credit Inventory"), as
reflected on the then current Inventory Warehouse Status Report, minus (D) the
outstanding balance owed by MCCI to IBM Credit Corporation ("IBM Credit") for
floorplan loans made
<PAGE> 6
by IBM Credit to enable MCCI to acquire the IBM Credit Inventory as of the close
of business on the day immediately preceding the date of DFS' then current
calculation of Excess Inventory, which outstanding balance will be provided by
MCCI to DFS contemporaneously with the submission of each Inventory Warehouse
Status Report. If the Net Collateral Value of the Regular Inventory and/or the
Net Collateral Value of the IBM Credit Inventory is less than zero, then the
amount by which it is less than zero shall be referred to as the "Deficit Net
Collateral Value", to be applied as provided in clause (i) above;
(iii) From time to time MCCI may request that DFS provide, in DFS'
sole discretion, a guaranty or other similar document guaranteeing the
obligations of MCCI or one of its affiliates to a third party ("DFS Guaranty").
From time to time MCCI may provide a guaranty or similar document to DFS or IBM
Credit, acceptable to DFS or IBM Credit (as the case may be) in their respective
sole discretion, on behalf of a third party, pursuant to which MCCI will
guaranty the obligations of such third party to DFS or IBM Credit ("MCCI
Guaranty"). An amount equal to (a) one hundred percent (100%) of the aggregate
amount of all such DFS Guaranties in effect from time to time, and (b) twenty
percent (20%) of the aggregate amount of all of such MCCI Guaranties in effect
from time to time is herein called the "Guaranty Reserve Amount".
(iv) An example of the calculation described in (i) through (iii)
above are reflected on the worksheet attached hereto as Schedule 1.
DFS will lend to MCCI under the Supplemental Line of Credit, on request, up to
the amount of the Net Excess Inventory Availability as requested, provided that
at no time will (i) the outstanding balance owed by MCCI to DFS under the
Supplemental Line of Credit exceed the Supplemental Inventory Limit, or (ii) the
outstanding balance owed by MCCI to DFS under the Supplemental Line of Credit
plus the aggregate outstanding balance of all payments by DFS with respect to
receivables purchased by DFS under the A/R Facility that DFS has not collected
exceed the Aggregate A/R and Supplemental Inventory Limit; and provided further,
in the event DFS is required to pay any amount pursuant to any DFS Guaranty,
such payment shall be deemed to be an advance under the Supplemental Line of
Credit if sufficient loan availability exists thereunder at the time of such
payment. If there is not sufficient loan availability under the Supplemental
Line of Credit (including if such payment causes the occurrence of either of the
events described in clause (i) or clause (ii) of the immediately preceding
sentence) at the time any payment is made pursuant to any DFS Guaranty, such
payment to the extent of such insufficiency, shall be deemed a loan made
pursuant to the Supplemental Line of Credit, but payable ON DEMAND, bearing
interest at the interest rate provided in Paragraph 8(c)(ii). In addition, in
the event there is at any time a Deficit Net Collateral Value of the Regular
Inventory and/or a Deficit Net Collateral Value of the IBM Credit Inventory,
MCCI agrees that DFS may deem MCCI to have requested a loan, the proceeds of
which are to be paid on behalf of MCCI under the Supplemental Line of Credit to
either DFS or IBM Credit, as the case may be, in an amount not to exceed the
Deficit Net Collateral Value of the Regular Inventory or the Deficit Net
Collateral Value of the IBM Credit Inventory, as the case may be, if sufficient
loan availability exists under the Supplemental Line of Credit of the time of
such advance. If there is not sufficient loan availability under the
Supplemental Line of Credit (including if such payment causes the occurrence of
either of the events described in clause (i) or (ii) of the first sentence of
this subparagraph) at the time any payment is made to cover a Deficit Net
Collateral Value of Regular Inventory and/or a Deficit Net Collateral Value of
the IBM Credit Inventory, such payment to the extent of such insufficiency,
shall be deemed a loan made pursuant to the Supplemental Line of Credit, but
payable ON DEMAND, bearing interest at the interest rate provided in Paragraph
8(c)(ii).
<PAGE> 7
(b) Notwithstanding any term of Paragraphs 8 and 9 to the contrary, if the
Net Excess Inventory Availability, calculated pursuant to any Inventory
Warehouse Status Report or as established by DFS at any time after conducting an
inspection of the Collateral, is less than the outstanding indebtedness owed by
MCCI to DFS under the Supplemental Line of Credit, MCCI will immediately pay to
DFS a sum equal to the difference between such outstanding indebtedness and the
Net Excess Inventory Availability. If MCCI from time to time is required to
make immediate payment to DFS under this Subparagraph 9(b), MCCI agrees that
acceptance of such payment by DFS shall not be construed to have waived or
amended the terms of this Agreement, including without limitation, the scheduled
payment terms contained in Paragraph 8.
(c) MCCI will, within five (5) business days from the end of each month,
deliver to DFS an Inventory Warehouse Status Report.
10. DFS acknowledges that MCCI is a member of a consolidated group of entities
for financial reporting purposes, the members of which are identified on Exhibit
D which is attached hereto and incorporated herein by this reference (the
"Consolidated Group"). MCCI covenants and agrees with DFS that:
(a) The Consolidated Group shall at all times maintain, on a consolidated
basis, a Tangible Net Worth plus Subordinated Debt in a combined amount of not
less than the sum of (i) One Hundred Forty Five Million Dollars
($145,000,000.00) plus (ii) seventy-five percent (75%) of the cumulative
positive consolidated Net Income for each fiscal quarter commencing with the
fiscal quarter beginning August 1, 1995 (Net Losses for any fiscal quarter shall
not, however, reduce the minimum amount required under this clause (a)). For
purposes of this Paragraph 10: (i) "Tangible Net Worth" means the net book
value of the Consolidated Group's assets and liabilities, determined on a
consolidated basis, in accordance with generally accepted accounting principles
consistently applied, excluding from such assets all Intangibles; (ii)
"Intangibles" means and includes general intangibles (as that term is defined in
the Uniform Commercial Code), good will, prepaid expenses, deposits, licenses,
covenants not to compete, the excess of cost over book value of acquired assets,
franchise fees, organizational costs, capitalized research and development
costs, accounts receivables and advances due from officers, directors,
employees, stockholders and affiliated companies, leasehold improvements in
excess of Five Million Dollars ($5,000,000.00) net of depreciation and such
similar items as DFS may from time to time determine; (iii) "Subordinated Debt"
means the indebtedness of the Consolidated Group which is subordinated to
payment of its liabilities to DFS, as agreed to in writing by DFS, and (iv) "Net
Income" and "Net Loss" means the net income or net loss of the Consolidated
Group for such period determined in conformity with generally accepted
accounting principles consistently applied.
(b) The Consolidated Group shall at all times maintain, on a consolidated
basis, Net Working Capital of not less than (i) Ninety Million Dollars
($90,000,000.00) plus (ii) fifty percent (50%) of the cumulative positive
consolidated Net Income for each fiscal quarter commencing with the fiscal
quarter beginning August 1, 1995 (Net Losses for any fiscal quarter shall not,
however, reduce the minimum amount required under this Clause (b)). "Net Working
Capital", for purposes of this Agreement, means the excess of current assets
over current liabilities, both as determined on a consolidated basis, in
accordance with generally accepted accounting principles consistently applied,
provided that there shall not be included in current assets, any loans or
advances made by the Consolidated Group to any person or entity, nor any asset
(except Collateral in process of delivery) located outside the United States,
Canada and Puerto Rico; but there shall be included in current assets, amounts
owing by persons or entities located outside the United States, Canada and
Puerto Rico, which arise from sales made by the Consolidated Group in the
ordinary course of business.
<PAGE> 8
(c) The Consolidated Group shall at all times maintain, on a consolidated
basis, a ratio of (i) the sum of (A) total liabilities plus (B) that portion of
the Outstanding Balance (as defined in the Purchase Agreement) of all Sold
Receivables (as defined in the Purchase Agreement) which MCCI and its affiliates
have elected to receive if MCCI and its affiliates have received any or all of
the amount due prior to Collection (as defined in the Purchase Agreement) of
such Sold Receivables by DFS) pursuant to the third sentence of Section 2.1.B of
the Purchase Agreement, to (ii) Tangible Net Worth, of less than 5 to 1 (the
"Leverage Ratio").
(d) The Consolidated Group shall at all times maintain, on a consolidated
basis, a ratio of (i) the sum of (A) current assets plus (B) the Outstanding
Balance of all Sold Receivables, to (ii) the sum of (C) current liabilities plus
(D) that portion of the Outstanding Balance of all Sold Receivables which MCCI
and its affiliates have elected to receive if MCCI and its affiliates have
received any or all of the amount due prior to Collection of such Sold
Receivables by DFS pursuant to the third sentence of Section 2.1.B of the
Purchase Agreement, of not less than 1.1 to 1.
(e) Without DFS' prior written consent, no member of the Consolidated
Group will (i) redeem, retire, purchase or otherwise acquire directly or
indirectly any of the capital stock of MicroAge, Inc. in an amount greater than
ten percent (10%) of the Consolidated Group's Tangible Net Worth immediately
prior to the date of any such transaction; or (ii) make any stock dividend
payments in an amount greater than ten percent (10%) of the Consolidated Group's
Tangible Net Worth immediately prior to the date of any such transaction. The
provisions of this Clause (e) will in no way be deemed a waiver of any of the
financial covenants contained in Paragraph 10.
(f) MCCI shall provide DFS with monthly internally prepared profit and
loss statements, cash flow statements and balance sheets for the Consolidated
Group within thirty (30) days following the end of each calendar month during
the term of this Agreement (except for the month of MCCI's fiscal year end when
such statements shall be provided to DFS in accordance with the filing of the
Consolidated Group's Annual Report on Form 10-K with the United States
Securities and Exchange Commission. MCCI shall advise, in writing, its
independent auditors that MCCI is providing copies of its certified financial
statements to DFS. DFS acknowledges that the parent entity of the Consolidated
Group, MicroAge, Inc., is a publicly-held company, and that all information
provided to DFS under this Paragraph 10(h) will not be available to the public
and cannot be disclosed to any third party, unless such disclosure is made in
accordance with the terms of any other agreement between MCCI and DFS. DFS'
receipt of such information subjects it to the provisions of the Securities Act
of 1933, as amended and the Securities Exchange Act of 1934, as amended,
including Section 10(b) of such Act and Rule 10b-5 promulgated thereunder.
(g) Paragraph 11 notwithstanding, a default by MCCI under this Paragraph
10 shall be deemed to be a non-monetary Event of Default, and, upon receipt of a
written notice of default from DFS that it is in default under this Paragraph
10, MCCI shall have sixty (60) days to cure such default. MCCI shall notify DFS
as soon as practicable should its ability to maintain any of the covenants under
this Paragraph 10 be materially jeopardized.
(h) If MCCI changes one or more of the accounting principles used in the
preparation of its financial statements, because of a change mandated by the
Financial Accounting Standards Board or generally accepted accounting
principles, then an Event of Default (as defined below) relating to financial
covenants contained in this Paragraph 10 shall not be considered an Event of
Default if the required ratio or amount would have been complied with had MCCI
continued to use those generally accepted accounting principles employed at the
date of the most recent audited financial statement prior to the date of
<PAGE> 9
this Agreement. Immediately upon any such change, MCCI and DFS shall adjust the
affected covenant to most accurately restate the affected covenant under the new
accounting principles. MCCI represents that it has no knowledge of the
existence of any such change currently mandated or proposed to be mandated by
the Financial Accounting Standards Board or generally accepted accounting
principles.
11. Any of the following events will constitute a default ("Event of Default")
by MCCI under this Agreement:
(a) MCCI materially breaches any of the terms, warranties or
representations contained in this Agreement;
(b) any representation, statement, report or certificate made or
delivered on behalf of MCCI by any of its representatives, employees or agents
to DFS pursuant to the terms of this Agreement is not true and correct in any
material aspect;
(c) MCCI fails to pay any of the liabilities or indebtedness owed to
DFS pursuant to any advances or extensions of credit made hereunder when and as
due and payable under this Agreement;
(d) DFS determines in good faith that it is materially insecure with
respect to any of the Collateral;
(e) MCCI abandons any material portion of the Collateral;
(f) an attachment, sale or seizure is issued against the Collateral in
an amount greater than $1,000,000.00;
(g) the Collateral in an amount greater than $1,000,000.00 is seized
or taken in execution;
(h) MCCI ceases or suspends normal business operations;
(i) MCCI becomes insolvent or voluntarily or involuntary becomes
subject to the Federal Bankruptcy Code, any state insolvency law or similar
law, or makes a general assignment for the benefit of creditors, and with
respect to any such case or proceeding that is involuntary, such case or
proceeding is not dismissed within ninety (90) days of the filing thereof;
provided, however, that any advances under the Inventory Credit Facility to be
made during such ninety (90) day period shall only be made upon receipt of the
applicable court's approval;
(j) MCCI misrepresents in any material aspect, its financial condition
or organizational structure;
(k) an MCCI Affiliate remains in default under the terms of its
certain collateralized guaranty to DFS dated even date herewith after the time
permitted to such Affiliate to cure any such default has expired;
(l) MCCI or an MCCI Affiliate defaults under its obligations to DFS
under the A/R Facility, and the applicable cure period thereunder, if any, has
expired; or
(m) MCCI is in default under any of its obligations to IBM Credit
under any agreement between them (including, without limitation, any Agreement
for Wholesale Financing) and the applicable cure period thereunder, if any, has
expired.
<PAGE> 10
12. In the Event of a default:
(a) Except as provided in Paragraph 10 hereof, DFS shall notify MCCI
in writing that MCCI is in default under this Agreement, and MCCI shall have
(i) three (3) business days after receiving such notice to cure any monetary
default, other than a monetary default caused by MCCI's failure to make any
payment or payments under the Regular Line of Credit which individually or in
the aggregate at any one time are less than One Million Dollars
($1,000,000.00), in which event MCCI will have thirty (30) days to cure such
default; and thirty (30) business days after receiving such notice to cure any
non-monetary default; provided, however, that notwithstanding that any cure
period applicable to an Event of Default as provided above is in effect, MCCI
shall not be entitled to any cure period with respect to, and an immediate
Event of Default shall be deemed to have occurred upon the occurrence of, the
Events of Default described in subparagraphs 11(h), (i), (k), (l), or (m).
(b) If any Event of Default is not cured within the time period
specified in Paragraph 12(a), DFS may do any or all of the following:
(i) DFS will have no further obligations to provide financing to
MCCI.
(ii) Notwithstanding the terms of Paragraph 7 to the contrary, DFS
will have the right, upon not less than one (1) hour's notice to MCCI, to
immediately enter upon MCCI's premises, during the normal business hours of
MCCI, to examine the Collateral and appraise the Collateral as security.
(iii) DFS may immediately (A) terminate this Agreement; (B) call all
of the indebtedness owed by MCCI to DFS, to the extent permitted by law, and
subject to Paragraphs 17 and 18 hereof, to be immediately due and payable,
together with all reasonable costs and expenses of repossession and collection
activity, including, but not limited to, reasonable attorneys' fees; and (C)
subject to Paragraphs 17 and 18 hereof, otherwise exercise its rights as a
secured party to repossess and dispose of all Collateral in the possession of
MCCI.
(c) If MCCI fails to cure any Event of Default as provided herein, MCCI
shall hold and keep the Collateral in trust, in good order and repair, only for
the benefit of DFS, and shall not exhibit, transfer, sell, further encumber, or
otherwise dispose of any of the Collateral, without the prior written consent of
DFS.
(d) Upon receipt of written demand by DFS, MCCI shall make the Collateral,
together with all related documents, available to DFS, in good order, at MCCI's
distribution facility located at 525 West Alameda, Tempe, Arizona 85282 or at
those locations shown on Exhibit B.
13. DFS has all rights of a secured party under law. DFS' rights shall be
cumulative. If DFS sells any such Collateral, the commercial reasonableness of
such sale will be determined in accordance with the provisions of the Uniform
Commercial Code as adopted by the State of Arizona.
14. If DFS fails to materially perform any of the obligations required by it
hereunder, or if DFS materially breaches any of the terms, warranties or
representations contained herein, and after written notification of such default
is received by DFS, DFS shall have (i) three (3) business days after receiving
such notice to cure any monetary default and (ii) thirty (30) business days
after receiving such notice to cure any non-monetary default. If DFS fails to
cure any such default within the time period specified in this Paragraph 14,
then, in addition to all other remedies MCCI may have at law or in equity, MCCI
may immediately terminate this Agreement.
15. The parties hereto acknowledge that, except as set forth in this Agreement,
the Collateral is not warranted by either party; the parties
<PAGE> 11
further acknowledge that the obligations of a party hereunder to the other are
not affected by any dispute such party may have with any third party.
16. In the event that any claim or crossclaim arising from this Agreement is
made by either party against the other party in litigation, arbitration or other
proceeding, the prevailing party shall be entitled, to the extent permitted by
law, to recover from the other party all the reasonable costs, reasonable
attorneys' fees and other reasonable expenses incurred by such prevailing party
in the litigation, arbitration or other proceeding. This Agreement shall be
deemed to have been made in and shall be governed by and construed pursuant to
the laws of the State of Arizona.
17. The liabilities of the parties under this Agreement shall be limited to the
outstanding amount of funds advanced and any finance charges pursuant to
Paragraph 8 hereof; provided, however, that nothing in this Paragraph 17 shall
be construed to restrict or limit DFS' right to recover the costs and expenses
described in Paragraph 12(b) or 16. Except as may be specifically provided for
herein or in any other agreement between them, neither MCCI nor DFS shall be
liable to the other for consequential or punitive damages.
18. Notwithstanding Paragraph 17 to the contrary:
(a) MCCI agrees to indemnify and hold DFS harmless from and against any
claims, demands, damages or assertions of liability asserted by any third
parties (excluding any affiliated companies of DFS) of any kind or nature
whatsoever, including reasonable attorneys' fees, resulting from any breach by
MCCI of any of the terms, covenants, conditions or representations of this
Agreement; and
(b) DFS agrees to indemnify and hold MCCI harmless from and against any
claims, demands, damages or assertions of liability asserted by any third
parties (excluding any affiliated companies of MCCI) of any kind or nature
whatsoever, including reasonable attorneys' fees, resulting from any breach by
DFS of any of the terms, covenants, conditions or representations of this
Agreement.
19. If at any time subsequent to the effective date hereof, any provision of
this Agreement or any amendment hereto shall be held to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement or
any amendment hereto.
20. The relationship of MCCI and DFS hereunder is that of borrower and lender.
Neither MCCI nor DFS shall have any 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, or in the other party's name, except as may be herein
expressly permitted. Nothing stated in this Agreement shall be construed as
constituting MCCI and DFS as partners or joint venturers, or as creating the
relationship of employer and employee, master and servant, franchisor and
franchisee, or principal and agent between MCCI and DFS.
21. This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which will be deemed an original, but all of which
together constitute one and the same instrument. This Agreement shall become
effective only after it has been signed by an authorized officer of MCCI and
DFS. Its effective date shall be the date it is executed by the last party to
sign. Absent termination of this Agreement pursuant to Paragraph 12 or 14, this
Agreement shall continue in full force and effect through August 2, 1998.
Thereafter, this Agreement will remain in full force and effect until the date
which is ninety (90) days after a party gives written notice to the other that
this Agreement is terminated upon the expiration of such ninety (90) days. If
<PAGE> 12
MCCI terminates this Agreement pursuant to this Paragraph 21, DFS shall have no
obligation to make any further advances or extensions of credit hereunder. If
this Agreement is terminated, neither party shall be relieved from any
obligation arising out of advances or commitments to extend financing made
before the effective date of termination. DFS' rights under this Agreement and
its security interest in Collateral will remain valid and enforceable until all
extensions and advances of credit made to MCCI pursuant to the terms of this
Agreement and all obligations of MCCI to DFS under any other agreement have been
paid in full. Notwithstanding anything contained in this Agreement to the
contrary, DFS will have no obligation to make any advance hereunder unless one
or more financial institution(s) acceptable to DFS shall have entered into, and
performs its obligations under, a participation agreement(s) mutually acceptable
to DFS and such financial institution(s) pursuant to which DFS shall sell to
such financial institution(s) an undivided economic participation in that
portion of the aggregate A/R Facility and Supplemental Line of Credit and the
Regular Line of Credit which exceeds Two Hundred Million Dollars
($200,000,000.00). DFS may only exercise its rights under the preceding
sentence (absent the failure of any other conditions to make advances) upon
ninety (90) days' prior written notice to MCCI, and at the end of any such
ninety (90) day period, the Aggregate A/R and Supplemental Inventory Limit and
the Regular Line of Credit will be automatically reduced by the amount of the
terminated or nonperforming participation agreement(s), as the case may be.
22. MCCI may not assign this Agreement without the prior written consent of
DFS, which consent may in the discretion of DFS be withheld. DFS may assign or
participate a portion of DFS' interest in the A/R Facility and the Supplemental
Line of Credit, without MCCI's consent so long as DFS' remaining interest in the
A/R Facility and the Supplemental Line of Credit after such assignment or
participation is at least One Hundred Million Dollars ($100,000,000.00);
provided, however, that DFS may assign or participate a portion of its interest
in the A/R Facility and the Supplemental Line of Credit to a third party (other
than an affiliate of DFS) which would result in DFS retaining, after such
assignment or participation, less than a One Hundred Million Dollar
($100,000,000.00) interest in the A/R Facility and Supplemental Line of Credit,
only with the prior written consent of MCCI. DFS and MCCI hereby agree that
notwithstanding any participation agreement between DFS and any participant,
MCCI shall have no duty or obligation to communicate to any such participant,
and all notices, reports, and other communications between DFS and MCCI shall be
made without regard to any such participant. This Agreement will protect and
bind the parties, their respective heirs, representatives, and permitted
successors and assigns.
23. MCCI hereby waives all exemptions and homestead laws to the maximum extent
permitted by law.
24. The failure of a party to exercise any of its rights or remedies under this
Agreement shall in no manner whatsoever waive any of such party's rights or
remedies as to any past, current or future defaults of the same or different
kind.
25. Whenever in this Agreement it shall be required or permitted that notices
be given or served by a party to or on the other, such notice shall be in
writing (including facsimile transmissions or telegraphic or telex
communications) and mailed (return receipt requested) telecopied, telegraphed,
telexed or delivered, as appropriate, to each party at the address set forth in
this Agreement or at such other address as the party affected may designate in a
written notice to the other party hereto complying as to delivery with the terms
of this Paragraph 25. All such notices shall be effective when received.
26. Time is of the essence in the performance of this Agreement.
<PAGE> 13
27. This Agreement amends and supplements the Original Agreement, as amended
and restated. If the terms hereof conflict with the terms of such Original
Agreement, as amended and restated, the terms of this Agreement will govern.
28. WAIVER OF JURY TRIAL. EACH OF MCCI AND DFS HEREBY IRREVOCABLY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM)
OF ANY TYPE IN WHICH MCCI AND DFS ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY
OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED IN CONNECTION HEREWITH.
THE PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT AND THAT THEY
UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS.
DEUTSCHE FINANCIAL SERVICES CORPORATION MICROAGE COMPUTER CENTERS, INC.
By: /s/Stephen H. Patyk By: /s/Curtis J. Scheel
---------------------- -------------------------------
Title: AGM Vice President Title: Vice President and Treasurer
<PAGE> 14
EXHIBIT LIST
Exhibit A - Form of UCC-2
Exhibit B - Location of Collateral
Exhibit C - Form of Inventory Warehouse Status Report
Exhibit D - Composition of Consolidated Group
Schedule 1 - Supplemental Inventory Availability Worksheet
<PAGE> 15
EXHIBIT B
LOCATION OF COLLATERAL
MicroAge Computer Centers, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
2925 S. Roosevelt Street, Tempe, Arizona 85282
1650 W. Alameda, Tempe, Arizona 85282
1625 Fountainhead Parkway, Tempe, Arizona 85282
525 W. Alameda, Tempe, Arizona 85282
1620 West Fountainhead Parkway, Tempe, Arizona 85282
5427 Duff Drive, Building 14, World Park Complex,
Cincinnati, Ohio 45246
5443 Duff Drive, Building 14, World Park Complex,
Cincinnati, Ohio 45246
443 W. Alameda, Tempe, Arizona 85282
421 W. Alameda, Tempe, Arizona 85282
MCCI Affiliates - Collateral Locations
MCSA, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
2710 S. Roosevelt Street, Tempe, Arizona 85282
MCSB, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
3905 Annapolis Lane, Plymouth, Minnesota 55447
MCSJ, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
8602 Wolff Court, Westminster, Colorado 80030
MicroAge Solutions, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
206 Danbury Road, Wilton, Connecticut 06897
111 N. Canal, Suite 190, Chicago, Illinois 60606
164 Middlesex Turnpike, Burlington, Massachusetts 01803
122 W. Carpenter Freeway, Suite 500, Irving, Texas 75039
MicroAge International, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
MicroAge, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282 *
MCSP, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282*
8996 Kirby Drive, Houston, Texas 77054
MCSQ, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282*
21333 Haggerty Road, Novi, Michigan 48104
Kelly Micro Systems, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282*
25 Musick, Irvine, California 90701 (Accounts records)
19 Musick, Irvine, California 90701
MCST, Inc.
2400 S. MicroAge Way, Tempe, Arizona 85282*
7122 South Lewis, Tulsa, Oklahoma 74136
401 S.E. Dewey, Suite 316, Bartlesville, Oklahoma 74003
210 W. Park Avenue, Suite 3100, Oklahoma City, Oklahoma 73102
One City Place Drive, Suite 565, St. Louis, Missouri 63141
105 Holcomb Street, Springdale, Arkansas 75240
*Chief Executive Office
<PAGE> 16
EXHIBIT D
COMPOSITION OF CONSOLIDATED GROUP
As of the date of this Agreement, the Consolidated Group is comprised of
the following entities:
MICROAGE, INC.
MICROAGE COMPUTER CENTERS, INC.
MICROAGE SOLUTIONS, INC.
MCSA, INC.
MCSB, INC.
MCSJ, INC.
MICROAGE INTERNATIONAL, INC.
MICROAGE ENTERPRISES, INC.
MICROAGE EUROPE LIMITED
MICROSOURCE TECHNOLOGIES, INC.
MICROSOURCE DISTRIBUTIONS, INC.
153000 CANADA LIMITED*
BMUS CORPORATION
INTRACOM MARKETING, INC.
MCSP, INC.
MCSQ, INC.
KELLY MICRO SYSTEMS, INC.
MCST, INC.
MCSR, INC.*
MCSS, INC.*
MICROAGE FEDERAL, INC.
MICROAGE PAYMASTER, INC.
MICROAGE INFOSYSTEMS SERVICES, INC.
MICROAGE SYSTEMS, INC.
MICROAGE TECHNOLOGIES, INC.*
MICROAGE VENTURES, INC.*
MICROAGE RESELLERS, INC.*
MICROAGE ADMINISTRATION, INC.*
MICROAGE INFINITY, INC.*
MICROAGE INTEGRATION MANAGEMENT, INC.*
* Denotes Inactive Subsidiary
<PAGE> 1
EXHIBIT 10.4.1
AMENDMENT #1 TO ADDENDUM TO
AGREEMENT FOR WHOLESALE FINANCING
(Security Agreement)
This Amendment to the Agreement for Wholesale Financing (this "Amendment") is
made as of August 3, 1995 by and between MicroAge Computer Centers, Inc. a
Delaware corporation ("MCCI") and IBM Credit Corporation, a Delaware
Corporation ("IBM Credit").
RECITALS
MCCI and IBM Credit have entered into that certain Agreement for Wholesale
Financing dated as of December 17, 1993 (as amended, supplemented or as
otherwise modified from time to time, the "Agreement").
The parties have agreed to modify the Agreement as more specifically set
forth below, upon and subject to the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, MCCI ("we" or "us") and IBM Credit ("you") hereby agree as
follows:
Section 1. All capitalized terms not otherwise defined herein shall have
the respective meanings set forth in the Agreement.
Section 2. Modification of Agreement.
The Agreement is hereby modified by deleting Exhibit A and Exhibit B in their
entirety and substituting in lieu thereof, the Exhibit A and Exhibit B attached
hereto.
Paragraph 9 of the Agreement is hereby amended by inserting immediately
following such paragraph the following:
"We will not enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve ourself (or suffer liquidation or
dissolution) or sell, lease or otherwise dispose of our assets as an entirety
or substantially as an entirety; except that we may be merged with any direct
or indirect wholly-owned Subsidiary of ours without your express written
consent, provided that, in the case of such a merger, we shall be the
continuing or surviving corporation and we have given you not less than three
(3) days prior written notice thereof."
Paragraph 12 (k) of the Agreement is hereby amended by deleting such paragraph
in its entirety and substituting, in lieu thereof, the following:
"12 (k) {Deleted - space reserved to preserve overall number scheme.}"
Paragraph 12 is hereby further amended by adding the following subclauses after
subclause 12 (n):
"12 (o) As a member of the Consolidated Group as defined in Paragraph 13
of this Agreement, we will deliver to you as soon as available and in any event
within ninety (90) days after the end of each fiscal year (i) audited Financial
Statements (provided that, to the extent not otherwise audited by the auditors,
the consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the
Financial Statements for the prior year and the budgeted projections for the
fiscal year then ended, in each case accompanied by (A)
<PAGE> 2
either an opinion of the auditors without a "going concern" or like
qualification or exception, or qualification arising out of the scope of the
audit or, if so qualified, an opinion which shall be in scope and substance
reasonably satisfactory to you, (B) such auditors' "Management Letter" to us, if
any, (ii) if composed, a narrative discussion of the consolidated financial
condition and results of operations and our consolidated liquidity and capital
resources for such fiscal year prepared by our chief executive officer or chief
financial officer; and (iii) a compliance certificate along with a schedule of
the calculations used in determining, as of the end of such fiscal year, whether
we are in compliance with the financial covenants set forth in Paragraph 13.
12 (p) As a member of the Consolidated Group as defined in Paragraph 13 of
this Agreement, we will deliver to you as soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter (i) Financial
Statements as of the end of such period and for the fiscal year to date,
together with a comparison to the Financial Statements for the same periods in
the prior year and the budgeted projections for the same periods, all in
reasonable detail and duly certified (subject to normal year- end audit
adjustments and except for the absence of footnotes) by our chief executive
officer or chief financial officer as having been prepared in accordance with
GAAP; (ii) if composed, a narrative discussion of the consolidated financial
condition and results of operations and our consolidated liquidity and capital
resources for such period and for the fiscal year to date prepared by our chief
executive officer or chief financial officer; and (iii) a compliance
certificate along with a schedule of the calculations used in determining, as
of the end of such fiscal quarter, whether we are in compliance with the
financial covenants set forth in Paragraph 13.
"Financial Statements" shall mean the consolidated and consolidating
balance sheet, statements of operations, statements of cash flows and
statements of changes in our shareholder's equity for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
12 (q) We will deliver, within five (5) days after the documents referred
to in 12 (o) and (p) are sent, copies of all financial statements and reports
which we send to our stockholders, and within five (5) days after the same are
filed, copies of all financial statements and reports which we may make to, or
file with, the Securities and Exchange Commission or any successor or analogous
governmental authority.
12 (r) We will deliver, no later than the end of each fiscal year, our
projected annual budget, cash flow statements and business plan for the
immediately succeeding fiscal year in form and detail reasonably satisfactory
to you which shall include projections with respect to each of the items in the
Financial Statements."
Paragraph 13 of the Agreement is hereby amended by deleting such Paragraph
13 in its entirety and substituting, in lieu of thereof, the following
Paragraph 13:
"13. You acknowledge that MCCI is a member of a consolidated group of
entities for financial reporting purposes, the members of which are identified
in Exhibit B which is attached hereto and incorporated herein by this reference
(the "Consolidated Group"). MCCI covenants and agrees with you that:
(a) The Consolidated Group shall at all times maintain, on a consolidated
basis, a Tangible Net Worth plus Subordinated Debt in a combined amount of not
less than the sum of (i) One Hundred Forty Five Million Dollars
($145,000,000.00) plus (ii) seventy-five percent (75%) of the cumulative
positive consolidated Net Income for each fiscal quarter commencing with the
fiscal quarter beginning August 1, 1995 (Net Losses for any fiscal quarter
<PAGE> 3
shall not, however, reduce the minimum amount required under this clause (a).
For purposes of Paragraph 13: (A) "Tangible Net Worth" means the net book value
of the Consolidated Group's assets and liabilities, determined on a
consolidated basis, in accordance with GAAP consistently applied, excluding
from such assets all Intangibles; (B) "Intangibles" means and includes general
intangibles (as that term is defined in the Uniform Commercial Code), good
will, prepaid expenses, deposits, licenses, covenants not to compete, the
excess of cost over book value of acquired assets, franchise fees,
organizational costs, capitalized research and development costs, accounts
receivables and advances due from officers, directors, employees, stockholders
and affiliated companies, leasehold improvements in excess of Five Million
Dollars ($5,000,000.00) net of depreciation and such similar items as you may
from time to time determine; (C) "Subordinated Debt" means the indebtedness of
the Consolidated Group which is subordinated to payment of its liabilities to
you, as agreed to in writing by you, and (D) "Net Income" and "Net Loss" mean
the net income or net loss of the Consolidated Group for such period determined
in conformity with GAAP.
(b) The Consolidated Group shall at all times maintain, on a consolidated
basis, Net Working Capital of not less than (i) Ninety Million Dollars
($90,000,000.00) plus (ii) fifty percent (50%) of the cumulative positive
consolidated Net Income for each fiscal quarter commencing with the fiscal
quarter beginning August 1, 1995 (Net Losses for any fiscal quarter shall not,
however, reduce the minimum amount required under this clause (b). "Net Working
Capital", for purposes of this Agreement, means the excess of current assets
over current liabilities, both determined in accordance with GAAP, provided
that there shall not be included in current assets, any loans or advances made
by the Consolidated Group to any person or entity, nor any asset (except
Collateral in process of delivery) located outside the United States, Canada
and Puerto Rico; but there shall be included in current assets, amounts owing
by persons or entities located outside the United States, Canada and Puerto
Rico, which arise from sales made by the Consolidated Group in the ordinary
course of business.
(c) The Consolidated Group shall at all times maintain, on a consolidated
basis, a ratio of (i) the sum of (A) total liabilities plus (B) that portion of
the Outstanding Balance (as defined in the Purchase Agreement executed with
Deutsche Financial Services (DFS)) of all Sold Receivables (as defined in the
Purchase Agreement executed with DFS) which we and our affiliates have elected
to receive if we and our affiliates have received any or all of the amount due
prior to Collections (as defined in the Purchase Agreement executed with DFS)
of such Sold Receivables by DFS pursuant to Section 2.1.B of such Purchase
Agreement, to (ii) Tangible Net Worth of less than five (5) to one (1) (the
"Leverage Ratio").
(d) The Consolidated Group shall at all times maintain, on a consolidated
basis, a ratio of (i) the sum of (A) current assets plus (B) the Outstanding
Balance of all Sold Receivables to (ii) the sum of (C) current liabilities plus
(D) that portion of the Outstanding Balance of all Sold Receivables which we
and our affiliates have elected to receive if we and our affiliates have
received any and all of the amount due prior to Collection of such Sold
Receivables by you pursuant to the third sentence of Section 2.1.B of the
Purchase Agreement of not less than one and one tenth (1.1) to one (1).
(e) Without your prior written consent, no member of the Consolidated
Group will (i) redeem, retire, purchase or otherwise acquire directly or
indirectly any of the capital of MicroAge, Inc. in an amount greater than ten
percent (10%) of the Consolidated Group's Tangible Net Worth immediately prior
to the date of such transaction; or (ii) make any stock dividend payments in an
amount greater than ten percent (10%) of the Consolidated Group's Tangible Net
Worth immediately prior to the date of any such transaction. The provisions of
this Subparagraph (e) will in no way be deemed a waiver of any financial
covenants contained in Paragraph 13.
<PAGE> 4
(f) We will provide you with monthly internally prepared profit and loss
statements, cash flow statements and balance sheets for the Consolidated Group
within thirty (30) days following the end of each calendar month during the
term of this Agreement.
You acknowledge that the parent entity of the Consolidated Group, MicroAge,
Inc., is a publicly-held company, and that all information provided to you
under this Paragraph 13 (h) will not be available to the public and shall be
subject to the provision of Paragraph 15. Your receipt of such information
subjects it to the provisions of the Securities Act of 1933, as amended and the
Securities Exchange Act of 1934, as amended, including Section 10(b) of such
Act, and Rule 10b-5 promulgated thereunder.
(g) Paragraph 16 notwithstanding, a default by us under this Paragraph 13
shall be deemed to be a non-monetary default, and, upon receipt of a written
notice of default from you that we are in default under this Paragraph 13, we
shall have sixty (60) days to cure such default. We will notify you as soon as
practicable should our ability to maintain any of the covenants under this
Paragraph 13 be materially jeopardized.
(h) If we change one or more of the accounting principles used in the
preparation of our financial statements, because of a change mandated by the
Financial Accounting Standards Board or GAAP, then an event of default relating
to financial covenants contained in this Paragraph 13 shall not be considered
an event of default if the required ratio or amount would have been complied
with had we continued to use those GAAP employed at the date of the most recent
audited financial statement prior to the date of this Agreement. Immediately
upon any such change, both parties shall adjust the affected covenant to most
accurately restate the affected covenant under the new accounting principles.
We represent that we have no knowledge of the existence of any such change
currently mandated or proposed to be mandated by the Financial Accounting
Standards Board or GAAP."
Paragraph 16 is hereby amended by inserting "(ii)" between the words "or" and
"we" on the fifth (5th) line of the first (1st) paragraph and by renumbering
the remaining subclauses in such paragraph.
Paragraph 16 is hereby further amended by adding immediately following
subclause (vi) thereof the following subclause (vii) as an event of default and
by deleting subclause (a) thereof in its entirety and substituting, in lieu
thereof, the following subclause (a):
"or (vii) we or any member of the Consolidated Group are in default under
any of our obligations to DFS under any agreement between us or any member of
the Consolidated Group and DFS (including, without limitation, any Agreement
for Wholesale Financing or Purchase Agreement) and the applicable cure period
thereunder, if any, has expired."
"(a) You shall notify us that we are in default under the Agreement, and
unless otherwise stated in this Agreement, (i) we shall have three (3) business
days after receiving such notice to cure the default, other than a default (x)
under paragraph 13 hereof or (y) under subclause (ii) or (vii) of this
Paragraph 16 and (ii) we shall have sixty (60) days after receiving such notice
to cure a default under Paragraph 13 and (iii) we shall have no grace period to
cure a default under subclause (ii) or (vii) of this Paragraph 16."
Section 3. Representations and Warranties. We make to you the following
representations and warranties all of which are material and are made to induce
you to enter into this Amendment.
<PAGE> 5
Section 3.1 Accuracy and Completeness of Warranties and Representations, All
representations made by us in the Agreement were true and accurate and complete
in every respect as of the date made, and, as amended by this Amendment, all
representations made by us in the Agreement are true, accurate and complete in
every material respect as of the date hereof, and do not fail to disclose any
material fact necessary to make representations not misleading.
Section 3.2 Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause us not to be in compliance with
the terms of any agreement to which we are a party.
Section 3.3 Litigation. Except as has been disclosed by us to you in writing,
there is no litigation, proceeding, investigation or labor dispute pending or
threatened against us, which if adversely determined, would materially
adversely affect our ability to perform our obligations under the Agreement and
the other documents, instruments and agreements executed in connection
therewith or pursuant hereto.
Section 3.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by us and is enforceable against us in
accordance with its terms.
Section 4. Ratification of Agreement. Except as specifically amended hereby,
all of the provisions of the Agreement shall remain unamended and in full force
and effect. We hereby, ratify, confirm and agree that the Agreement, as amended
hereby, represents a valid and enforceable obligation of ours, and is not
subject to any claims, offsets or defense.
Section 5. Governing Law. This Amendment shall be governed by and interpreted
in accordance with the laws of the State of Arizona.
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed by the authorized
officers of the undersigned as of the day and year first above written.
MICROAGE COMPUTER CENTERS, INC.
By: /s/ Curtis J. Scheel
--------------------------------
Title: Vice President and Treasurer
------------------------------------
Secretary
Accepted and Agreed:
IBM CREDIT CORPORATION
By: /s/ Marco Serino
---------------------------------
Title: Center Manager
(CORPORATE SEAL)
<PAGE> 6
EXHIBIT A
to
AGREEMENT FOR WHOLESALE FINANCING
LOCATION OF COLLATERAL
PART I:
MICROAGE COMPUTER CENTERS, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-2925 S. Roosevelt Street, Tempe, Arizona 85282
-1650 W. Alameda, Tempe, Arizona 85282
-1625 Fountainhead Parkway, Tempe, Arizona 85282
-525 W. Alameda, Tempe, Arizona 85282
-1620 W. Fountainhead Parkway, Tempe, Arizona 85282
-5427 Duff Drive, Building 14, World Park Complex,
Cincinnati, Ohio 45246
-5443 Duff Drive, Building 14, World Park Complex,
Cincinnati, Ohio 45246
-443 W. Alameda, Tempe, Arizona 85282
-421 W. Alameda, Tempe, Arizona 85282
PART II:
MCSA, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-2710 S. Roosevelt Street, Tempe, Arizona 85282
MCSB, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-3905 Annapolis Lane, Plymouth, Minnesota 55447
MCSJ, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-8602 Wolff Court, Westminster, Colorado 80030
MICROAGE SOLUTIONS, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-206 Danbury Road, Wilton, Connecticut 06897
-111 N. Canal, Suite 190, Chicago, Illinois 60606
-164 Middlesex Turnpike, Burlington, Massachusetts 01803
-122 W. Carpenter Freeway, Suite 500, Irving, Texas 75039
MICROAGE INTERNATIONAL, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
MICROAGE, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
MCSP, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-8996 Kirby Drive, Houston, Texas 77054
MCSQ, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-21333 Haggerty Road, Novi, Michigan 48104
KELLY MICRO SYSTEMS, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-25 Musick, Irvine, California 90701 (Accounts records)
-19 Musick, Irvine, California 90701
<PAGE> 7
MCST, INC.
-2400 S. MicroAge Way, Tempe, Arizona 85282*
-7122 South Lewis, Tulsa, Oklahoma 74136
-401 S.E. Dewey, Suite 316, Bartlesville, Oklahoma, 74003
-210 W. Park Avenue, Suite 3100, Oklahoma City, Oklahoma 73102
-One City Place Drive, Suite 565, St. Louis, Missouri 63141
-105 Holcomb Street, Springdale, Arkansas 75240
* Chief Executive Office
<PAGE> 8
EXHIBIT B
to
AGREEMENT FOR WHOLESALE FINANCING
MEMBERS OF THE CONSOLIDATED GROUP
As of the date of this Amendment, the Consolidated Group is comprised of
the following entities:
-MICROAGE, INC.
-MICROAGE COMPUTER CENTERS, INC.
-MICROAGE SOLUTIONS, INC.
-MCSA, INC.
-MCSB, INC.
-MCSJ, INC.
- MICROAGE INTERNATIONAL, INC.
-MICROAGE ENTERPRISES, INC.
-MICROAGE EUROPE LIMITED
-MICROSOURCE TECHNOLOGIES, INC.
-MICROSOURCE DISTRIBUTIONS, INC.
-153000 CANADA LIMITED*
-BMUS CORPORATION
-INTRACOM MARKETING, INC.
-MCSP, INC.
-MCSQ, INC.
-KELLY MICRO SYSTEMS, INC.
-MCST, INC.
-MCSR, INC.*
-MCSS, INC. *
-MICROAGE FEDERAL, INC.
-MICROAGE PAYMASTER, INC.
-MICROAGE INFOSYSTEMS SERVICES, INC.
-MICROAGE SYSTEMS, INC.
-MICROAGE TECHNOLOGIES, INC. *
-MICROAGE VENTURES, INC. *
-MICROAGE RESELLERS, INC. *
-MICROAGE ADMINISTRATION, INC. *
-MICROAGE INFINITY, INC. *
-MICROAGE INTEGRATION MANAGEMENT, INC. *
* Denotes Inactive Subsidiary
<PAGE> 1
EXHIBIT 11.1
MICROAGE, INC.
PRIMARY EPS DETAIL CALCULATION
<TABLE>
<CAPTION>
39 weeks ended
--------------------------
July 30, July 31,
1995 1994
----------- -----------
<S> <C> <C>
Common stock
Weighted average common shares 14,103,883 12,304,858
Common stock equivalents
Weighted average warrants and options 210,651 690,863
----------- -----------
Total weighted average common and
common equivalent shares outstanding 14,314,534 12,995,721
=========== ===========
Net income available for EPS $ 5,965,000 $12,794,000
Primary EPS $ 0.42 $ 0.98
</TABLE>
<PAGE> 1
EXHIBIT 11.2
MICROAGE, INC.
FULLY DILUTED EPS DETAIL CALCULATION
<TABLE>
<CAPTION>
39 weeks ended
--------------------------
July 30, July 31,
1995 1994
----------- -----------
<S> <C> <C>
Net income available for primary EPS $ 5,965,000 $12,794,000
=========== ===========
Shares: per primary EPS 14,314,534 12,995,721
additional shares issuable 128,674 762
----------- -----------
14,443,208 12,996,483
=========== ===========
Fully diluted EPS $ 0.41 $ 0.98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JULY 30, 1995 AND OCTOBER 30, 1994
AND THE CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE QUARTERS AND 39
WEEKS ENDED JULY 30, 1995 AND JULY 31, 1994 CONTAINED IN THE FORM 10-Q FOR THE
QUARTERLY AND 39 WEEK PERIODS ENDED JULY 30, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-30-1994
<PERIOD-START> MAY-1-1995
<PERIOD-END> JUL-30-1995
<EXCHANGE-RATE> 1
<CASH> 14,085
<SECURITIES> 0
<RECEIVABLES> 125,594
<ALLOWANCES> (10,962)
<INVENTORY> 319,893
<CURRENT-ASSETS> 450,467
<PP&E> 82,148
<DEPRECIATION> (37,414)
<TOTAL-ASSETS> 525,032
<CURRENT-LIABILITIES> 347,750
<BONDS> 0
<COMMON> 144
0
0
<OTHER-SE> 173,303
<TOTAL-LIABILITY-AND-EQUITY> 525,032
<SALES> 759,082
<TOTAL-REVENUES> 759,082
<CGS> 720,324
<TOTAL-COSTS> 720,324
<OTHER-EXPENSES> 33,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 690
<INCOME-PRETAX> 1,367
<INCOME-TAX> 705
<INCOME-CONTINUING> 662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 662
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
