SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1999 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-15995
MICROAGE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 86-0321346
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2400 South MicroAge Way, Tempe, AZ 85282-1896
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(Address of Principal Executive Offices) (Zip Code)
(480) 804-2000
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $84.6 million at February 14, 2000, based on the closing market
price of the Common Stock on such date, as reported by the Nasdaq Stock Market.
The number of shares of the registrant's Common Stock outstanding at February
14, 2000 was 21,728,086.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders to
be held on March 28, 2000 are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
BUSINESS OVERVIEW
MicroAge, Inc. ("MicroAge" or the "Company"), was incorporated in the State
of Arizona in 1976 and reincorporated in the State of Delaware in 1987. The
Company provides information technology services, solutions and products,
including products and services that support e-Business via the Internet. The
Company maintains a portfolio of information technology companies that deliver
technology solutions through ISO 9001-certified, multi-supplier integration
services and distributed computing solutions to large organizations and computer
resellers worldwide. The Company does business in more than 40 countries and
offers more than 50,000 products from more than 500 suppliers, backed by a suite
of technical, financial, logistics, and account management services.
The Company conducts its business through four wholly-owned entities:
MicroAge Technology Services, L.L.C. ("MicroAge Technology Services"), Pinacor,
Inc. ("Pinacor"), MicroAge Teleservices, L.L.C. ("MicroAge Teleservices"), and
Quality Integration Services, L.L.C. ("Quality Integration Services"). MicroAge
Technology Services, Pinacor, MicroAge Teleservices, and Quality Integration
Services each have separate management teams, operate autonomously in their
respective marketplaces, and contract with MicroAge Headquarters for a limited
number of services, such as payroll processing and employee benefits.
Unless the context otherwise requires, as used herein, the term the
"Company" refers to MicroAge, Inc., its predecessors, subsidiaries, and
wholly-owned limited liability companies. The Company's headquarters are located
at 2400 South MicroAge Way, Tempe, AZ 85282-1896, and its telephone number is
(480) 804-2000. The Company maintains the following web pages on the world wide
web:
* MicroAge/MicroAge Technology Services: www.microage.com
* Pinacor: www.pinacor.com
* MicroAge Teleservices: www.microageteleservices.com
* Quality Integration Services: www.qis-us.com
Certain statements in this Item may be "forward-looking statements" within
the meaning of The Private Securities Litigation Reform Act of 1995. Words such
as "estimates," "expects," "anticipates," "plans," "believes," "projects," and
similar expressions identify forward-looking statements. These forward-looking
statements may include projections of revenue and net income and issues that may
affect revenue or net income; projections of capital expenditures; plans for
future operations; financing needs or plans; plans relating to the Company's
products and services; and assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking information. Some of the important factors that
could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors;
potential fluctuations in quarterly results; risks of declines in inventory
values; capital intensive nature of the Company's business; dependence on
information systems; dependence on independent shipping companies; rapid
technological change; and possible volatility of stock price. Exhibit 99.1 to
this Annual Report on Form 10-K, which is attached hereto and incorporated by
reference herein, discusses these important factors in greater detail. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
MICROAGE TECHNOLOGY SERVICES
GENERAL
MicroAge Technology Services provides technology infrastructure services
designed to support clients' e-Business and on-going operational needs. MicroAge
Technology Services offers professional services, selective outsourcing and
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technology deployment to help clients use technology effectively in their
environments, including Internet-related technology and networks. MicroAge
Technology Services serves corporations, institutions, and government agencies
through its network of company-owned locations, in addition to owner-managed
branches and alliance partners spanning more than 40 countries.
BUSINESS STRATEGY
MicroAge Technology Services' strategic vision is to be the premier
provider of e-Business infrastructure services and technology. To help clients
profit from technology in the Internet economy, the company delivers solutions
which ensure network reliability, availability, and scalability for e-Business.
MicroAge Technology Services' strategic focus is to pursue profit expansion as
an aggregator of e-Business services and products. MicroAge Technology Services'
profit expansion strategy is developed around three elements: (1) emphasizing
Client Focus; (2) deploying e-Business Infrastructure Services; and (3)
utilizing Digital Business Design to reduce costs and increase profitability.
CLIENT FOCUS
Client Focus has two components: stronger relationships with targeted key
accounts for enhanced account penetration, and identification and development of
prospects consistent with the target profile of high-margin opportunities. In
addition, MicroAge Technology Services uses Digital Business Design to develop
and deploy alternative, cost-effective technology delivery channels for its
broader client base and prospects.
E-BUSINESS INFRASTRUCTURE SERVICES
MicroAge Technology Services is focused on the addition and expansion of
higher-margin e-Business Infrastructure Services to deliver the technology
infrastructure required for clients' e-Business and on-going operational needs.
Services fall into three categories: Professional Services, Selective
Outsourcing, and Technology Deployment.
DIGITAL BUSINESS DESIGN
Digital Business Design uses automated systems to match available staff
resources to MicroAge Technology Services' customer needs. Through Digital
Business Design, MicroAge Technology Services is better able to effectively
manage its assets, improve its internal processes and procedures to increase
profitability, streamline operations, and to control expenses.
CORE SERVICE OFFERINGS
MicroAge Technology Services meets a wide spectrum of client needs, from
event or project-based solutions to comprehensive integrated desktop outsourcing
solutions. The unit provides program and project management services and is
dedicated to building long-term client relationships by delivering a consistent
level of quality information technology services, within the following core
service offerings:
PROFESSIONAL SERVICES
MicroAge Technology Services provides Professional Services which are
designed to support clients' use of technology for mission-critical operations,
including web-based e-Business. The Professional Services line of business is
comprised of the following key areas: Network Management, including design,
monitoring and hosting services; Systems Management; Migration Services;
Convergence Services; e-Business Services; and Microsoft Technologies Services.
In addition, within Professional Services, two dedicated practices, the
Microsoft Business Practice and the e-Business Services Practice, operate to
deliver specialized technical expertise. MicroAge Technology Services also works
with selected companies such as Qwest Communications, Fastlane Technologies,
Tivoli Systems and others in order to deliver these services.
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SELECTIVE OUTSOURCING
Selective Outsourcing includes Deskside Services, Asset Management, and
Help Desk. Deskside Services include software support; installations, moves,
adds, and changes; and problem resolution for total deskside systems support.
Asset Management includes technology life cycle processes such as end-user
requisition, procurement, maintenance, asset tracking, asset inventory, contract
management, and strategic planning. Help Desk supports client technology users
with direct phone support for proprietary and shrink-wrapped software, hardware,
or network issues.
TECHNOLOGY DEPLOYMENT
Technology Deployment assists clients in every phase of the information
technology procurement process. Drawing on e-Business solutions for technology
acquisition and deployment, MicroAge Technology Services works with clients to
help them identify their system needs, streamline internal procurement
processes, and design, implement, and integrate systems to meet their particular
needs. Technology Deployment allows clients to achieve strategic goals by
reducing procurement costs and order cycle time, and increasing internal
customer satisfaction.
PRODUCTS AND SUPPLIERS
During the fiscal year ended October 31, 1999, MicroAge Technology Services
purchased approximately 50% of its computer product needs, including both
hardware and software, from Pinacor. MicroAge and Pinacor are parties to a
supply agreement pursuant to which Pinacor supplies products to MicroAge
Technology Services. The agreement may be terminated by either party upon 90
days' notice. While MicroAge Technology Services has a choice of distributors
from which it can purchase products, given its strong relationship with Pinacor
and the stability of product supply, MicroAge Technology Services currently
chooses to purchase a considerable amount of its product needs from Pinacor.
COMPETITION
The markets in which MicroAge Technology Services operates are
characterized by intense competition from other systems integrators such as
Inacom Corp.; Entex Information Services, Inc.; CompuCom Systems, Inc.; and
regional/local value-added resellers. MicroAge Technology Services expects to
face further competition from new market entrants and possible alliances between
competitors in the future. Certain of MicroAge Technology Services' current and
potential competitors have greater financial, technical, marketing, and other
resources than MicroAge Technology Services. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, to devote greater resources to the development, promotion, and
sales of their products and services, or to be more effective in responding to
competitive bidding situations than MicroAge Technology Services. The principal
competitive factors in the systems integration industry include the breadth and
quality of product and service offerings, product availability, pricing, and
expertise and size of workforce. MicroAge Technology Services believes it
competes favorably with respect to each of these factors.
TRADEMARKS AND SERVICE MARKS
The Company holds various trademarks and service marks, including, among
others, MicroAge(R), The Solution Store(R), The Solution Center(R),
Solutions(R), MicroSource(R), and MicroAge 2000(R). All trademarks and service
marks are registered, or pending registration, in the United States, and certain
trademarks and service marks are registered in various foreign countries. The
marks are not otherwise registered with any states; however, the Company also
claims common law rights to the marks based on adoption and use. Management
believes that the value of the Company's marks is increasing with the
development of its business, but that the business of the Company as a whole is
not materially dependent on such marks.
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PINACOR
GENERAL
Pinacor is a wholesale distributor of information technology products and
services with locations in North and South America. Pinacor markets hardware,
networking equipment, software products, and related services to more than
25,000 reseller customers in multiple countries. Pinacor targets three principal
market sectors: Solutions Integrators, consisting of value-added resellers,
systems integrators, network integrators, and application value-added resellers;
Vertical Markets, consisting of Apple users, small and medium-sized business,
and government resellers; and Strategic Accounts, consisting of direct
marketers, independent dealers, owner-operated chains, consumer electronics
stores, computer superstores, catalog resellers, Web retailers, mass merchants,
office product superstores, software-only stores, and warehouse clubs. As a
wholesale distributor, Pinacor markets its products to each of these types of
resellers as opposed to marketing directly to end-user customers.
Pinacor offers one-stop shopping to its reseller customers by providing
access to more than 15,000 products from approximately 150 suppliers, including
most of the technology industry's leading hardware manufacturers, networking
equipment suppliers, computer telephony suppliers, and software publishers.
Pinacor's broad product offerings include: desktop and notebook personal
computers, servers, and workstations; enterprise solutions; mass storage
devices; CD-ROM and DVD drives; monitors; printers; scanners; digital cameras;
modems; networking hubs, routers, and telephone switches; network interface
cards; business application software; operating system software; entertainment
software; and computer supplies. Pinacor's suppliers include IBM, Apple, Compaq,
Hewlett-Packard, Microsoft, Novell, Toshiba, HitachiNSA, Canon, Lexmark, Sony,
NEC, Panasonic, and Lucent.
Pinacor is focused on providing a broad range of products and services,
quick and efficient order fulfillment, and consistent on-time and accurate
delivery to its reseller customers. Pinacor believes that its information
systems provide a competitive advantage through real-time information access and
processing capabilities. These Web-based electronic business information
systems, coupled with its leading operations in telesales, credit, customer
service, purchasing, technical support, and integrated logistics services,
enable Pinacor to provide its reseller customers with superior service and low
cost leadership. In addition, to enhance sales and to support its suppliers and
reseller customers, Pinacor provides a wide range of value-added services, such
as custom order fulfillment, tailored financing programs, systems configuration,
marketing programs, and electronic commerce tools for real-time business to
business connectivity.
BUSINESS STRATEGY
Pinacor believes that it has the customer and supplier relationships, the
capabilities, and the systems critical for long-term success in the information
technology distribution industry. Pinacor's product purchasing volume and
customer-focused sales strategy enables it to cost effectively expand its core
distribution business by seeking new sales opportunities for information
technology products. Pinacor has defined areas of profitable growth within
developing product markets, and has developed supporting infrastructure to
position Pinacor as a leader in those markets. Pinacor's relationships with
large information technology service providers such as MicroAge Technology
Services give it the lead in providing procurement services to both large and
small integrators. Pinacor is leveraging its logistics and product assembly
expertise by offering third-party logistics and assembly services to its
suppliers. Pinacor has also expanded its Web-based electronic ordering and
procurement systems to create a virtual inventory system for its customers that
expands the quantity and variety of products that Pinacor can deliver for its
customers. This virtual inventory system, combined with Pinacor's physical
distribution capabilities, is the cornerstone for Pinacor's e-business growth
and development.
DISTRIBUTION SERVICES
Pinacor's product orders are fulfilled through distribution centers
strategically located throughout the United States and Latin America. Products
are delivered in one to three business days to resellers or their end-user
customers anywhere in the continental United States. Combined, Pinacor's
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distribution facilities can distribute products anywhere in the Americas. In
conjunction with product ordering and shipment, Pinacor offers various services
to end-user customers and resellers, including expedited delivery, vendor direct
shipment, custom-labeled shipment, and deferred shipment. Pinacor has
relationships with more than 750 on-demand suppliers to quickly procure products
outside of its major manufacturing alliances. Pinacor also offers consigned
storage and redistribution of customer-owned proprietary products.
RESELLERS
Resellers operate independently. Pinacor generally does not require minimum
purchase levels from its reseller customers. The loss of any single reseller
would not have a material adverse impact on the Company.
COMPETITION
Pinacor operates in a highly competitive environment with other information
technology distributors such as Ingram Micro, Inc., Tech Data Corp., and
Merisel, Inc., both in the United States and Latin America. The information
technology products distribution industry is characterized by intense
competition based primarily on price, product availability, speed and accuracy
of delivery, effectiveness of sales and marketing programs, credit availability,
electronic supply chain linkages to resellers and suppliers, ability to tailor
specific solutions to customers needs, quality and breadth of product lines and
services, availability of technical and product information, and recruitment and
retention of resellers. Pinacor believes that it competes favorably with respect
to each of these factors. As price points have declined, Pinacor believes that
value-added service capabilities (such as integrated logistics services, product
configuration, electronic commerce tools, innovative financing programs, and
contract warehousing) will become more important competitive factors. Some of
Pinacor's current and potential competitors have greater financial, technical,
marketing, and other resources than Pinacor. As a result, they may have the
potential to respond more quickly to new or emerging technologies and changes in
customer requirements, to devote greater resources to development, promotion,
and sales of their products and services, or to be more effective in responding
to competitive bidding situations than Pinacor.
TRADEMARKS AND SERVICE MARKS
Pinacor holds various trademarks and service marks, including, among
others, Pinacor(TM), Ecadvantage(TM) EC Media(TM), Ecworksite(TM)
Netgenuity(TM), EC Configuration(TM), Infotour(TM), 20/20 Group(TM), EC
Document(TM), Powerdisc(TM), and ZData(R). All trademarks and service marks are
registered, or pending registration, in the United States, and certain
trademarks and service marks are registered in various foreign countries. The
marks are not otherwise registered with any states; however, Pinacor also claims
common law rights to the marks based on adoption and use. Management believes
that the value of Pinacor's marks is increasing with the development of its
business, but that the business of Pinacor as a whole is not materially
dependent on such marks.
PRODUCT STRATEGY
Pinacor sells a broad selection of products with a predominant focus on the
products of major systems and peripheral manufacturers. Three suppliers of
Pinacor each represented more than 10% of total product sales for the year ended
October 31, 1999: Compaq, Hewlett-Packard, and IBM. The following table sets
forth the percentage of sales of these suppliers' products for the last three
fiscal years:
1999 1998 1997
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COMPAQ 22% 26% 23%
Hewlett-Packard 20% 19% 20%
IBM 15% 13% 14%
Sales of these three manufacturers' products represented approximately 57%,
58%, and 57% of Pinacor's revenue from product sales during fiscal 1999, fiscal
1998, and fiscal 1997, respectively. Pinacor's agreements with these suppliers
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generally are renewed periodically and permit termination by the vendor without
cause, generally upon 30 to 90 days' notice, depending on the vendor. Pinacor
believes that these provisions are standard in the computer reseller industry.
In addition, Pinacor's business is dependent upon price and related terms and
product availability provided by its key suppliers. During the quarter ended
August 1, 1999, the Company announced a change in the Pinacor product sourcing
relationship with Compaq Computer Corporation ("Compaq"). The effect of this
change is that Pinacor no longer sources certain Compaq products directly from
Compaq. See "Product Supply" for a further discussion of Pinacor's relationship
with Compaq.
Although Pinacor considers its relationships with Hewlett-Packard and IBM
to be good, there can be no assurance that these relationships will continue as
presently in effect or that changes by one or more of these key suppliers in
their terms and conditions, volume discount schedules, or other marketing
programs would not adversely affect Pinacor. Termination or nonrenewal of
Pinacor's agreements with Hewlett-Packard or IBM would have a material adverse
effect on Pinacor's business.
Pinacor continually evaluates its product assortment based on technological
advances, the market for information technology products, and resellers'
requirements related to technological capability, product availability, and
marketability. Over the last several years, Pinacor has expanded its product
offerings in response to market conditions and has established relationships
with new suppliers to distribute, service, and support both high-end,
higher-priced enterprise and computer telephony products as well as
complementary computer peripheral products and software. These products
generally carry higher profit margins than Pinacor's traditional brand name
products and have historically been distributed primarily by wholesale
distributors or sold directly to end-users by manufacturers. Sales of these
products generally require the extension of credit by Pinacor, resulting in
increased working capital requirements.
PRODUCT SUPPLY
The computer reseller industry continues to experience product supply
shortages and customer order backlogs due to the inability of certain
manufacturers to supply certain products. In addition, certain suppliers have
initiated new channels of distribution that increase competition for the
available product supply. The backlog of orders for products distributed by
Pinacor was approximately $173.6 million on October 31, 1999, compared to
approximately $121.8 million on November 1, 1998. Such orders are not
necessarily firm because customers may place orders with several computer
resellers and will accept products from the first computer reseller to provide
delivery. There can be no assurance that suppliers will be able to maintain an
adequate supply of products to fulfill all of Pinacor 's customer orders on a
timely basis. Although Pinacor has not historically encountered such conditions,
the failure to obtain adequate product supplies, if competitors were able to
obtain them, could have a material adverse effect on Pinacor's results of
operations.
During the quarter ended August 1, 1999, the Company announced a change in
the Pinacor product sourcing relationship with Compaq. In October, 1999, the
Company began sourcing certain Compaq products from other Compaq distributors
instead of sourcing directly from Compaq. Compaq has indicated that Pinacor
remains an authorized distributor and reseller and will be able to distribute
the full range of Compaq products. In addition, Pinacor will continue to order
some products directly from Compaq. During the quarter ended August 1, 1999,
Compaq sales decreased approximately $75 million, or 20%, when compared to the
quarter ended May 2, 1999, and for the quarter ended October 31, 1999, Compaq
sales decreased an additional $97 million compared to the quarter ended May 2,
1999. The Company expects a further decline in Compaq revenue as the full impact
of the change in the sourcing relationship is realized. In addition to the
expected declines in Compaq revenue, the Company believes that sales of other
suppliers' products may decrease as customers that purchase Compaq products from
other sources move purchases of other products to those sources. This change
will have a negative impact on the Company's operating results.
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SUPPLIER RELATIONSHIPS
Because of its quantity purchasing capabilities, Pinacor generally obtains
volume discounts from its suppliers, enabling it to sell products to resellers
on more favorable terms than the typical reseller could obtain on its own from
such suppliers. Historically, Pinacor's agreements included provisions designed
to protect Pinacor's inventory risk in the event of price reductions by its
suppliers on eligible products in Pinacor's inventory and to permit the return
of slow-moving and other products for credit (generally at cost minus a
restocking fee). However, suppliers have taken steps to reduce such price
protection. Although Pinacor believes that it will be able to manage inventories
at levels that minimize the risk of non-protected price decreases, there can be
no assurance that losses from price reductions will not be incurred. Such losses
could have a material adverse effect on Pinacor's results of operations. Subject
to product availability, Pinacor carries inventory at levels that it believes
will enable it to meet the anticipated needs of its resellers and end-user
customers and, to a lesser extent, to take advantage of certain vendor discounts
and promotions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information regarding the impact of supplier
incentives on Pinacor's gross profit percentage.
Several major suppliers sponsor payment programs with commercial credit
companies to facilitate product sales to and through resellers. Such programs
generally provide resellers with payment terms averaging 30 days, with certain
suppliers subsidizing a portion of the terms. Under these programs, Pinacor
generally receives payment for product sales within three to five business days,
thus significantly reducing Pinacor's working capital requirements and credit
exposure. Pinacor pays the commercial credit companies for reseller terms not
subsidized by the suppliers. The amount paid by Pinacor for these programs has
increased as suppliers have reduced the amount of reseller purchases that they
will subsidize.
MICROAGE TELESERVICES
GENERAL
Since 1994, MicroAge Teleservices has provided call and contact center
services to various Fortune 500 companies in the technology, logistics,
communications, healthcare, utilities, and consumer products industries.
MicroAge Teleservices offers customized solutions designed to meet specific
client requirements. With three centers in Tempe, AZ, Las Vegas, NV and Santa
Maria, CA, MicroAge Teleservices offers a full range of services to its clients
and their customers.
BUSINESS STRATEGY
MicroAge Teleservices is a committed to delivering quality call and contact
center services to each of its clients. Through a management team of seasoned
call and contact management veterans, MicroAge Teleservices' experience is
utilized every day to ensure that best practices are being implemented and
observed in all areas of operation. MicroAge Teleservices' focus on quality and
process improvement separates it from competitors. Service and support teams
provide world class technical support and customer service to every client.
The mission of MicroAge Teleservices is to help clients acquire customers,
maintain and extend the customer relationship, and provide technical support
services, both by telephone and over the Internet. MicroAge Teleservices
accomplishes this mission by offering solutions that improve clients' customer
satisfaction, competitive position and profitability. MicroAge Teleservices
employs a vertical marketing strategy, and has developed customized solutions to
penetrate key industries.
COMPETITION
Call and contact management services are at the center of a rapidly growing
and dramatically changing area of the Information Technology Services market.
Recent growth in the industry is closely tied to a paradigm shift that is
affecting an increasing number of corporations throughout the world that are
investing in technology and processes to better position themselves to maximize
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customer relationships. These companies will demand services from a growing list
of providers with superior call center and customer care capabilities in order
to become more customer-centric. Moreover, to deal with increased competitive
pressures, larger and more geographically dispersed client
bases, and more expansive technology infrastructures, many companies are opting
to leverage outsourcing partners' capabilities, people, technology and processes
already in place.
MicroAge Teleservices competitors include APAC Customer Services, Inc.,
Centrobe, Convergys Corporation, Sitel Corporation, Sykes Enterprises, Inc.,
TeleSpectrum Worldwide Inc., TeleTech Holdings, Inc., and West TeleServices
Corporation.
QUALITY INTEGRATION SERVICES
GENERAL
Quality Integration Services (QIS) offers custom integration services to
customers from its ISO 9001-certified facilities located in Tempe, AZ and
Cincinnati, OH. QIS also has an IBM co-location facility in Raleigh, NC. QIS
provides a wide spectrum of integration services including systems assembly,
including refurbishment, concurrent engineering; design, assembly, and prototype
testing; and vendor service upgrades. QIS has the ability for custom integration
utilizing any equipment from boxes to modems to hard drives of any OEM. Each
integrated system is tested and inspected before delivery to ensure that
manufacturer and customer specifications are met. QIS can incorporate unique or
highly complex system testing requirements into the integration process. QIS
also direct-ships configured systems to end-user customers, allowing resellers
to service these customers more profitably by reducing inventory levels,
carrying costs, and freight expense, and by freeing up technical staff. The
repair, refurbishment, and HotSwap programs offered allow the customer to send
in their computers or laptops to receive a working product with their
specifications within 24 hours. The Company's long-standing relationships with
all major technology manufacturers allows QIS to provide the latest and best
technology to clients and to provide consistent integration of multi-vendor
solutions.
BUSINESS STRATEGY
Quality Integration Services provides services to current customers in the
following areas: custom integration; channel assembly; contract manufacturing,
including full service Kiosk manufacturing; depot services; and network design
of computers and related products in an ISO-9001 environment. This will result
in total customer satisfaction and will be accomplished through the application
of best-in-class processes as follows:
* Technical Project Management * Consultation
* Systems Process Engineering * Manufacturing Technologies
* Management Practices * Associate Development
* Teamwork * Continous Improvement
QIS' internal organization is structured to focus on the customer. QIS
develops monthly forecasts in order to manage work flow and staffing levels at
its facilities. This close communication among facilities results in better cost
containment and improved service to customers. QIS will continue to develop new
business opportunities by providing project management, consulting, systems
process engineering, deskside services, and systems administration.
CONTRACT MANUFACTURING
Currently, QIS does most of its business with MicroAge Technology Services
and Pinacor but is expanding into the Contract Manufacturing arena. QIS plans to
grow its contract manufacturing business through the addition of targeted
clients. Co-location will enhance the cycle time costs in the integration supply
chain. QIS is a full-service manufacturer of kiosk system that can be
manufactured for any custom needs. This includes complete design, prototype,
programming, assembly, installation and on-going support services.
Quality Integration Services has the ability and infrastructure to perform
contract manufacturing activities. QIS assembles consumer, and industrial
electronic products in a high-volume, high-mix environment. In addition to
assembly of such products such as circuit boards, QIS deals with personal
computers, automotive components, communications and network gear and digital
set-up boxes. QIS is a full-service manufacturer of kiosk systems that can be
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manufactured for any custom needs. This includes complete design, prototype,
programming, assembly, installation and on-going support services.
EMPLOYEES
GENERAL
None of the Company's employees are represented by labor unions. The
Company considers its employee relations to be good.
MICROAGE TECHNOLOGY SERVICES
As of October 31, 1999, MicroAge Technology Services employed approximately
2,300 persons, approximately 2,000 of whom were employed at its branch
locations.
PINACOR
As of October 31, 1999, Pinacor employed approximately 1,400 persons.
MICROAGE TELESERVICES
As of October 31, 1999, MicroAge Teleservices employed approximately 1,000
persons.
QUALITY INTEGRATION SERVICES
As of October 31, 1999, Quality Integration Services employed approximately
400 persons.
GOVERNMENT REGULATION
Although the Company is not presently offering or selling franchises, the
Company remains subject to a substantial number of state laws regulating
franchise operations. In certain cases, statutes and court-created doctrines
apply substantive standards to the relationship between franchisor and
franchisee, including restrictions on the Company's ability to terminate or
refuse to renew a franchise agreement. The Company believes it is in substantial
compliance with all such regulations.
SEASONALITY
Although the Company's financial performance has not exhibited significant
seasonality in the past, the Company and the computer industry in general tend
to follow a sales pattern with peaks occurring near the end of the calendar
year, due primarily to special vendor promotions and year-end business
purchases.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of February 17, 2000:
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---- --- --------
John H. Andrews 43 Executive Vice President; President, MicroAge
Teleservices, L.L.C.
James H. Domaz 44 Vice President, Corporate Counsel, and Secretary
Christopher J. Koziol 39 President and Chief Operating Officer
Donald J. Lyons 60 President, Pinacor, Inc.
Jeffrey D. McKeever 57 Chairman of the Board and Chief Executive Officer
Mark D. Mumford 37 Senior Vice President - Operations, MicroAge
Technology Services, L.L.C.
Raymond L. Storck 39 Vice President, Controller, Interim Chief
Financial Officer and Treasurer
Jeffery M. Swanson 46 President, MicroAge Technology Services, L.L.C.
Robert W. Zack 37 Vice President - Finance, Pinacor, Inc.
10
<PAGE>
JOHN H. ANDREWS has served as President of MicroAge Teleservices, L.L.C.
since October 1999, and as Executive Vice President of the Company since
February 1998. Mr. Andrews served as President, Logistics Group of the Company
from November 1996 to February 1998 and as President, MicroAge Logistics
Services, MCCI, from July 1993 to February 1998. He also served as Vice
President-Logistics of the Company from December 1995 to November 1996; Vice
President-Operations from July 1993 to December 1995; Group Vice President,
Operations from January 1993 to July 1993; Vice President and Chief Financial
Officer from June 1990 to January 1993; and as Treasurer from June 1991 to
January 1993. Mr. Andrews joined the Company in 1984 and served as Principal
Accounting Officer from December 1988 to June 1990.
JAMES H. DOMAZ has served as Vice President since November 1997, Corporate
Counsel of the Company since November 1996, Secretary since December 1999,
Assistant Secretary from November 1996 to December 1999, Legal Counsel from
April 1996 to November 1996, and Associate Counsel from May 1993 to April 1996.
Prior to joining the Company he served as General Counsel for C&L Distributing,
Inc. from May 1991 to May 1993.
CHRISTOPHER J. KOZIOL has served as President and Chief Operating Officer
since February 2000. Mr. Koziol served as President of MicroAge Technology
Services, L.L.C. from October 1999 to February 2000 and as Executive Vice
President of the Company since September 1998. Mr. Koziol served as President,
Distribution Group from November 1996 to July 1998, and as Senior Vice
President-Sales of the Company from May 1996 to September 1998. Mr. Koziol
served as President, Pinacor, Inc. from March 1998 to August 1998. He served as
President, MicroAge Infosystems Services, Inc. from October 1995 to January
1997, as President, MicroAge Infosystems Services, MCCI, from July 1993 to
October 1995, and as Vice President, Sales, MCCI, from January 1992 to July
1993. He joined the Company in September 1985 and served as Director-Regional
Support from March 1988 to December 1991.
DONALD J. LYONS has served as President of Pinacor, Inc. since February
2000. Mr. Lyons served as Group Vice President, Procurement and Logistics of
Pinacor, Inc. from March 1998 to February 2000. Prior to joining Pinacor, Inc.,
Mr. Lyons held various management positions in distribution, products,
marketing, and customer service at MicroAge, Inc.
JEFFREY D. MCKEEVER has served as Chief Executive Officer since February
1987 and as Chairman of the Board since October 1991. Mr. McKeever co-founded
the Company in August 1976 and has served as a director of the Company since
October 1976. He also served as President from June 1995 to January 1996, from
January 1993 to February 1993, and from February 1987 to October 1991, as
Chairman of the Board and Secretary from October 1976 to February 1987, and as
Treasurer from October 1976 to February 1983 and from February 1987 to December
1988.
MARK D. MUMFORD has served as Senior Vice President-Operations of MicroAge
Technology Services, L.L.C. since October 1999. Mr. Mumford was Group Vice
President-Finance of Pinacor, Inc. from March 1998 to October 1999. Mr. Mumford
was Vice President of Supplier Finance and Pricing at MicroAge, Inc. from 1996
to 1998. Prior to that, he held various positions with the Company, including
Controller from 1995 to 1996. Mr. Mumford joined MicroAge in 1990 as senior
accounting manager. In 1992, he assumed the position of Director of Financial
11
<PAGE>
Accounting, Reporting and Acquisitions. Prior to joining the Company, Mr.
Mumford held positions with PricewaterhouseCoopers and Deloitte & Touche. Mr.
Mumford is a certified public accountant.
RAYMOND L. STORCK has served as Interim Chief Financial Officer and
Treasurer since February 2000 and as Vice President, Controller since July 1993.
Mr. Storck served as Assistant Treasurer of the Company from October 1991 to
February 2000. He joined the Company in 1986 and served in positions in
accounting, reporting and analysis, including Director of Planning and Analysis
from June 1990 to July 1991.
JEFFREY M. SWANSON has served as President of MicroAge Technology Services,
L.L.C. since February 2000. Mr. Swanson served as Senior Vice President and
Regional General Manager for MicroAge from May 1998 to February 2000. Mr.
Swanson served as President, MicroAge Solutions, from December 1994 to May 1998,
and as a branch General Manager from October 1991 to December 1994. Prior to
joining the Company, he held various positions with AmeriData, Inc. since
February 1981, culminating with Executive Vice President, Sales and Marketing.
ROBERT W. ZACK has served as Vice President, Finance, of Pinacor, Inc.
since February 1999. Prior to joining Pinacor, Mr. Zack served as the Chief
Financial Officer of NIENEX, Inc. from September 1995 to February 1999. Mr. Zack
served as Controller, MicroAge Enterprises, Inc. during November 1994 to
September 1995. Prior to joining MicroAge Enterprises, Mr. Zack held various
executive and financial management roles at Active Noise and Vibration
Technologies, Pinnacle West Capital Corporation and Arthur Andersen & Company.
Mr. Zack is a certified public accountant.
ITEM 2. PROPERTIES
GENERAL
All facilities are leased except for a building in Tempe, AZ that houses
MicroAge Technology Services' executive offices. The Company believes that its
properties and equipment are well-maintained, in good operating condition, and
adequate for its present foreseeable needs.
MICROAGE
MicroAge's executive offices are located in Tempe, AZ.
MICROAGE TECHNOLOGY SERVICES
MicroAge Technology Services' executive offices are located in Tempe, AZ.
As of October 31, 1999, MicroAge Technology Services operated branches in the
following cities: Anchorage, AK; Phoenix, AZ; Dublin, Santa Ana, and Van Nuys,
CA; Englewood, CO; Milford, CT; Boca Raton, Jacksonville, Miami, and Tampa, FL;
Norcross, GA; Chicago, IL; Indianapolis, IN; Gaithersburg, MD; Burlington, MA;
Novi, MI; Plymouth, MN; Chesterfield, MO; Hampton, NH; Edison, NJ; New York, NY;
Raleigh, NC; Cincinnati and Columbus, OH; Oklahoma City and Tulsa, OK; Portland,
OR; Exton and Pittsburgh, PA; Greenville, SC; Memphis and Nashville, TN; Houston
and Irving, TX; Richmond, VA; Bellevue, WA; and Brookfield, WI.
PINACOR
Pinacor's executive offices are located in Tempe, AZ. Pinacor operates
automated distribution and logistics centers in Tempe, AZ and Cincinnati, OH
which occupy approximately 300,000 square feet each. In addition, Pinacor has a
distribution center in Miami, FL occupying appoximately 60,000 square feet.
Pinacor also has in-country distribution facilities in Colombia, Venezuela,
Bolivia, and Ecuador.
MICROAGE TELESERVICES
MicroAge Teleservices executive offices are located in Tempe, AZ. MicroAge
Teleservices conducts its business from three strategically located call centers
occupying approximately 58,000 square feet in Las Vegas, NV; approximately
60,000 square feet in Tempe, AZ, and approximately 58,000 square feet in Santa
Maria, CA.
12
<PAGE>
QUALITY INTEGRATION SERVICES
Quality Intergration Services has ISO 9001-certified facilities located in
Tempe, AZ and Cincinnati, Ohio. Quality Integration Services also has an IBM
co-location assembly and distribution facility in Raleigh, NC.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct of
its business. There are currently no material pending proceedings to which the
Company or any of its subsidiaries is a party or of which any of its property is
the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market under
the symbol MICA and is quoted on the Nasdaq Stock Market. The following table
sets forth the quarterly high and low sale prices for the common stock as
reported by the Nasdaq Stock Market for the two most recent fiscal years:
RANGE OF SALES PRICES
FISCAL 1998 HIGH LOW
----------------------------------------------------
First Quarter $25 3/4 $10 9/16
Second Quarter $16 $11 9/16
Third Quarter $16 1/16 $13
Fourth Quarter $15 11/16 $8 29/32
FISCAL 1999 HIGH LOW
----------------------------------------------------
First Quarter $18 5/8 $13 5/8
Second Quarter $15 5/8 $4 5/8
Third Quarter $6 1/8 $3 17/32
Fourth Quarter $3 17/32 $2 1/16
As of December 31, 1999, there were approximately 1,484 stockholders of
record of the common stock. The Company believes that as of such date there were
approximately 12,546 beneficial holders of the common stock.
The Company has never declared or paid a cash dividend on its common stock
and does not presently intend to do so. Future dividend policy will depend upon
the Company's earnings, capital requirements, financial condition, and other
factors deemed relevant by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five fiscal year periods
ended October 31, 1999 are derived from the Company's Consolidated Financial
Statements. The selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements and related notes included elsewhere
in this report. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
13
<PAGE>
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------------------------------------
Oct. 31, Nov. 1, Nov. 2, Nov. 3, Oct. 29,
1999 (1) 1998 (2) 1997 1996 1995 (3)
-------- -------- ---- ---- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue $ 6,149,613 $ 5,520,031 $4,379,208 $3,608,230 $3,018,288
Gross profit 372,980 353,241 297,465 206,981 162,608
Income (loss) before income taxes (194,610) (7,418) 43,579 26,543 3,211
Net income (loss) (169,022) (8,325) 25,197 15,529 1,862
Diluted net income (loss) per
common share $ (8.22) $ (0.42) $ 1.43 $ 0.94 $ 0.12
Diluted weighted average common
and common equivalent shares 20,571 19,783 17,635 16,452 15,910
BALANCE SHEET DATA:
------------------------------------------------------------------
Oct. 31, Nov. 1, Nov. 2, Nov. 3, Oct. 29,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Working capital $ 59,331 $ 78,610 $ 126,264 $ 114,965 $ 110,310
Total assets 786,643 1,315,143 919,396 711,979 594,474
Long-term obligations 49,080 5,553 35,187 3,991 4,176
Stockholders' equity 132,894 290,486 262,325 191,580 171,908
</TABLE>
- ----------
(1) The fiscal year ended October 31, 1999 included $147,462,000 of
restructuring and other one-time charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) The fiscal year ended November 1, 1998 included $5,600,000 of restructuring
and other one-time charges.
(3) The fiscal year ended October 29, 1995 included $9,029,000 of restructuring
and other one-time charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Item may be "forward-looking statements" within
the meaning of The Private Securities Litigation Reform Act of 1995. Words such
as "estimates," "expects," "anticipates," "plans," "believes," "projects," and
similar expressions identify forward-looking statements. These forward-looking
statements may include projections of revenue and net income and issues that may
affect revenue or net income; projections of capital expenditures; plans for
future operations; financing needs or plans; plans relating to the Company's
products and services; and assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking information. Some of the important factors that
could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors; capital
intensive nature of the Company's business; potential fluctuations in quarterly
14
<PAGE>
results; risks of declines in inventory values; dependence on information
systems; dependence on independent shipping companies; rapid technological
change; and possible volatility of stock price. Exhibit 99.1 to this Annual
Report on Form 10-K, which is attached hereto and incorporated by reference
herein, discusses these important factors in greater detail. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
FISCAL 1999 DEVELOPMENTS
During fiscal 1999, the Company experienced increased competitive pressure
and other economic factors that have negatively impacted the Company's gross
margins and operating results. In response to these conditions, the Company took
actions to decrease operating expenses. These actions included the elimination
of positions at Pinacor and MicroAge Technology Services, the closure of branch
locations, and the exiting of several businesses that were no longer consistent
with the strategic direction of the Company.
In addition, during the second fiscal quarter of 1999, the Company
reassessed the recoverability of its goodwill due to changes in the computer
integration and distribution industry as well as recent operating losses. The
Company determined that, based on cash flow and other market analyses, a
substantial portion of its goodwill was impaired. Charges were also recognized
during the first half of fiscal year 1999 related to the conversion and
implementation of a new branch automation system, as well as the completion of
the separation of the Company into two independent businesses (Pinacor and
MicroAge Technology Services) which started in February 1998. See Note 14 to
financial statements - Restructuring and Other One-Time Charges.
In connection with these developments, the Company recorded restructuring
and other expenses in the last three quarters of fiscal 1999 aggregating $174
million ($151 million, or $7.35 per share after taxes). These charges included
$123 million for the write-down to net realizable value of goodwill, $13 million
for the write off of assets no longer utilized or otherwise impaired after the
system conversion and completion of the company split described above, $10
million for employee termination benefits, $12 million for facility
consolidation and business exit costs, and $8 million related to Pinacor's Latin
America distribution business. The charges for Pinacor Latin America were
primarily the result of the deterioration of the South American economy and
consist of receivable and inventory write downs and the write down of Pinacor's
investment in several Latin American companies. In addition, the company
resolved legal matters and recorded expenses of $8 million in the fourth quarter
of fiscal 1999.
The total charges of $174 million include $26 million of charges that were
recorded as components of cost of sales, operating expenses and other expense in
the accompanying statements of operations. The following table illustrates the
recognition within the consolidated statements of operations of the
restructuring and other unusual charges described above (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1999
--------------------------------------------
Restructuring
and other
As reported unusual charges As adjusted
----------- --------------- -----------
<S> <C> <C> <C>
Cost of sales $5,776,633 $ 6,016 $5,770,617
Operating expenses 378,911 17,870 361,041
Restructuring and other one-time charges 147,462 147,462 --
Operating income (loss) (153,393) 171,348 17,955
Other expenses - net 41,217 2,350 38,867
Loss before income taxes $ (194,610) $ 173,698 $ (20,912)
</TABLE>
The Company is continuing to reduce its expense structure and anticipates
additional restructuring costs in fiscal 2000 related to further consolidation
of branch and warehouse locations and headcount reductions. On February 16, 2000
the Company announced the reduction of approximately 250 positions and
additional cost cutting initiatives.
15
<PAGE>
During the quarter ended May 2, 1999, the Company announced a change in the
Pinacor product sourcing relationship with Compaq Computer Corporation
("Compaq"). In October 1999, Pinacor began sourcing certain Compaq products from
other Compaq distributors instead of sourcing directly from Compaq. Compaq has
indicated that Pinacor remains an authorized distributor and reseller and will
be able to distribute the full range of Compaq products. In addition, Pinacor
will continue to order some products directly from Compaq. The Company believes
that this change will have a negative impact on its operating results; however,
the amount of the impact cannot be determined at this time.
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, data as
percentages of total revenue:
Fiscal years ended
-------------------------------------------
Oct. 31, Nov. 1, Nov. 2,
1999 1998 1997
---- ---- ----
Revenue 100.0% 100.0% 100.0%
Cost of sales (1) 93.8 93.6 93.2
---------- ---------- ----------
Gross profit (1) 6.2 6.4 6.8
Operating and other expenses
Operating expenses (1) 5.9 5.8 5.2
Restructuring and other one-time
charges (2) 2.8 0.1 --
---------- ---------- ----------
Total 8.7 5.9 5.2
---------- ---------- ----------
Operating income (2.5) 0.5 1.6
Other expenses - net (1) 0.6 0.7 0.6
---------- ---------- ----------
Income (loss) before income taxes (3.1) (0.2) 1.0
Provision for income taxes (0.4) -- 0.4
---------- ---------- ----------
Net income (loss) (2.7)% (0.2)% 0.6%
========== ========== ==========
(1) Calculations for the fiscal year ended October 31, 1999 exclude the effects
of $26 million of charges discussed above. Inclusion of such expenses would
result in the following percentage relationship to net sales for the year:
Cost of sales 93.9%
Gross profit 6.1
Operating expenses 6.2
Other expenses - net 0.7
(2) Calculations for the fiscal year ended October 31, 1999 include the effects
of $26 million of charges excluded from cost of sales, gross profit,
operating expenses and other expenses as discussed in footnote (1) above.
The following discussion of results of operations for the fiscal year ended
October 31, 1999 exclude the effect of the restructuring and other unusual
charges discussed above in "Fiscal 1999 Developments".
FISCAL YEAR ENDED OCTOBER 31, 1999 VERSUS FISCAL YEAR ENDED NOVEMBER 1, 1998
Total Revenue. Total revenue during fiscal 1999 was $6.1 billion. Pinacor
revenues totaled $5.4 billion and MicroAge Technology Services (MTS) revenues
totaled $1.8 billion. On a consolidated basis, these revenues were partially
offset by eliminations of intercompany revenues of $1.2 billion.
Total revenue increased $630 million, or 11%, for the fiscal year ended
October 31, 1999 as compared to the fiscal year ended November 1, 1998. This
revenue increase included a $429 million, or 9%, increase in Pinacor revenue, a
$35 million, or 2%, increase in MTS revenue and a $173 million decrease in
intercompany eliminations.
16
<PAGE>
The increase in business was attributable to sales to resellers added since
November 1, 1998, increased demand for the Company's major suppliers' products,
the Company's addition of new product offerings, service revenue growth, and the
growth of the microcomputer products industry. Total revenue decreased in the
third and fourth fiscal quarters compared to the second fiscal quarter primarily
as a result of the change in Pinacor's sourcing relationship with Compaq
described above in Fiscal 1999 Developments, and to a focus within MTS to reduce
unprofitable product revenue. In addition, the Company believes that a portion
of the decrease in volume is attributable to a price increase instituted by
Pinacor during the quarter ended May 2, 1999. The Company anticipates lower
revenue in its first fiscal quarter ending January 30, 2000 due to the full
impact of the Compaq sourcing relationship and to lower customer demand
partially as a result of Y2K concerns.
Gross Profit Percentage. The Company's gross profit percentage was 6.2% for
the fiscal year ended October 31, 1999 and 6.4% for the fiscal year ended
November 1, 1998.
The decrease in the Company's gross profit percentage was due to lower
margins in Pinacor combined with the fact that MTS revenues, which have higher
gross margins, comprised a smaller percentage of total revenues. In Pinacor,
gross margins on sales to reseller customers decreased due to increased
competitive pressures. In addition, changes in supplier terms and conditions
impacted Pinacor margins. Supplier incentive funds were lower as a percentage of
total Pinacor revenue, and due to reductions in price protection and return
privileges, product costs were higher in fiscal 1999 compared to fiscal 1998.
MTS margins increased for the fiscal year ended October 31, 1999 compared to the
fiscal year ended November 1, 1998 primarily due to an increase in service
revenue as a percentage of total revenue. MTS increased its focus on service
revenue growth during the year. In addition, MTS reduced certain unprofitable
product revenue during the fiscal year.
Future gross profit percentages may be affected by market pressures, the
introduction of new Company initiatives, changes in revenue mix, changes in
supplier incentive funds, changes in suppliers' terms and conditions, the
Company's utilization of early payment discount opportunities, supplier pricing
actions, and other competitive and economic pressures. See "Potential
Fluctuations in Operating Results" below for information regarding industry
trends that may affect future gross profit percentages.
Operating Expense Percentage. As a percentage of revenue, operating
expenses were 5.9% for the fiscal year ended October 31, 1999, compared to 5.8%
for the fiscal year ended November 1, 1998. The Company began taking steps to
decrease its operating expenses, including the elimination of positions in
Pinacor and MTS and the closure of branches as well the consolidation of
headquarters facilities in the third and fourth quarters of fiscal 1999 and will
continue to reduce operating expenses during the fiscal year ended October 29,
2000.
Other Expenses - Net. Other expenses - net increased to $38.9 million for
the fiscal year ended October 31, 1999 from $33.4 million for the fiscal year
ended November 1, 1998. Financing costs increased due to increased average
borrowings as a result of changes in the Company's major suppliers' policies.
During the first quarter of fiscal 1999, certain major suppliers changed the
terms of their credit arrangements with the Company. These changes include a
decrease in the number of days the Company has to pay for product purchases and
a decrease in the amount of reseller purchases from the Company that the
suppliers are willing to subsidize. These changes increased the Company's
working capital requirements and financing costs. These increases were partially
offset by a decrease in amortization expense due to the write-down of impaired
goodwill during the second quarter.
Income Tax Provision. As a percentage of the loss before tax, the income
tax benefit was 13.2% for the fiscal year ended October 31, 1999 compared to a
provision equal to 12.2% of the loss before tax for the fiscal year ended
November 1, 1998. The change in the effective tax rate is due to the impact of
permanent differences, primarily consisting of goodwill write-offs and
amortization and meals and entertainment expenses, between the book loss and the
taxable loss.
17
<PAGE>
FISCAL YEAR ENDED NOVEMBER 1, 1998 VERSUS FISCAL YEAR ENDED NOVEMBER 2, 1997
Total Revenue. Total revenue during fiscal 1998 was $5.5 billion. Pinacor
revenues totaled $5.0 billion and MTS revenues totaled $1.8 billion. On a
consolidated basis, these revenues were partially offset by eliminations of
intercompany revenues of $1.3 billion.
Total revenue increased $1.1 billion, or 26%, for the fiscal year ended
November 1, 1998 as compared to the fiscal year ended November 2, 1997. This
revenue increase included a $901 million, or 22%, increase in Pinacor revenue
and a $277 million, or 18%, increase in MTS revenue, partially offset by an
increase in intercompany eliminations.
The increase in revenue was attributable to sales to resellers added since
November 2, 1997, increased demand for the Company's major suppliers' products,
improved product availability, the Company's addition of new product offerings,
the growth of the microcomputer products industry and acquisitions of reseller
locations.
Gross Profit Percentage. The Company's gross profit percentage was 6.4% for
the fiscal year ended November 1, 1998 and 6.8% for the fiscal year ended
November 2, 1997.
The decrease in the Company's gross profit percentage was due to lower
margins in Pinacor combined with the fact that MTS revenues, which have higher
gross margins, comprised a smaller percentage of total revenues. In Pinacor,
gross margins on sales to reseller customers decreased due to increased
competitive pressures. In addition, supplier incentive funds were lower as a
percentage of total Pinacor revenue, and net freight expense increased as a
percentage of revenue. The freight expense increase as a percentage of revenue
was primarily due to a decrease in the average selling price per pound of
product shipped as well as an increase in the cost per pound shipped. MTS
margins increased due to an increase in service revenue, which has higher gross
margins than product revenue margins. This increase was partially offset by
lower margins on MTS product sales to end-user customers due to competitive
pricing pressures.
Operating Expense Percentage. As a percentage of revenue, operating
expenses increased to 5.8% for the fiscal year ended November 1, 1998, compared
to 5.2% for the fiscal year ended November 2, 1997. The increase in operating
expenses was primarily in MicroAge Technology Services and was attributable to
acquisitions of reseller locations (which generally have higher gross margin and
operating expense percentages than the Company's other businesses), the costs
associated with assimilating these acquisitions, start-up costs of several new
locations, and the build-up of infrastructure associated with MTS' increasing
levels of service revenue.
Restructuring and Other One-Time Charges. The Company recorded a $5.6
million charge ($3.2 million, or $0.16 per share, after taxes) for the second
quarter of fiscal 1998. The restructuring and other one-time charges included
$3.6 million for employee termination benefits, $1.1 million for the closing and
consolidation of redundant locations, and $0.9 million for other costs related
to the restructuring, primarily one-time costs incurred in establishing Pinacor
and MTS as separate businesses. The charges associated with employee termination
benefits consisted primarily of severance pay for approximately 250 associates.
The reductions occurred in virtually all areas of the Company.
Other Expenses - Net. Other expenses - net increased to $33.4 million for
the fiscal year ended November 1, 1998 from $27.6 million for the fiscal year
ended November 2, 1997. This increase was due to higher average daily
borrowings, primarily in the first two fiscal quarters of fiscal 1998, to
support higher inventory and accounts receivable levels and to increased
amortization expense associated with goodwill from acquisitions.
CHANGES IN SUPPLIER TERMS AND CONDITIONS
The key suppliers of the Company provide various incentives for promoting
and marketing their product offerings. A large portion of the incentives is
passed on to the Company's customers. However, a portion of the incentives
positively impact the Company's income.
18
<PAGE>
Major manufacturers have instituted changes in their sales incentive
programs and inventory management programs. Pursuant to these changes, the major
manufacturers have (i) reduced the amount of product that the Company is allowed
to return, (ii) reduced the amount of price protection coverage offered to the
Company and (iii) changed incentives to programs based on sales of the
manufacturers' products, rather than on purchases of the products from the
manufacturers.
In addition, several of the major suppliers within the computer hardware
industry have changed the terms of their credit arrangements. These changes
include a decrease in the number of days the Company has to pay for product
purchases and a decrease in the amount of reseller purchases from the Company
that the suppliers are willing to subsidize. These changes have increased the
Company's working capital requirements and financing costs. Further changes in
incentives or other terms and conditions could have a material adverse effect on
the Company's operating results.
During the quarter ended August 1, 1999, the Company announced a change in
the Pinacor product sourcing relationship with Compaq. In October 1999, the
Company began sourcing certain Compaq products from other Compaq distributors
instead of sourcing directly from Compaq. Compaq has indicated that Pinacor
remains an authorized distributor and reseller and will be able to distribute
the full range of Compaq products. In addition, Pinacor will continue to order
some products directly from Compaq. During the quarter ended August 1, 1999,
Compaq sales decreased approximately $75 million, or 20%, when compared to the
quarter ended May 2, 1999, and for the quarter ended October 31, 1999 Compaq
sales decreased an additional $97 million compared to the quarter ended May 2,
1999. The Company expects a further decline in Compaq revenue as the full impact
of the change in the sourcing relationship is realized. In addition to the
expected declines in Compaq revenue, the Company believes that sales of other
suppliers' products may decrease as customers that purchase Compaq products from
other sources move purchases of other products to those sources. The amount of
any future revenue decline related to the change in the Compaq relationship
cannot be determined at this time. The lower revenue levels will result in lower
gross profit dollars as well as lower operating expenses. In response to the
Compaq change, Pinacor has taken and will continue to take actions to reduce
operating expenses to partially offset the impact of the revenue decline. The
change in the Compaq relationship will have a negative impact on the Company's
operating results; however, the amount of the impact cannot be determined at
this time.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter depending on certain factors, including, but not limited to, demand for
the Company's information technology products and services, the amount of
supplier incentive funds received by the Company, the results of acquired
businesses, product availability, competitive conditions, new product
introductions, changes in customer order patterns, changes in supplier terms and
conditions and general economic conditions. In particular, the Company's
operating results are sensitive to changes in the mix of product and service
revenues, product margins, inventory adjustments and interest rates. Although
the Company attempts to control its expense levels, these levels are based, in
part, on anticipated revenues. Therefore, the Company may not be able to control
spending in a timely manner to compensate for any unexpected revenue shortfall.
As a result, quarterly period-to-period comparisons of the Company's financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, although the Company's financial
performance has not exhibited significant seasonality in the past, the Company
and the computer industry in general tend to follow a sales pattern with peaks
occurring near the end of the calendar year, due primarily to special supplier
promotions and year-end business purchases.
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.
During the fiscal year ended October 31, 1999, the Company experienced
competitive pressures in its industry which resulted in the Company incurring a
net loss of $169 million which included charges as the Company reassessed the
recoverability of certain long lived assets (see Note 14 to financial
statements). At October 31, 1999 the Company has an accumulated deficit of $88
million.
19
<PAGE>
The Company has taken certain actions to reduce operating costs, including
reductions in headcount and the closure of certain branches (see Note 14 to
financial statements). The Company will continue to implement cost cutting
measures, including additional reductions in headcount and the closure of
additional facilities. The Company has positive net working capital of $59
million at October 31, 1999 and generated cash from operations of $21 million in
the year then ended. The Company's continuing liquidity is contingent upon
improving cash flows through reductions in inventory and accounts receivable,
attaining forecasted sales levels, reducing operating costs, and meeting
financial covenants in its credit facilities as described in Note 6 to the
Company's financial statements. The Company believes that, based on its current
forecast and its existing credit facilities, that cash flows will be sufficient
to meet operating requirements through the end of fiscal year 2000. In addition,
the Company believes that operating results will be sufficient to comply with
the current financial covenants in its credit facilities. However, the Company
has no assurance that it will meet its current forecast. In addition, even minor
adverse changes in the Company's results compared to forecast could cause the
Company to be out of compliance with its financial covenants. In the event the
Company's future operating results fall below management's expectations, the
Company will attempt to renegotiate its credit agreements.
Cash provided by operating activities was $21 million in fiscal 1999 as
compared to $10 million used by operating activities in fiscal 1998. The
decrease was primarily due to a change in cash provided or used by accounts
receivable, inventory, and accounts payable. During fiscal 1999, $280 million
was provided by changes in accounts receivable, compared to $275 million used by
accounts receivable in fiscal 1998. The change was primarily due to a change in
the amount of receivables sold to a finance company. The amount of sold
receivables increased from $39 million at November 1, 1998 to $255 million at
October 31, 1999. The change in inventory provided $149 million in cash compared
to $2 million used in fiscal 1998. The change in inventory was primarily due to
the Company's efforts to decrease inventory levels in response to suppliers'
changes in price protection and return priviliges. Cash used by changes in
accounts payable was $437 million for fiscal 1999 compared to $227 million of
cash provided by changes in accounts payable in fiscal 1998. The change in
accounts payable during fiscal 1999 was primarily due to the changes in supplier
terms and conditions described above. In addition, the Company's accounts
payable was unusually low at the fiscal year end as a result of lower payables
to finance companies as the Company prepared to transition to the new financing
facilities described below.
Cash used in investing activities increased from $50 million in fiscal 1998
to $58 million in fiscal 1999 primarily due to an increase in purchases of
property and equipment as a result of increased spending for electronic commerce
initiatives and capacity expansion in systems and facilities.
Cash provided by financing activities was $64 million in fiscal 1999
compared to of $34 million in fiscal 1998. The change was primarily due to a
smaller increase in the Company's overdraft position offset by increased
borrowings under the Company's line of credit.
During the fiscal year ended October 31, 1999, the Company maintained three
financing agreements (the "Agreements") with financing facilities totaling $660
million at the end of the year. The Agreements included an accounts receivable
facility (the "A/R Facility") and inventory financing facilities (the "Inventory
Facilities").
Under the A/R Facility, the Company had the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At October 31, 1999, the net
amount of sold accounts receivable was $255 million.
The Inventory Facilities provided for borrowings up to $310 million. Within
the Inventory Facilities, the Company had lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") and a
line of credit for general working capital requirements ("Supplemental Line of
Credit"). Payments for products purchased under the Inventory Lines of Credit
varied depending upon the product supplier, but generally were due between 30
and 60 days from the date of the advance. No interest or finance charges were
payable on the Inventory Lines of Credit if payments were made when due. At
October 31, 1999, the Company had $114 million outstanding under the Inventory
Lines of Credit (included in accounts payable in the accompanying Balance
Sheets), and $45 million outstanding under the Supplemental Line of Credit.
Borrowings under the Agreements were secured by substantially all of the
Company's assets, and the Agreements contained certain restrictive covenants,
including tangible net worth requirements and ratios of debt to tangible net
worth and current assets to current liabilities.
20
<PAGE>
On October 28, 1999, the Company entered into new financing facilities (the
"Facilities") to replace the Agreements described above. The Facilities, as
amended, provide for borrowing of up to $540 million and include a $300 million
revolving credit facility (the "Credit Facility") and $240 million in inventory
financing facilities (the "New Inventory Facilities"). The Credit Facility
includes a $145 million sublimit for the issuance of letters of credit.
Borrowings under the Facilities are secured by substantially all of the
Company's assets, subject to other liens permitted under the Facilities. The
Facilities contain certain restrictive covenants, including capital expenditure
limitations, a minimum interest coverage ratio, a minimum earnings before
interest, taxes, depreciation and amortization (EBITDA) amount and a minimum
debt to EBITDA ratio. The initial covenant measurement date is January 30, 2000,
the end of the Company's first fiscal quarter.
Borrowings under the Facilities are limited based on borrowing base
formulas which consider eligible inventories, eligible accounts receivable, and
letters of credit. Borrowings are also subject to the satisfaction of customary
conditions, including the absence of any material adverse change in the
Company's business or financial condition. As discussed above in the 1999 versus
1998 revenue comparison, the Company anticipates lower revenue in its first
fiscal quarter ending January 30, 2000 due to the full impact of the Compaq
sourcing relationship and to lower customer demand partially as a result of Y2K
concerns. With lower operating activity, eligible assets in the borrowing base
calculations are likely to decrease. There can be no assurances that the Company
will be able to borrow adequate amounts on terms acceptable to the Company.
Interest rates on the Credit Facility are based on the agent's base rate
plus a specified margin or LIBOR plus a specified margin. The current margins
are 2.5% for base rate advances and 3.5% for LIBOR advances. The margins may be
adjusted from time to time based on the Company's performance against covenants.
The current borrowing rate is approximately 9.9% compared to approximately 8.4%
for the fourth fiscal quarter of 1999 under the Company's prior agreements. The
Credit Facility also includes letter of credit and unused line fees. The Credit
Facility has a termination date of October 31, 2002.
Payments for products purchased under the New Inventory Facilities vary
depending upon the product supplier, but generally are due between 30 and 45
days from the date of the advance. No interest or finance charges are payable on
the New Inventory Facilities if payments are made when due. The Company has the
ability under one of the New Inventory Facilities to extend payments 30 days
beyond the initial due date with a financing fee of LIBOR plus 3.75%. One of the
New Inventory Facilities has a termination date of October 18, 2002 and the
other has no defined termination date.
Subsequent to October 31, 1999 the Company has refinanced all of its then
outstanding financing arrangements using the Credit Facility and New Inventory
Facilities entered into on October 28, 1999. Had the Credit Facility and New
Inventory Facilities been in use at October 31, 1999 rather than the Company's
prior financing facilities, selected balance sheet accounts on a pro forma basis
would be as follows:
As reported Pro forma
-------- --------
(in thousands)
Accounts receivable, net $220,386 $475,743
Inventory 336,653 336,653
All other current assets 94,806 94,806
-------- --------
Total current assets 651,845 907,202
Accounts payable (1) 549,394 549,394
All other current liabilities 43,120 43,120
-------- --------
Total current liabilities 592,514 592,514
Line of credit 45,000 300,357
(1) Accounts payable includes $114 million in inventory credit facility
borrowings.
21
<PAGE>
The Company's outstanding balance of $45 million on its Supplemental Line
of Credit has been classified as a long-term liability based on the Company's
ability and intent to refinance the obligation on a long-term basis. In
evaluating the ability to refinance the obligation on a long-term basis, in
addition to ensuring a long-term financing facility is in place, the Company has
evaluated its forecasted results of operations and capital requirements in
comparison to its available credit and the financial covenants associated with
its new financing arrangements.
During the first quarter of fiscal year 2000 it became apparent that the
Company would not meet its minimum EBITDA and maximum debt to EBITDA covenants
for the quarter ending January 30, 2000 and for each of the remaining periods in
fiscal 2000. The Company has since renegotiated the covenants for its Credit
facility and its New Inventory Facilities to require minimum EBITDA of $2.5
million in the fiscal quarter ending April 30, 2000 and minimum cumulative
EBITDA of $12 million and $26 million for the two fiscal quarters ending July
30, 2000 and the three fiscal quarters ending October 29, 2000, respectively.
Rolling twelve month EBITDA covenants for fiscal years 2001 and 2002 are based
on quarterly EBITDA requirements ranging from $19 million to $25 million. The
Company also renegotiated its related financial ratio covenants included in the
agreements.
In addition to the financing facilities discussed above, the Company
maintained an accounts receivable purchase agreement (the "Purchase Agreement")
with a commercial credit corporation (the "Buyer") whereby the Buyer purchased,
from time to time at its option, on a limited recourse basis, certain accounts
receivable of the Company. At October 31, 1999, the net amount of sold accounts
receivable under the Purchase Agreement was $36 million. The Purchase Agreement
was canceled subsequent to October 31, 1999.
The Company also maintains trade credit arrangements with its suppliers and
other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
As discussed above, several of the Company's major suppliers have changed
the terms of their credit arrangements with the Company. These changes include a
decrease in the number of days the Company has to pay for product purchases and
a decrease in the amount of reseller purchases from the Company that the
suppliers are willing to subsidize. These changes have increased the Company's
working capital requirements and financing costs. The additional borrowings that
will be required to pay suppliers on shorter terms could exceed the borrowings
available under the Facilities due to collateral constraints.
The unavailability of a significant portion of, or the loss of, the
Facilities or trade credit from suppliers would have a material adverse effect
on the Company.
Although the Company has no material capital commitments, the Company
expects to make capital expenditures of less than $30 million in the next fiscal
year.
INFLATION
The Company believes that inflation has generally not had a material impact
on its operations or liquidity to date.
22
<PAGE>
YEAR 2000
The Company began preparation for the Year 2000 date transition in 1996. In
connection with this effort, the Company completed an inventory of all mission
critical systems with Year 2000 implications, assessed the readiness of those
systems, and replaced, retired or upgraded those systems that were not Year 2000
ready. Additionally, the Company surveyed its stocking manufacturers and
obtained the manufacturer's Year 2000 readiness statements or warranty, where
applicable. During the Year 2000 date transition, the Company did not experience
any failure of mission critical systems nor has it experienced any significant
problem with regard to third party suppliers. The Company does not anticipate
any material adverse effect to its business in the future as a result of Year
2000 related problems; however, it is possible that such problems might still
arise.
The Company estimates that it has spent approximately $2.2 million
upgrading its mission critical systems to be Year 2000 ready. These estimates
include only such expenditures for converting the Company's mainframe and
modifications to desktops, applications that directly interface with the
mainframe unit, and specific phone switches and exclude other expenses incurred
for regularly scheduled updates that would have been taken regardless of the
Year 2000 problem, but result in a system being Year 2000 ready.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of the Company listed in the index
appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on
Form 10-K and are hereby incorporated by reference in this Item 8. See also
"Index to Financial Statements" on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated herein by
reference to the information furnished under the captions "Election Of
Directors" and "Section 16 Requirements" in the Company's Proxy Statement
relating to its 2000 Annual Meeting of Stockholders (the "2000 Proxy
Statement").
Information regarding executive officers of the Company is included in Item
I of this report, furnished under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the information furnished under the captions "Executive
Compensation" and "Other Information Regarding the Board of Directors" in the
2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management of the Company is incorporated herein by reference to the information
furnished under the captions "Security Ownership of Management" and "Principal
Stockholders" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information furnished under the caption
"Certain Relationships and Related Transactions" in the 2000 Proxy Statement.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Consolidated Financial Statements: Page No.
--------
Report of Independent Accountants F-2
Consolidated Balance Sheets at October 31, 1999 and F-3
November 1, 1998
Consolidated Statements of Operations for each of the F-4
fiscal years ended October 31, 1999, November 1, 1988
and November 2, 1997
Consolidated Statements of Cash Flows for each of the F-5
fiscal years ended October 31, 1999, November 1, 1998
and November 2, 1997
Consolidated Statements of Stockholders' Equity for F-6
each of the fiscal years ended October 31, 1999,
November 1, 1998 and November 2, 1997
Notes to Consolidated Financial Statements F-7
(2) Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves S-1
(3) The Exhibits which are filed with this Annual Report
or which are incorporated herein by reference are set
forth in the Exhibit Index which appears on page E-1
hereof, which Exhibit Index is incorporated herein by
reference.
(b) Reports filed on Form 8-K during the quarter ended
October 31, 1999:
(c) See Item 14(a)(3) above.
(d) See "Index to Consolidated Financial Statements"
included under Item 8 to this Annual Report on Form 10-K.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 17th day of
February, 2000.
MICROAGE, INC.
(Registrant)
/s/ Jeffrey D. McKeever
--------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jeffrey D. McKeever Director, Chairman of the Board February 17, 2000
- --------------------------- and Chief Executive Officer
Jeffrey D. McKeever (Principal Executive Officer)
/s/ Lynda M. Applegate Director February 17, 2000
- ---------------------------
Lynda M. Applegate
/s/ Cyrus F. Freidheim, Jr. Director February 17, 2000
- ---------------------------
Cyrus F. Freidheim, Jr.
/s/ Roy A. Herberger, Jr. Director February 17, 2000
- ---------------------------
Roy A. Herberger, Jr.
/s/ William H. Mallender Director February 17, 2000
- ---------------------------
William H. Mallender
/s/ Steven G. Mihaylo Director February 17, 2000
- ---------------------------
Steven G. Mihaylo
/s/ Dianne C. Walker Director February 17, 2000
- ---------------------------
Dianne C. Walker
/s/ Raymond L. Storck Vice President, Controller, February 17, 2000
- --------------------------- Interim Chief Financial Officer
Raymond L. Storck and Treasurer (Principal
Financial and Accounting Officer)
25
<PAGE>
MICROAGE, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets at October 31, 1999 and November 1, 1998 F-3
Consolidated Statements of Operations for each of the fiscal years
ended October 31, 1999, November 1, 1998 and November 2, 1997 F-4
Consolidated Statements of Cash Flows for each of the fiscal years
ended October 31, 1999, November 1, 1998 and November 2, 1997 F-5
Consolidated Statements of Stockholders' Equity for each of the
fiscal years ended October 31, 1999, November 1, 1998 and
November 2, 1997 F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts and Reserves S-1
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of MicroAge, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of MicroAge, Inc. and its subsidiaries at October 31, 1999
and November 1, 1998, and the results of their operations and their cash flows
for the fiscal years ended October 31, 1999, November 1, 1998 and November 2,
1997, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) presents fairly, in all material
respects, the information set forth therein when read in conjuction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix Arizona
February 17, 2000
F-2
<PAGE>
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
October 31, November 1,
1999 1998
----------- -----------
Current assets:
Cash and cash equivalents $ 67,656 $ 41,894
Accounts and notes receivable, net 220,386 529,877
Inventory 336,653 486,150
Other 27,150 24,432
------------ ------------
Total current assets 651,845 1,082,353
Property and equipment, net 102,175 92,147
Intangible assets, net 12,693 126,105
Other 19,930 14,538
------------ ------------
Total assets $ 786,643 $ 1,315,143
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 549,394 $ 967,501
Accrued liabilities 33,065 24,279
Current portion of
long-term obligations 2,497 3,095
Other 7,558 8,868
------------ ------------
Total current liabilities 592,514 1,003,743
Line of credit 45,000 --
Long-term obligations 4,080 5,553
Other long-term liabilities 12,155 15,361
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 208 203
Shares authorized: 40,000,000
Issued: October 31, 1999 - 20,838,211
November 1, 1998 - 20,284,789
Additional paid-in capital 220,522 206,720
Retained earnings (deficit) (87,829) 83,729
Treasury stock, at cost (7) (166)
Issued: October 31, 1999 - 412
November 1, 1998 - 16,378
------------ ------------
Total stockholders' equity 132,894 290,486
------------ ------------
Total liabilities and
stockholders' equity $ 786,643 $ 1,315,143
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fiscal years ended
-----------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
Revenue $ 6,149,613 $ 5,520,031 $ 4,379,208
Cost of sales 5,776,633 5,166,790 4,081,743
----------- ----------- -----------
Gross profit 372,980 353,241 297,465
Operating and other expenses
Operating expenses 378,911 321,683 226,260
Restructuring and other
one-time charges 147,462 5,600 --
----------- ----------- -----------
Total 526,373 327,283 226,260
----------- ----------- -----------
Operating income (loss) (153,393) 25,958 71,205
Other expenses - net 41,217 33,376 27,626
----------- ----------- -----------
Income (loss) before income taxes (194,610) (7,418) 43,579
Provision for (benefit from)
income taxes (25,588) 907 18,382
----------- ----------- -----------
Net income (loss) $ (169,022) $ (8,325) $ 25,197
=========== =========== ===========
Net income (loss) per common and
common equivalent share
Basic $ (8.22) $ (0.42) $ 1.51
=========== =========== ===========
Diluted $ (8.22) $ (0.42) $ 1.43
=========== =========== ===========
Weighted average common and
common equivalent shares
outstanding
Basic 20,571 19,783 16,731
Diluted 20,571 19,783 17,635
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
Fiscal years ended
------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $(169,022) $ (8,325) $ 25,197
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 44,574 40,017 23,637
Provision for losses on accounts
and notes receivable 28,794 13,640 9,208
Restructuring and other
one-time charges 130,917 -- --
Other non-cash charges 1,099 585 365
Changes in assets and liabilities
net of business acquisitions:
Accounts and notes receivable 279,986 (275,115) 63,390
Inventory 149,497 (1,759) (143,786)
Other current assets (2,718) (13,468) 21
Other assets (7,314) (483) (5,547)
Accounts payable (437,161) 227,070 55,169
Accrued liabilities 8,953 (639) (4,345)
Other liabilities (7,016) 8,897 679
--------- --------- ---------
Net cash provided by (used in)
operating activities 20,589 (9,580) 23,988
Cash flows from investing activities:
Purchases of property and equipment (52,903) (42,258) (34,988)
Purchases of businesses and investments
in unconsolidated companies,
net of cash acquired (5,500) (7,259) (1,810)
--------- --------- ---------
Net cash used in investing activities (58,403) (49,517) (36,798)
Cash flows from financing activities:
Amounts received from ESOT -- -- 207
Proceeds from change in
overdraft position 19,994 113,130 (19,971)
Proceeds from issuance of stock,
net of issuance costs 2,864 3,412 5,886
Net borrowings (repayments)
under lines of credit 45,000 (30,650) 30,650
Shareholder distributions -
pooled companies -- (128) (953)
Principal payments on
long-term obligations (4,282) (7,052) (2,665)
--------- --------- ---------
Net cash provided by
financing activities 63,576 78,712 13,154
--------- --------- ---------
Net increase in cash and
cash equivalents 25,762 19,615 344
Cash and cash equivalents
at beginning of period 41,894 22,279 21,935
--------- --------- ---------
Cash and cash equivalents
at end of period $ 67,656 $ 41,894 $ 22,279
========= ========= =========
Supplemental disclosure to cash flows - See Note 13
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
MICROAGE, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
For the fiscal years ended October 31, 1999, November 1, 1998, and November 2, 1997
-----------------------------------------------------------------------------------
Additional Loan to Total
Preferred Common paid-in Retained employee stock Treasury stockholders'
stock stock capital earnings ownership trust stock equity
--------- ------ ---------- -------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at November 3, 1996 $ -- $ 162 $ 124,464 $ 67,885 $(207) $(724) $ 191,580
Options for 438,079
common shares exercised -- 5 4,050 -- -- -- 4,055
Contribution of 31,731 treasury shares to
employee benefit plan -- -- 205 -- -- 262 467
Issuance of 99,703 shares under the
employee stock purchase plan -- 1 1,353 -- -- -- 1,354
Loan payments from ESOT -- -- -- -- 207 -- 207
Issuance of 108,417 shares to acquire
KNB, Inc. -- 1 2,002 -- -- -- 2,003
Issuance of 609,779 shares to acquire
Access MicroSystems, Inc. -- 6 15,894 -- -- -- 15,900
Issuance of 8,000 restricted common shares
to outside directors -- -- 122 -- -- -- 122
Issuance of 932,039 shares to acquire
Pride Technologies, Inc. -- 9 22,496 -- -- -- 22,505
Unearned compensation -
restricted common shares issued to directors -- -- (122) -- -- -- (122)
Compensation expense-
restricted common shares issued to directors -- -- 40 -- -- -- 40
Compensation expense-stock option excercise -- -- 325 -- -- -- 325
15,080 shares of treasury stock acquired through
cashless stock option exercises -- -- -- -- -- (355) (355)
Distributions to shareholders - pooled companies -- -- -- (953) -- -- (953)
Net income -- -- -- 25,197 -- -- 25,197
----- ----- --------- ---------- ----- ----- ---------
BALANCE at November 2, 1997 -- 184 170,829 92,129 -- (817) 262,325
Compensation expense-
restricted common shares issued to directors -- -- 85 -- -- -- 85
Compensation expense-stock options -- -- 500 -- -- -- 500
Options for 79,936
common shares exercised -- 1 534 -- -- -- 535
Issuance of 5,000 restricted common shares
to outside directors -- -- 110 -- -- -- 110
Unearned compensation -
restricted common shares issued to directors -- -- (110) -- -- -- (110)
Issuance of 1,565,730 shares for business
acquisitions -- 16 32,484 -- -- -- 32,500
Issuance of 182,470 common shares
under the employee stock purchase plan -- 2 2,254 -- -- -- 2,256
Contribution of 64,000 shares of treasury stock
to employee benefit plan -- -- 34 -- -- 651 685
Distributions to shareholders - pooled companies -- -- -- (128) -- -- (128)
Unrealized translation gain -- -- -- 53 -- -- 53
Net loss -- -- -- (8,325) -- -- (8,325)
----- ----- --------- ---------- ----- ----- ---------
BALANCE at November 1, 1998 -- 203 206,720 83,729 -- (166) 290,486
Compensation expense-
restricted common shares issued to directors -- -- 99 -- -- -- 99
Compensation expense-stock options -- -- 1,000 -- -- -- 1,000
Issuance of 8,000 restricted common shares
to outside directors -- -- 86 -- -- -- 86
Unearned compensation -
restricted common shares issued to directors -- -- (86) -- -- -- (86)
Options for 62,729 shares exercised -- 1 496 -- -- -- 497
Issuance of 419,682 common shares
under the employee stock purchase plan -- 4 2,364 -- -- -- 2,368
Contribution of 63,011 shares of common stock
to employee benefit plan -- -- 1,043 -- -- -- 1,043
Receipt of 13,871 shares of treasury stock
to pay note -- -- -- -- -- (332) (332)
Acquisition change from pooling to
purchase accounting -- -- 9,124 (2,432) -- -- 6,692
Contribution of 29,837 shares of treasury stock
to employee benefit plan -- -- (324) -- -- 491 167
Unrealized translation loss -- -- -- (104) -- -- (104)
Net loss -- -- -- (169,022) -- -- (169,022)
----- ----- --------- ---------- ----- ----- ---------
BALANCE at October 31, 1999 $ -- $ 208 $ 220,522 $ (87,829) $ -- $ (7) $ 132,894
===== ===== ========= ========== ===== ===== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
MicroAge, Inc. is a global provider of efficient technology solutions. The
Company is composed of information technology businesses that deliver technology
infrastructure solutions through ISO 9001-certified, multi-vendor integration
services and distributed computing solutions to large organizations and computer
resellers worldwide. The Company does business in more than 40 countries and
offers over 50,000 products from more than 500 suppliers backed by a suite of
technical, financial, logistics and account management services.
The Company operates primarily through two wholly-owned subsidiaries: MicroAge
Technology Services, L.L.C. ("MicroAge Technology Services" or "MTS") and
Pinacor, Inc. ("Pinacor"). MTS is a leading provider of technology
infrastructure services worldwide. MTS provides a wide-range of professional
technology services, focusing on Selective Outsourcing, Professional Services
and Technology Procurement. MTS supports customers in more than 40 major US
markets and provides international support through business partner locations
throughout the world.
Pinacor is a wholesale distributor of information technology products and
services. Pinacor markets hardware, networking equipment, software products and
related services to more than 25,000 reseller customers in multiple countries.
Using electronic commerce to streamline the delivery of efficient technology
solutions and services, Pinacor supports customers worldwide from strategic
distribution hubs in the United States and Latin America.
Unless the context otherwise requires, references to the "Company" include
MicroAge, Inc. and its consolidated subsidiaries.
During the fiscal year ended October 31, 1999, the Company experienced
competitive pressures in its industry which resulted in the Company incurring a
net loss of $169 million which included charges as the Company reassessed the
recoverability of certain long lived assets (see Note 14). At October 31, 1999
the Company has an accumulated deficit of $88 million.
The Company has taken certain actions to reduce operating costs, including
reductions in headcount and the closure of certain branches (see Note 14). The
Company will continue to implement cost cutting measures, including additional
reductions in headcount and the closure of additional facilities. The Company
has positive net working capital of $59 million at October 31, 1999 and
generated cash from operations of $21 million in the year then ended. The
Company's continuing liquidity is contingent upon improving cash flows through
reductions in inventory and accounts receivable, attaining forecasted sales
levels, reducing operating costs, and meeting financial covenants on its credit
facilities as described in Note 6. The Company believes that based on its
current forecast and its existing credit facilities that cash flows will be
sufficient to meet operating requirements through the end of fiscal year 2000.
In addition, the Company believes that operating results will be sufficient to
comply with the current financial covenants on its credit facilities. However,
the Company has no assurance that it will meet its current forecast. In
addition, even minor adverse changes in the Company's results compared to
forecast could cause the Company to be out of compliance with its financial
covenants. In the event the Company's future operating results fall below
management's expectations, the Company will attempt to renegotiate its credit
agreements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have been
eliminated.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest October 31 in each calendar
year.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure requirements are
carried in the consolidated financial statements at amounts that approximate
fair value.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
F-7
<PAGE>
CASH OVERDRAFTS
Under the Company's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes. Such
amounts, aggregating $178.5 and $158.5 million at October 31, 1999 and November
1, 1998, respectively, are included as a component of accounts payable in the
accompanying consolidated balance sheets.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are comprised of amounts due from financing
companies, end-users, and resellers and are net of an allowance for doubtful
accounts of $29,680,000 and $20,418,000 at October 31, 1999 and November 1,
1998, respectively.
INVENTORY
Inventory consisting of resale merchandise is stated at lower of cost (first-in,
first-out method) or market. International Business Machines Corporation ("IBM")
products totaling $39,334,000 and $65,775,000 included in inventory at October
31, 1999 and November 1, 1998, respectively, are subject to a reservation of the
title in IBM for the purpose of assuring that such products are sold and
delivered only to IBM-authorized personal computer dealers; such reservation
does not prohibit the Company from granting security interests to other parties.
During the fiscal year ended October 31, 1999, sales of COMPAQ Computer
Corporation, Hewlett-Packard Company and IBM products accounted for
approximately 22%, 20% and 15%, respectively, of the Company's revenue from
sales of merchandise. The sales of no other individual supplier's products
accounted for more than 10% of such revenue during the fiscal year ended October
31, 1999.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on the
straight-line method over their estimated useful lives. Equipment under capital
lease is recorded at the lower of fair market value or the present value of
future lease payments and is amortized on the straight-line method over the
estimated useful life or the term of the lease, whichever is less.
The following reflects the estimated lives by category of property and
equipment:
Furniture, fixtures, equipment and software 3 to 7 years
Equipment under capital lease 3 to 5 years
Leasehold improvements 3 to 5 years
Expenditures for maintenance and repairs are charged to operations in the year
in which the expense is incurred.
F-8
<PAGE>
INTANGIBLE ASSETS
Intangible assets are amortized over their economic lives ranging from three to
fifteen years using the straight-line method. For acquisitions accounted for
under the purchase method, the excess of cost over the fair value of net
identifiable assets acquired is classified as goodwill and is included in
intangible assets. On an ongoing basis, the Company reviews the valuation and
amortization of goodwill. As part of this review, the Company estimates the net
realizable value of goodwill and assesses whether the unamortized balance could
be recovered through expected future cash flows over the remaining life of the
asset. During the second quarter of fiscal 1999, the Company determined that a
portion of its goodwill was impaired and recorded a charge to earnings of $123
million (see Note 14 - Restructuring and Other One-time Charges). At October 31,
1999 no additional impairment was indicated. Intangible assets are net of
$1,533,000 and $16,594,000 of accumulated amortization at October 31, 1999 and
November 1, 1998, respectively.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment. Revenue from
services is recognized as services are performed, or ratably if performed over a
service contract period.
SUPPLIER INCENTIVE FUNDS
In general, suppliers provide the Company with various incentive programs. The
funds received under these programs are generally determined based on the
Company's purchases and/or sales of the suppliers' product. The funds are earned
through marketing programs or meeting purchasing, sales or other objectives
established by the suppliers. Once earned, the funds are applied against product
cost or operating expenses.
ACCOUNTING FOR STOCK BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123"), the Company measures compensation
cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") but provides pro forma disclosures of
net income and earnings per share as if the fair value method (as defined in
SFAS 123) had been applied beginning in 1996 (see Note 8).
COMPREHENSIVE INCOME
Effective November 2, 1998, the company adopted Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption had no material impact on the Company's net income or
stockholders' equity. The Company's applicable components of comprehensive
income for the fiscal years ended October 31, 1999 and November 1, 1998 were
$104,000 of unrealized translation loss and $53,000 of unrealized translation
gain, respectively. These amounts have not been displayed separately in
stockholders' equity as they are immaterial in nature.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled.
F-9
<PAGE>
INCOME PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which replaced the previous presentation of
earnings per share with a dual presentation of basic earnings per share and
diluted earnings per share. Basic earnings per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Dilutive common equivalent shares
consist of stock options and warrants using the treasury stock method. For
fiscal 1999 and 1998, the effect of stock options and warrants totaling 178,266
and 471,735, respectively, is not included as it would be anti-dilutive. The
weighted average common and common equivalent shares consist of the following:
Fiscal years ended
--------------------------------------
October 31, November 1, November 2,
1999 1998 1997
---------- ----------- -----------
(in thousands)
Weighted average common shares 20,571 19,783 16,731
Dilutive effect of stock options
and warrants -- -- 904
------ ------ ------
Weighted average common and common
equivalent shares outstanding 20,571 19,783 17,635
====== ====== ======
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 3 - ACQUISITIONS
During fiscal 1997, the Company completed an acquisition that was accounted for
as a pooling of interests. In fiscal 1999, information was discovered indicating
that stock transactions had taken place rendering the pooling of interest
accounting inappropriate. The impact on the Company's prior year financial
statements was not material, therefore the prior statements have not been
restated to reflect purchase accounting for this transaction. Intangible assets
and equity were adjusted by $6.7 million at October 31, 1999 to reflect the
proper accounting.
During fiscal 1998, the Company completed seven separate acquisitions that were
accounted for using the purchase method of accounting. In each case, the
purchase price was allocated to the assets purchased and the liabilities assumed
based on fair values at the date of acquisition. During the second quarter of
fiscal 1999, the Company determined that a portion of its goodwill was impaired
and recorded a charge to earnings (see Note 2 - Summary of Significant
Accounting Policies - Intangible Assets and Note 14 - Restructuring and Other
One-time Charges). The goodwill associated with each of the acquisitions
described below was included in the fiscal 1999 write-off. These acquisitions
are as follows:
In November 1997, the Company acquired Microretailing, Inc., a Miami-based
distributor, for consideration of $25 million consisting of 1,194,055 common
shares. The excess of the purchase price over the fair value of net assets
acquired was approximately $23.9 million and was being amortized using the
straight-line method over 15 years.
F-10
<PAGE>
Also in November 1997, the Company acquired Advanced Information Services, Inc.,
a reseller, for consideration of $5 million consisting of 207,200 common shares,
plus an earnout agreement with a guaranteed minimum payment of $7.5 million. The
excess of the purchase price over the fair value of net assets acquired was
approximately $12.6 million and was being amortized using the straight-line
method over 15 years. During fiscal 1999, the Company paid $4.5 million in cash
and issued notes totaling $10.0 million for the early termination of the earnout
agreement.
In December 1997, July 1998 and August 1998, the Company acquired resellers in
four separate transactions for consideration of $6 million consisting of $2
million in cash, a total of 164,475 common shares and an earnout with a
guaranteed minimum payment of $1.5 million. The excess of the purchase price
over the fair value of net assets acquired was approximately $4.5 million and
was being amortized using the straight-line method over 15 years.
In June 1998, the Company acquired a reseller for $4.8 million of cash. The
excess of the purchase price over the fair value of net assets acquired was
approximately $4.2 million and was being amortized using the straight-line
method over 15 years.
The effect of these acquisitions on the Company's revenue, income and assets was
not material. Therefore, proforma results are not presented.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following: October 31, November 1,
1999 1998
-------- --------
(in thousands)
Equipment, furniture, fixtures and software $178,321 $157,431
Equipment under capital lease 22,188 20,587
Leasehold improvements 22,262 19,476
Land 3,112 3,112
-------- --------
225,883 200,606
Less: accumulated depreciation
and amortization 123,708 108,459
-------- --------
$102,175 $ 92,147
======== ========
NOTE 5 - LEASES
The following is a schedule by year of future minimum lease obligations under
noncancelable leases together with the present value of the net minimum capital
lease obligations as of October 31, 1999:
F-11
<PAGE>
Operating Capital
Leases Leases
------- -------
Fiscal year ending in: (in thousands)
2000 $15,155 $ 3,030
2001 14,247 2,740
2002 12,087 1,364
2003 8,786 274
2004 5,219 9
Thereafter 2,395 --
------- -------
Total minimum lease obligations $57,889 7,417
=======
Less: amount representing interest 840
-------
Present value of minimum lease obligations $ 6,577
=======
None of the leases contain significant restrictive provisions; however, some of
the leases contain renewal options and provisions for payment by the Company of
real estate taxes, insurance and maintenance costs. Total rent expense was (in
thousands):
Fiscal year ended:
November 2, 1997 $15,007
November 1, 1998 $23,239
October 31, 1999 $26,939
Assets recorded under capital leases are included in Property and Equipment as
follows:
October 31, November 1,
1999 1998
-------- --------
(in thousands)
Equipment $ 22,188 $ 20,587
Accumulated depreciation (15,225) (11,792)
-------- --------
$ 6,963 $ 8,795
======== ========
NOTE 6 - FINANCING ARRANGEMENTS
During the fiscal year ended October 31, 1999, the Company maintained three
financing agreements (the "Agreements") with financing facilities totaling $660
million at the end of the year. The Agreements included an accounts receivable
facility (the "A/R Facility") and inventory financing facilities (the "Inventory
Facilities").
Under the A/R Facility, the Company had the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At October 31, 1999, the net
amount of sold accounts receivable was $255 million and the effective funding
was LIBOR plus 3% (8.4% at October 31, 1999).
The Inventory Facilities provided for borrowings up to $310 million. Within the
Inventory Facilities, the Company had lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") and a
line of credit for general working capital requirements ("Supplemental Line of
Credit"). Payments for products purchased under the Inventory Lines of Credit
varied depending upon the product supplier, but generally were due between 30
and 60 days from the date of the advance. No interest or finance charges were
payable on the Inventory Lines of Credit if payments were made when due. At
October 31, 1999, the Company had $114 million outstanding under the Inventory
Lines of Credit (included in accounts payable in the accompanying Balance
Sheets), and $45 million outstanding under the Supplemental Line of Credit.
F-12
<PAGE>
Borrowings under the Agreements were secured by substantially all of the
Company's assets, and the Agreements contained certain restrictive covenants,
including tangible net worth requirements and ratios of debt to tangible net
worth and current assets to current liabilities.
On October 28, 1999, the Company entered into new financing facilities (the
"Facilities") to replace the Agreements described above. The Facilities provide
for borrowing of up to $540 million and include a $300 million revolving credit
facility (the "Credit Facility") and $240 million in inventory financing
facilities (the "New Inventory Facilities"). The Credit Facility includes a $145
million sublimit for the issuance of letters of credit.
Borrowings under the Facilities are secured by substantially all of the
Company's assets, subject to other liens permitted under the Facilities. The
Facilities contain certain restrictive covenants, including capital expenditure
limitations, a minimum interest coverage ratio, a minimum earnings before
interest, taxes, depreciation and amortization (EBITDA) amount and a minimum
debt to EBITDA ratio. The initial covenant measurement date is January 30, 2000,
the end of the Company's first fiscal quarter.
Borrowings under the Facilities are limited based on borrowing base formulas
which consider eligible inventories, eligible accounts receivable and letters of
credit. Borrowings are also subject to the satisfaction of customary conditions,
including the absence of any material adverse change in the Company's business
or financial condition.
F-13
<PAGE>
Interest rates on the Credit Facility are based on the agent's base rate plus a
specified margin or LIBOR plus a specified margin. The current margins are 2.5%
for base rate advances and 3.5% for LIBOR advances. The margins may be adjusted
from time to time based on the Company's performance against covenants. The
Credit Facility also includes letter of credit and unused line fees. The Credit
Facility has a termination date of October 31, 2002.
Payments for products purchased under the New Inventory Facilities vary
depending upon the product supplier, but generally are due between 30 and 45
days from the date of the advance. No interest or finance charges are payable on
the New Inventory Facilities if payments are made when due. The Company has the
ability under one of the New Inventory Facilities to extend payments 30 days
beyond the initial due date with a financing fee of LIBOR plus 3.75%. One of the
New Inventory Facilities has a termination date of October 18, 2002 and the
other has no defined termination date.
Subsequent to October 31, 1999 the Company has refinanced all of its then
outstanding financing arrangements using the Credit Facility and New Inventory
Facilities entered into on October 28, 1999. Had the Credit Facility and New
Inventory Facilities been in use at October 31, 1999 rather than the Company's
prior financing facilities, selected balance sheet accounts on a pro forma basis
would be as follows:
As reported Pro forma
-------- --------
(in thousands)
Accounts receivable, net $220,386 $475,743
Inventory 336,653 336,653
All other current assets 94,806 94,806
-------- --------
Total current assets 651,845 907,202
Accounts payable (1) 549,394 549,394
All other current liabilities 43,120 43,120
-------- --------
Total current liabilities 592,514 592,514
Line of credit 45,000 300,357
(1) Accounts payable includes $114 million in inventory credit facility
borrowings.
The Company's outstanding balance of $45 million on its Supplemental Line of
Credit has been classified as a long-term liability based on the Company's
ability and intent to refinance the obligation on a long-term basis. In
evaluating the ability to refinance the obligation on a long-term basis, in
addition to ensuring a long-term financing facility is in place, the Company has
evaluated its forecasted results of operations and capital requirements in
comparison to its available credit and the financial covenants associated with
its new financing arrangements.
During the first quarter of fiscal year 2000 it became apparent that the Company
would not meet its minimum EBITDA and maximum debt to EBITDA covenants for the
quarter ending January 30, 2000 and for each of the remaining periods in fiscal
2000. The Company has since renegotiated the covenants for its Credit facility
and its New Inventory Facilities to require minimum EBITDA of $2.5 million in
the fiscal quarter ending April 30, 2000 and require minimum cumulative EBITDA
of $12 million and $26 million for the two fiscal quarters ending July 30, 2000
and the three fiscal quarters ending October 29, 2000, respectively. Rolling
twelve month EBITDA covenants for fiscal years 2001 and 2002 are based on
quarterly EBITDA requirements ranging from $19 million to $25 million. The
Company also renegotiated its related financial ratio covenants included in the
agreements.
In addition to the financing facilities discussed above, the Company maintained
an accounts receivable purchase agreement (the "Purchase Agreement") with a
commercial credit corporation (the "Buyer") whereby the Buyer purchased, from
time to time at its option, on a limited recourse basis, certain accounts
receivable of the Company. At October 31, 1999, the net amount of sold accounts
receivable under the Purchase Agreement was $36 million. The Purchase Agreement
was canceled subsequent to October 31, 1999.
The Company also maintains trade credit arrangements with its suppliers and
other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
NOTE 7 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
October 31, November 1,
1999 1998
------ ------
(in thousands)
Capital lease obligations $6,577 $8,648
Less: current portion 2,497 3,095
------ ------
$4,080 $5,553
====== ======
Following are the annual maturities of long-term obligations (in thousands):
Fiscal year ending in:
2000 $2,497
2001 2,515
2002 1,293
2003 263
2004 9
------
$6,577
======
F-14
<PAGE>
NOTE 8 - STOCKHOLDERS' EQUITY
EMPLOYEE STOCK OPTION AND AWARD PLANS
The Company maintains three incentive plans for officers and other key employees
of the Company: the MicroAge Inc. Long-Term Incentive Plan, approved in fiscal
1994, the 1997 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1998,
and the 1998 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1999,
(the "Incentive Plans"). The Incentive Plans authorize grants of Incentive Stock
Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights,
Performance Shares, Restricted Stock, Dividend Equivalents and other Common
Stock based awards. The total number of shares of common stock available for
awards under the Incentive Plans is 5,800,000.
The Company has issued NQSOs and ISOs under the Incentive Plans at prices
representing the fair market value of the Company's common stock on the date of
the grant. The NQSOs and ISOs are granted for terms of five or ten years and
become exercisable on a pro-rata basis on each anniversary of the grant over a
five-year period as long as the holder remains an employee of the Company. NQSOs
under the Incentive Plans were also granted in fiscal 1994, fiscal 1997, and
fiscal 1999 to selected employees in exchange for the employees' irrevocable
waiver of a specific amount of base salary or bonus otherwise payable by the
Company during a specific period. The options will vest in one-third increments
beginning on the January 1 which is three years following the January 1 of the
calendar year in which the participant elects to waive compensation. No other
awards have been made under the Incentive Plans.
In addition to the Incentive Plans, stock options are available under four plans
for grant to certain officers and employees of the Company at prices
representing the fair market value of the Company's common stock on the date of
the grant. Options under these plans are granted for terms of ten years and
become exercisable on a pro-rata basis on each anniversary date of the grant
over a five to six-year period as long as the holder remains an employee of the
Company.
Changes during fiscal 1997, 1998 and 1999 in options outstanding under the
employee stock option plans (including the Incentive Plans) were as follows:
Weighted
Average
Number Exercise Price
of Options per Share
---------- ---------
Outstanding at November 3, 1996 1,856,143 $ 9.58
Granted 788,379 $20.12
Exercised (438,079) $ 9.44
Canceled or expired (107,474) $14.02
----------
Outstanding at November 2, 1997 2,098,969 $13.28
Granted 1,081,575 $13.99
Exercised (79,936) $ 6.65
Canceled or expired (238,376) $17.63
----------
Outstanding at November 1, 1998 2,862,232 $13.41
Granted 1,249,997 $ 8.24
Exercised (62,729) $ 7.53
Canceled or expired (857,160) $12.71
----------
Outstanding at October 31, 1999 3,192,340 $11.63
==========
Exercisable at October 31, 1999 788,236
==========
F-15
<PAGE>
The following table summarizes information about the Company's stock options at
October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted Weighted Weighted
Avg. Avg. Avg.
Number Contractual Exercise Number Exercise
Range of Outstanding Years Price Exercisable Price
Exercise Prices (in thousands) Remaining per share (in thousands) per share
- --------------- -------------- --------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$5.44 to $9.25 1,562 7.39 6.99 444 8.76
$10.88 to $19.44 1,412 7.80 15.00 270 14.12
$20.38 to $31.75 218 6.62 23.10 74 24.06
------ ------
$5.44 to $31.75 3,192 7.52 11.63 788 12.03
====== ======
</TABLE>
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123"), the Company measures compensation
cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). Had the Company determined
compensation cost in accordance with SFAS No. 123, the Company's net income
(loss) per share would have been reduced to the pro-forma amounts indicated
below (in thousands except per share data):
Fiscal year ended
-----------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
Net income (loss) As reported $(169,022) $ (8,325) $ 25,197
Pro-forma $(172,421) $ (11,009) $ 23,374
Net income (loss)
per common share As reported $ (8.22) $ (0.42) $ 1.43
Pro-forma $ (8.38) $ (0.56) $ 1.33
Pro-forma net income (loss) reflects only options granted after the fiscal year
ended October 30, 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro-forma net
income (loss) amounts presented above because compensation cost is reflected
over the options' vesting period and compensation for options granted prior to
October 30, 1995 is not considered.
The per share weighted-average fair value of the stock options granted under the
plan for the years ended November 2, 1997, November 1, 1998 and October 31, 1999
was $8.35, $11.71 and $4.23 respectively, based on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for all years: expected dividend yield of 0%, expected volatility of
.724, a risk free interest rate of 4.85%, and an expected life of 3.31 years.
F-16
<PAGE>
PINACOR STOCK OPTION
Effective as of May 2, 1998, an option was granted to an associate of the
Company to purchase a total of 60 shares of Pinacor's common stock, representing
six percent of Pinacor's total outstanding shares, at an exercise price of
$150,000 per share. The option vests in installments over a three year period
and terminates on the earliest to occur of (1) May, 2, 2002, (2) the date the
associate ceases to be employed by the Company or any of its subsidiaries for
any reason other than retirement, death or disability, or (3) one year after the
date the associate ceases to be employed by the Company or any of its
subsidiaries by reason of his retirement, death or disability. This option was
terminated on January 12, 2000.
DIRECTOR INCENTIVE PLANS
Under the Company's 1995 Director Incentive Plan, as amended in April 1998 (the
"Director Plan"), on November 1 of each year, commencing in 1998 and ending in
2004, each person serving as a Director of the Company who is not also an
employee of the Company is automatically granted (i) 1,000 shares of the
Company's common stock subject to certain restrictions and (ii) options to
purchase 2,500 shares of the Company's common stock. The options vest over three
years and are subject to certain stock price hurdles after each vesting date. In
addition, options under the Director Plan were granted in fiscal 1999 to
Directors in exchange for the Directors' irrevocable waiver of a specific amount
of Director fees otherwise payable by the Company during a specific period. The
options vest over three years and are subject to certain stock price hurdles
after each vesting date. As of October 31, 1999, 120,833 options had been
granted under the Director Plan at prices ranging from $5.88 to $22.00 per
share. There were 9,667 options exercisable as of October 31, 1999. The
aggregate number of shares of the Company's common stock available for awards
under the 1995 Director Plan is 129,167.
RESTRICTED STOCK PLAN
In accordance with the provisions of a restricted stock plan approved in fiscal
1982, 45,000 shares of common stock were reserved for issuance. At October
31,1999, 39,938 shares had been awarded under the plan, and 5,062 additional
shares may be awarded under the plan.
PREFERRED STOCK PURCHASE RIGHTS
In February 1989, as amended in September 1994, November 1996 and January 1999,
the Company's Board of Directors adopted a Stockholder Rights Agreement (the
"Rights Plan") and declared a dividend distribution of one Right for each share
of the Company's common stock outstanding as of the close of business on March
7, 1989 and intends to issue one Right for each share of common stock issued
between March 7, 1989 and the date of the distribution of the Rights. As
amended, the Rights Plan provides that when exercisable, each Right will entitle
its holder to purchase from the Company one one-hundredth (.01) of a share of
Series C Junior Participating Preferred stock at a price of $19.90. The Company
has reserved 500,000 preferred shares for issuance upon exercise of the Rights.
Generally, the Rights become exercisable on the earlier of the date a person or
group of affiliated or associated persons acquires or obtains the rights to
acquire securities representing fifteen percent (15%) or more of the common
stock of the Company or on the tenth day following the commencement of a tender
or exchange offer which would result in the offeror beneficially owning fifteen
percent (15%) or more of the Company's common stock without the prior consent of
the Company. In the event that an unauthorized person or group of affiliated
persons becomes the beneficial owner of fifteen percent (15%) or more of the
common stock of the Company, proper provision shall be made so that each holder
of a Right will have the right to receive, upon exercise thereof and the payment
of the exercise price, that number of shares of common stock having a market
value of two times the exercise price of the Right. The Rights will expire on
October 29, 2000, unless redeemed earlier by the Company pursuant to
authorization by the Board of Directors.
F-17
<PAGE>
Generally, in the event that the Company is involved in a merger or other
business combination transaction after the Rights become exercisable, provision
shall be made so that each holder of a Right shall have the right to receive,
upon the exercise thereof and the payment of the exercise price, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
Right.
ASSOCIATE STOCK PURCHASE PLAN
In March 1995, as amended in March 1999, 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 1,000,000. The
initial subscription period began July 1, 1995. As of October 31, 1999, 812,626
shares had been purchased under the Associate Plan. The Associate Plan was
suspended effective December 2, 1999. As of that date, no additional payroll
deductions were accepted for the purchase of stock.
NOTE 9 - OTHER EXPENSES - NET
Other expenses - net consists of the following:
Fiscal years ended
-----------------------------------
October 31, November 1, November 2,
1999 1998 1997
-------- -------- --------
(in thousands)
Interest income $ (2,509) $ (3,780) $ (3,907)
Interest expense 5,042 4,375 6,142
Flooring expense (1) 14,902 7,534 4,923
Expenses from the sale of accounts
receivable 15,195 16,468 18,769
Amortization expense 7,579 8,629 1,871
Other 1,008 150 (172)
-------- -------- --------
$ 41,217 $ 33,376 $ 27,626
======== ======== ========
(1) Flooring expense represents amounts paid to finance companies that provide
credit lines to certain reseller customers of the Company.
F-18
<PAGE>
NOTE 10 - INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
Fiscal years ended
------------------------------------------
October 31, November 1, November 2,
1999 1998 1997
-------- -------- --------
(in thousands)
Current
Federal $(17,285) $ 1,698 $ 16,908
State and Foreign 1,107 249 4,241
Deferred (9,410) (1,040) (2,767)
-------- -------- --------
$(25,588) $ 907 $ 18,382
======== ======== ========
The components of deferred income tax expense (benefit) from operations are as
follows:
Fiscal years ended
----------------------------------
October 31, November 1, November 2,
1999 1998 1997
------- ------- -------
(in thousands)
Allowance for doubtful accounts $(4,820) $(2,839) $ (209)
Software development costs 638 2,616 338
Depreciation and amortization (6,858) (863) (1,075)
Restructuring reserves -- -- 210
Inventory valuation allowance 300 (709) (190)
State deferral, net of federal benefit (845) 389 (488)
All other - net 2,175 366 (1,353)
------- ------- -------
$(9,410) $(1,040) $(2,767)
======= ======= =======
Deferred tax assets, which are recorded as a component of other assets or other
current assets, are comprised of the following:
October 31, November 1,
1999 1998
------- -------
Gross deferred tax assets: (in thousands)
Depreciation and amortization $ 5,819 $ --
Allowance for doubtful accounts 7,346 8,282
Inventory valuation 2,680 3,448
Deferred service revenue 210 --
State net operating loss carry forward 1,985 --
Other 7,185 9,324
------- -------
Total gross deferred tax assets 25,225 21,054
------- -------
Gross deferred tax liabilities:
Depreciation and amortization 4,510 2,904
Other 316 264
------- -------
Total gross deferred tax liabilities 4,826 3,168
------- -------
Net deferred tax asset $20,399 $17,886
======= =======
F-19
<PAGE>
In light of the Company's history of profitable operations (excluding
restructuring and other one-time charges), management has concluded that it is
more likely than not that the Company will ultimately realize the full benefit
of its deferred tax assets related to future deductible items. Accordingly, the
Company believes that no valuation allowance is required for the deferred tax
assets in excess of deferred tax liabilities.
The effective tax rate applied to income before income taxes differs from the
expected federal statutory rate as follows:
Fiscal years ended
---------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
Federal statutory rate 35.0% 34.0% 35.0%
Addition (reduction) in taxes
resulting from:
State income taxes, net of
federal tax benefit 1.1 (7.4) 5.5
Non-deductible meals and
entertainment (0.3) (6.3) 0.7
Goodwill amortization (18.7) (31.8) 0.3
Other (3.9) (0.7) 0.7
----- ----- -----
13.2% (12.2)% 42.2%
===== ===== =====
NOTE 11 - COMMITMENTS
The Company has arrangements with major vendors and certain financing companies
to develop inventory and accounts receivable financing facilities for certain
reseller customers. These arrangements include repurchase agreements that would
require the Company to repurchase inventory which might be repossessed from a
reseller by the vendor or the financing company. As of October 31, 1999, such
repurchases have been insignificant.
The Company also provides a program whereby the Company may guarantee an
addition to a reseller's credit facility with certain finance companies. The
Company's maximum exposure for guaranteed amounts at October 31, 1999 was $14
million. On an ongoing basis, the Company assesses the exposure under the
guarantee program and provides a reserve for potential losses. As of October 31,
1999, losses and reserves related to the guarantee program have not been
material.
NOTE 12 - EMPLOYEE BENEFIT PLAN
In July 1988, a deferred compensation plan (the "Savings Plan") became effective
for all eligible employees of the Company under the provisions of Section 401(k)
of the Internal Revenue Code. Employees are eligible to participate on the first
day of the Savings Plan quarter coincident with or following the date on which
the employee satisfies all of the eligibility requirements. Employees may
contribute a percentage of their salary subject to certain limitations. The
Company has historically matched 25% of the employee contribution up to a
maximum employee contribution of 6%, as defined in the Savings Plan.
Participants are at all times fully vested in their contributions, and the
Company contributions, if any, become fully vested to the participant after five
years of employment.
F-20
<PAGE>
In addition to the Savings Plan, the Company has also adopted a supplemental
deferred compensation plan (the "Supplemental Savings Plan") for employees
holding key management positions or highly compensated employees for purposes of
Title I of ERISA. Eligible employees may contribute a percentage of their salary
subject to certain limitations as established by the Plan Administrator. The
Company has historically matched 25% of the employee contribution. Participants
are at all times fully vested in their contributions, and the company
contributions, if any, become fully vested to the participant after five years
of employment. Contributions to the Supplemental Savings Plan are held by a
Trustee, however it is not qualified under the provisions of Section 401(k) of
the Internal Revenue Code. All benefits payable under the Supplemental Savings
Plan therefore are unsecured obligations of the Company.
The Company recognized matching contribution expense for the Savings Plan and
the Supplemental Savings Plan of $2.3 million, $1.0 million and $740,000 in
fiscal years 1999, 1998 and 1997, respectively.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
Fiscal years ended
-------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
(in thousands)
Details of acquisitions:
Fair value of assets acquired $ -- $53,793 $47,816
Liabilities assumed and acquisition-
related accruals $ -- $59,080 $73,321
Cash acquired $ -- $ 101 $ 76
Note forgiven $ -- $ -- $ 124
Details of other financing activities:
Capital lease obligations executed
for equipment $ 2,211 $ 4,875 $ 3,834
Cash paid for:
Interest $17,893 $22,677 $21,906
Income taxes $ 4,089 $ 3,332 $27,301
NOTE 14 - RESTRUCTURING AND OTHER ONE-TIME CHARGES
FISCAL 1999 RESTRUCTURING AND OTHER ONE-TIME CHARGES
During the fiscal year ended October 31, 1999, the Company recorded a total of
$147 million ($132 million, or $6.42 per share, after taxes) of restructuring
and other one-time charges. These charges were recognized over the last three
quarters of fiscal 1999.
The restructuring and other one-time charges included a $123 million write-down
of impaired goodwill; $8 million for the write-down to net realizable value of
software and equipment no longer utilized by the Company due to the
implementation of a new branch automation system; $9 million in employee
termination benefits; and $7 million primarily for facility consolidations.
F-21
<PAGE>
The goodwill was written off during the second fiscal quarter and resulted from
businesses acquired primarily in fiscal 1997 and fiscal 1998. Increased
competitive pressures in the industry as well as operating losses caused the
Company to reassess the recoverability of its long-lived assets. The fair value
of the assets, determined through a discounted cash flow analysis as well as
other market analyses, was compared to the carrying amount of the assets and the
difference was recorded as a charge to earnings.
The charges associated with employee termination benefits consisted primarily of
severance pay for approximately 560 associates. The reductions occurred in
virtually all areas of the Company over the last three fiscal quarters of 1999
and were completed by October 31, 1999.
The facility consolidations consisted of branch location closures and
consolidations as well as consolidations of headquarters facilities. The charges
represent lease buy out costs, excess rent expense over estimated sublease
recoveries, broker commissions and other costs of consolidating the facilities.
All actions on the facility consolidations were completed by October 31, 1999.
The liability for restructuring accruals at October 31, 1999 was $10.7 million,
consisting of $5.7 million for facility consolidations, $3.5 million for
employee termination benefits and $1.5 million for business closure and other
costs.
On February 16, 2000, subsequent to the balance sheet date, the Company
announced the reduction of approximately 250 positions and additional cost
cutting initiatives.
FISCAL 1998 RESTRUCTURING AND OTHER ONE-TIME CHARGES
In February 1998, the company initiated a plan to restructure the Company into
two independent businesses - an integration business ("MicroAge Technology
Services") and a distribution business operated through a wholly-owned
subsidiary, Pinacor, Inc. ("Pinacor"). These businesses have separate management
teams, operate autonomously in their respective marketplaces, and contract with
headquarters for a limited number of services.
In connection with the restructuring plan discussed above, the Company recorded
a $5.6 million charge. The restructuring and other one-time charges included
$3.6 million for employee termination benefits, $1.1 million for the closing and
consolidation of redundant locations, and $0.9 million for other costs related
to the restructuring, primarily one-time costs incurred in establishing Pinacor
and MicroAge Technology Services as separate businesses. The charges associated
with employee termination benefits consisted primarily of severance pay for
approximately 250 associates. The reductions occurred in virtually all areas of
the Company and were completed at November 1, 1998. As of November 1, 1998, the
remaining liability for restructuring activities was not material.
F-22
<PAGE>
NOTE 15 - SEGMENT REPORTING
The Company operates primarily in two industry segments: the wholesale
distribution of computer equipment through Pinacor and technology infrastructure
services through MTS. The Company operates primarily in the United States, and
therefore has only one reportable geographic segment. The accounting policies of
the segments are the same as those described in Note 2 - Summary of Significant
Accounting Policies.
The following table presents certain segment financial information and the
reconciliation of segment financial information to consolidated totals (in
thousands):
<TABLE>
<CAPTION>
Fiscal year ended October 31, 1999
-------------------------------------------------
Pinacor MTS Other Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue from external customers $4,283,720 $1,834,361 $ 31,532 $6,149,613
Intersegment revenue 1,152,561 -- 2,649 1,155,210
---------- ---------- ---------- ----------
Total revenue $5,436,281 $1,834,361 $ 34,181 $7,304,823
Income (loss) before taxes(1) $ 3,105 $ (155,235) $ (2,842) $ (154,972)
Interest expense $ 14,731 $ 12,828 $ 345 $ 27,904
Depreciation and amortization expense $ 16,879 $ 20,937 $ 3,139 $ 40,955
Total assets $ 644,268 $ 320,106 $ 9,791 $ 974,165
Fiscal year ended November 1, 1998
-------------------------------------------------
Pinacor MTS Other Total
---------- ---------- ---------- ----------
Net revenue from external customers $3,680,274 $1,798,885 $ 40,872 $5,520,031
Intersegment revenue 1,326,833 -- 884 1,327,717
---------- ---------- ---------- ----------
Total revenue $5,007,107 $1,798,885 $ 41,756 $6,847,748
Income (loss) before taxes(1) $ 56,510 $ (39,007) $ 2,527 $ 20,030
Interest expense $ 4,776 $ 10,621 $ 59 $ 15,456
Depreciation and amortization expense $ 7,460 $ 28,645 $ 3,021 $ 39,126
Total assets $ 773,729 $ 517,208 $ 6,686 $1,297,623
Fiscal year ended November 2, 1997
-------------------------------------------------
Pinacor MTS Other Total
---------- ---------- ---------- ----------
Net revenue from external customers $2,837,883 $1,522,066 $ 19,259 $4,379,208
Intersegment revenue 1,268,644 -- -- 1,268,644
---------- ---------- ---------- ----------
Total revenue $4,106,527 $1,522,066 $ 19,259 $5,647,852
Income (loss) before taxes $ 68,051 $ 1,345 $ 939 $ 70,335
Interest expense $ 13,601 $ 3,323 $ 73 $ 16,997
Depreciation and amortization expense $ 8,725 $ 9,955 $ 487 $ 19,167
Total assets $ 668,743 $ 460,322 $ 4,046 $1,133,111
</TABLE>
F-23
<PAGE>
Reconciliation Fiscal years ended
---------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
Revenue
Total revenue for segments $ 7,304,823 $ 6,847,748 $ 5,647,852
Elimination of intersegment revenue (1,155,210) (1,327,717) (1,268,644)
----------- ----------- -----------
Total consolidated revenue $ 6,149,613 $ 5,520,031 $ 4,379,208
=========== =========== ===========
Income (loss) before taxes
Total from segments $ (154,972) $ 20,030 $ 70,335
Unallocated amounts (39,638) (27,448) (26,756)
----------- ----------- -----------
Total consolidated income
(loss) before taxes $ (194,610) $ (7,418) $ 43,579
=========== =========== ===========
Interest expense - net
Total from segments $ 27,904 $ 15,456 $ 16,997
Unallocated amounts 4,726 9,141 8,198
----------- ----------- -----------
Total consolidated net
interest expense $ 32,630 $ 24,597 $ 25,195
=========== =========== ===========
Depreciation and amortization expense
Total from segments $ 40,955 $ 39,126 $ 19,167
Unallocated amounts 3,619 891 4,470
----------- ----------- -----------
Total consolidated depreciation
and amortization expense $ 44,574 $ 40,017 $ 23,637
=========== =========== ===========
Total assets
Total from segments $ 974,165 $ 1,297,623 $ 1,133,111
Intersegment asset elimination (46,757) (481) (535)
Unallocated amounts (2) (140,765) 18,001 (213,180)
----------- ----------- -----------
Total consolidated assets $ 786,643 $ 1,315,143 $ 919,396
=========== =========== ===========
(1) Includes an allocated portion of restructuring and other one-time charges
for the fiscal years ended October 31, 1999 and November 1, 1998.
(2) Unallocated total assets includes negative amounts of $255,357,000,
$38,962,000 and $289,689,000 for receivables sold to a finance company at
October 31, 1999, November 1, 1998 and November 2, 1997, respectively.
Gross receivables are included in the segments and the offsetting sale
amount is included in a corporate balance sheet.
F-24
<PAGE>
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Consolidated quarterly financial information for fiscal 1999 and 1998 is as
follows (in thousands except per share data):
<TABLE>
<CAPTION>
Fiscal 1999
-------------------------------------------------------
Quarter ended January 31 May 2 (1) August 1 (2) October 31 (3)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 1,444,841 $ 1,656,541 $ 1,514,480 $ 1,533,751
Gross profit $ 101,770 $ 86,638 $ 99,183 $ 85,389
Operating income (loss) $ 12,483 $ (153,546) $ 4,277 $ (16,607)
Net income (loss) $ 2,066 $ (147,341) $ (3,170) $ (20,577)
=========== =========== =========== ===========
Net income (loss) per common
and common equivalent share $ 0.10 $ (7.19) $ (0.15) $ (0.99)
=========== =========== =========== ===========
Fiscal 1998
-------------------------------------------------------
Quarter ended February 1 May 3 (4) August 2 November 1
----------- ----------- ----------- -----------
Revenue $ 1,179,011 $ 1,326,950 $ 1,441,246 $ 1,572,824
Gross profit $ 73,825 $ 84,581 $ 86,671 $ 108,164
Operating income (loss) $ 764 $ (671) $ 8,884 $ 16,981
Net income (loss) $ (6,116) $ (5,957) $ 26 $ 3,722
=========== =========== =========== ===========
Net income (loss) per common
and common equivalent share $ (0.31) $ (0.30) $ 0.00 $ 0.18
=========== =========== =========== ===========
</TABLE>
Totals may not crossfoot due to rounding.
(1) The fiscal quarter ended May 2, 1999 includes $134,159,000 of restructuring
and other one-time charges.
(2) The fiscal quarter ended August 1, 1999 includes $5,411,000 of
restructuring and other one-time charges.
(3) The fiscal quarter ended October 31, 1999 includes $7,892,000 of
restructuring and other one-time charges.
(4) The fiscal quarter ended May 3, 1998 includes $5,600,000 of restructuring
and other one-time charges.
F-25
<PAGE>
MicroAge, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
(in thousands)
Years ended October 31, 1999, November 1, 1998 and November 2, 1997
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning of costs and to other Dedcutions/ at end
Description period expenses accounts write-offs of period
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 2, 1997 $ 8,405 $ 9,208 $ 0.00 $ (6,647) $ 10,966
======== ======== ======== ======== ========
Year ended November 1, 1998 $ 10,966 $ 13,640 -- $ (4,188) $ 20,418
======== ======== ======== ======== ========
Year ended October 31, 1999 $ 20,418 $ 28,794 -- $(19,532) $ 29,680
======== ======== ======== ======== ========
</TABLE>
S-1
<PAGE>
1999 10-K EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of MicroAge, Inc. (Incorporated
by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994)
3.2 By-Laws of MicroAge, Inc., amended and restated as of July 16, 1998
(Incorporated by reference to Exhibit 4.2 to Registration Statement
No. 333-62763, filed on September 2, 1998)
4.1 Specimen Common Stock Certificate
4.2 Amended and Restated Rights Agreement, dated as of September 28, 1994,
between MicroAge, Inc. and First Interstate Bank of California
(Incorporated by reference to Exhibit 1.1 to the Form 8-A filed
January 13, 1994)
4.2.1 First Amendment, dated as of November 5, 1996, by and between
MicroAge, Inc. and American Stock Transfer and Trust Company to
Amended and Restated Rights Agreement, dated as of September 28, 1994,
between MicroAge, Inc. and First Interstate Bank of California
(Incorporated by reference to Exhibit 4.2.1 to the Annual Report on
Form 10-K for year ended November 3, 1996)
4.2.2 Second Amendment, dated January 28, 1999, by and between MicroAge,
Inc. and American Stock Transfer and Trust Company to Amended Restated
Rights Agreement, dated as of September 28, 1994, between MicroAge,
Inc. and First Interstate Bank of California (incorporated by
reference to Exhibit 4.2.3 to the Registration Statement on Form S-8
filed March 3, 1999)
4.2.3 Third Amendment, dated September 30, 1999 by and between MicroAge,
Inc. and American Stock Transfer and Trust Company to Amended and
Restated Rights Agreement dated as of September 28, 1994, between
MicroAge, Inc. and First Interstate Bank of California (incorporated
by reference to Exhibit 1.4 to the Form 8-K filed October 25, 1999)
10.1 MicroAge, Inc. Executive Supplemental Savings Plan (1), amended and
restated as of October 31, 1997 (Incorporated by reference to Exhibit
10.1 to the Annual Report on Form 10-K for the fiscal year ended
November 2, 1997)
10.2 Form of MicroAge 1994 Management Equity Program Award Agreement by and
between MicroAge, Inc. and certain executives (1) (Incorporated by
reference to Exhibit 10.2 to the Annual Report on Form 10-K for the
fiscal year ended October 30, 1994)
10.2.1 Form of First Amendment, dated as of December 14, 1995, to the
MicroAge 1994 Management Equity Program Award Agreement by and between
MicroAge, Inc. and certain executives (1) (Incorporated by reference
to Exhibit 10.2.1 to the Annual Report on Form 10-K for the year ended
November 3, 1996)
<PAGE>
10.3 MicroAge, Inc. 1998 Associate Stock Award Plan, effective as of
September 24, 1998 (1) (incorporated by reference to Exhibit 10.3 to
the Annual Report on Form 10-K for the fiscal year ended November 1,
1998)
10.4 Form of MicroAge, Inc. 1997 Management Equity Program Award Agreement
by and between MicroAge, Inc. and certain executives (1) (Incorporated
by reference to Exhibit 10.4 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.5 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Jeffrey D. McKeever and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.5 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.5.1 First Amendment, dated January 12, 2000, to Amended and Restated
Employment Agreement, by and between Jeffrey D. McKeever and MicroAge,
Inc. (1)
10.6 Supplemental Executive Retirement Plan, dated as of October 1, 1992
(1) (Incorporated by reference to Exhibit 10.65.2 to Registration
Statement No. 33-33094)
10.6.1 First Amendment to Supplemental Executive Retirement Plan, dated
September 26, 1996 (1) (Incorporated by reference to Exhibit 10.6.1 to
the Annual Report on Form 10-K for fiscal year ended November 2, 1997)
10.6.2 Second Amendment to Supplemental Executive Retirement Plan, dated
October 1, 1997 (1) (Incorporated by reference to Exhibit 10.6.2 to
the Annual Report on Form 10-K for fiscal year ended November 2, 1997)
10.7 Amended and Restated Split-Dollar Insurance Agreement, dated as of
December 14, 1994, by and between MicroAge, Inc. and Jeffrey D.
McKeever (1) (Incorporated by reference to the Quarterly Report on
Form 10-Q for the quarter ended July 30, 1995)
10.8 Endorsement Split-Dollar Insurance Agreement, dated November 25, 1997,
by and between MicroAge, Inc. and Jeffrey D. McKeever (1)
(Incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q for the quarter ended February 1, 1998)
10.9 MicroAge, Inc. Compensation Trust, dated February 1, 1998, by and
between MicroAge, Inc. and Northern Trust Bank of Arizona, N.A. (1)
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended February 1, 1998)
10.10 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D.
McKeever (1) (Incorporated by reference to Exhibit 10.5.2 to the
Annual Report on Form 10-K for fiscal year ended November 3, 1996)
<PAGE>
10.10.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1)
(Incorporated by reference to Exhibit 10.5.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.11 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated
as of April 23, 1999, by and between MicroAge, Inc. and Jeffrey D.
McKeever (1) (Incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarter ended May 2, 1999)
10.12 Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and
MCCI Holding Company, effective as of May 2, 1998 (1) (incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-K for the
fiscal year ended November 1, 1998)
10.12.1 First Amendment, dated as of December 31, 1998, to Non-Qualified Stock
Option Agreement between Jeffrey D. McKeever and MCCI Holding Company
(1) (incorporated by reference to Exhibit 10.11.1 to the Annual Report
on Form 10-K for the fiscal year ended November 1, 1998)
10.13 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Alan P. Hald and MicroAge, Inc. (1) (Incorporated
by reference to Exhibit 10.6 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.14 Split--Dollar Insurance Agreement, dated as of December 24, 1992, by
and between MicroAge, Inc. and Alan P. Hald (1)
10.14.1 First Amendment, dated June 18, 1999, to the 1992 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Alan P. Hald (1)
10.15 Split-Dollar Insurance Agreement, dated as of January 29, 1997, by and
between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference
to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year
ended November 3, 1996)
10.15.1 First Amendment, dated June 18, 1999, to the 1997 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Alan P. Hald (1)
10.16 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Alan P.
Hald (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual
Report on Form 10-K for fiscal year ended November 3, 1996)
<PAGE>
10.16.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated
by reference to Exhibit 10.6.3 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.17 MicroAge, Inc. Compensation Trust for Alan P. Hald, dated February 23,
1999, by and between MicroAge, Inc. and Northern Trust Bank of Arizona
(1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q for the quarter ended January 31, 1999)
10.18 Agreement and General Release, dated as of June 18, 1999 by and
between MicroAge, Inc. and Alan P. Hald (1)
10.19 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between James R. Daniel and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.7 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.20 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by
and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the
fiscal year ended October 29, 1995)
10.21 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and James R.
Daniel (1) (Incorporated by reference to Exhibit 10.7.2 to the Annual
Report on Form 10-K for fiscal year ended November 3, 1996)
10.21.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and James R. Daniel (1)
(Incorporated by reference to Exhibit 10.7.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.22 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated
as of April 23, 1999, by and between MicroAge, Inc. and James R.
Daniel (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarter ended May 2, 1999)
10.23 Employment Agreement, dated as of January 4, 1999, by and between
Robert G. O'Malley and Pinacor Inc. (1) (incorporated by reference to
Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year
ended November 1, 1998)
10.24 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by
and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.8.1 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
<PAGE>
10.24.1 First Amendment, dated as of June 24, 1999, to the 1995 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Robert G.
O'Malley (1)
10.24.2 Second Amendment dated as of June 24, 1999, to the 1995 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Robert G.
O'Malley (1)
10.25 Split-Dollar Insurance Agreement, dated as of January 27, 1997, by and
between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.8.2 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
10.25.1 First Amendment, dated June 24, 1999, to the 1997 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Robert G.
O'Malley (1)
10.25.2 Second Amendment dated June 24, 1999, to the 1997 Split-Dollar
Insurance Agreement by and between MicroAge, Inc. and Robert G.
O'Malley (1)
10.26 MicroAge, Inc. 1997 Management Equity Program Award Agreement by and
between MicroAge, Inc. and Robert G. O'Malley (1) (Incorporated by
reference to Exhibit 10.8.3 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
10.27 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated
as of April 23, 1999, by and between MicroAge, Inc. and Robert G.
O'Malley (1) (Incorporated by reference to Exhibit 10.5 to the
Quarterly Report on Form 10-Q for the quarter ended May 2, 1999)
10.28 Agreement and General Release, dated as of June 24, 1999 by and among
MicroAge, Inc., Pinacor, Inc., and Robert G. O'Malley. (1)
10.29 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Christopher J. Koziol and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.9 to the Annual Report on
Form 10-K for the fiscal year ended November 3, 1996)
10.29.1 First Amendment, dated as of April 1, 1998, to Amended and Restated
Employment Agreement, by and between Christopher J. Koziol and
MicroAge, Inc. (1)
10.29.2 Second Amendment, dated as of January 28, 1999, to Amended and
Restated Employment Agreement, by and between Christopher J. Koziol
and MicroAge, Inc. (1)
10.29.3 Third Amendment, dated as of September 30, 1999, to Amended and
Restated Employment Agreement, by and between Christopher J. Koziol
and MicroAge, Inc. (1)
<PAGE>
10.29.4 Fourth Amendment, dated as of February 15, 2000, to Amended and
Restated Employment Agreement, by and between Christopher J. Koziol
and MicroAge, Inc. (1)
10.30 Split Dollar Insurance Agreement, dated as of September 1, 1995, by
and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated
by reference to Exhibit 10.9.1 to the Annual Report on Form 10-K for
the fiscal year ended November 3, 1996)
10.31 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Christopher
J. Koziol (1) (Incorporated by reference to Exhibit 10.9.2 to the
Annual Report on Form 10-K for the fiscal year ended November 3, 1996)
10.31.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Christopher J. Koziol (1)
(Incorporated by reference to Exhibit 10.9.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.32 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated
as of April 23, 1999, by and between MicroAge, Inc. and Christopher J.
Koziol (1) (Incorporated by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q for the quarter ended May 2, 1999)
10.33 Director's Fee Waiver, dated April 21, 1999, by and between MicroAge,
Inc. and Lynda M. Applegate (1)
10.34 Director's Fee Waiver, dated April 11, 1999, by and between MicroAge,
Inc. and Cyrus F. Freidheim, Jr. (1)
10.35 Director's Fee Waiver, dated April 15, 1999, by and between MicroAge,
Inc. and Roy A. Herberger, Jr. (1)
10.36 Director's Fee Waiver, dated April 13, 1999, by and between MicroAge,
Inc. and William H. Mallender (1)
10.37 Director's Fee Waiver, dated April 12, 1999, by and between MicroAge,
Inc. and Steven G. Mihaylo (1)
10.38 Director's Fee Waiver, dated April 22, 1999, by and between MicroAge,
Inc. and Dianne C. Walker (1)
10.39 The Amended and Restated MicroAge, Inc. 1989 Stock Option Plan (1)
(Incorporated by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q for the quarter ended January 30, 1994)
<PAGE>
10.40 The Amended and Restated MicroAge, Inc. Directors' Stock Option Plan
(1) (Incorporated by reference to Exhibit 10.5 to the Quarterly Report
on Form 10-Q for the quarter ended January 30, 1994)
10.41 Amended and Restated MicroAge, Inc. Retirement Savings and Employee
Stock Ownership Plan and Trust Agreement (1) (Incorporated by
reference to Exhibit 10.14 to the Annual Report on Form 10-K for the
fiscal year ended October 30, 1994)
10.41.1 First Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement (1)
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended April 30, 1995)
10.41.2 Second Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
March 14, 1996 (1) (Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended July 28, 1996)
10.41.3 Third Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
October 28, 1996 (1) (Incorporated by reference to Exhibit 10.22.3 to
the Annual Report on Form 10-K for fiscal year ended November 3, 1996)
10.41.4 Fourth Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
December 4, 1996 (1) (Incorporated by reference to Exhibit 10.23.4 to
the Annual Report on Form 10-K for fiscal year ended November 3, 1996)
10.41.5 Fifth Amendment, dated January 31, 1997, to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan
and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended February 2,
1997).
10.41.6 Sixth Amendment, dated August 1, 1997, to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan
and Trust Agreement (1) (Incorporated by reference to Exhibit 10.3 to
the Quarterly Report on Form 10-Q for the quarter ended August 3,
1997).
10.41.7 Seventh Amendment to the MicroAge, Inc. Retirement Savings and
Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1)
(Incorporated by reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998).
10.41.8 Eighth Amendment to the MicroAge, Inc. Retirement Savings and Employee
Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated
by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the quarter ended May 3, 1998).
<PAGE>
10.42 MicroAge 1994 Long-Term Incentive Plan (1) (Incorporated by reference
to Exhibit A to the Proxy Statement for the Annual Meeting of
Stockholders of MicroAge, Inc. held on March 23, 1994, File No.
0-15995)
10.43 MicroAge, Inc. 1997 Long-Term Incentive Plan (1) (Incorporated by
reference to Appendix B to the Proxy Statement for the Annual Meeting
of Stockholders of MicroAge, Inc. held on April 1, 1998, File No.
0-15995)
10.44 1995 MicroAge, Inc. Director Incentive Plan, as amended and restated
(1) (Incorporated by reference to Appendix C to the Proxy Statement
for the Annual Meeting of Stockholders of MicroAge, Inc. held on April
1, 1998, File No. 0-15995)
10.45 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and William H. Mallender (1) (Incorporated by
reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the
quarter ended May 2, 1999)
10.46 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and Lynda M. Applegate (1) (Incorporated by
reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the
quarter ended May 2, 1999)
10.47 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and Cyrus F. Freidheim (1) (Incorporated by
reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the
quarter ended May 2, 1999)
10.48 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and Roy A. Herberger (1) (Incorporated by
reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the
quarter ended May 2, 1999)
10.49 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and Dianne C. Walker (1) (Incorporated by
reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for
the quarter ended May 2, 1999)
10.50 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement
between MicroAge, Inc. and Steven G. Mihaylo (1) (Incorporated by
reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q for
the quarter ended May 2, 1999)
10.51 MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by
reference to Appendix B to the Proxy Statement for the Annual Meeting
of Stockholders of MicroAge, Inc. held on March 15, 1995, File No.
0-15995)
10.51.1 First Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1) (Incorporated by reference to Exhibit 99.1 to Registration
Statement No. 33-58901)
<PAGE>
10.51.2 Second Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for fiscal quarter ended January 28, 1996)
10.51.3 Third Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1)
10.51.4 Fourth Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1)
10.52 Form of Administrative Services Agreement for the Non-qualified
Deferred Compensation Plan Document by The Prudential Insurance
Company of America with the Company and Pinacor, Inc., dated July 15,
1999 (1) (Incorporated by reference to Exhibit 10.3 of Quarterly
Report on Form 10-Q for the quarter ended August 1, 1999)
10.53 Form of Trust Agreement by and between Prudential Trust Company and
the Company and Pinacor, Inc. for the Executive Supplemental Savings
Plan, dated August 1, 1999 (1) (Incorporated by reference to Exhibit
10.4 of Quarterly Report on Form 10-Q for the quarter ended August 1,
1999)
10.54 Form of The Prudential Insurance Company of America Administrative
Services Agreement for an Individually Designed Plan Document with the
Company and Pinacor, Inc., dated July 15, 1999 (1) (Incorporated by
reference to Exhibit 10.5 of Quarterly Report on Form 10-Q for the
quarter ended August 1, 1999)
10.55 Form of Trust Agreement by and between Prudential Trust Company and
the Company and Pinacor, Inc. for the Retirement Savings Plan, dated
August 1, 1999 (1) (Incorporated by reference to Exhibit 10.6 of
Quarterly Report on Form 10-Q for the quarter ended August 1, 1999)
10.56 Credit Agreement dated as of October 28, 1999 by and among MicroAge
Technology Services, L.L.C. and Pinacor, Inc. as Borrowers, MicroAge,
Inc., as Parent Guarantor, the Lender Parties thereto, and Citibank,
N.A., as Collateral Agent and Administrative Agent for Lender Parties
10.56.1 Amendment No. 1 and Waiver dated as of January 30, 2000 to the Credit
Agreement among MicroAge Technology Services, L.L.C. and Pinacor, Inc.
as Borrowers, MicroAge, Inc., as Parent Guarantor, the Lender Parties
thereto, and Citibank, N.A., as Collateral Agent and Administrative
Agent for Lender Parties.
10.57 Amended and Restated Agreement for Wholesale Financing, dated as of
October 29, 1999 by and among IBM Credit Corporation, as Lender, MTS
Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology
Services, L.L.C., Pinacor, Inc., collectively as customers and
MicroAge, Inc. as Parent
10.57.1 Acknowledgment, Waiver and Amendment No.1 dated January 30, 2000 to
Amended and Restated Agreement for Wholesale Financing dated as of
October 29, 1999 by and among IBM Credit Corporation, as Lender, MTS
Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology
Services, L.L.C., Pinacor, Inc., collectively as customers and
MicroAge, Inc. as Parent
<PAGE>
10.58 COMPAQ Computer Corporation Dealer Agreement, dated April 1, 1984, by
and between COMPAQ Computer Corporation and MicroAge Computer Stores,
Inc. (Incorporated by reference to Exhibit 10.1 to Registration
Statement No. 33-14333)
10.59 COMPAQ Computer Corporation Central Purchase Agreement, dated November
21, 1983, by and between COMPAQ Computer Corporation and MicroAge
Computer Stores, Inc. (Incorporated by reference to Exhibit 10.2 to
Registration Statement No. 33-14333)
10.60 Amendment, dated June 15, 1992, to the COMPAQ Computer Corporation
Central Purchase Agreement dated November 21, 1983 by and between
COMPAQ Computer Corporation and MicroAge Computer Stores, Inc.
(Incorporated by reference to Exhibit 10.8 to Quarterly Report on Form
10-Q for the quarter ended March 31, 1993)
10.61 Apple Authorized Dealer Sales Agreement, dated as of April 1, 1989, by
and between Apple Computer, Inc. and MicroAge Computer Stores, Inc.
(Incorporated by reference to Exhibit 10.4 to the Annual Report on
Form 10-K for the fiscal year ended September 30, 1989)
10.61.1 Amendment, dated April 1, 1989, to the Apple Authorized Dealer Sales
Agreement dated as of April 1, 1989 by and between Apple Computer,
Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to
Exhibit 10.4.1 to the Annual Report on Form 10-K for the fiscal year
ended September 30, 1990)
10.61.2 Letter Agreement, dated September 30, 1992, to the Apple Authorized
Dealer Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993)
10.61.3 Letter Agreement, dated February 28, 1994, to the Apple Authorized
Dealer Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.24.3 to the Annual Report on Form 10- K for
the fiscal year ended October 30, 1994)
10.61.4 Letter Agreement, dated June 23, 1994, to the Apple Authorized Dealer
Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.24.4 to the Annual Report on Form 10- K for
the fiscal year ended October 30, 1994)
10.62 Authorized Apple Wholesaler U.S. Sales Agreement, dated April 2, 1998,
by and between Apple Computer, Inc. and MicroAge Computer Centers,
Inc. (incorporated by reference to Exhibit 10.44 to the Annual Report
on Form 10-K for the fiscal year ended November 1, 1998)
<PAGE>
10.63 U.S. First Tier Reseller Agreement, dated as of March 1, 1997, by and
between Hewlett- Packard Company and MicroAge, Inc. (Incorporated by
reference to Exhibit 10.46 to the Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
10.64 Form of Franchise Agreement, effective December 8, 1993, by and
between MicroAge, Inc. and its franchisees (Incorporated by reference
to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994)
10.64.1 Rider to Franchise Agreement, effective December 1993, by and between
MicroAge, Inc. and its existing franchisees (Incorporated by reference
to Exhibit 10.26.1 to the Annual Report on Form 10-K for the fiscal
year ended October 30, 1994)
10.64.2 Rider to Franchise Agreement, effective December 1993, by and between
MicroAge, Inc. and its new franchisees (Incorporated by reference to
Exhibit 10.26.2 to the Annual Report on Form 10-K for the fiscal year
ended October 30, 1994)
10.65 Form of Franchise Agreement by and between MicroAge, Inc. and its
franchisees effective as to franchise agreements executed after March
1997 (Incorporated by reference to Exhibit 10.48 to the Annual Report
on Form 10-K for the fiscal year ended November 2, 1997)
10.66 Form of Purchasing Agreement, effective January 1997, by and between
MicroAge, Inc. and its Independent Computer Dealers (Incorporated by
reference to Exhibit 10.49 to the Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
10.67 Form of Purchase Agreement, effective January 1997, by and between
MicroAge, Inc. and its resellers (Incorporated by reference to Exhibit
10.38 to the Annual Report on Form 10-K for fiscal year ended November
3, 1996)
10.68 Triple Net Industrial Lease, dated as of December 21, 1993, by and
between Catellus Development Corporation and MicroAge Computer
Centers, Inc. (Incorporated by reference to Exhibit 10.22 to the
Quarterly Report on Form 10-Q for the quarter ended May 1, 1994)
10.69 Triple Net Industrial Lease, dated July 28, 1993, by and between
Catellus Development Corporation and MicroAge Computer Centers, Inc.
(Incorporated by reference to Exhibit 10.24 to the Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994)
10.69.1 Amendment No. One, dated December 21, 1993, to Triple Net Industrial
Lease dated July 28, 1993 by and between Catellus Development
Corporation and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994)
10.70 Lease Amendment, dated September 9, 1994, to Triple Net Industrial
Leases dated July 16, 1985, July 28, 1993, and December 21, 1993 by
and between Catellus Development Corporation and MicroAge Computer
Centers, Inc. (Incorporated by reference to Exhibit 10.34.2 to the
Annual Report on Form 10-K for the fiscal year ended October 30, 1994)
<PAGE>
10.71 Lease Agreement, dated November 18, 1994, by and between Duke Realty
Limited partnership and Kenco Group, Inc. (Incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended July 30, 1995)
10.71.1 Assignment and Assumption of Lease Agreement, dated July 18, 1994, to
Lease dated November 18, 1994 by and between Duke Realty Limited
partnership and Kenco Group, Inc. (Incorporated by reference to
Exhibit 10.2.1 to the Quarterly Report on Form 10-Q for the quarter
ended July 30, 1995)
10.72 Industrial Lease, dated August 28, 1996, by and between MICC Venture
and MicroRetailing Inc., d/b/a Inter PC and d/b/a Micro Age
(Incorporated by reference to Exhibit 10.55 to the Annual Report on
Form 10-K for the fiscal year ended November 2, 1997)
11 EPS Calculation
21 List of Subsidiaries of MicroAge, Inc.
23 Consent of Independent Accountants
27 Financial Data Schedule
99.1 Private Securities Litigation Reform Act of 1995 Safe Harbor
Compliance Statement for Forward-Looking Statements
99.2 Company and ESOT Rights Agreement, dated as of April 27, 1990, by and
between MicroAge, Inc., The MicroAge, Inc. Retirement Savings and
Employee Stock Ownership Trust and Citizens and Southern Trust Company
(Georgia), N.A., solely as Trustee of the ESOT and not in its
individual capacity (Incorporated by reference to Exhibit 28.4 to the
Current Report on Form 8-K dated May 7, 1990)
99.3 Trust Agreement, dated December 30, 1994, by and between MicroAge,
Inc. and First Interstate Bank of Arizona, N.A., as Trustee on behalf
of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership
Plan and Trust (Incorporated by reference to Exhibit 99.8 to the
Annual Report on Form 10-K for the fiscal year ended October 30, 1994)
- ----------
(1) Management contract for compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
NUMBER SHARES
MicroAge(R), Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 594928 10 3
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
fully paid and non-assessable shares of COMMON STOCK, par value $.01 per share
of MICROAGE, INC. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
DATED
/s/ Jeffrey D. McKeever
CHAIRMAN OF THE BOARD
/s/
SECRETARY
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporation's Secretary at the
principal office of the Corporation.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in an Amended and Restated Rights Agreement dated as of
September 28, 1994 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
executive offices of MicroAge, Inc. Under certain circumstances, as set forth in
the Amended and Restated Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate.
MicroAge, Inc. will mail to the holder of this certificate a copy of the Amended
and restated Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Amended and Restated
Rights Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Amended and Restated Rights Agreement) may become null and
void.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws and regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT- Custodian
--------- -----------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
---------------------------
(State)
UNIF TRF MIN ACT- Custodian (until age )
---------- -------
(Cust)
under Uniform Transfers
--------------
(Minor)
to Minors Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto.
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------------
X
----------------------------------------------------------------
X
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THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NOTICE: NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
----------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
FIRST AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This First Amendment (the "AMENDMENT") to the Amended and Restated
Employment Agreement (the "EMPLOYMENT AGREEMENT") by and between MICROAGE, INC.,
a Delaware corporation (the "COMPANY") and JEFFREY D. MCKEEVER (the "EXECUTIVE")
is made as of this 12th day of January, 2000 by and between the Company and
Executive.
RECITALS:
WHEREAS, the Company and Executive entered into the Employment Agreement on
November 4, 1996; and
WHEREAS, pursuant to Section 7.5 of the Employment Agreement, the
Employment Agreement may be amended only by a written document signed by each of
the parties thereto; and
WHEREAS, the Company granted to Executive the option to purchase 6% of the
outstanding common stock of Pinacor, Inc., an indirect wholly-owned subsidiary
of the Company ("PINACOR"), for the aggregate purchase price of Nine Million
Dollars ($9,000,000), all in accordance with the terms of the Non-Qualified
Stock Option Agreement (Jeffrey D. McKeever) effective as of May 2, 1998 (the
"PINACOR OPTION AGREEMENT"), which is attached to this Amendment as Attachment
A; and
WHEREAS, Executive has surrendered all of his rights under the Pinacor
Option Agreement by delivering notice of such surrender to Mr. William
Mallender, Chairman of the Compensation Committee of the Board, a copy of which
is attached to this Amendment as Attachment B; and
WHEREAS, the Company and Executive desire to amend the Employment Agreement
to pay Executive a bonus upon the disposition of Pinacor as consideration for
Executive's surrender of all rights under his Option Agreement.
NOW, THEREFORE, in consideration of the premises, and for other valuable
consideration, the sufficiency of which is hereby acknowledged by each of the
parties hereto, the parties hereby agree as follows:
AGREEMENTS:
1. Section 2.2 of the Employment Agreement (BONUS PAYMENTS) is hereby
amended by adding a new paragraph (c) to the end thereof which shall read as
follows:
<PAGE>
(c) Executive shall, in addition, be entitled to a bonus payment upon the
Disposition (as defined in Section 7.1) of Pinacor, Inc., a Delaware corporation
("PINACOR") if the Disposition occurs during Executive's period of employment
hereunder or within one year following his termination of employment for reasons
of death, Total Disability (as defined in Section 7.1) or Retirement (as defined
in Section 7.1). The bonus shall be payable in one lump sum within ten (10) days
following the Disposition. The bonus shall equal Six Percent (6%) of the amount
by which the Disposition Price (as defined in Section 7.1) exceeds $150,000,000.
2. Section 7.1 of the Employment Agreement (DEFINITIONS) is hereby amended
by adding new paragraphs (yy), (zz) and (aaa) to the end thereof which shall
read as follows:
(yy) "DISPOSITION" shall mean the sale or other transfer of all or
substantially all of the common stock or assets of Pinacor or MCCI Holding
Company to any individual or entity other than an "Affiliate", or the
merger, consolidation or other combination of Pinacor or MCCI Holding
Company with any entity other than an "Affiliate". For this purpose, an
"Affiliate" is any entity that is part of the same controlled group of
corporations as the Company within the meaning of Section 1563 of the Code.
(zz) "DISPOSITION PRICE" shall mean the aggregate value placed on the
common stock or assets of Pinacor or MCCI Holding Company by the parties to
the Disposition or, if the parties to the Disposition do not expressly
agree to an aggregate value, the Disposition Price shall be the value that
the Compensation Committee of the Board determines to be the inherent
aggregate value of the Pinacor or MCCI Holding Company common stock or
assets for purposes of the Disposition.
(aaa) "PINACOR" - as defined in Section 2.2(c).
3. The provisions of this Amendment shall amend only those provisions of
the Employment Agreement referred to herein and those provisions not expressly
amended hereby shall remain in full force and effect.
4. The modifications made by this Amendment shall be effective as of the
date of execution of this Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
COMPANY: EXECUTIVE:
MICROAGE, INC. /s/ Jeffrey D. McKeever
----------------------------------------
Jeffrey D. McKeever
By: /s/ Jeffrey D. McKeever
-------------------------------
Name: Jeffrey D. McKeever
Title: Chairman of the Board and
Chief Executive Officer
-3-
EXHIBIT B
Split-Dollar Insurance Agreement
THIS AGREEMENT is made and entered into this 24th day of December 1992 by
and between MicroAge, Inc., a Delaware corporation (the "Company") and Alan Hald
(the "Executive");
WHEREAS, the Company has agreed to provide a $1,000,000 death benefit to
the Executive during the term of his employment under the Employment Agreement
dated as of October 1, 1992 by and between the Company and the Executive (the
"Employment Agreement"); and
WHEREAS, the Company and the Executive agree that this death benefit will
be provided under a life-paid-up-atage-65 policy (the "Policy") issued by The
Northwestern Mutual Life Insurance Company (the "Insurer"); and
WHEREAS, the Company shall receive the Policy Cash Value (as defined
herein) or the face value of the Policy in excess of $1,000,000 in the event the
Executive incurs a Substantial Risk of Forfeiture (as defined herein); and
WHEREAS, this Agreement is being entered into pursuant to Section 2-A(a) of
the Employment Agreement (terms not otherwise defined herein shall have the
meanings attributed to them in the Employment Agreement);
<PAGE>
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 $58,000 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 $1,000,000 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 $1,000,000 nor the additional amounts provided by application of
dividends shall expand the Company's obligation to provide the stated death
benefit of $1,000,000. Photostatic copies of the Policy, including the policy
-2-
<PAGE>
application theref or, 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 Policy Owner of any rights, privileges or options
conferred by the terms of the Policy on 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.
SECTION 2
DEATH
The Policy shall be appropriately endorsed to provide that at the death of
the Executive his designated beneficiary shall be paid $1,000,000 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
-3-
<PAGE>
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 $1,000,000; and (ii) in the event of Executive's termination of
employment for any reason other than death, the Policy Cash Value.
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 dearh), the Policy Cash
Value shall paid to the Company, 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
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)
$1,000,000 in death proceeds if he dies prior to his termination of employment
-4-
<PAGE>
and (ii) any CASH value in excess of the Policy Cash Value. So much of the
Policy proceeds upon Executive's death as exceeds $1,000,000 shall be paid by
the Insurer to the Company, and, upon Executive's termination of employment for
any reason other than death, the Policy Cash Value shall be paid by the Insurer
to the Company. Those 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 6
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 Executive") of any provision hereunder shall not affect
the other provisions hereunder.
-5-
<PAGE>
(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 6 of the Employment Agreement are incorporated herein and made a
part hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement on this 24th day of December, 1992, at Tempe, Arizona.
/s/ Alan Hald
- ----------------------------- ----------------------------------------
Witness: Alan Hald
("Executive")
- ----------------------------- MICROAGE, INC.
Witness: ("Company")
By: /s/ Jeffrey D. McKeever
------------------------------------
Name: Jeffrey D. McKeever
Title:
-6-
<PAGE>
COLLATERAL ASSIGNMENT
Under Policy Number 12331341 (the "Policy")
Issued by The Northwestern Mutual Life Insurance Company
Policy Owner and Insured: Alan Hald
In compliance with the Employment Agreement dated as of October 1,
1992 executed by and between MicroAge, Inc. (the "Company") and Alan Hald (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 $1,000,000 to the Company.
(2) In the event of Policy Owner a termination of employment with the
Company for any reason other than death, 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) 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,
<PAGE>
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 24, 1992
/s/ Alan Hald
----------------------------------------
Alan Hald
MICROAGE, INC.
/s/ Jeffrey D. McKeever
----------------------------------------
Jeffrey D. McKeever
-2-
FIRST AMENDMENT TO THE
1992 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ALAN P. HALD
This First Amendment to the Split-Dollar Insurance Agreement by and between
MicroAge, Inc., a Delaware corporation, and Alan P. Hald dated December 24, 1992
(the "1992 SPLIT-DOLLAR AGREEMENT") is made as of this 18th day of June, 1999.
R E C I T A L S:
A. WHEREAS, Alan P. Hald (the "INSURED") acquired insurance on his life in
accordance with the terms and provisions of the 1992 Split-Dollar Agreement; and
B. WHEREAS, MicroAge, Inc. (the "CORPORATION") has paid all premiums due on
the Policy through November 12, 1999 in accordance with the terms and provisions
of the 1992 Split-Dollar Agreement; and
C. WHEREAS, the Corporation and the Insured have entered into an Agreement
and General Release (the "SEPARATION AGREEMENT") regarding the Insured's
separation from his employment with the Corporation effective as of November 1,
1999; and
D. WHEREAS, the Separation Agreement requires the amendment of the 1992
Split-Dollar Agreement;
NOW, THEREFORE, the parties, in consideration of the mutual promises
contained herein, hereby agree as follows:
AMENDMENTS:
1. Section 1 of the 1992 Split-Dollar Agreement is hereby amended and
restated in its entirety 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.
<PAGE>
The Company shall pay all required premiums of at least $58,000 until the
earlier of (i) the Executive's death, (ii) the Executive's attainment of
alternative employment, or (iii) November 1, 2001 (the "TERMINATION DATE").
Notwithstanding the foregoing, if the Insured attains alternative employment
prior to his death and prior to November 1, 2001, the Termination Date will not
occur until the earlier of the Insured's death or November 1, 2001; provided,
however, that the Insured notifies the Corporation in writing that the
split-dollar benefits offered by the alternative employer for similarly situated
executives are less favorable than those available under the Split Dollar
Agreement and the Corporation, in the exercise of good faith business judgment,
concurs, and, provided further, that the Insured waives any right to receive any
split-dollar benefits from the alternative employer during the time MicroAge is
providing such benefits. 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 $1,000,000 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 $1,000,000 nor the additional amounts
provided by application of dividends shall expand the Company's obligation to
provide the stated death benefit of $1,000,000.
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 Policy Owner of any rights, privileges
or options conferred by the terms of the Policy on the Insured other than the
right to borrow (which shall require the prior written consent 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.
-2-
<PAGE>
2. Section 4 of the 1992 Split-Dollar Agreement is hereby amended and
restated in its entirety as follows: SECTION 4
TERMINATION
Upon the earlier of the Executive's attainment of alternative employment or
November 1, 2001, the Policy Cash Value shall be paid to the Company, 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.
3. Section 5 of the 1992 Split-Dollar Agreement is hereby amended and
restated in its entirety as follows:
SECTION 5
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)
$1,000,000 in death proceeds if he dies prior to the earlier of his attainment
of alternative employment or November 1, 2001 and (ii) any cash value in excess
of the Policy Cash Value. Upon the Executive's death, so much of the Policy
proceeds as exceeds $1,000,000 shall be paid by the Insurer to the Company. Upon
the earlier of the Executive's attainment of alternative employment or November
1, 2001, the Policy Cash Value shall be paid by the Insurer to the Company.
These rights of the Company as amended by the First Amendment to this Agreement,
shall be written into an amended collateral assignment of the Policy, which
shall be executed by the Executive, delivered to the Company and made part of
this Agreement.
4. Paragraph (1) of Section 6 of the 1992 Split-Dollar Agreement is hereby
amended and restated in its entirety as follows:
(1) This Agreement shall terminate upon the earlier of the Executive's
attainment of alternative employment or November 1, 2001.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
MICROAGE, a Delaware Corporation
/s/ JAMES R. DANIEL
--------------------------------------------
James R. Daniel
Executive Vice President and Chief Financial
Officer
/s/ ALAN P. HALD
--------------------------------------------
Alan P. Hald
-4-
<PAGE>
AMENDED COLLATERAL ASSIGNMENT
Under Policy Number 12331341 (the "Policy")
Issued by The Northwestern Mutual Life Insurance Company
Policy Owner and Insured: Alan P. Hald
In compliance with the First Amendment to the 1992 Split-Dollar Insurance
Agreement By and Between MicroAge, Inc. and Alan P. Hald dated as of June 18,
1999, Alan P. Hald (the "Policy Owner") hereby agrees to assign the following
interests in the Policy to MicroAge, Inc. (the "Company"):
(1) If Policy Owner dies prior to the earlier of his attainment of
alternative employment or November 1, 2001, The Northwestern Mutual
Life Insurance Company ("NML") shall pay any Policy death benefit in
excess of $1,000,000 to the Company.
(2) Upon the earlier of Policy Owner's attainment of alternative
employment or November 1, 2001, 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) 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: June 18, 1999
/s/ ALAN P. HALD
--------------------------------------------
Alan P. Hald
MICROAGE, INC., a Delaware Corporation
/s/ JAMES R. DANIEL
--------------------------------------------
James R. Daniel
Executive Vice President and Chief
Financial Officer
-5-
FIRST AMENDMENT TO THE
1997 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ALAN P. HALD
This First Amendment to the Split-Dollar Insurance Agreement by and between
MicroAge, Inc., a Delaware corporation, and Alan P. Hald dated January 29, 1997
("1997 SPLIT-DOLLAR AGREEMENT") is made as of this 18th day of June, 1999.
R E C I T A L S:
A. WHEREAS, Alan P. Hald (the "INSURED") acquired insurance on his life in
accordance with the terms and provisions of the 1997 Split-Dollar Agreement; and
B. WHEREAS, MicroAge, Inc. (the "CORPORATION") has paid all premiums due on
the Policy through November 12, 1999 in accordance with the terms and provisions
of the 1997 Split-Dollar Agreement; and
C. WHEREAS, the Corporation and the Insured have entered into an Agreement
and General Release (the "SEPARATION AGREEMENT") regarding the Insured's
separation from his employment with the Corporation effective as of November 1,
1999; and
D. WHEREAS, the Separation Agreement requires the amendment of the 1997
Split-Dollar Agreement;
NOW, THEREFORE, the parties, in consideration of the mutual promises
contained herein, hereby agree as follows:
AMENDMENTS:
1. Article II of the 1997 Split Dollar Agreement is hereby amended and
restated in its entirety as follows:
ARTICLE II
The premiums on the Policy are Fifty-Six Thousand Five Hundred Fifty
Dollars and One Cent ($56,550.01) per year. The Corporation shall pay all
premiums necessary to keep the Policy in force through the earlier of (i)
the death of the Insured, (ii) the Insured's attainment of alternative
employment or (iii) November 1, 2001 (the "TERMINATION DATE").
<PAGE>
Notwithstanding the foregoing, if the Insured attains alternative
employment prior to his death and prior to November 1, 2001, the
Termination Date will not occur until the earlier of the Insured's death or
November 1, 2001; provided, however, that the Insured notifies the
Corporation in writing that the split-dollar benefits offered by the
alternative employer for similarly situated executives are less favorable
than those available under this Agreement and the Corporation, in the
exercise of good faith business judgment, concurs, and, provided further,
that the Insured waives any right to receive any split-dollar benefits from
the alternative employer during the time MicroAge is providing such
benefits.
2. Paragraph B of Article V of the 1997 Split Dollar Agreement is hereby
amended and restated in its entirety as follows:
B. The Insured may acquire the Corporation's interest in the Policy
for an amount equal to the Corporation's security interest in the Policy as
determined in Article III, paragraph A hereof. The Insured must exercise
his option to acquire the Corporation's interest in the Policy on or before
the Termination Date.
3. Article VI of the 1997 Split Dollar Agreement is hereby amended and
restated in its entirety as follows:
A. Subject to Article VI, paragraph B below, this Agreement shall
terminate upon the occurrence of any of the following:
1. Surrender or acquisition of the Policy by the Insured,
pursuant to Article V of this Agreement.
2. Cessation of the corporate business.
3. Bankruptcy, receivership or dissolution of Corporation.
4. November 1, 2001.
5. The death of the Insured.
6. The Insured's attainment of alternative employment.
B. If this Agreement is terminated pursuant to Article VI, paragraph
A.2 or 3 above, the Insured shall pay the Corporation an amount equal to
the Corporation's security interest in the Policy as determined in Article
III, paragraph A hereof. Upon receipt of such amounts, the Corporation
shall thereupon execute and deliver to the Insured a release of the
collateral assignment of the Policy. If the Insured does not remit the
amount equal to the Corporation's security interest within thirty (30) days
of the event described in paragraph A.2 or 3, then all obligations of the
Corporation under this Agreement shall be terminated and the Insured shall
transfer the ownership of the Policy to the Corporation.
C. If this Agreement is terminated pursuant to Article VI, paragraphs
A.4 or A.6 above, the Insured shall pay the Corporation an amount equal to
the Corporation's security interest in the Policy as determined in Article
III, paragraph A above. If the Insured does not remit the amount equal to
-2-
<PAGE>
the Corporation's security interest on or before the Termination Date, then
all obligations of the Corporation under this Agreement shall be terminated
and the Insured shall transfer the ownership of the Policy to the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
MICROAGE, INC., a Delaware Corporation
/s/ JAMES R. DANIEL
--------------------------------------------
James R. Daniel
Executive Vice President and Chief Financial
Officer
/s/ ALAN P. HALD
--------------------------------------------
Alan P. Hald
-3-
AGREEMENT AND GENERAL RELEASE
This Agreement and General Release (hereinafter "Agreement") is entered
into this 18th day of June, 1999, in the County of Maricopa, State of Arizona,
among MicroAge, Inc., a Delaware corporation ("MicroAge"), and Alan P. Hald
("Executive").
RECITALS
WHEREAS, Executive is currently serving as the Secretary of MicroAge and
President of MicroAge Enterprises, Inc.;
WHEREFORE, the parties have agreed that it is in their respective best
interests to amicably resolve all matters relative to Executive's employment
with MicroAge and separation therefrom pursuant to the following terms and
conditions:
I.
MicroAge covenants and agrees to provide Executive with the severance
benefits specified in paragraphs 1-14 on Exhibit A attached hereto (the
"Severance Benefits") and the additional benefits specified in paragraphs 15-23
on Exhibit A attached hereto (the "Additional Benefits"). The parties
acknowledge and agree that the Severance Benefits provided to Executive as set
forth on Exhibit A are provided pursuant to the Amended and Restated Employment
Agreement, dated as of November 4, 1996, by and between MicroAge and Executive
(the "Employment Agreement"). The parties agree that MicroAge will make no
payments of Additional Benefits hereunder until Executive signs and returns the
"Non-Revocation" form attached hereto as Exhibit B.
Executive's separation from employment with MicroAge will be effective as
of November 1, 1999 (the "Separation Date").
Executive hereby acknowledges receipt of an advanced payments in the amount
of Seventy Thousand Dollars ($70,000), less applicable taxes on June 1, 1999,
and Thirty Two Thousand Eight Hundred Thirty Five and 32/100 ($32,835.32), less
applicable taxes, on June 3, 1999. Such advance payment amounts will be deducted
from the payments Executive receives on the Payment Date (as defined below) in
accordance with his Severance Benefits.
It is expressly understood and agreed that, other than the severance
benefits being provided to Executive pursuant to this Agreement, neither
MicroAge nor any of its affiliates is otherwise indebted to Executive for any
other damages, wages, benefits, or reimbursements.
II.
In exchange for the promises set forth in Paragraph I above, Executive does
hereby forever release, discharge, cancel, waive, and acquit, for himself and
for his marital community, heirs, executors, administrators and assigns,
MicroAge and any and all of its affiliates, subsidiaries, corporate parents,
agents, officers, owners, employees, attorneys, successors and assigns, of and
<PAGE>
from any and all rights, claims, demands, causes of action, obligations,
damages, penalties, fees, costs, expenses, and liability of any nature
whatsoever which Executive has, had or may hereafter have against them or any of
them, arising out of, or by reason of any cause, matter, or thing whatsoever
existing as of the date of execution of this Agreement, WHETHER KNOWN TO THE
PARTIES AT THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT. This FULL WAIVER OF
ALL CLAIMS includes, without limitation, attorney's fees, any claims, demands,
or causes of action arising out of, or relating in any manner whatsoever to, the
employment and/or termination of the employment of Executive, such as, BUT NOT
LIMITED TO, any charge, claim, lawsuit or other proceeding arising under the
Civil Rights Act of 1866, 1964, Title VII as amended by the Civil Rights Act of
1991, the Americans with Disabilities Act, the Age Discrimination in Employment
Act (ADEA), the Labor Management Relations Act, the Employee Retirement Income
Security Act, the Consolidated Omnibus Budget Reconciliation Act, the Fair Labor
Standards Act, the Arizona Civil Rights Act, Workman's Compensation Claims, or
any other federal, state, or local statute. Executive further covenants and
agrees not to institute, nor cause to be instituted, any legal proceeding,
including filing any claim or complaint with any government agency alleging any
violations of law or public policy, against MicroAge and/or any and all of their
affiliates, subsidiaries, corporate parents, agents, officers, owners,
employees, successors and assigns premised upon any legal theory or claim
whatsoever, including without limitation, contract, tort, wrongful discharge,
personal injury, interference with contract, defamation, negligence, infliction
of emotional distress, fraud, or deceit, except to enforce the terms of this
Agreement.
III.
Executive acknowledges that he is a participant in the MicroAge, Inc.
Executive Supplemental Savings Plan (the "ESSP") and the Supplemental Executive
Retirement Plan of MicroAge, Inc. (the "SERP" and together with the ESSP, the
"Plans"). Executive agrees that he is fully aware of his rights and entitlements
under the Plans. Executive acknowledges that he is entitled to receive
non-qualified deferred compensation benefits equal to his account balance under
the ESSP (which as of January 31, 1999 was $38,911.13). He also acknowledges
that he is entitled to receive a benefit under the SERP which is currently being
calculated pursuant to the formula set forth in the SERP. The amounts due
Executive under the ESSP and the SERP (the "Benefits") are payable within a
reasonable time following the Separation Date. Executive understands that, at
Executive's request, the Compensation Committee is willing to credit him with
additional Benefit Accrual Service (as such term is defined in the SERP), so
that as of his Separation Date he will have a total of four (4) years of Benefit
Accrual Service under the SERP, which will result in an increase in the benefit
payable to Executive under the SERP. Executive further understands that, at
Executive's request, the Compensation Committee is willing to accelerate the
payment of the Benefits to May 31, 1999, or as soon thereafter as is reasonably
practicable, as opposed to the Separation Date. The Compensation Committee has
taken appropriate action to authorize the acceleration of the payment of the
Benefits and the increase in the Benefit Accrual Service credited to Executive
under the SERP.
In exchange for the early payments under the Plans and for the increase in
his Benefit Accrual Service as set forth above, Executive does hereby forever
release, discharge, cancel, waive, and acquit, for himself and for his marital
community, heirs, executors, administrators and assigns, MicroAge and any and
all of its affiliates, subsidiaries, corporate parents, agents, officers,
-2-
<PAGE>
owners, employees, attorneys, successors and assigns, of and from any and all
rights, claims, demands, causes of action, obligations, damages, penalties,
fees, costs, expenses, and liability of any nature whatsoever which Executive
has, had or may hereafter have against them or any of them, arising out of his
participation in the ESSP or the SERP, the accrual or payment of benefits under
the ESSP or the SERP, or the termination of the Executive's participation in
either the ESSP or the SERP, WHETHER KNOWN TO THE PARTIES AT THE TIME OF
EXECUTION OF THIS AGREEMENT OR NOT.
IV.
The parties and their respective attorneys agree to hold in strict
confidence the terms and conditions of this Agreement. The parties covenant and
agree that neither they nor their attorneys will, either directly or through any
other person, agent or representative, discuss publicly or privately the nature
or content of this Agreement with any non-party to this Agreement, except as to
either party's accountants, any state tax department or the federal Internal
Revenue Service, or any other state or federal official in response to a
legitimate inquiry.
V.
Executive, by his execution of this Agreement, avows that the following
statements are true:
A. That he has been given the opportunity and has in fact read this entire
Agreement, that it is in plain language, and has had all questions regarding its
meaning answered to his satisfaction;
B. That he has been advised to seek independent advice and/or counsel of
his choosing and that he has been given the full opportunity to seek such advice
and/or counsel;
C. That he fully understands the contents of this Agreement and understands
that it is a FULL WAIVER OF ALL CLAIMS, including arbitration claims and awards,
against Executive, including any rights under the ADEA and as to ADEA claims is
not a waiver of future claims;
D. That this FULL WAIVER OF ALL CLAIMS is given in return for valuable
consideration, as provided under the terms of this Agreement;
E. That he enters into this Agreement knowingly and voluntarily in exchange
for the promises referenced in this Agreement and that no other representations
have been made to him to induce or influence his execution of this Agreement.
Executive has been given at least twenty-one (21) days within which to consider
this Agreement before signing and seven (7) days following his execution of the
Agreement to revoke this Agreement. The Agreement shall not become effective or
enforceable until the foregoing revocation period has expired and Executive has
signed and returned the "Non-Revocation" form attached hereto as Exhibit B; and
F. That he understands his continuing obligations under the Employment
Agreement, including but not limited to his obligations (a) to maintain the
confidentiality of Confidential Information (ss. 5.1 of the Employment
Agreement), and (b) not to compete with MicroAge or its affiliates for a
-3-
<PAGE>
twenty-four month period (ss. 5.9 of the Employment Agreement). Without limiting
the generality of Executive's non-competition obligations, during the
Non-Competition Period (as defined in Section 5.9(a) of the Employment
Agreement) Executive agrees that Executive will not, either within or outside of
the Business territory (as defined in Section 5.9(a) of the Employment
Agreement), act as an agent, representative, consultant, officer, director,
member, independent contractor, or employee of Arrow Electronics, Inc.; Avnet,
Inc.; Cambridge Research Associates, Inc.; CHS Electronics, Inc.; Compaq
Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; En Pointe
Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office
Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy
Computer Resources, Inc.; Sarcom; Tech Data Corporation; Xerox Connect; or any
Affiliates or successors of the foregoing.
VI.
The parties confirm their continuing obligations under Section 5.10 of the
Employment Agreement, which provides as follows:
During the term of this Agreement and the Non-Competition Period, neither
Executive nor the Company shall disparage the other, and neither shall
disclose to any third party the conditions of Executive's employment with
the Company except as may be required (i) pursuant to applicable law or
regulations, including the rules and regulations of the Securities and
Exchange Commission, (ii) to effectuate the provisions of employee plans or
programs and insurance policies, or (iii) as may be otherwise contemplated
herein or unless such information becomes publicly available without fault
of the party making such disclosure.
VII.
Notwithstanding anything contained in Section 5.9 of the Employment
Agreement or Article V.F of this Agreement (the "Noncompetition Agreement"), or
in the amendments to the Split-Dollar Agreements (as defined in Exhibit A,
paragraph 8), or paragraphs 8 and 17 of Exhibit A, in the event MicroAge
defaults in the payment or maintenance of medical or dental benefits specified
in paragraphs 4 and 16 of Exhibit A, split-dollar benefits specified in
paragraphs 8 and 17, or disability benefits specified in paragraphs 9 and 18 of
Exhibit A ("MicroAge Default"), Executive will be released from his obligations
under the Noncompetition Agreement and MicroAge will transfer the split-dollar
Policies (as such term is defined in each Split-Dollar Agreement) to Executive
and will release Executive from any and all obligations to reimburse MicroAge
for premiums paid on the Policies.
In the event of a MicroAge Default, Executive must give written notice of
the MicroAge Default ("Notice") to MicroAge. MicroAge shall have fifteen (15)
days to cure the such default ("Cure Period") after Notice is received. If
MicroAge fails to cure the MicroAge Default within the Cure Period, Executive
has the option to either (a) be relieved of his obligations under the
Noncompetition Agreement and to receive the Policies and be released from any
and all obligations to reimburse MicroAge for premiums paid on the Policies (the
"Noncompete and Split-Dollar Release") or (b) to pursue available legal remedies
against MicroAge for the MicroAge Default. In order to elect the Noncompete and
Split-Dollar Release, Executive must give MicroAge written notice of such
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<PAGE>
election within fifteen (15) days after the end of the Cure Period. If Executive
elects the Noncompete and Split-Dollar Release, the Noncompetition Agreement
will be terminated, and MicroAge will be released from its obligations to
provide medical, dental, split-dollar or disability benefits to Executive, the
MicroAge Default will be deemed to have been cured, and Executive will have no
right to pursue any claims against MicroAge or any of its affiliates as a result
of the MicroAge Default. In the event Executive elects a Noncompete and
Split-Dollar Release, such release shall be deemed to be an amendment to the
Employment Agreement and MicroAge and Executive will enter into any necessary
amendments to the Split-Dollar Agreements to effectuate the terms of this
Article VII.
VIII.
This Agreement shall be governed in all respects, whether as to validity,
construction, capacity, performance, or otherwise, by the laws of the State of
Arizona, and no action involving this Agreement may be brought except in the
Superior Court for the State of Arizona or the Federal District Court for the
District of Arizona.
IX.
If any provision of this Agreement or the application thereof is held to be
invalid, void, or unenforceable for whatever reason, the remaining provisions
not so declared shall nevertheless continue in full force and effect without
being impaired in any manner whatsoever.
X.
This Agreement constitutes the sole and entire Agreement between the
parties hereto, and supersedes any and all understandings and agreements made
prior hereto, other than the Employment Agreement. There are no collateral
understandings, representations, or agreements other than those contained herein
or in the Employment Agreement. It is understood and agreed that the execution
of this Agreement by MicroAge is not an admission of liability on their parts to
Executive, but is an agreement to put to rest any claim of any kind whatsoever
relating to the employment relationship or otherwise, except that the parties
may enforce their respective rights under the Employment Agreement to the extent
they are not inconsistent with this Agreement. IN WITNESS WHEREOF, the
undersigned parties have signed this Agreement on the date indicated herein.
CAUTION! THIS IS A RELEASE! READ BEFORE SIGNING!
MICROAGE, INC. ALAN P. HALD
By: /s/ James R. Daniel /s/ Alan P. Hald
------------------- ----------------
Its: Executive Vice President
Chief Financial Officer
Date: June 18, 1999 Date: June 18, 1999
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<PAGE>
VERIFICATION
STATE OF ARIZONA )
) ss.
County of Yavapai )
On this 18th day of June, 1999, before me, the undersigned Notary Public,
personally appeared Alan P. Hald, known to me to be the person whose name is
subscribed to the within instrument, and acknowledged that he executed the same
for the purpose therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Emily Culpepper
----------------------------------------
Notary Public
My Commission Expires March 29, 2002
--------------
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<PAGE>
EXHIBIT A
SEVERANCE BENEFITS
1. LUMP SUM PAYMENTS. Promptly following MicroAge's receipt of the
Non-Revocation form attached hereto as Exhibit B (such date hereinafter referred
to as the "Payment Date"), MicroAge will pay Executive a lump payment of
$1,066,002 which is equal to three (3) times the sum of (1) his base salary in
effect immediately prior to his termination ($325,000) plus, (2) the average of
the Annual Bonuses paid to him for the three (3) fiscal years immediately
preceding fiscal year 2000 ($30,334).
2. ACCRUED VACATION DAYS. As of June 1, 1999, Executive has 141 unused
accrued vacation days (the "Accrued Vacation Days"). MicroAge will reimburse
Executive for such unused accrued vacation days in an amount equal to
Executive's current annual base salary ($325,000) multiplied by a fraction, the
numerator of which is the number of unused accrued vacation days (141), and the
denominator of which is 260. On the Payment Date, MicroAge will pay Executive
One Hundred Seventy Six Thousand Two Hundred and Fifty Dollars ($176,250) for
these accrued unused vacation days. No vacation days will accrue after May 31,
1999.
3. REIMBURSABLE EXPENSES. MicroAge will, in accordance with standard
policies, reimburse Executive for all reasonable travel and other expenses
incurred by Executive prior to the Separation Date and submitted for
reimbursement within seven (7) days of the Separation Date.
4. MEDICAL AND DENTAL PLANS. Executive is entitled to continue coverage
under the medical and dental plans in which Executive was entitled to
participate as a full-time employee immediately prior to the Separation Date in
accordance with the standard COBRA rules. Executive's coverage will continue for
up to twenty-four (24) months after the Separation Date (until November 1,
2001), subject to the limitations noted below, rather than the standard 18
months provided by COBRA. In addition, until the first to occur of Executive's
attainment of alternative employment or November 1, 2001, (i) MicroAge will
contribute towards the monthly premium payments in an amount equal to the
contribution that MicroAge would have made had Executive continued as an active
MicroAge associate; and (ii) Executive will pay the balance of the premiums. In
the event Executive obtains alternative employment prior to November 1, 2001,
and subject to Paragraph 16, MicroAge will no longer contribute to the premium
cost and Executive will be required to pay the full premium in order to continue
medical and/or dental benefits starting on the first day of Executive's
employment by an alternative employer. The period of continued coverage provided
by this paragraph will apply towards Executive's allowed 18 months of COBRA
coverage.
5. 401(K) PLAN. Executive participates in the MicroAge Retirement Savings
Plan (the "401(k) Plan"). Executive has received information regarding his
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<PAGE>
options under the 401(k) Plan. Any questions regarding the 401(k) Plan should be
directed to Patricia Vincent at 366-2287. As of the Separation Date, no
additional contributions will be made to the 401(k) Plan.
6. ESSP. Pursuant to Paragraph III of this Agreement, Executive will
receive as soon as practicable following the Payment Date, the account balance
under the ESSP which was valued at $38,911.13 as of January 31, 1999. There will
be no amounts transferred from the ESSP into the 401(k) Plan for fiscal year
1999, since all amounts previously deferred by Executive will be distributed to
him. Executive will be ineligible to make additional contributions to the ESSP
as of May 31, 1999.
7. SERP. Pursuant to Paragraph III of this Agreement, on the Payment Date
or as soon thereafter as is reasonably practicable, Executive will receive a
lump sum SERP payment which is currently being calculated pursuant to the
formula set forth in the SERP.
8. SPLIT-DOLLAR INSURANCE AGREEMENT. Executive and MicroAge entered into
two Split-Dollar Insurance Agreements, dated as of December 24, 1992 and January
27, 1997 (the "Split-Dollar Agreements"). Subject to Paragraph 17, and
notwithstanding anything contained in the Split-Dollar Agreements to the
contrary, MicroAge will cause the Split-Dollar Agreements to remain in full
force and effect and will continue to make the premium payments that become due
until the first to occur of (a) Executive's attainment of alternative employment
or (b) November 1, 2001 (the "Termination Date"). For purposes of the
Split-Dollar Agreements, Executive will be deemed to have terminated from
employment on the earlier of his death or the Termination Date. MicroAge and
Executive will enter into an amendment to the Split-Dollar Agreements to
effectuate the terms of this Paragraph 8. The rights and obligations of
Executive and MicroAge then will be determined pursuant to the terms of the
Split-Dollar Agreements, as amended.
9. DISABILITY INSURANCE. Executive currently has disability insurance
pursuant to separate policies: (1) the UNUM Group Disability Policy (the "Group
Policy") and (2) two UNUM Individual Disability Policies (the "Individual
Policies"). The Group Policy will terminate as of the Separation Date. Subject
to Paragraph 18, MicroAge will cause the Individual Policies to remain in full
force and effect until the Termination Date.
10. STOCK OPTIONS. During Executive's employment Executive was granted the
following stock options:
A. Pursuant to a Letter Award dated June 15, 1994 ("Letter Award")
under the 1989 Stock Option Plan, Executive was granted the option to
purchase a total of 40,000 shares of MicroAge common stock, par value $.01
per share at an exercise price of $10.42 per share. As of the Separation
Date, Executive has 40,000 unexercised vested options. In accordance with
the terms of the Letter Award, all options thereunder expire on July 13,
1999 and will not be extended pursuant to Paragraph 15.
B. Pursuant to the 1994 Stock Option Grant Letter dated as of December
13, 1995 (the "1995 Grant Letter") Executive was granted the option to
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<PAGE>
purchase a total of 10,000 shares of MicroAge common stock, par value $.01
per share at an exercise price of $8.75 per share. As of the Separation
Date, Executive has 6,000 unexercised vested options. In accordance with
the terms of the 1995 Grant Letter, all options thereunder terminate on the
Separation Date.
C. Pursuant to the 1994 Long-Term Incentive Plan Incentive Stock
Option Award dated as of December 4, 1996 (the "1996 Letter") Executive was
granted the option to purchase a total of 5,000 shares of MicroAge common
stock, par value $.01 per share at an exercise price of $24.00 per share.
As of the Separation Date, Executive has 2,000 unexercised vested options.
In accordance with the terms of the 1996 Letter, all options thereunder
will terminate on the Separation Date.
11. MANAGEMENT EQUITY PROGRAMS. Pursuant to the 1994 Management Equity
Program Award Agreement dated December 9, 1993 (the "1994 MEP Agreement"),
Executive received 125,638 options as a result of his election to restructure
his compensation package by reducing his fiscal year 1994, 1995, and 1996
compensation. In accordance with the terms of the 1994 MEP Agreement, on the
Separation Date, Executive will have 83,760 vested options. Following the
Separation Date, Executive's options will continue to vest under the vesting
schedule set forth in Section 6 of the 1994 MEP Agreement.
12. DEMAND REGISTRATION RIGHTS. Section 4.3(j) of the Employment Agreement
grants Executive the rights to registration under the Securities Act of 1933, as
amended, of his shares of Common Stock. MicroAge is under certain obligations in
the event Executive exercises his demand registration rights during the 2 years
following his termination of employment. In order for Executive to exercise his
demand registration rights, he must request that at least 50,000 shares be
registered.
13. TERMINATION PUT. Pursuant to Section 4.3(k) of the Employment
Agreement, in the event of Executive's death during the six (6) months following
his Separation Date, his estate, his spouse at the date of his death and his
children and trusts (the "Designated Beneficiaries") have the option (the
"Termination Put") to sell to MicroAge within 180 days of the date of his death,
the shares owned by such Designated Beneficiaries. A Designated Beneficiary has
this option only if the Designated Beneficiaries together own more than 50,000
shares of Common Stock of MicroAge.
14. EXCISE TAX PAYMENT. Pursuant to Section 4.5 of the Employment
Agreement, if any payment made to Executive pursuant to the Employment Agreement
is subject to an excise tax imposed by Code Section 4999 (including any interest
or penalties incurred by Executive relating to such excise tax), MicroAge will
make an additional payment to Executive in an amount equal to such excise tax.
15. EXTENSION OF OPTIONS. MicroAge will request that the Compensation
Committee allow the options granted in Paragraph 10 sections B and C, to
continue to vest as if Executive's employment continued until November 1, 2000,
and to extend the exercise period of all such options for twelve (12) months
after the Separation Date (November 1, 2000).
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<PAGE>
16. HEALTH BENEFITS. Notwithstanding anything contained in Paragraph 4,
MicroAge will cease making contributions to the monthly premium payments for
Executive's medical and dental coverage upon Executive's attainment of
alternative employment unless (i) Executive notifies MicroAge in writing that
the benefits offered by the alternative employer for similarly situated
executives are less favorable than those available under the MicroAge policies
and MicroAge, in the exercise of good faith business judgment, concurs, and (ii)
Executive waives any right to receive any medical and/or dental benefits from
the alternative employer during the time MicroAge is providing such benefits.
This Paragraph 16 shall constitute an amendment to the Employment Agreement.
17. EXTENSION OF SPLIT-DOLLAR AGREEMENTS. Notwithstanding anything
contained in Paragraph 8, MicroAge will cease making premium payments that
become due pursuant to the Split-Dollar Agreements upon Executive's attainment
of alternative employment unless (i) Executive notifies MicroAge in writing that
the split-dollar benefits offered by the alternative employer for similarly
situated executives are less favorable than those available under the MicroAge
policies and MicroAge, in the exercise of good faith business judgment, concurs,
and (ii) Executive waives any right to receive any split-dollar benefits from
the alternative employer during the time MicroAge is providing such benefits.
18. DISABILITY BENEFITS. Notwithstanding anything contained in Paragraph 9,
MicroAge will cease making the premium payments to maintain Executive's
Individual Policies upon Executive's attainment of alternative employment unless
Executive notifies MicroAge in writing that the disability benefits offered by
the alternative employer for similarly situated executives are less favorable
than those available under the MicroAge policies and MicroAge, in the exercise
of good faith business judgment, concurs. This Paragraph 18 shall constitute an
amendment to the Employment Agreement.
19. PRODUCT PURCHASE BENEFITS. Executive may purchase the cellular phone,
palm top, personal computer and docking station Executive has been using during
his employment with MicroAge at a price equal to their depreciated book values.
If Executive elects to purchase such items, Executive will contact Jeffrey D.
McKeever on or before the Separation Date.
20. EMPLOYMENT REFERENCE. MicroAge agrees to provide a reference and reason
for Executive's separation that is consistent with a statement that will be
mutually agreed to by MicroAge and Executive.
21. FUTURE EMPLOYMENT. ASU has proposed an Executive In Residence position
for Executive beginning on August 1, 1999 for a one-year period. This position
will not be considered alternative employment for purposes of continuing health
benefits under this Agreement.
22. MICROAGE CO-FOUNDER. MicroAge acknowledges that Executive may use the
term "MicroAge Co-Founder" in whatever context Executive deems appropriate.
23. TELEPHONE LINE AND E-MAIL ADDRESS. Executive will be entitled to
maintain his MicroAge telephone number (366-2337) and e-mail address
([email protected]) for a period of two (2) years following the Separation
Date.
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<PAGE>
EXHIBIT B
NON-REVOCATION
AS OF THE DATE SHOWN ON THIS FORM
By signing below, I hereby verify that I have chosen not to revoke my
agreement to, and execution of, the Agreement and General Release. My signature
confirms my renewed agreement to the terms of that Agreement, including the
release and waiver of any and all claims relating to my employment with the
Employer and its successors, assigns, and affiliated companies, and/or the
termination of that employment.
I hereby acknowledge that the payments made pursuant to Paragraphs 1, 2, 6
and 7 of Exhibit A are being accelerated and therefore constitute Additional
Benefits under the Agreement.
/s/ Alan P. Hald June 30, 1999
- ---------------- -------------
Alan P. Hald* Date
*Do not sign, date, or return this document until eight (8) days after you sign
the Agreement and General Release. The signed and dated document should be
returned to Matthew P. Feeney, Snell & Wilmer L.L.P., One Arizona Center,
Phoenix, Arizona 85004.
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<PAGE>
VERIFICATION
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this ____ day of __________, 1999, before me, the undersigned
Notary Public, personally appeared Alan P. Hald, known to me to be the person
whose name is subscribed to the within instrument, and acknowledged that he
executed the same for the purpose therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------------------
Notary Public
My Commission Expires ______________
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FIRST AMENDMENT TO THE
1995 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ROBERT G. O'MALLEY
This First Amendment to the 1995 Split-Dollar Insurance Agreement by and
between MICROAGE, INC., a Delaware corporation (hereinafter referred to as
"MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as
"Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is
effective as of the 30th day of June, 1999.
RECITALS
WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance
Agreement dated September 1, 1995 (hereinafter referred to as "Agreement") and a
Collateral Assignment Form dated September 1, 1995 (hereinafter referred to as
"CAF");
WHEREAS, the Agreement pertains to a policy of insurance on the life of
Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter
referred to as "Insurer"), in the face amount of Seven Hundred Fifty Thousand
Dollars ($750,000), with policy number 13453221 (hereinafter referred as
"Policy"), as identified on Schedule A to the Agreement;
WHEREAS, MicroAge was required to pay certain premiums due on the Policy
pursuant to Article II of the Agreement, and Insured was deemed the owner of the
Policy;
WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to
MicroAge a security interest in the Policy for the repayment of the premiums
paid by MicroAge to Insurer;
WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide
the proceeds of the Policy into two parts in the event of the death of Insured,
with MicroAge receiving an amount equal to MicroAge's security interest in the
<PAGE>
Policy, and Insured's designated beneficiary receiving the balance of the death
benefit;
WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge
desire that MicroAge's interest and obligations under the Agreement be assigned
to Pinacor, and Insured agrees to such assignment;
The parties, therefore, in consideration of the mutual promises contained
herein, hereby agree as follows:
AGREEMENTS
1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all
of its right, title, and interest in the Policy, any and all of its interest
acquired under the CAF, and any and all of its duties and obligations under the
Agreement.
2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's
right, title and interest in the Policy, and any and all of MicroAge's duties
and obligations under the Agreement, including but not limited to the obligation
to pay the premiums due on the Policy, and agrees to perform the Agreement in
the same manner and to the same extent that MicroAge would be required to
perform if no such assignment had taken place.
3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold
MicroAge harmless from and against any claims, losses or liability which arise
from the Agreement or this First Amendment to the Split-Dollar Insurance
Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise
of its duties and responsibilities under the Agreement or the Amendment,
including but not limited to claims of Insured, or losses or liability resulting
therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all
costs, damages or losses including without limitation any out-of-pocket expenses
and reasonable attorneys' fees incurred in the investigation or defense of any
such claims.
<PAGE>
4. CONSENT OF INSURED. Insured hereby consents to the assignment by
MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title
and interest in the Policy, and any and all duties and obligations arising from
the Agreement.
5. RELEASE BY INSURED. Insured releases, on behalf of himself and his
heirs, executors, administrators and assigns, any and all claims of any nature
whatsoever against MicroAge and its affiliates, agents, officers, owners,
directors, employees, insurers and assigns, arising out of or related in any
manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF,
and MicroAge's acts or omissions in connection therewith. The foregoing release
does not extend to or include Pinacor.
6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to
Pinacor and Insurer a Collateral Assignment Form in connection with the
execution of this Amendment, establishing Pinacor as the direct beneficiary of
the Policy in an amount equal to the total amount of premiums paid to Insurer on
the Policy, whether paid by Pinacor or MicroAge.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the 24th day of June, 1999.
MICROAGE, INC., a Delaware Corporation
By /s/ JEFFREY D. MCKEEVER
-------------------------------------
Its Chairman of the Board and Chief
Executive Officer
PINACOR, INC., a Delaware Corporation
By /s/ JAMES G. MANTON
-------------------------------------
Its President
By /s/ ROBERT G. O'MALLEY
-------------------------------------
ROBERT G. O'MALLEY
SECOND AMENDMENT TO THE
1995 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
PINACOR, INC. AND ROBERT G. O'MALLEY
This Second Amendment to the 1995 Split-Dollar Insurance Agreement by and
between Pinacor, Inc., a Delaware corporation, and Robert G. O'Malley dated
September 1, 1995 and amended June 24, 1999 (the "SPLIT-DOLLAR AGREEMENT") is
effective as of the 30th day of June, 1999.
R E C I T A L S:
A. WHEREAS, Robert G. O'Malley (the "INSURED") acquired insurance on his
life in accordance with the terms and provisions of the Split-Dollar Agreement;
and
B. WHEREAS, the First Amendment to the Split-Dollar Agreement was executed
effective June 30, 1999 whereby MicroAge, Inc. assigned to Pinacor, Inc. (the
"CORPORATION") all of its right, title, and interest in the Policy purchased
pursuant to the Split-Dollar Agreement, any and all of its interest acquired
under the related Collateral Assignment Form, and any and all of its duties and
obligations under the Split-Dollar Agreement; and
C. WHEREAS, the Corporation has paid all premiums due on the Policy through
August 25, 1999 in accordance with the terms and provisions of the Split-Dollar
Agreement; and
D. WHEREAS, the Corporation and the Insured have entered into an Agreement
and General Release (the "SEPARATION AGREEMENT") regarding the Insured's
separation from his employment with the Corporation effective as of June 30,
1999; and
E. WHEREAS, the Separation Agreement requires the amendment of the
Split-Dollar Agreement;
NOW, THEREFORE, the parties, in consideration of the mutual promises
contained herein, hereby agree as follows:
<PAGE>
AMENDMENTS:
1. Article II of the Split-Dollar Agreement is hereby amended and restated
in its entirety as follows:
ARTICLE II
The premiums on the Policy are Fifteen Thousand Six Hundred
Twenty-Eight Dollars and Ninety-Eight Cents ($15,628.98) per year. The
Corporation shall pay all premiums necessary to keep the Policy in force
through the earlier of (i) the death of the Insured or (ii) August 25,
1999.
2. Paragraph B of Article V of the Split Dollar Agreement is hereby amended
and restated in its entirety as follows:
B. On June 30, 1999, the collateral assignment in favor of the
Corporation shall expire and the Policy shall become the sole property of
the Insured. The Insured shall not be required to reimburse the Corporation
for any Policy premiums paid by the Corporation.
3. Article VI of the Split Dollar Agreement is hereby amended and restated
in its entirety as follows:
A. Subject to Article VI, paragraph B below, this Agreement shall
terminate upon the occurrence of any of the following:
1. Surrender or acquisition of the Policy by the Insured,
pursuant to Article V of this Agreement.
2. Cessation of the corporate business.
3. Bankruptcy, receivership or dissolution of Corporation.
4. June 30, 1999.
5. The death of the Insured.
B. If this Agreement is terminated pursuant to Article VI, paragraph
A.2 or 3 above, the Insured shall pay the Corporation an amount equal to
the Corporation's security interest in the Policy as determined in Article
III, paragraph A hereof. Upon receipt of such amounts, the Corporation
shall thereupon execute and deliver to the Insured a release of the
collateral assignment of the Policy. If the Insured does not remit the
amount equal to the Corporation's security interest within thirty (30) days
of the event described in paragraph A.2 or 3, then all obligations of the
Corporation under this Agreement shall be terminated and the Insured shall
transfer the ownership of the Policy to the Corporation.
C. If this Agreement is terminated pursuant to Article VI, paragraphs
A.4 above, the collateral assignment on the Policy in favor of the
Corporation shall expire contemporaneously with the termination of this
Agreement and the Insured shall then be the sole owner of the Policy.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
on the 24 day of June, 1999.
PINACOR, INC., a Delaware Corporation
/s/ JAMES G. MANTON
----------------------------------------
James G. Manton
President
/s/ ROBERT G. O'MALLEY
----------------------------------------
Robert G. O'Malley
-3-
FIRST AMENDMENT TO THE
1997 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ROBERT G. O'MALLEY
This First Amendment to the 1997 Split-Dollar Insurance Agreement by and
between MICROAGE, INC., a Delaware corporation (hereinafter referred to as
"MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as
"Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is
effective as of the 30th day of June, 1999.
RECITALS
WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance
Agreement dated January 27, 1997 (hereinafter referred to as "Agreement") and a
Collateral Assignment Form dated January 27, 1997 (hereinafter referred to as
"CAF");
WHEREAS, the Agreement pertains to a policy of insurance on the life of
Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter
referred to as "Insurer"), in the face amount of Two Hundred Fifty Thousand
Dollars ($250,000), with policy number 14016898 (hereinafter referred as
"Policy"), as identified on Schedule A to the Agreement;
WHEREAS, MicroAge was required to pay certain premiums due on the Policy
pursuant to Article II of the Agreement, and Insured was deemed the owner of the
Policy;
WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to
MicroAge a security interest in the Policy for the repayment of the premiums
paid by MicroAge to Insurer;
WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide
the proceeds of the Policy into two parts in the event of the death of Insured,
with MicroAge receiving an amount equal to MicroAge's security interest in the
Policy, and Insured's designated beneficiary receiving the balance of the death
benefit;
<PAGE>
WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge
desire that MicroAge's interest and obligations under the Agreement be assigned
to Pinacor, and Insured agrees to such assignment;
The parties, therefore, in consideration of the mutual promises contained
herein, hereby agree as follows:
AGREEMENTS
1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all
of its right, title, and interest in the Policy, any and all of its interest
acquired under the CAF, and any and all of its duties and obligations under the
Agreement.
2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's
right, title and interest in the Policy, and any and all of MicroAge's duties
and obligations under the Agreement, including but not limited to the obligation
to pay the premiums due on the Policy, and agrees to perform the Agreement in
the same manner and to the same extent that MicroAge would be required to
perform if no such assignment had taken place.
3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold
MicroAge harmless from and against any claims, losses or liability which arise
from the Agreement or this First Amendment to the Split-Dollar Insurance
Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise
of its duties and responsibilities under the Agreement or the Amendment,
including but not limited to claims of Insured, or losses or liability resulting
therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all
costs, damages or losses including without limitation any out-of-pocket expenses
and reasonable attorneys' fees incurred in the investigation or defense of any
such claims.
4. CONSENT OF INSURED. Insured hereby consents to the assignment by
<PAGE>
MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title
and interest in the Policy, and any and all duties and obligations arising from
the Agreement.
5. RELEASE BY INSURED. Insured releases, on behalf of himself and his
heirs, executors, administrators and assigns, any and all claims of any nature
whatsoever against MicroAge and its affiliates, agents, officers, owners,
directors, employees, insurers and assigns, arising out of or related in any
manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF,
and MicroAge's acts or omissions in connection therewith. The foregoing release
does not extend to or include Pinacor.
6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to
Pinacor and Insurer a Collateral Assignment Form in connection with the
execution of this Amendment, establishing Pinacor as the direct beneficiary of
the Policy in an amount equal to the total amount of premiums paid to Insurer on
the Policy, whether paid by Pinacor or MicroAge.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the 24th day of June, 1999.
MICROAGE, INC., a Delaware Corporation
By /s/ JEFFREY D. MCKEEVER
-------------------------------------
Its Chairman of the Board and Chief
Executive Officer
PINACOR, INC., a Delaware Corporation
By /s/ JAMES G. MANTON
-------------------------------------
Its President
By /s/ ROBERT G. O'MALLEY
-------------------------------------
ROBERT G. O'MALLEY
SECOND AMENDMENT TO THE
1997 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
PINACOR, INC. AND ROBERT G. O'MALLEY
This Second Amendment to the 1997 Split-Dollar Insurance Agreement by and
between Pinacor, Inc., a Delaware corporation, and Robert G. O'Malley dated
January 27, 1997 and amended June 24, 1999 (the "SPLIT-DOLLAR AGREEMENT") is
effective as of the 30th day of June, 1999.
R E C I T A L S:
A. WHEREAS, Robert G. O'Malley (the "INSURED") acquired insurance on his
life in accordance with the terms and provisions of the Split-Dollar Agreement;
and
B. WHEREAS, the First Amendment to the Split-Dollar Agreement was executed
effective June 24, 1999 whereby MicroAge, Inc. assigned to Pinacor, Inc. (the
"CORPORATION") all of its right, title, and interest in the Policy purchased
pursuant to the Split-Dollar Agreement, any and all of its interest acquired
under the related Collateral Assignment Form, and any and all of its duties and
obligations under the Split-Dollar Agreement; and
C. WHEREAS, the Corporation has paid all premiums due on the Policy through
August 25, 1999 in accordance with the terms and provisions of the Split-Dollar
Agreement; and
D. WHEREAS, the Corporation and the Insured have entered into an Agreement
and General Release (the "SEPARATION AGREEMENT") regarding the Insured's
separation from his employment with the Corporation effective as of June 30,
1999; and
E. WHEREAS, the Separation Agreement requires the amendment of the
Split-Dollar Agreement;
1
<PAGE>
NOW, THEREFORE, the parties, in consideration of the mutual promises
contained herein, hereby agree as follows:
AMENDMENTS:
1. Article II of the Split Dollar Agreement is hereby amended and restated
in its entirety as follows:
ARTICLE II
The premiums on the Policy are Ten Thousand Five Hundred Dollars
($10,500.00) per year. The Corporation shall pay all premiums necessary to
keep the Policy in force through the earlier of (i) the death of the
Insured or (ii) August 25, 1999.
2. Paragraph B of Article V of the Split Dollar Agreement is hereby amended
and restated in its entirety as follows:
B. On June 30, 1999, the collateral assignment in favor of the
Corporation shall expire and the Policy shall become the sole property of
the Insured. The Insured shall not be required to reimburse the Corporation
for any Policy premiums paid by the Corporation.
3. Article VI of the Split Dollar Agreement is hereby amended and restated
in its entirety as follows:
A. Subject to Article VI, paragraph B below, this Agreement shall
terminate upon the occurrence of any of the following:
1. Surrender or acquisition of the Policy by the Insured,
pursuant to Article V of this Agreement.
2. Cessation of the corporate business.
3. Bankruptcy, receivership or dissolution of Corporation.
4. June 30, 1999.
5. The death of the Insured.
B. If this Agreement is terminated pursuant to Article VI, paragraph
A.2 or 3 above, the Insured shall pay the Corporation an amount equal to
the Corporation's security interest in the Policy as determined in Article
III, paragraph A hereof. Upon receipt of such amounts, the Corporation
shall thereupon execute and deliver to the Insured a release of the
collateral assignment of the Policy. If the Insured does not remit the
amount equal to the Corporation's security interest within thirty (30) days
2
<PAGE>
of the event described in paragraph A.2 or 3, then all obligations of the
Corporation under this Agreement shall be terminated and the Insured shall
transfer the ownership of the Policy to the Corporation.
C. If this Agreement is terminated pursuant to Article VI, paragraphs
A.4 above, the collateral assignment on the Policy in favor of the
Corporation shall expire contemporaneously with the termination of this
Agreement and the Insured shall then be the sole owner of the Policy.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
on the 24th day of June, 1999.
PINACOR, INC., a Delaware Corporation
/s/ JAMES G. MANTON
----------------------------------------
James G. Manton
President
/s/ ROBERT G. O'MALLEY
----------------------------------------
Robert G. O'Malley
3
AGREEMENT AND GENERAL RELEASE
This Agreement and General Release (hereinafter "AGREEMENT") is entered
into this 24th day of June, 1999, in the County of Maricopa, State of Arizona,
among MicroAge, Inc., a Delaware corporation ("MICROAGE"), Pinacor, Inc., a
Delaware corporation ("PINACOR"), and Robert G. O'Malley ("EXECUTIVE").
RECITALS
WHEREAS, Executive is currently serving as the Chief Executive Officer of
Pinacor, Inc.;
WHEREFORE, the parties have agreed that it is in their respective best
interests to amicably resolve all matters relative to Executive's employment
with Pinacor and separation therefrom pursuant to the following terms and
conditions:
I.
Pinacor covenants and agrees to provide Executive with the severance
benefits specified in paragraphs 1-10 on EXHIBIT A attached hereto (the
"SEVERANCE BENEFITS") and the additional benefits specified in paragraphs 11 -
14 on EXHIBIT A attached hereto (the "ADDITIONAL BENEFITS"). Executive covenants
and agrees to execute the resignation letter attached hereto as EXHIBIT B
resigning from his position as a Director and Chief Executive Officer of the
companies listed on such exhibit. The parties acknowledge and agree that the
Severance Benefits provided to Executive as set forth on EXHIBIT A are provided
pursuant to the Employment Agreement, dated as of January 4, 1999, by and
between Pinacor, Inc. and Robert G. O'Malley (the "EMPLOYMENT AGREEMENT"). The
parties agree that Pinacor will not provide the Additional Benefits hereunder
until Executive signs and returns the "Non-Revocation" form attached hereto as
EXHIBIT C.
Executive's separation from employment with Pinacor will be effective as of
June 30, 1999 (the "SEPARATION DATE").
Executive hereby acknowledges receipt of an advanced payment in the amount
of Thirty Seven Thousand Four Hundred and Forty-Eight Dollars and 58/100
($37,448.58), less applicable taxes, on June 15, 1999, $37,154.40 of which is in
complete satisfaction of the payment owed to Executive for his unused accrued
vacation days as set forth in EXHIBIT A, paragraph 2, and $294.18 of which is a
reimbursement for prepaid medical insurance.
It is expressly understood and agreed that, other than the severance
benefits being provided to Executive pursuant to this Agreement, neither
MicroAge, Pinacor, nor any of their affiliates is otherwise indebted to
Executive for any other damages, wages, benefits, or reimbursements.
1
<PAGE>
II.
In exchange for the promises set forth in PARAGRAPH I above, Executive does
hereby forever release, discharge, cancel, waive, and acquit, for himself and
for his marital community, heirs, executors, administrators and assigns,
MicroAge, Pinacor, and any and all of their affiliates, subsidiaries, corporate
parents, agents, officers, owners, employees, attorneys, successors and assigns,
of and from any and all rights, claims, demands, causes of action, obligations,
damages, penalties, fees, costs, expenses, and liability of any nature
whatsoever which Executive has, had or may hereafter have against them or any of
them, arising out of, or by reason of any cause, matter, or thing whatsoever
existing as of the date of execution of this Agreement, WHETHER KNOWN TO THE
PARTIES AT THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT. This FULL WAIVER OF
ALL CLAIMS includes, without limitation, attorney's fees, any claims, demands,
or causes of action arising out of, or relating in any manner whatsoever to, the
employment and/or termination of the employment of Executive, such as, BUT NOT
LIMITED TO, any charge, claim, lawsuit or other proceeding arising under the
Civil Rights Act of 1866, 1964, Title VII as amended by the Civil Rights Act of
1991, the Americans with Disabilities Act, the Age Discrimination in Employment
Act (ADEA), the Labor Management Relations Act, the Employee Retirement Income
Security Act, the Consolidated Omnibus Budget Reconciliation Act, the Fair Labor
Standards Act, the Arizona Civil Rights Act, Workman's Compensation Claims, or
any other federal, state, or local statute. Executive further covenants and
agrees not to institute, nor cause to be instituted, any legal proceeding,
including filing any claim or complaint with any government agency alleging any
violations of law or public policy, against MicroAge, Pinacor, and/or any and
all of their affiliates, subsidiaries, corporate parents, agents, officers,
owners, employees, successors and assigns premised upon any legal theory or
claim whatsoever, including without limitation, contract, tort, wrongful
discharge, personal injury, interference with contract, defamation, negligence,
infliction of emotional distress, fraud, or deceit, except to enforce the terms
of this Agreement.
III.
The parties and their respective attorneys agree to hold in strict
confidence the terms and conditions of this Agreement. The parties covenant and
agree that neither they nor their attorneys will, either directly or through any
other person, agent or representative, discuss publicly or privately the nature
or content of this Agreement with any non-party to this Agreement, except as to
either party's accountants, any state tax department or the federal Internal
Revenue Service, or any other state or federal official in response to a
legitimate inquiry.
IV.
Executive, by his execution of this Agreement, avows that the following
statements are true:
A. That he has been given the opportunity and has in fact read this entire
Agreement, that it is in plain language, and has had all questions regarding its
meaning answered to his satisfaction;
2
<PAGE>
B. That he has been advised to seek independent advice and/or counsel of
his choosing and that he has been given the full opportunity to seek such advice
and/or counsel;
C. That he fully understands the contents of this Agreement and understands
that it is a FULL WAIVER OF ALL CLAIMS, including arbitration claims and awards,
against Executive, including any rights under the ADEA and as to ADEA claims is
not a waiver of future claims;
D. That this FULL WAIVER OF ALL CLAIMS is given in return for valuable
consideration, as provided under the terms of this Agreement;
E. That he enters into this Agreement knowingly and voluntarily in exchange
for the promises referenced in this Agreement and that no other representations
have been made to him to induce or influence his execution of this Agreement.
Executive has been given at least twenty-one (21) days within which to consider
this Agreement before signing and seven (7) days following his execution of the
Agreement to revoke this Agreement. The Agreement shall not become effective or
enforceable until the foregoing revocation period has expired and Executive has
signed and returned the "Non-Revocation" form attached hereto as EXHIBIT C; and
F. That he understands his continuing obligations under the Employment
Agreement, including but not limited to his obligations (a) to maintain the
confidentiality of Confidential Information (ss. 5.1 of the Employment
Agreement), and (b) not to compete with Pinacor or its affiliates for a
twenty-four month period (ss. 5.9 of the Employment Agreement). Without limiting
the generality of Executive's non-competition obligations, during the
Non-Competition Period (as defined in Section 5.9(a) of the Employment
Agreement) Executive agrees that Executive will not, either within or outside of
the Business Territory (as defined in Section 5.9(a) of the Employment
Agreement), act as an agent, representative, consultant, officer, director,
member, independent contractor, or employee of Arrow Electronics, Inc.; Avnet,
Inc.; Cambridge Research Associates, Inc.; CHS Electronics, Inc.; Compaq
Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; En Pointe
Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office
Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy
Computer Resources, Inc.; Sarcom; Tech Data Corporation; Xerox Connect; or any
Affiliates or successors of the foregoing.
V.
The parties confirm their continuing obligations under Section 5.10 of the
Employment Agreement, which provides as follows:
During the term of this Agreement, the Non-Competition Period, the Employee
Non- Solicitation Period, and the Customer Non-Solicitation Period, neither
the Executive nor the Company will disparage the other, and neither will
disclose to any third party the conditions of Executive's employment with
the Company, except as may be required (i) pursuant to applicable law or
regulations, including the rules and regulations of the Securities and
Exchange Commission, (ii) to effectuate the provisions of employee plans or
programs and insurance
3
<PAGE>
policies, or (iii) as may be otherwise contemplated herein or unless such
information becomes publicly available without fault of the party making
such disclosure.
VI.
This Agreement shall be governed in all respects, whether as to validity,
construction, capacity, performance, or otherwise, by the laws of the State of
Arizona, and no action involving this Agreement may be brought except in the
Superior Court for the State of Arizona or the Federal District Court for the
District of Arizona.
VII.
If any provision of this Agreement or the application thereof is held to be
invalid, void, or unenforceable for whatever reason, the remaining provisions
not so declared shall nevertheless continue in full force and effect without
being impaired in any manner whatsoever.
VIII.
This Agreement constitutes the sole and entire Agreement between the
parties hereto, and supersedes any and all understandings and agreements made
prior hereto, other than the Employment Agreement. There are no collateral
understandings, representations, or agreements other than those contained herein
or in the Employment Agreement. It is understood and agreed that the execution
of this Agreement by MicroAge and Pinacor is not an admission of liability on
their parts to Executive, but is an agreement to put to rest any claim of any
kind whatsoever relating to the employment relationship or otherwise, except
that the parties may enforce their respective rights under the Employment
Agreement to the extent they are not inconsistent with this Agreement.
IN WITNESS WHEREOF, the undersigned parties have signed this Agreement on
the date indicated herein.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
CAUTION! THIS IS A RELEASE! READ BEFORE SIGNING!
MICROAGE, INC. PINACOR, INC.
By: /s/ JEFFREY D. MCKEEVER By: /s/ JAMES G. MANTON
-------------------------- ----------------------
Its: Chairman of the Board and Its: President
Chief Executive Officer
Date: June 24, 1999 Date: June 24, 1999
Robert G. O'Malley
/s/ ROBERT G. O'MALLEY
- -------------------------
Date: June 24, 1999
5
<PAGE>
VERIFICATION
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 24th day of June, 1999, before me, the undersigned Notary
Public, personally appeared Robert G. O'Malley, known to me to be the person
whose name is subscribed to the within instrument, and acknowledged that he
executed the same for the purpose therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ MATTHEW P. FEENEY
------------------------
Notary Public
My Commission Expires October 31, 1999
6
<PAGE>
EXHIBIT A
SEVERANCE BENEFITS
1. SALARY PAYMENTS. In consideration of the benefits paid to Executive
pursuant to this Agreement, and notwithstanding anything contained in Section
4.3(f) of the Employment Agreement to the contrary, Executive hereby waives his
right to receive payments under Section 4.3(f) of the Employment Agreement. This
Section 1 shall be deemed to be an amendment to the Employment Agreement.
2. ACCRUED VACATION DAYS. As of May 31, 1999, Executive will have 240 hours
of unused accrued hours, or 30 days (the "ACCRUED VACATION DAYS"). Pinacor will
reimburse Executive for such unused accrued vacation days in an amount equal to
Executive's current annual base salary less his 1999 MEP waiver ($322,000)
multiplied by a fraction, the numerator of which is the number of unused accrued
vacation days (30), and the denominator of which is 260. On the Separation Date,
Pinacor will pay Executive Thirty Seven Thousand One Hundred Fifty-Four Dollars
and 40/100 ($37,154.40) for these accrued unused vacation days.
3. REIMBURSABLE EXPENSES. Pinacor will, in accordance with standard
policies, reimburse Executive for all reasonable travel and other expenses
incurred by Executive prior to the Separation Date and submitted for
reimbursement on or before July 15, 1999.
4. MEDICAL AND DENTAL PLANS. In consideration of the benefits paid to
Executive pursuant to this Agreement, and notwithstanding anything contained in
Section 4.3(g) of the Employment Agreement to the contrary, Executive hereby
waives his right to receive medical, dental or other benefits under Section
4.3(g) of the Employment Agreement. As of the Separation Date, Pinacor will
cease making contributions to the monthly premiums it made while Executive was
an active Pinacor associate. Executive will be entitled to 18 months of COBRA
coverage (through December 31, 2000) (the "COBRA PERIOD"). Executive will be
required to pay the full COBRA premium in order to continue medical and/or
dental benefits during the COBRA Period.
Any questions regarding COBRA coverage should be directed to Linda Koch at
366-3014. This Section 4 shall be deemed to be an amendment to the Employment
Agreement.
5. 401(K) PLAN AND SUPPLEMENTAL SAVINGS PLAN. Executive participates in the
Pinacor Retirement Savings Plan (the "401(K) PLAN") and the Pinacor Executive
Supplemental Savings Plan (the "SUPPLEMENTAL SAVINGS PLAN"). Executive has
received information regarding his options under the 401(k) Plan. Any questions
regarding the 401(k) Plan should be directed to Patricia Vincent at 366-2287. As
of the Separation Date, no additional contributions will be made to the 401(k)
Plan or the Supplemental Savings Plan. Pursuant to the Participation Agreement
dated September 15, 1997, Executive's account balance under the Supplemental
Savings Plan will be distributed to him in a lump sum payment within a
reasonable time after the Separation Date.
A-1
<PAGE>
6. SPLIT-DOLLAR INSURANCE AGREEMENT. Executive and MicroAge entered into
two Split- Dollar Insurance Agreements, dated as of September 1, 1995 and
January 27, 1997 (the "SPLIT- DOLLAR AGREEMENTS"). Attached as EXHIBIT D are the
amendments to the Split-Dollar Agreements assigning such agreements from
MicroAge to Pinacor as of the Separation Date. Pinacor has paid the premium
payments on both Policies (as such term is defined in each Split-Dollar
Agreement) through August 24, 1999. On the Separation Date, Pinacor will
transfer the Policies to Executive and will release Executive from any and all
obligations to reimburse Pinacor for premiums paid on the Policies. After August
24, 1999, Executive will be responsible for maintaining the Policies to the
extent Executive elects to do so. Pinacor and Executive will enter into
amendments to the Split-Dollar Agreements to effectuate the terms of this
Section 6.
7. DISABILITY INSURANCE. Executive currently has disability insurance
pursuant to separate policies: (1) the UNUM Group Disability Policy (the "GROUP
POLICY") and (2) two UNUM Individual Disability Policies (the "INDIVIDUAL
POLICIES"). The Group Policy will terminate as of the Separation Date. Pinacor
will cause the Individual Policies to remain in full force and effect until
September 30, 1999. After September 30, 1999, Executive will be responsible for
the full premium payments if Executive wishes to continue coverage under the
Individual Policies. If Executive elects to continue coverage under the
Individual Polices, Executive should contact Ellen Steele-Allare (955-7370) on
or before September 1, 1999.
8. STOCK OPTIONS. During Executive's employment Executive was granted the
following stock options:
A. Pursuant to a Letter Award, dated May 15, 1995 (the "LETTER
AWARD"), under the MicroAge, Inc. 1994 Long-Term Incentive Plan, Executive
was granted the option to purchase a total of 15,000 shares of MicroAge
common stock, par value $.01 per share ("COMMON STOCK"), at an exercise
price of $11.13 per share. Pursuant to the terms of the Letter Award, on or
before the Separation Date, Executive is entitled to purchase up to 9,000
shares of Common Stock at an exercise price of $11.13 per share. In
accordance with the terms of the Letter Award, all options thereunder will
terminate on the Separation Date.
B. Pursuant to the 1994 Stock Option Plan Grant Letter, dated as of
December 13, 1995 (the "1994 GRANT LETTER"), Executive was granted the
option to purchase a total of 15,000 shares of Common Stock at an exercise
price of $8.75 per share. Pursuant to the terms of the 1994 Grant Letter,
on or before the Separation Date, Executive is entitled to purchase up to
6,000 shares of Common Stock at an exercise price of $8.75 per share. In
accordance with the terms of the 1994 Grant Letter, all options thereunder
will terminate on the Separation Date.
C. Pursuant to the MicroAge, Inc. Long-Term Incentive Plan Incentive
Stock Option Award, dated March 14, 1996 (the "1996 LETTER"), Executive was
granted the option to purchase 50,000 shares of Common Stock at an exercise
price of $9.25 per share.
A-2
<PAGE>
Pursuant to the terms of the 1996 Letter, on or before the Separation Date,
Executive is entitled to purchase up to 30,000 shares of Common Stock at an
exercise price of $9.25 per share. In accordance with the terms of the 1996
Letter, all options thereunder will terminate on the Separation Date.
D. Pursuant to the 1994 Long-Term Incentive Plan Incentive Stock
Option Award (the "1994 INCENTIVE AWARD"), on December 4, 1996 Executive
was granted the option to purchase a total of 20,000 shares of Common Stock
at an exercise price of $24.00 per share. Pursuant to the terms of the 1994
Incentive Plan, on or before the Separation Date, Executive is entitled to
purchase up to 8,000 shares of Common Stock at an exercise price of $24.00
per share. In accordance with the terms of the 1994 Incentive Award, all
options thereunder will terminate on the Separation Date.
E. Pursuant to the 1997 Long Term Incentive Plan Incentive Stock
Option Award, dated April 10, 1998 (the "1998 LETTER"), Executive was
granted the option to purchase a total of 10,000 shares of Common Stock at
an exercise price of $14.375 per share. Pursuant to the terms of the 1998
Letter, on or before the Separation Date, Executive is entitled to purchase
up to 2,000 shares of Common Stock at an exercise price of $14.375 per
share, subject to certain stock price hurdles. In accordance with the terms
of the 1998 Letter, all options thereunder will terminate on the Separation
Date.
F. Pursuant to the 1997 Long-Term Incentive Plan Incentive Stock
Option Award, dated January 28, 1999 (the "1999 LETTER"), Executive was
granted the option to purchase 10,000 shares of Common Stock at an exercise
price of $16.56 per share. As of the Separation Date, Executive is not
entitled to exercise any of the options under the 1999 Letter. In
accordance with the terms of the 1999 Letter, all options thereunder will
terminate on the Separation Date.
9. MANAGEMENT EQUITY PROGRAMS.
A. Pursuant to the 1997 Management Equity Program Award Agreement,
dated October 11, 1996, and amended January 28, 1999 (the "1997 MEP
AGREEMENT"), Executive received 135,035 options as a result of his election
to restructure his compensation package by reducing his fiscal year 1997,
1998, and 1999 compensation. As of the Separation Date, Executive will not
have any vested options. In accordance with the terms of the 1997 MEP
Agreement, following the Separation Date, Executive's options will continue
to vest under the vesting schedule set forth on EXHIBIT E.
B. Pursuant to the 1999 Management Equity Program Award Agreement
dated April 22, 1999 (the "1999 MEP AGREEMENT"), Executive received 32,681
options as a result of his election to waive a portion of his salary during
the period from May 1, 1999 through May 1, 2000. In accordance with the
terms of the 1999 MEP Agreement, on the Separation Date, Executive will
A-3
<PAGE>
have 5,447 options. Following the Separation Date, Executive's options will
continue to vest under the vesting schedule set forth on EXHIBIT E.
10. ASSOCIATE STOCK PURCHASE PLAN. On June 30, 1999, Executive's balance in
the Associate Stock Purchase Plan (the "ASSP") will be invested in MicroAge
common stock pursuant to the terms of such plan. Any questions regarding the
ASSP should be directed to Patricia Vincent at 366-2287.
11. EXTENSION OF OPTIONS. Pursuant to a written consent dated as of June
16, 1999, the Compensation Committee extended the exercise period of all options
granted in Section 8, paragraphs A-F above, for six (6) months after the
Separation Date.
12. PRODUCT PURCHASE BENEFITS. Executive may purchase the palm top,
personal computer and docking station Executive has been using during his
employment with Pinacor at a price equal to their depreciated book values. If
Executive elects to purchase such items, Executive will contact Jeff McKeever.
13. CELLULAR PHONE. Executive may retain the cellular phone he was using
during his employment with Pinacor. As of the Separation Date, Pinacor will
transfer the cellular phone and the related account to Executive and Executive
will be responsible for maintaining such account.
14. EMPLOYMENT REFERENCE. Pinacor agrees to provide a reference and reason
for Executive's separation that is consistent with a statement that will be
mutually agreed to by Pinacor and Executive.
A-4
<PAGE>
EXHIBIT B
June 30, 1999
To the Board of Directors of each of the corporations attached hereto as EXHIBIT
A:
I hereby resign my positions as a director and officer of each of the
corporations attached hereto as EXHIBIT A, effective as of June 30, 1999.
Sincerely,
Robert G. O'Malley
B-1
<PAGE>
EXHIBIT A
COMPANY POSITION
- ------- --------
Complete Distribution, Inc. Director and Chief Executive Officer
ConnectWorks, Inc. Director and Chief Executive Officer
Contract PC, Inc. Director and Chief Executive Officer
MicroRetailing, Inc. Director and Chief Executive Officer
Pinacor, Inc. Director and Chief Executive Officer
Pinacor Logistics Services, Inc. Director and Chief Executive Officer
B-2
<PAGE>
EXHIBIT C
NON-REVOCATION
AS OF THE DATE SHOWN ON THIS FORM
By signing below, I hereby verify that I have chosen not to revoke my
agreement to, and execution of, the Agreement and General Release. My signature
confirms my renewed agreement to the terms of that Agreement, including the
release and waiver of any and all claims relating to my employment with the
Employer and its successors, assigns, and affiliated companies, and/or the
termination of that employment
/S/ ROBERT G. O'MALLEY JULY 9, 1999
- --------------------------------------- -------------
Robert G. O'Malley* Date
*Do not sign, date, or return this document until eight (8) days after you sign
the Agreement and General Release. The signed and dated document should be
returned to Matthew P. Feeney, Snell & Wilmer L.L.P., One Arizona Center,
Phoenix, Arizona 85004.
C-1
<PAGE>
VERIFICATION
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this ____ day of _____________, 1999, before me, the undersigned Notary
Public, personally appeared Robert G. O'Malley, known to me to be the person
whose name is subscribed to the within instrument, and acknowledged that he
executed the same for the purpose therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------------------
Notary Public
My Commission Expires -----------------
C-2
<PAGE>
EXHIBIT D
FIRST AMENDMENT TO THE
1995 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ROBERT G. O'MALLEY
This First Amendment to the 1995 Split-Dollar Insurance Agreement by and
between MICROAGE, INC., a Delaware corporation (hereinafter referred to as
"MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as
"Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is
effective as of the 30th day of June, 1999.
RECITALS
WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance
Agreement dated September 1, 1995 (hereinafter referred to as "Agreement") and a
Collateral Assignment Form dated September 1, 1995 (hereinafter referred to as
"CAF");
WHEREAS, the Agreement pertains to a policy of insurance on the life of
Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter
referred to as "Insurer"), in the face amount of Seven Hundred Fifty Thousand
Dollars ($750,000), with policy number 13453221 (hereinafter referred as
"Policy"), as identified on Schedule A to the Agreement;
WHEREAS, MicroAge was required to pay certain premiums due on the Policy
pursuant to Article II of the Agreement, and Insured was deemed the owner of the
Policy;
WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to
MicroAge a security interest in the Policy for the repayment of the premiums
paid by MicroAge to Insurer;
D-1
<PAGE>
WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide
the proceeds of the Policy into two parts in the event of the death of Insured,
with MicroAge receiving an amount equal to MicroAge's security interest in the
Policy, and Insured's designated beneficiary receiving the balance of the death
benefit;
WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge
desire that MicroAge's interest and obligations under the Agreement be assigned
to Pinacor, and Insured agrees to such assignment;
The parties, therefore, in consideration of the mutual promises contained
herein, hereby agree as follows:
AGREEMENTS
1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all
of its right, title, and interest in the Policy, any and all of its interest
acquired under the CAF, and any and all of its duties and obligations under the
Agreement.
2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's
right, title and interest in the Policy, and any and all of MicroAge's duties
and obligations under the Agreement, including but not limited to the obligation
to pay the premiums due on the Policy, and agrees to perform the Agreement in
the same manner and to the same extent that MicroAge would be required to
perform if no such assignment had taken place.
3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold
MicroAge harmless from and against any claims, losses or liability which arise
from the Agreement or this First Amendment to the Split-Dollar Insurance
Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise
of its duties and responsibilities under the Agreement or the Amendment,
D-2
<PAGE>
including but not limited to claims of Insured, or losses or liability resulting
therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all
costs, damages or losses including without limitation any out-of-pocket expenses
and reasonable attorneys' fees incurred in the investigation or defense of any
such claims.
4. CONSENT OF INSURED. Insured hereby consents to the assignment by
MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title
and interest in the Policy, and any and all duties and obligations arising from
the Agreement.
5. RELEASE BY INSURED. Insured releases, on behalf of himself and his
heirs, executors, administrators and assigns, any and all claims of any nature
whatsoever against MicroAge and its affiliates, agents, officers, owners,
directors, employees, insurers and assigns, arising out of or related in any
manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF,
and MicroAge's acts or omissions in connection therewith. The foregoing release
does not extend to or include Pinacor.
6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to
Pinacor and Insurer a Collateral Assignment Form in connection with the
execution of this Amendment, establishing Pinacor as the direct beneficiary of
the Policy in an amount equal to the total amount of premiums paid to Insurer on
the Policy, whether paid by Pinacor or MicroAge.
D-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the ___ day of June, 1999.
MICROAGE, INC., a Delaware Corporation
By
--------------------------------------
Its
-------------------------------------
PINACOR, INC., a Delaware Corporation
By
--------------------------------------
Its
-------------------------------------
By
--------------------------------------
ROBERT G. O'MALLEY
D-4
<PAGE>
FIRST AMENDMENT TO THE
1997 SPLIT-DOLLAR INSURANCE AGREEMENT
BY AND BETWEEN
MICROAGE, INC. AND ROBERT G. O'MALLEY
This First Amendment to the 1997 Split-Dollar Insurance Agreement by and
between MICROAGE, INC., a Delaware corporation (hereinafter referred to as
"MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as
"Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is
effective as of the 30th day of June, 1999.
RECITALS
WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance
Agreement dated January 27, 1997 (hereinafter referred to as "Agreement") and a
Collateral Assignment Form dated January 27, 1997 (hereinafter referred to as
"CAF");
WHEREAS, the Agreement pertains to a policy of insurance on the life of
Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter
referred to as "Insurer"), in the face amount of Two Hundred Fifty Thousand
Dollars ($250,000), with policy number 14016898 (hereinafter referred as
"Policy"), as identified on Schedule A to the Agreement;
WHEREAS, MicroAge was required to pay certain premiums due on the Policy
pursuant to Article II of the Agreement, and Insured was deemed the owner of the
Policy;
WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to
MicroAge a security interest in the Policy for the repayment of the premiums
paid by MicroAge to Insurer;
WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide
the proceeds of the Policy into two parts in the event of the death of Insured,
with MicroAge receiving an amount equal to MicroAge's security interest in the
Policy, and Insured's designated beneficiary receiving the balance of the death
benefit;
D-5
<PAGE>
WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge
desire that MicroAge's interest and obligations under the Agreement be assigned
to Pinacor, and Insured agrees to such assignment;
The parties, therefore, in consideration of the mutual promises contained
herein, hereby agree as follows:
AGREEMENTS
1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all
of its right, title, and interest in the Policy, any and all of its interest
acquired under the CAF, and any and all of its duties and obligations under the
Agreement.
2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's
right, title and interest in the Policy, and any and all of MicroAge's duties
and obligations under the Agreement, including but not limited to the obligation
to pay the premiums due on the Policy, and agrees to perform the Agreement in
the same manner and to the same extent that MicroAge would be required to
perform if no such assignment had taken place.
3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold
MicroAge harmless from and against any claims, losses or liability which arise
from the Agreement or this First Amendment to the Split-Dollar Insurance
Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise
of its duties and responsibilities under the Agreement or the Amendment,
including but not limited to claims of Insured, or losses or liability resulting
therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all
costs, damages or losses including without limitation any out-of-pocket expenses
and reasonable attorneys' fees incurred in the investigation or defense of any
such claims.
D-6
<PAGE>
4. CONSENT OF INSURED. Insured hereby consents to the assignment by
MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title
and interest in the Policy, and any and all duties and obligations arising from
the Agreement.
5. RELEASE BY INSURED. Insured releases, on behalf of himself and his
heirs, executors, administrators and assigns, any and all claims of any nature
whatsoever against MicroAge and its affiliates, agents, officers, owners,
directors, employees, insurers and assigns, arising out of or related in any
manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF,
and MicroAge's acts or omissions in connection therewith. The foregoing release
does not extend to or include Pinacor.
6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to
Pinacor and Insurer a Collateral Assignment Form in connection with the
execution of this Amendment, establishing Pinacor as the direct beneficiary of
the Policy in an amount equal to the total amount of premiums paid to Insurer on
the Policy, whether paid by Pinacor or MicroAge.
D-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the ___ day of June, 1999. MICROAGE, INC., a Delaware Corporation
MICROAGE, INC., a Delaware Corporation
By
--------------------------------------
Its
-------------------------------------
PINACOR, INC., a Delaware Corporation
By
--------------------------------------
Its
-------------------------------------
By
--------------------------------------
ROBERT G. O'MALLEY
D-8
<PAGE>
EXHIBIT E
1997 MEP AGREEMENT VESTING SCHEDULE
1/3 1/3 1/3
--- --- ---
November 1, 1999 14,563
October 30, 2000 14,563 14,563
October 29, 2001 14,562 14,563 15,887
November 4, 2002 14,562 15,886
November 3, 2003 15,886
------ ------ ------
43,688 43,688 47,659
TOTAL 135,035
1999 MEP AGREEMENT VESTING SCHEDULE
1/3
---
May 1, 2000 1,816
May 1, 2001 1,816
May 1, 2002 1,815
-----
5,447
E-1
FIRST AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT (this "FIRST AMENDMENT") TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT is entered into as of this 1st day of April, 1998, by and
between MICROAGE, INC., a Delaware corporation (the "COMPANY") and Christopher
J. Koziol ("EXECUTIVE").
RECITALS:
WHEREAS, the Company and Executive entered into an Amended and Restated
Employment Agreement, dated as of November 4,1996 (the "EMPLOYMENT AGREEMENT");
and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, and for other valuable
consideration, the sufficiency of which is hereby acknowledged by each of the
parties hereto, the parties hereby agree as follows:
AGREEMENT:
SECTION 1. AMENDMENT TO EMPLOYMENT AGREEMENT.
The first sentence of Section 1.2 of the Employment Agreement is hereby
amended in its entirety to read as follows:
"(a) Executive shall serve as President of Pinacor, Inc., the
Company's distribution subsidiary (or in a capacity and with a title of at
least substantially equivalent quality)."
SECTION 2. EFFECTIVENESS.
This First Amendment will become effective as of April 1,1998.
SECTION 3. MISCELLANEOUS.
A. Full Force and Effect.
Except as expressly provided in this First Amendment, the Employment
Agreement will remain unchanged and in full force and effect.
<PAGE>
B. Counterparts.
This First Amendment may be executed in any number Qf counterparts, all of
which taken together will constitute one and the same instrument, and any of the
parties hereto may execute this First Amendment by signing any such counterpart.
A. Arizona Law.
It is the intention of the parties that the laws of Arizona will govern the
validity of this First Amendment, the construction of its terms, and the
interpretation of the rights and duties of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
Company:
MICROAGE, INC.
By: /s/ Jeffrey D. McKeever
------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Executive:
/s/ Christopher J. Koziol
----------------------------------------
Christopher J. Koziol
SECOND AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT (this "SECOND AMENDMENT") TO AMENDED AND
RESTATED EMPLOYMENT AGREEMENT, as amended, is entered into as of this 28th day
of January, 1999, by and between MICROAGE, INC., a Delaware corporation (the
"COMPANY"), and Christopher J. Koziol ("EXECUTIVE").
RECITALS:
WHEREAS, the Company and Executive entered into an Amended and
Restated Employment Agreement, dated as of November 4, 1996, as amended by the
First Amendment to Amended and Restated Employment Agreement, dated as of April
1, 1998 (the "EMPLOYMENT AGREEMENT"); and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
valuable consideration, the sufficiency of which is hereby acknowledged by each
of the parties hereto, the parties hereby agree as follows:
AGREEMENT:
SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT.
A. The first sentence of Section 1.2 of the Employment Agreement is
hereby amended in its entirety to read as follows:
"(a) Executive shall serve as Executive Vice President - Sales of
the Company (or in a capacity and with a title of at least substantially
equivalent quality)."
B. Section 2.2 of the Employment Agreement is hereby amended in its
entirety to read as follows:
2.2 BONUS PAYMENT.
"(a) During the period of Executive's employment under this
Agreement, the Company shall pay to Executive annually a fixed cash bonus equal
to $4,018 and, in addition, such amount as may be necessary, after payment by
the Executive of all taxes, including, without limitation, any federal or state
income taxes, on such fixed cash bonus payment, so that Executive shall have
remaining, on a grossed-up basis, the amount of $4,018 (the "ANNUAL FIXED CASH
BONUS").
(b) The Board or a committee thereof will establish in each
fiscal year during the term hereof an executive bonus plan that provides for
incentive compensation to Executive. Any bonus under any such plan is referred
to herein as the "ANNUAL INCENTIVE BONUS".
C. Section 4.2(e) of the Employment Agreement is hereby amended in its
entirety to read as follows:
<PAGE>
"(e) pay Executive any Annual Fixed Cash Bonus and any Annual
Incentive Bonus with respect to a prior fiscal year which has accrued but has
not been paid (together, such bonus payments are referred to herein as the
"ACCRUED ANNUAL BONUS PAYMENTS");"
D. Section 4.3(e) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(e) pay Executive the Accrued Annual Bonus Payments;"
SECTION 2. EFFECTIVENESS.
This Second Amendment will become effective as of January 28, 1999.
SECTION 3. MISCELLANEOUS.
A. Full Force and Effect.
Except as expressly provided in this Second Amendment, the Employment
Agreement will remain unchanged and in full force and effect.
B. Counterparts.
This Second Amendment may be executed in any number of counterparts,
all of which taken together will constitute one and the same instrument, and any
of the parties hereto may execute this Second Amendment by signing any such
counterpart.
C. Arizona Law.
It is the intention of the parties that the laws of Arizona will
govern the validity of this Second Amendment, the construction of its terms, and
the interpretation of the rights and duties of the parties.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
Company:
MICROAGE, INC., a Delaware corporation
By: /s/ Jeffrey D. McKeever
------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Executive:
/s/ Christopher J. Koziol
----------------------------------------
Christopher J. Koziol
3
THIRD AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT (this "THIRD AMENDMENT") TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT, as amended, is entered into as of this 30th day of
September, 1999, by and between MICROAGE, INC., a Delaware corporation (the
"COMPANY"), and Christopher J. Koziol ("EXECUTIVE").
RECITALS:
WHEREAS, the Company and Executive entered into an Amended and Restated
Employment Agreement, dated as of November 4, 1996, as amended by the First
Amendment to Amended and Restated Employment Agreement, dated as of April 1,
1998 and the Second Amendment to the Amended and Restated Employment Agreement,
dated January 28, 1999 (the "EMPLOYMENT AGREEMENT"); and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, and for other valuable
consideration, the sufficiency of which is hereby acknowledged by each of the
parties hereto, the parties hereby agree as follows:
A G R E E M E N T:
SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT.
A. Section 4.3(g) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(g) maintain in full force and effect, for Executive's and his
eligible beneficiaries' continued benefit, until the first to occur of (x) his
attainment of alternative employment or (y) 24 months following the termination
date of his employment hereunder the employee benefits provided pursuant to
Company-sponsored benefit plans, programs or other arrangements in which
Executive was entitled to participate as a full-time employee immediately prior
to such termination in accordance with Section 2.4 hereof, subject to the terms
and conditions of such plans and programs (the "Continued Benefits"). If
Executive's continued participation is not permitted under the general terms and
provisions of such plans, programs and arrangements, the Company shall arrange
to provide Executive with Continued Benefits substantially similar to those
which Executive would have been entitled to receive under such plans, programs
and arrangements; and in addition"
B. Section 5.9 (a) of the Employment Agreement is hereby amended in
its entirety to read as follows:
<PAGE>
"(a) NON-COMPETITION. By execution of this Agreement, Executive agrees
that during his employment with the Company and for a period of 24 months
following the date of expiration or termination of his employment hereunder (the
"Non-Competition Period") for any reason (whether such termination shall be
voluntary or involuntary), Executive will not, within the United States (in
which territory Executive acknowledges that the Company has sold or marketed its
products or services and conducted its Business, as defined in Section 5.9(d) as
of the date hereof), directly or indirectly, compete with the Company by
carrying on a business that is substantially similar to the Business. Executive
agrees that the 24 month period referred to in the preceding sentence shall be
extended by the number of days included in any period of time during which he is
or was engaged in activities constituting a breach of this Section 5.9."
SECTION 2. EFFECTIVENESS.
This Third Amendment will become effective as of September 30, 1999.
SECTION 3. MISCELLANEOUS.
A. Full Force and Effect.
Except as expressly provided in this Third Amendment, the Employment
Agreement will remain unchanged and in full force and effect.
B. Counterparts.
This Third Amendment may be executed in any number of counterparts,
all of which taken together will constitute one and the same instrument, and any
of the parties hereto may execute this Third Amendment by signing any such
counterpart.
C. Arizona Law.
It is the intention of the parties that the laws of Arizona will
govern the validity of this Third Amendment, the construction of its terms, and
the interpretation of the rights and duties of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as of the date first above written.
Company:
MICROAGE, INC., a Delaware corporation
By: /s/ Jeffrey D. McKeever
------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Executive:
/s/ Christopher J. Koziol
------------------------------------
Christopher J. Koziol
-2-
FOURTH AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT (this "FOURTH AMENDMENT") TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT, as amended, is entered into as of this 15th day of
February, 2000, by and between MICROAGE, INC., a Delaware corporation (the
"COMPANY"), and Christopher J. Koziol ("EXECUTIVE").
RECITALS:
WHEREAS, the Company and Executive entered into an Amended and Restated
Employment Agreement, dated as of November 4, 1996, as amended by the First
Amendment to Amended and Restated Employment Agreement, dated as of April 1,
1998, the Second Amendment to the Amended and Restated Employment Agreement,
dated January 28, 1999, and the Third Amendment to the Amended and Restated
Employment Agreement, dated September 30, 1999 (the "EMPLOYMENT AGREEMENT"); and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, and for other valuable
consideration, the sufficiency of which is hereby acknowledged by each of the
parties hereto, the parties hereby agree as follows:
AGREEMENT:
SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT.
A. The first sentence of Section 1.2 of the Employment Agreement is
hereby amended in its entirety to read as follows:
"(a) Executive shall serve as President and Chief Operating Officer of
the Company (or in a capacity and with a title of at least substantially
equivalent quality)."
B. Section 1.3 of the Employment Agreement is hereby amended in its
entirety to read as follows:
"1.3 TERM. The term of Executive's employment under this Agreement
shall commence on the date first above written and shall continue, unless sooner
terminated, until November 2, 1997; provided, however, that commencing on
November 4, 1996 and on each subsequent day thereafter, the Executive's term of
employment shall automatically be extended without further action by the Company
or Executive for the twenty-four (24) month period commencing on each such day."
C. Section 4.3(f) of the Employment Agreement is hereby amended in its
entirety to read as follows:
<PAGE>
"(f) pay Executive commencing on the thirtieth day following the
termination date twenty-four monthly payments equal to one-twelfth of the sum of
(1) Executive's Base Salary in effect immediately prior to the time such
termination occurs, plus (2) the average of the Annual Incentive Bonuses paid to
Executive for the two (2) fiscal years immediately preceding the fiscal year in
which the termination occurs (or if less than two, the amount of his single
Annual Incentive Bonus, if any). Should Executive attain alternative employment
during the twenty-four (24) month payment period, the Company's obligations
under this Section 4.3(f) will be reduced by the amount of Executive's
compensation from his new employer. For example, if Executive were entitled to
receive $17,500 per month for twenty-four (24) months under this Section 4.3(f),
and if, at the beginning of the seventh (7th) month following his termination
date, he finds alternative employment that pays him $15,000 per month, the
Company would obligated to pay Executive six (6) monthly payments of $17,500,
and eighteen (18) monthly payments of $2,500 under this Section 4.3(f);"
D. Section 4.4(b) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(b) Pay to Executive a lump sum payment on or prior to the thirtieth
day following the termination date of Executive's employment hereunder in an
amount equal to two hundred percent (200%) of the sum of (1) Executive's Base
Salary in effect for the fiscal year immediately prior to the fiscal year in
which the Change of Control occurs, plus (2) the average of the Annual Incentive
Bonuses paid to Executive for the two (2) fiscal years immediately preceding the
fiscal year in which the Change of Control occurs (or if less than two, the
amount of his/her single Annual Incentive Bonus, if any). For purposes of this
subsection (b), no Annual Incentive Bonus received under the Company's Executive
Bonus Plan prior to the 1996 Executive Bonus Plan shall be considered."
SECTION 2. EFFECTIVENESS.
This Fourth Amendment will become effective as of February 15, 2000.
SECTION 3. MISCELLANEOUS.
A. Full Force and Effect.
Except as expressly provided in this Fourth Amendment, the Employment
Agreement will remain unchanged and in full force and effect.
B. Counterparts.
This Fourth Amendment may be executed in any number of counterparts,
all of which taken together will constitute one and the same instrument, and any
of the parties hereto may execute this Fourth Amendment by signing any such
counterpart.
C. Arizona Law.
It is the intention of the parties that the laws of Arizona will
govern the validity of this Fourth Amendment, the construction of its terms, and
the interpretation of the rights and duties of the parties.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment as of the date first above written.
Company:
MICROAGE, INC., a Delaware corporation
By: /s/ Jeffrey D. McKeever
-------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Executive:
/s/ Christopher J. Koziol
----------------------------------------
Christopher J. Koziol
-3-
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
LYNDA M. APPLEGATE
RETAINER FEES $18,000.00
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $ 9,000.00
I hereby elect to waive the following amount of my regular Board
meeting fees for the six regularly scheduled Board meetings between
May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
AUDIT COMMITTEE MEETING FEES $ 2,000.00
I hereby elect to waive the following amount of my regular Audit
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
COMPENSATION COMMITTEE MEETING FEES $ 2,000.00
I hereby elect to waive the following amount of my regular
Compensation Committee meeting fees for the two regularly scheduled
meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
WAIVER AMOUNT $31,000.00
By signing this Waiver, I acknowledge that I have been given, or was offered, a
copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended
November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity
to ask questions of any of the Company's executive officers regarding the SEC
Reports or any other matter regarding the Company.
<PAGE>
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ Lynda M. Applegate
--------------------------
DATE 4-21-99
--------------------------
SSN
--------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM
MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23,
1999.
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
CYRUS F. FREIDHEIM
RETAINER FEES $18,000
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $ 9,000
I hereby elect to waive the following amount of my regular Board
meeting fees for the six regularly scheduled Board meetings between
May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
AUDIT COMMITTEE MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular Audit
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
COMPENSATION COMMITTEE MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular
Compensation Committee meeting fees for the two regularly scheduled
meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
WAIVER AMOUNT $31,000
By signing this Waiver, I acknowledge that I have been given, or was
offered, a copy of the Company's (i) Annual Report on Form 10-K for
the fiscal year ended November 1, 1998, and (ii) Quarterly Report on
Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC
Reports"), and that I was given an opportunity to ask questions of any
of the Company's executive officers regarding the SEC Reports or any
other matter regarding the Company.
<PAGE>
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ Cyrus F. Freidham
-------------------------
DATE 4-11-99
-------------------------
SSN
-------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070.
YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON
FRIDAY, APRIL 23, 1999.
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
ROY A. HERBERGER, JR.
RETAINER FEES $ 2,000
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular Board
meeting fees for the six $_______ regularly scheduled Board meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
COMPENSATION COMMITTEE MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular
Compensation Committee meeting $_______ fees for the two regularly
scheduled meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
GOVERNANCE COMMITTEE MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular Governance
Committee meeting fees $_______ for the two regularly scheduled
meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
<PAGE>
COMMITTEE CHAIR FEES $ 2,000
I hereby elect to waive the following amount of the Committee Chair
fees payable to me for the next four quarters:
THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS
IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE
ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE FOUR QUARTERLY INSTALLMENTS.
WAIVER AMOUNT $10,000
By signing this Waiver, I acknowledge that I have been given, or was offered, a
copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended
November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity
to ask questions of any of the Company's executive officers regarding the SEC
Reports or any other matter regarding the Company.
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ Roy A. Herberger, Jr.
-------------------------
DATE 4-15-99
-------------------------
SSN
-------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM
MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23,
1999.
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
WILLIAM H. MALLENDER
RETAINER FEES $18,000
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $ 9,000
I hereby elect to waive the following amount of my regular Board
meeting fees for the six regularly scheduled Board meetings between
May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
COMPENSATION COMMITTEE MEETING FEES $ 2,000
I hereby elect to waive the following amount of my regular
Compensation Committee meeting fees for the two regularly scheduled
meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
GOVERNANCE COMMITTEE MEETING FEES $ 1,000
I hereby elect to waive the following amount of my regular Governance
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
LEAD DIRECTOR FEES $______
I hereby elect to waive the following amount of the Lead Director fees
payable to me for the next four quarters:
THE ANNUAL LEAD DIRECTOR FEE IS $3,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL LEAD DIRECTOR FEES TO BE WAIVED ON THE BLANK LINE
ABOVE. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
<PAGE>
COMMITTEE CHAIR FEES $______
I hereby elect to waive the following amount of the Committee Chair
fees payable to me for the next four quarters:
THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS
IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE
ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE FOUR QUARTERLY INSTALLMENTS.
WAIVER AMOUNT $30,000
By signing this Waiver, I acknowledge that I have been given, or was offered, a
copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended
November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity
to ask questions of any of the Company's executive officers regarding the SEC
Reports or any other matter regarding the Company.
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ William H. Mallender
-------------------------
DATE 4-13-99
-------------------------
SSN
-------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM
MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23,
1999.
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
STEVEN G. MIHAYLO
RETAINER FEES $ 9,000
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $ 4,500
I hereby elect to waive the following amount of my regular Board
meeting fees for the six regularly scheduled Board meetings between
May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
AUDIT COMMITTEE MEETING FEES $ 1,000
I hereby elect to waive the following amount of my regular Audit
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
GOVERNANCE COMMITTEE MEETING FEES $ 1,000
I hereby elect to waive the following amount of my regular Governance
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
<PAGE>
COMMITTEE CHAIR FEES $ 1,500
I hereby elect to waive the following amount of the Committee Chair
fees payable to me for the next four quarters:
THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS
IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE
ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE FOUR QUARTERLY INSTALLMENTS.
WAIVER AMOUNT $17,000
By signing this Waiver, I acknowledge that I have been given, or was offered, a
copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended
November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity
to ask questions of any of the Company's executive officers regarding the SEC
Reports or any other matter regarding the Company.
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ Steven G. Mihaylo
-------------------------
DATE 4-12-99
-------------------------
SSN
-------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM
MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23,
1999.
MICROAGE, INC.
DIRECTOR'S FEE WAIVER
DIANNE C. WALKER
RETAINER FEES $10,000
I hereby elect to waive the following amount of the retainer fees
payable to me for the next four quarters:
THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN
QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL
OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND
FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND
SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU
WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT
OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE
RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE
FOUR QUARTERLY INSTALLMENTS.
BOARD MEETING FEES $______
I hereby elect to waive the following amount of my regular Board
meeting fees for the six $_______ regularly scheduled Board meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE SIX MEETINGS.
AUDIT COMMITTEE MEETING FEES $______
I hereby elect to waive the following amount of my regular Audit
Committee meeting fees for the two regularly scheduled meetings
between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
GOVERNANCE COMMITTEE MEETING FEES $______
I hereby elect to waive the following amount of my regular Governance
Committee meeting fees $_______ for the two regularly scheduled
meetings between May 1, 1999 and April 30, 2000:
THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF
THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE
TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY
AGAINST THE MEETING FEES FOR THESE TWO MEETINGS.
WAIVER AMOUNT $10,000
<PAGE>
By signing this Waiver, I acknowledge that I have been given, or was offered, a
copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended
November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity
to ask questions of any of the Company's executive officers regarding the SEC
Reports or any other matter regarding the Company.
By signing this Waiver, I recognize that purchasing options is a speculative
investment in that the success or failure of my investment depends on the market
value of the Company's stock over a several year period. I further recognize
that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I
also acknowledge that I was given the opportunity to consult with my personal
advisor(s) regarding this Waiver.
I hereby elect to waive the Waiver Amount set forth above. By signing this
Waiver I agree to the terms and conditions set forth above and acknowledge that
I have read and understand the sample Stock Option Agreement that was given to
me.
SIGNATURE /s/ Dianne C. Walker
-------------------------
DATE April 22, 1999
-------------------------
SSN
-------------------------
PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM
MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23,
1999.
THIRD AMENDMENT TO THE
MICROAGE, INC.
1995 ASSOCIATE STOCK PURCHASE PLAN
Effective March 15, 1995, the shareholders of MicroAge, Inc. (the
"Company") approved the adoption of the MicroAge, Inc. 1995 Associate Stock
Purchase Plan (the "Plan"). By the First Amendment to the Plan, the Company
amended the Plan to make various technical changes. By the Second Amendment to
the Plan, the Company amended the Plan to change the "purchase date" of shares
of Common Stock. By this instrument, the Company desires to amend the Plan to
increase the number of shares of Common Stock reserved for issuance under the
Plan.
1. This Third Amendment shall amend only that Section specified herein and
those Sections not amended hereby shall remain in full force and effect.
2. Section 4 is hereby amended and restated in its entirety as follows:
4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided
below, the total number of shares of Stock reserved and
available for issuance or which may be otherwise acquired
upon exercise of Purchase Rights under the Plan will be
1,000,000. Any shares of Stock delivered by the Company
under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. The
number and kind of such shares of Stock subject to the Plan
will be proportionately adjusted, as determined by the
Board, in the event of any extraordinary dividend or other
distribution, recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar
corporate transaction or event affecting the Stock.
3. The provisions of this Third Amendment shall be effective for
Subscription Periods beginning on or after March 31, 1999.
IN WITNESS WHEREOF, the Company has caused this Third Amendment to be
executed as of this 3rd day of December, 1998.
MICROAGE, INC.
By: /s/ Jeffrey D. McKeever
---------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
AMENDMENT
TO THE
MICROAGE, INC.
1995 ASSOCIATE STOCK PURCHASE PLAN
Effective March 15, 1995, the shareholders of MicroAge, Inc. (the
"Company") approved the adoption of the MicroAge, Inc. 1995 Associate Stock
Purchase Plan (the "Plan"). By this instrument, the Company desires to suspend
purchases of stock by Participants under the Plan.
1. The changes made to the Plan by this Amendment are effective as of
December 2, 1999.
2. This Amendment shall amend only those Sections specified herein and
those Sections not amended hereby shall remain in full force and effect.
3. Section 5(d) of the Plan is hereby amended by adding to end thereof the
following new sentence: Notwithstanding the foregoing or any other provision of
the Plan to the contrary, as of December 2, 1999, the date this Amendment was
approved by the Board, Participant contributions under the Plan are suspended
until such time as the Board takes action to permit additional contributions to
the Plan.
4. Section 6 of the Plan is hereby amended by adding a new subsection (g)
which shall provide as follows:
(g) SUSPENSION OF PURCHASES. Notwithstanding the foregoing or any other
provision of the Plan to the contrary, Stock remaining available under the
Plan as of the Purchase Date next following the effective date of this
Amendment shall be purchased by the Custodian and allocated to each
Participant's Stock Account in proportion to the amount held in each
Participant's Cash Account immediately prior to the Stock purchase
contemplated by this paragraph. For purposes of the preceding sentence, any
Participant contributions for the Subscription Period that exceed the
limitations set forth in Sections 5(d), 6(a) or any other provision of the
Plan shall be disregarded. Any amounts that remain in a Participant's Cash
Account following the purchase and allocation of all remaining Stock that
has been reserved under the Plan shall be repaid to the Participant
(without interest) as specified in Section 7(b) as if each Participant's
enrollment in the Plan had terminated.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as
of this 27th day of January, 2000.
MICROAGE, INC.
By: Jeffrey D. McKeever
------------------------------------
Its: Chairman of the Board and Chief
Executive Officer
EXECUTION COPY
$450,000,000
CREDIT AGREEMENT
Dated as of October 28, 1999
Among
MICROAGE TECHNOLOGY SERVICES, L.L.C.
and
PINACOR, INC.,
AS BORROWERS,
MICROAGE, INC.
AS PARENT GUARANTOR,
THE INITIAL LENDERS, INITIAL ISSUING BANK AND
SWING LINE BANK NAMED HEREIN
AS INITIAL LENDERS, INITIAL ISSUING BANK AND SWING LINE BANK,
CITIBANK, N.A.
AS COLLATERAL AGENT,
CITIBANK, N.A.
AS ADMINISTRATIVE AGENT,
IBM CREDIT CORPORATION
AS DOCUMENTATION AGENT
and
THE CIT GROUP/BUSINESS CREDIT, INC.
AS SYNDICATION AGENT
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms 1
1.02. Computation of Time Periods; Other Definitional Provisions 29
1.03. Accounting Terms 29
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT
2.01. The Advances and the Letters of Credit 30
2.02. Making the Advances 31
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit 34
2.04. Repayment of Advances 36
2.05. Termination or Reduction of the Commitments 38
2.06. Prepayments 38
2.07. Interest 39
2.08. Fees 40
2.09. Conversion of Advances 41
2.10. Increased Costs, Etc. 42
2.11. Payments and Computations 43
2.12. Taxes 44
2.13. Sharing of Payments, Etc. 46
2.14. Use of Proceeds 47
2.15. Defaulting Lenders 47
2.16. Evidence of Debt 50
2.17. Increase in the Aggregate Working Capital Commitments 51
ARTICLE III
CONDITIONS OF LENDING ANDISSUANCES OF LETTERS OF CREDIT
3.01. Conditions Precedent to Initial Extension of Credit 53
3.02. Conditions Precedent to Each Borrowing, Increase Date, Issuance
and Increase of Available Amount 59
3.03. Determinations Under Section 3.01 60
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Borrowers and the
Parent Guarantor 60
ARTICLE V
COVENANTS OF THE BORROWERS AND THE PARENT GUARANTOR67
5.01. Affirmative Covenants 67
5.02. Negative Covenants 73
5.03. Reporting Requirements 80
5.04. Financial Covenants 84
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default 86
6.02. Actions in Respect of the Letters of Credit upon Default 90
ARTICLE VII
PARENT GUARANTY
7.01. Guaranty 90
7.02. Guaranty Absolute 91
7.03. Waiver 92
7.04. Payments Free and Clear of Taxes, Etc. 93
7.05. Continuing Guaranty; Assignments 94
7.06. Subrogation 94
ARTICLE VIII
THE AGENTS
8.01. Authorization and Action 96
8.02. Agents' Reliance, Etc. 97
8.03. Citibank and Affiliates 97
8.04. Lender Party Credit Decision 98
8.05. Indemnification 98
8.06. Successor Agents 99
8.07. Other Agents 100
ARTICLE IX
MISCELLANEOUS
9.01. Amendments, Etc. 100
9.02. Notices, Etc. 101
9.03. No Waiver; Remedies 102
9.04. Costs and Expenses 102
9.05. Right of Set-off 104
9.06. Binding Effect 104
9.07. Assignments and Participations 104
9.08. Execution in Counterparts 107
9.09. No Liability of the Issuing Bank 107
9.10. Release of Collateral 108
9.11. Jurisdiction, Etc. 108
9.12. Governing Law 108
9.13. Waiver of Jury Trial 109
SCHEDULES
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Borrowers' Account
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and Filings
Schedule 4.01(f) - Disclosed Litigation
Schedule 4.01(r) - Open Years
Schedule 4.01(t) - Existing Debt
Schedule 4.01(u) - Surviving Debt
Schedule 4.01(v) - Owned Real Property
Schedule 4.01(w) - Leased Real Property
Schedule 4.01(x) - Investments
Schedule 4.01(y) - Intellectual Property
Schedule 5.02(a) - Liens
EXHIBITS
Exhibit A - Form of Promissory Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Subsidiary Guaranty
Exhibit F - Form of Solvency Certificate
Exhibit G - Form of Opinion of Counsel to the Loan Parties
Exhibit H - Form of Opinion of Local Counsel
Exhibit I - Form of Borrowing Base Certificate
Exhibit J - Form of Flooring Letter of Credit
Exhibit K - Form of Floor Planning Arrangement Intercreditor Agreement
<PAGE>
CREDIT AGREEMENT
Dated as of October 28, 1999
MICROAGE TECHNOLOGY SERVICES, L.L.C., a Delaware limited liability company
("MTS"), PINACOR, INC., a Delaware corporation ("PINACOR", and together with
MTS, the "BORROWERS"), MICROAGE, INC., a Delaware corporation (the "PARENT
GUARANTOR"), the banks, financial institutions and other institutional lenders
listed on the signature pages hereof as the Initial Lenders (the "INITIAL
LENDERS"), the bank listed on the signature pages hereof as the Initial Issuing
Bank (the "INITIAL ISSUING BANK") and the Swing Line Bank (as hereinafter
defined), CITIBANK, N.A. ("CITIBANK"), as collateral agent (together with any
successor collateral agent appointed pursuant to Article VII, the "COLLATERAL
AGENT"), IBM CREDIT CORPORATION, as documentation agent (the "DOCUMENTATION
AGENT"), THE CIT GROUP/BUSINESS CREDIT, INC., as syndication agent (the
"SYNDICATION AGENT"), and CITIBANK, as administrative agent (together with any
successor administrative agent appointed pursuant to Article VII, the
"ADMINISTRATIVE AGENT" and, together with the Collateral Agent, the Document
Agent and the Syndication Agent, the "AGENTS") for the Lender Parties (as
hereinafter defined), hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADMINISTRATIVE AGENT" has the meaning specified in the recital of parties
to this Agreement.
"ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the Administrative
Agent maintained by the Administrative Agent with Citicorp Industrial Credit at
its office at 399 Park Avenue, New York, New York 10043, Account No. 38858061,
ABA 021000089, Attention: Shawn Hendrickson, or such other account as the
Administrative Agent shall specify in writing to the Lender Parties.
"ADVANCE" means a Working Capital Advance, a Swing Line Advance or a Letter
of Credit Advance.
"AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the
<PAGE>
terms "controlling", "controlled by" and "under common control with") of a
Person means the possession, direct or indirect, of the power to vote 5% or more
of the Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of Voting
Stock, by contract or otherwise.
"AGENTS" has the meaning specified in the recital of parties to this
Agreement.
"AGREEMENT VALUE" means, for each Hedge Agreement, on any date of
determination, an amount determined by the Administrative Agent equal to: (a) in
the case of a Hedge Agreement documented pursuant to the Master Agreement
(Multicurrency-Cross Border) published by the International Swap and Derivatives
Association, Inc. (the "MASTER AGREEMENT"), the amount, if any, that would be
payable by any Loan Party or any of its Subsidiaries to its counterparty to such
Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on
such date of determination, (ii) such Loan Party or Subsidiary was the sole
"Affected Party", and (iii) the Administrative Agent was the sole party
determining such payment amount (with the Administrative Agent making such
determination pursuant to the provisions of the form of Master Agreement); or
(b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market
value of such Hedge Agreement, which will be the unrealized loss on such Hedge
Agreement to the Loan Party or Subsidiary of a Loan Party party to such Hedge
Agreement determined by the Administrative Agent based on the settlement price
of such Hedge Agreement on such date of determination, or (c) in all other
cases, the mark-to-market value of such Hedge Agreement, which will be the
unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a
Loan Party party to such Hedge Agreement determined by the Administrative Agent
as the amount, if any, by which (i) the present value of the future cash flows
to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of
the future cash flows to be received by such Loan Party or Subsidiary pursuant
to such Hedge Agreement; capitalized terms used and not otherwise defined in
this definition shall have the respective meanings set forth in the above
described Master Agreement.
"APPLICABLE LENDING OFFICE" means, with respect to each Lender Party, such
Lender Party's Domestic Lending Office in the case of a Base Rate Advance and
such Lender Party's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance.
"APPLICABLE LETTER OF CREDIT FEE" means a percentage per annum determined
by reference to the Debt/EBITDA Ratio as set forth below:
<PAGE>
Debt/EBITDA Ratio Applicable Letter of Credit Fee
----------------- -------------------------------
LEVEL I
less than 2.25: 1.0 1.625%
LEVEL II
2.25: 1.0 or greater,
but less than 2.75: 1.0 1.875%
LEVEL III
2.75: 1.0 or greater,
but less than 3.25: 1.0 2.125%
LEVEL IV
3.25: 1.0 or greater,
but less than 3.75: 1.0 2.375%
LEVEL V
3.75: 1.0 or greater,
but less than 4.25:1.0 2.625%
LEVEL VI
4.25:1.0 or greater 2.875%
The Applicable Letter of Credit Fee shall be determined by reference to the
ratio in effect from time to time; PROVIDED, HOWEVER, that (A) no change in the
Applicable Letter of Credit Fee shall be effective until three Business Days
after the date on which the Administrative Agent receives the financial
statements required to be delivered pursuant to Section 5.03(b) or (c), as the
case may be, and a certificate of the chief financial officer of the Parent
Guarantor demonstrating such ratio and (B) the Applicable Letter of Credit Fee
shall be at Level VI until the Parent Guarantor has delivered the financial
statements for the fiscal quarter ended February 1, 2000 and for so long as the
Parent Guarantor has not submitted to the Administrative Agent the information
described in clause (A) of this proviso as and when required under Section
5.03(b) or (c), as the case may be.
"APPLICABLE MARGIN" means a percentage per annum determined by reference to
the Debt/EBITDA Ratio as set forth below:
Debt/EBITDA Ratio Base Rate Advances Eurodollar Rate Advances
----------------- ------------------ ------------------------
LEVEL I
less than 2.25: 1.0 1.00% 2.00%
LEVEL II
2.25: 1.0 or greater,
but less than 2.75: 1.0 1.25% 2.25%
LEVEL III
2.75: 1.0 or greater,
but less than 3.25: 1.0 1.50% 2.50%
LEVEL IV
3.25: 1.0 or greater,
<PAGE>
but less than 3.75: 1.0 1.75% 2.75%
LEVEL V
3.75: 1.0 or greater,
but less than 4.25:1.0 2.00% 3.00%
LEVEL VI
4.25:1.0 or greater 2.25% 3.25%
The Applicable Margin for each Advance shall be determined by reference to the
ratio in effect from time to time; PROVIDED, HOWEVER, that (A) no change in the
Applicable Margin shall be effective until three Business Days after the date on
which the Administrative Agent receives the financial statements required to be
delivered pursuant to Section 5.03(b) or (c), as the case may be, and a
certificate of the chief financial officer of the Parent Guarantor demonstrating
such ratio and (B) the Applicable Margin shall be at Level VI until the Parent
Guarantor has delivered the financial statements for the fiscal quarter ended
February 1, 2000 and for so long as the Parent Guarantor has not submitted to
the Administrative Agent the information described in clause (A) of this proviso
as and when required under Section 5.03(b) or (c), as the case may be.
"APPLICABLE PERCENTAGE" means a percentage per annum determined by
reference to the Debt/EBITDA Ratio as set forth below:
Debt/EBITDA Ratio Applicable Percentage
----------------- ---------------------
LEVEL I
less than 2.25: 1.0 0.375%
LEVEL II
2.25: 1.0 or greater,
but less than 2.75: 1.0 0.375%
LEVEL III
2.75: 1.0 or greater,
but less than 3.25: 1.0 0.500%
LEVEL IV
3.25: 1.0 or greater,
but less than 3.75: 1.0 0.500%
LEVEL V
3.75: 1.0 or greater,
but less than 4.25:1.0 0.500%
LEVEL VI
4.25:1.0 or greater 0.500%
The Applicable Percentage shall be determined by reference to the ratio in
effect from time to time; PROVIDED, HOWEVER, that (A) no change in the
Applicable Percentage shall be effective until three Business Days after the
date on which the Administrative Agent receives the financial statements
required to be delivered pursuant to Section 5.03(b) or (c), as the case may be,
and a certificate of the chief financial officer of the Parent
<PAGE>
Guarantor demonstrating such ratio and (B) the Applicable Percentage shall be at
Level VI until the Parent Guarantor has delivered the financial statements for
the fiscal quarter ended February 1, 2000 and for so long as the Parent
Guarantor has not submitted to the Administrative Agent the information
described in clause (A) of this proviso as and when required under Section
5.03(b) or (c), as the case may be.
"ARRANGER" means Salomon Smith Barney Inc.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into
by a Lender Party and an Eligible Assignee, and accepted by the Administrative
Agent, in accordance with Section 9.07 and in substantially the form of Exhibit
C hereto.
"ASSUMING LENDER" has the meaning specified in Section 2.17(d). "ASSUMPTION
AGREEMENT" has the meaning specified in Section 2.17(d)(ii).
"AVAILABLE AMOUNT" of any Letter of Credit means, at any time, the maximum
amount available to be drawn under such Letter of Credit at such time (assuming
compliance at such time with all conditions to drawing).
"BASE RATE" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to the higher of:
(a) the rate of interest announced publicly by Citibank in New York,
New York, from time to time, as Citibank's base rate; and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"BASE RATE ADVANCE" means an Advance that bears interest as provided in
Section 2.07(a)(i).
"BORROWERS" has the meaning specified in the recital of parties to this
Agreement.
"BORROWERS' ACCOUNT" means the account of the Borrowers maintained by the
Borrowers with Citibank at its office at 399 Park Avenue, New York, New York
10043, with the account number so designated on Schedule II, or such other
account as the Borrowers shall specify in writing to the Administrative Agent.
"BORROWING" means a Working Capital Borrowing or a Swing Line Borrowing.
"BORROWING BASE CERTIFICATE" means a certificate in substantially the form
of Exhibit I hereto, duly certified by the chief financial officer of the Parent
Guarantor.
"BUSINESS DAY" means a day of the year on which banks are not required or
authorized by law to close in New York City and, if the applicable Business Day
relates
<PAGE>
to any Eurodollar Rate Advances, on which dealings are carried on in the London
interbank market.
"CAPITAL EXPENDITURES" means, for any Person for any period, the sum of,
without duplication, (a) all expenditures made, directly or indirectly, by such
Person or any of its Subsidiaries during such period for equipment, fixed
assets, real property or improvements, or for replacements or substitutions
therefor or additions thereto, that have been or should be, in accordance with
GAAP, reflected as additions to property, plant or equipment on a Consolidated
balance sheet of such Person or have a useful life of more than one year plus
(b) the aggregate principal amount of all Debt (including Obligations under
Capitalized Leases) assumed or incurred in connection with any such
expenditures. For purposes of this definition, the purchase price of equipment
that is purchased simultaneously with the trade-in of existing equipment or with
insurance proceeds shall be included in Capital Expenditures only to the extent
of the gross amount of such purchase price less the credit granted by the seller
of such equipment for the equipment being traded in at such time or the amount
of such proceeds, as the case may be.
"CAPITALIZED LEASES" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"CASH CONCENTRATION ACCOUNT" has the meaning specified in the Security
Agreement.
"CASH EQUIVALENTS" means any of the following, to the extent owned by the
Parent Guarantor or any of its Subsidiaries free and clear of all Liens other
than Liens created under the Collateral Documents and having a maturity of not
greater than 180 days from the date of acquisition thereof: (a) readily
marketable direct obligations of the Government of the United States or any
agency or instrumentality thereof or obligations unconditionally guaranteed by
the full faith and credit of the Government of the United States, (b) insured
certificates of deposit of or time deposits with any commercial bank that is a
Lender Party or a member of the Federal Reserve System, issues (or the parent of
which issues) commercial paper rated as described in clause (c) below, is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least $1 billion or (c) commercial paper in
an aggregate amount of no more than $1,000,000 per issuer outstanding at any
time, issued by any corporation organized under the laws of any State of the
United States and rated at least "Prime-1" (or the then equivalent grade) by
Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the U.S. Environmental Protection
Agency.
<PAGE>
"CHANGE OF CONTROL" means the occurrence of any of the following: (a) any
Person (other than Jeffrey McKeever) or two or more Persons acting in concert
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of Voting Stock of the Parent Guarantor (or other
securities convertible into such Voting Stock) representing 20% or more of the
combined voting power of all Voting Stock of the Parent Guarantor; or (b) during
any period of up to 24 consecutive months, commencing before or after the date
of this Agreement, individuals who at the beginning of such 24-month period were
directors of the Parent Guarantor shall cease for any reason to constitute a
majority of the board of directors of the Parent Guarantor; or (c) any Person or
two or more Persons acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement that, upon
consummation, will result in its or their acquisition of the power to exercise,
directly or indirectly, a controlling influence over the management or policies
of the Parent Guarantor or (d) Jeffrey McKeever shall sell more than 50% of his
ownership of the combined voting power of the Voting Stock of the Parent
Guarantor.
"COLLATERAL" means all "Collateral" referred to in the Collateral Documents
and all other property that is or is intended to be subject to any Lien in favor
of the Collateral Agent for the benefit of the Secured Parties.
"COLLATERAL AGENT" has the meaning specified in the recital of parties to
this Agreement.
"COLLATERAL DOCUMENTS" means the Security Agreement and any other agreement
that creates or purports to create a Lien in favor of the Collateral Agent for
the benefit of the Secured Parties.
"COMMITMENT" means a Working Capital Commitment or a Letter of Credit
Commitment.
"COMMITMENT DATE" has the meaning specified in Section 2.17(b).
"COMMITMENT INCREASE" has the meaning specified in Section 2.17(a).
"CONFIDENTIAL INFORMATION" means information that any Loan Party furnishes
to any Agent or any Lender Party in a writing designated as confidential, but
does not include any such information that is or becomes generally available to
the public or that is or becomes available to such Agent or such Lender Party
from a source other than the Loan Parties.
"CONSOLIDATED" refers to the consolidation of accounts in accordance with
GAAP.
<PAGE>
"CONSOLIDATING" refers to the presentation of the Consolidated financial
statements of the Parent Guarantor and the Consolidated financial statements of
each Borrower.
"CONTINGENT OBLIGATION" means, with respect to any Person, any Obligation
or arrangement of such Person to guarantee or intended to guarantee any Debt,
leases, dividends or other payment Obligations ("PRIMARY OBLIGATIONS") of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, (a) the direct or indirect guarantee,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the Obligation of a primary obligor, (b) the Obligation to make
take-or-pay or similar payments, if required, regardless of nonperformance by
any other party or parties to an agreement or (c) any Obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, assets, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the holder of such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made (or, if less, the maximum amount of
such primary obligation for which such Person may be liable pursuant to the
terms of the instrument evidencing such Contingent Obligation) or, if not stated
or determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.09 or
2.10.
"DEBT" of any Person means, without duplication for purposes of calculating
financial ratios, (a) all indebtedness of such Person for borrowed money, (b)
all Obligations of such Person for the deferred purchase price of property or
services (other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capitalized
Leases, (f) all Obligations of such Person under acceptance, letter of credit or
similar facilities, (g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any capital stock of
or other ownership or profit interest in such
<PAGE>
Person or any other Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of Redeemable Preferred Stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Obligations of such Person in respect of Hedge Agreements,
valued at the Agreement Value thereof, (i) all Contingent Obligations of such
Person and (j) all indebtedness and other payment Obligations referred to in
clauses (a) through (i) above of another Person secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness or other payment
Obligations.
"DEBT/EBITDA RATIO" means, at any date of determination, the ratio of (a)
the average Consolidated total Debt for Borrowed Money of the Parent Guarantor
and its Subsidiaries as at the end of each week ended within the most recently
ended fiscal quarter of the Parent Guarantor for which financial statements are
required to be delivered to the Lender Parties pursuant to Section 5.03(b) or
(c), as the case may be, to (b) Consolidated EBITDA of the Parent Guarantor and
its Subsidiaries for such fiscal quarter and the immediately preceding three
fiscal quarters.
"DEBT FOR BORROWED MONEY" of any Person means all Debt of the types
described in clauses (a) through (e) of the definition of "Debt" less amounts on
deposit in the Cash Concentration Account.
"DEFAULT" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.
"DEFAULT TERMINATION NOTICE" has the meaning specified in Section 2.01(c).
"DEFAULTED ADVANCE" means, with respect to any Lender Party at any time,
the portion of any Advance required to be made by such Lender Party to the
Borrowers pursuant to Section 2.01 or 2.02 at or prior to such time which has
not been made by such Lender Party or by the Administrative Agent for the
account of such Lender Party pursuant to Section 2.02(e) as of such time. In the
event that a portion of a Defaulted Advance shall be deemed made pursuant to
Section 2.15(a), the remaining portion of such Defaulted Advance shall be
considered a Defaulted Advance originally required to be made pursuant to
Section 2.01 on the same date as the Defaulted Advance so deemed made in part.
"DEFAULTED AMOUNT" means, with respect to any Lender Party at any time, any
amount required to be paid by such Lender Party to any Agent or any other Lender
Party hereunder or under any other Loan Document at or prior to such time which
has not been so paid as of such time, including, without limitation, any amount
required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to
Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing
Line Bank, (b) the Issuing Bank pursuant to Section 2.03(c) to purchase a
portion of a Letter of Credit Advance made by
<PAGE>
the Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to
reimburse the Administrative Agent for the amount of any Advance made by the
Administrative Agent for the account of such Lender Party, (d) any other Lender
Party pursuant to Section 2.13 to purchase any participation in Advances owing
to such other Lender Party and (e) any Agent or the Issuing Bank pursuant to
Section 8.05 to reimburse such Agent or the Issuing Bank for such Lender Party's
ratable share of any amount required to be paid by the Lender Parties to such
Agent or the Issuing Bank as provided therein. In the event that a portion of a
Defaulted Amount shall be deemed paid pursuant to Section 2.15(b), the remaining
portion of such Defaulted Amount shall be considered a Defaulted Amount
originally required to be paid hereunder or under any other Loan Document on the
same date as the Defaulted Amount so deemed paid in part.
"DEFAULTING LENDER" means, at any time, any Lender Party that, at such
time, owes a Defaulted Advance or a Defaulted Amount.
"DISCLOSED LITIGATION" has the meaning specified in Section 3.01(e).
"DOMESTIC LENDING OFFICE" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assumption Agreement or the in the
Assignment and Acceptance pursuant to which it became a Lender Party, as the
case may be, or such other office of such Lender Party as such Lender Party may
from time to time specify to the Borrowers and the Administrative Agent.
"DOMESTIC SUBSIDIARY" means any Subsidiary other than a Foreign Subsidiary.
"EBITDA" means, for any period, the sum, determined on a Consolidated
basis, of (a) net income (or net loss), (b) interest expense (including implied
interest expenses incurred under the Receivables Sales Agreement and flooring
subsidies, in each case determined on a basis consistent with past practice),
(c) income tax expense, (d) depreciation expense, (e) amortization expense, (f)
extraordinary, non-recurring, transactional or unusual losses deducted in
calculating net income less extraordinary, non-recurring, transactional or
unusual gains added in calculating net income and (g) any non-cash expenses,
non-cash losses or other non-cash charges resulting from the writedown in the
valuation of any assets in each case of the Parent Guarantor and its
Subsidiaries, determined in accordance with GAAP for such period. The amounts
referred to in clauses (f) and (g) are agreed to be $152,298,000 and $5,411,000
for the second and third quarters of Fiscal Year 1999, respectively.
"ELIGIBLE ASSIGNEE" means (a) with respect to any Facility (other than the
Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a Lender; (iii) a
commercial bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $2,000,000,000; (iv) a savings and
loan association or savings bank organized under the laws of the United States,
or any State thereof, and having total assets in excess of $2,000,000,000; (v) a
commercial bank organized under the laws of any
<PAGE>
other country that is a member of the OECD or has concluded special lending
arrangements with the International Monetary Fund associated with its General
Arrangements to Borrow or of the Cayman Islands, or a political subdivision of
any such country, and having total assets in excess of $2,000,000,000, so long
as such bank is acting through a branch or agency located in the country in
which it is organized or another country that is described in this clause (v);
(vi) the central bank of any country that is a member of the OECD; (vii) a
finance company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of business and
having a combined capital and surplus of at least $250,000,000 and (viii) any
other Person approved by the Administrative Agent and, unless a Default has
occurred and is continuing at the time any assignment is effected pursuant to
Section 9.07, the Parent Guarantor, such approval not to be unreasonably
withheld or delayed, and (b) with respect to the Letter of Credit Facility, a
Person that is an Eligible Assignee under subclause (iii) or (v) of clause (a)
of this definition and is approved by the Administrative Agent and, unless a
Default has occurred and is continuing at the time any assignment is effected
pursuant to Section 9.07, the Parent Guarantor, such approval not to be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that neither any Loan Party
nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under
this definition.
"ELIGIBLE CASH" means only such cash or Cash Equivalents of the Borrowers
as is on deposit in the Cash Concentration Account
"ELIGIBLE COLLATERAL" means, collectively, Eligible Inventory, Eligible
Receivables and Eligible Cash.
"ELIGIBLE INVENTORY" means only such Inventory of the Loan Parties as the
Administrative Agent, in its sole discretion, shall from time to time elect to
consider Eligible Inventory for purposes of this Agreement. The value of such
Inventory shall be determined by the Administrative Agent in its sole discretion
exercised commercially reasonably in accordance with customary business
practices and taking into consideration, among other factors, the lowest of its
cost, its book value determined in accordance with GAAP and its liquidation
value. The following classes of Inventory shall not be Eligible Inventory:
(a) Inventory that is obsolete, unusable or otherwise unavailable for
sale;
(b) Inventory with respect to which the representations and warranties
set forth in the Collateral Documents applicable to Inventory are not true
and correct;
(c) Inventory consisting of promotional, marketing, packaging or
shipping materials and supplies;
<PAGE>
(d) Inventory that fails to meet all standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such Inventory or its use or sale;
(e) Inventory that is subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement with any third party from whom
any Loan Party has received notice of a dispute in respect of any such
agreement;
(f) Inventory located outside the United States;
(g) Inventory that is not in the possession of or under the sole
control of the Loan Parties; and
(h) Inventory in respect of which the Security Agreement, after giving
effect to the related filings of financing statements that have then been
made, if any, does not or has ceased to create a valid and perfected first
priority lien or security interest in favor of the Collateral Agent for the
benefit of the Secured Parties securing the Secured Obligations.
"ELIGIBLE RECEIVABLES" means only such Receivables of the Loan Parties as
the Administrative Agent, in its sole discretion, shall from time to time elect
to consider Eligible Receivables for purposes of this Agreement. The value of
such Receivables shall be determined by the Administrative Agent in its sole
discretion exercised commercially reasonably in accordance with customary
business practices and taking into consideration, among other factors, their
book value determined in accordance with GAAP. Not withstanding the foregoing,
none of the following classes of Receivables shall be Eligible Receivables:
(a) Receivables that do not arise out of sales of goods or rendering
of services in the ordinary course of the business of the Loan Parties;
(b) Receivables on terms other than those normal or customary in the
business of the Loan Parties;
(c) Receivables owing from any Person that is an Affiliate of any Loan
Party or any of its Subsidiaries;
(d) Receivables more than 90 days past the original invoice date or
more than 60 days past the date due;
(e) Receivables owing from any Person from which an aggregate amount
of more than 50% of the Receivables owing is more than 60 days past due;
<PAGE>
(f) Receivables owing from any Person that (i) has disputed liability
for any Receivable owing from such Person or (ii) has otherwise asserted
any claim, demand or liability against any Loan Party or any of its
Subsidiaries, whether by action, suit, counterclaim or otherwise;
(g) Receivables owing from any Person that shall take or be the
subject of any action or proceeding of a type described in Section 6.01(f);
(h) Receivables (i) owing from any Person that is also a supplier to
or creditor of any Loan Party or (ii) representing any manufacturer's or
supplier's credits, discounts, incentive plans or similar arrangements
entitling any Loan Party to discounts on future purchase therefrom;
(i) Receivables arising out of sales to account debtors outside the
United States;
(j) Receivables arising out of sales on a bill-and-hold, guaranteed
sale, sale-or-return, sale on approval or consignment basis or subject to
any right of return, set-off or charge-back;
(k) Receivables owing from an account debtor that is an agency,
department or instrumentality of the United States or any State thereof
unless the applicable Loan Party shall have satisfied the requirements of
the Assignment of Claims Act of 1940, as amended, and any similar State
legislation and the Administrative Agent is satisfied as to the absence of
set-offs, counterclaims and other defenses on the part of such account
debtor;
(l) Receivables the full and timely payment of which the
Administrative Agent in its sole discretion believes to be doubtful; and
(m) Receivables in respect of which the Security Agreement, after
giving effect to the related filings of financing statements that have then
been made, if any, does not or has ceased to create a valid and perfected
first priority lien or security interest in favor of the Collateral Agent
for the benefit of the Secured Parties securing the Secured Obligations.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to health, safety or
the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory authority or
third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
<PAGE>
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute,
law, ordinance, rule, regulation, code, order, writ, judgment, injunction,
decree or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
"EQUIPMENT" means all Equipment referred to in Section 1(a) of the Security
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of any Loan Party, or under common control
with any Loan Party, within the meaning of Section 414 of the Internal Revenue
Code.
"ERISA EVENT" means (a)(i) the occurrence of a reportable event, within the
meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day
notice requirement with respect to such event has been waived by the PBGC or
(ii) the requirements of Section 4043(b) of ERISA apply with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and
an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver with respect
to a Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any
Loan Party or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate
from a Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the
institution by the PBGC of proceedings to terminate a Plan pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, such Plan.
<PAGE>
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assumption Agreement or the in
the Assignment and Acceptance pursuant to which it became a Lender Party (or, if
no such office is specified, its Domestic Lending Office), or such other office
of such Lender Party as such Lender Party may from time to time specify to the
Borrowers and the Administrative Agent.
"EURODOLLAR RATE" means, for any Interest Period for all Eurodollar Rate
Advances comprising part of the same Borrowing, an interest rate per annum equal
to the rate per annum obtained by dividing (a) the rate per annum at which
deposits in U.S. dollars are offered by the principal office of Citibank in
London, England to prime banks in the London interbank market at 11:00 A.M.
(London time) two Business Days before the first day of such Interest Period in
an amount substantially equal to Citibank's Eurodollar Rate Advance comprising
part of such Borrowing to be outstanding during such Interest Period and for a
period equal to such Interest Period by (b) a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage for such Interest Period.
"EURODOLLAR RATE ADVANCE" means an Advance that bears interest as provided
in Section 2.07(a)(ii).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing means the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.01.
"EXISTING DEBT" has the meaning specified in Section 4.01(t) hereof.
"FACILITY" means the Working Capital Facility, the Swing Line Facility or
the Letter of Credit Facility.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by
<PAGE>
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"FEE LETTER" means the fee letter dated October 28, 1999 between the Parent
Guarantor and the Administrative Agent, as amended.
"FISCAL YEAR" means a fiscal year of the Parent Guarantor and its
Consolidated Subsidiaries ending on the Sunday nearest to October 31 in any
calendar year.
"FIXED CHARGE COVERAGE RATIO" means, at any date of determination, the
ratio of (a) Consolidated EBITDA minus Capital Expenditures to (b) interest
payable on, and amortization of debt discount in respect of, all Debt for
Borrowed Money (including expenses incurred under the Receivables Sales
Agreements and flooring subsidies, in each case determined on a basis consistent
with past practice), in each case, of or by the Parent Guarantor and its
Subsidiaries during the applicable period most recently ended for which
financial statements are required to be delivered to the Lender Parties pursuant
to Section 5.03(b) or (c), as the case may be.
"FLOOR PLANNING ARRANGEMENTS" means the (i) Agreement for Inventory
Financing dated October 28, 1999 between IBM Credit Corporation, MicroAge
Computer Centers, Inc., MTS Holding Company, MicroAge Technology Services,
L.L.C. and Pinacor, (ii) Agreement for Wholesale Financing dated September 25,
1998 between Finova Capital Corporation and Pinacor, MicroAge Computer Centers,
Inc., and MicroAge, Inc., and (iii) inventory financing arrangement between
Hewlett-Packard Company, MicroAge, Inc., MicroAge Computer Centers, Inc. and
Pinacor for the purchase by MicroAge Computer Centers, Inc. and Pinacor of
inventory and equipment bearing the trademark or tradename of Hewlett-Packard
Company or any of its Subsidiaries or Affiliates or manufactured by or sold by
Hewlett-Packard Company or any of its Subsidiaries or Affiliates; as each of the
foregoing agreements and arrangements may from time to time be amended,
supplemented or otherwise modified as permitted in, and in accordance with, the
terms of this Agreement.
"FLOORING LETTER OF CREDIT" means a Standby Letter of Credit issued to a
creditor under a Floor Planning Arrangement in substantially the form of Exhibit
J hereto.
"FOREIGN SUBSIDIARY" means a Subsidiary organized under the laws of a
jurisdiction other than the United States or any State thereof or the District
of Columbia.
"GAAP" has the meaning specified in Section 1.03.
"GUARANTIES" means the Parent Guaranty and the Subsidiary Guaranty.
<PAGE>
"GUARANTORS" means the Parent Guarantor and the Subsidiary Guarantors.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other hedging agreements.
"HEDGE BANK" means any Lender Party or an Affiliate of a Lender Party in
its capacity as a party to a Secured Hedge Agreement.
"IMMATERIAL SUBSIDIARY" means any Subsidiary of the Parent Guarantor the
total assets of which do not exceed $25,000.
"INCREASE DATE" has the meaning specified in Section 2.17(a).
"INCREASING LENDER" has the meaning specified in Section 2.17(c).
"INDEMNIFIED PARTY" has the meaning specified in Section 9.04(b).
"INFORMATION MEMORANDUM" means the information memorandum dated October 4,
1999 used by the Arranger in connection with the syndication of the Commitments.
"INITIAL EXTENSION OF CREDIT" means the earlier to occur of the initial
Borrowing and the initial issuance of a Letter of Credit hereunder.
"INITIAL ISSUING BANK" has the meaning specified in the recital of parties
to this Agreement.
"INITIAL LENDERS" has the meaning specified in the recital of parties to
this Agreement.
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"INTERCREDITOR AGREEMENT" has the meaning specified in Section 3.01(a)(xi).
"INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part
of the same Borrowing, the period commencing on the date of such Eurodollar Rate
Advance or the date of the Conversion of any Base Rate Advance into such
Eurodollar Rate Advance, and ending on the last day of the period selected by
the Borrowers pursuant to the provisions below and, thereafter, each subsequent
period commencing on the last day of
<PAGE>
the immediately preceding Interest Period and ending on the last day of the
period selected by the Borrowers pursuant to the provisions below. The duration
of each such Interest Period shall be (except as provided for in Section
2.02(c)) one, two, three or six months, as the Borrowers may, upon notice
received by the Administrative Agent not later than 1:00 P.M. (New York City
time) on the third Business Day prior to the first day of such Interest Period,
select; PROVIDED, HOWEVER, that:
(a) the Borrowers may not select any Interest Period that ends after
the Termination Date;
(b) Interest Periods commencing on the same date for Eurodollar Rate
Advances comprising part of the same Borrowing shall be of the same
duration;
(c) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, PROVIDED,
HOWEVER, that, if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day; and
(d) whenever the first day of any Interest Period occurs on a day of
an initial calendar month for which there is no numerically corresponding
day in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such succeeding
calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
"INVENTORY" means all Inventory referred to in Section 1(b) of the Security
Agreement.
"INVESTMENT" in any Person means any loan or advance to such Person, any
purchase or other acquisition of any capital stock or other ownership or profit
interest, warrants, rights, options, obligations or other securities or the
assets comprising a division or a business unit or a substantial part or all of
the business of such Person, any capital contribution to such Person or any
other direct or indirect investment in such Person, including, without
limitation, any acquisition by way of a merger or consolidation and any
arrangement pursuant to which the investor incurs Debt of the types referred to
in clause (i) or (j) of the definition of "DEBT" in respect of such Person.
"ISSUING BANK" means the Initial Issuing Bank and any Eligible Assignee to
which a Letter of Credit Commitment hereunder has been assigned pursuant to
Section 9.07 so long as such Eligible Assignee expressly agrees to perform in
accordance with
<PAGE>
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as an Issuing Bank and notifies the
Administrative Agent of its Applicable Lending Office and the amount of its
Letter of Credit Commitment (which information shall be recorded by the
Administrative Agent in the Register), for so long as such Initial Issuing Bank
or Eligible Assignee, as the case may be, shall have a Letter of Credit
Commitment.
"L/C CASH COLLATERAL ACCOUNT" means the collateral account with Citibank,
N.A., at its office at 399 Park Avenue, New York, New York 10043, in the name of
the Collateral Agent and under the sole control and dominion of the Collateral
Agent.
"L/C RELATED DOCUMENTS" has the meaning specified in Section 2.04(c)(ii).
"LENDER PARTY" means any Lender, the Issuing Bank or the Swing Line Bank.
"LENDERS" means the Initial Lenders, each Assuming Lender that shall become
a party hereto pursuant to Section 2.17 and each Person that shall become a
Lender hereunder pursuant to Section 9.07 for so long as such Initial Lender or
Person, as the case may be, shall be a party to this Agreement.
"LETTER OF CREDIT ADVANCE" means an advance made by the Issuing Bank or any
Lender pursuant to Section 2.03(c).
"LETTER OF CREDIT AGREEMENT" has the meaning specified in Section 2.03(a).
"LETTER OF CREDIT COMMITMENT" means, with respect to the Issuing Bank at
any time, the amount set forth opposite the Issuing Bank's name on Schedule I
hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank
has entered into one or more Assignment and Acceptances, set forth for the
Issuing Bank in the Register maintained by the Administrative Agent pursuant to
Section 9.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section 2.05.
"LETTER OF CREDIT FACILITY" means, at any time, an amount equal to the
lesser of (a) the amount of the Issuing Bank's Letter of Credit Commitment at
such time and (b) $150,000,000, as such amount may be reduced at or prior to
such time pursuant to Section 2.05.
"LETTERS OF CREDIT" has the meaning specified in Section 2.01(c).
"LIEN" means any lien, security interest or other charge or encumbrance of
any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
<PAGE>
"LOAN DOCUMENTS" means (a) for purposes of this Agreement and the Notes and
any amendment, supplement or modification hereof or thereof, (i) this Agreement,
(ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee
Letter, (vi) each Letter of Credit Agreement and (vii) each Intercreditor
Agreement and (b) for purposes of the Guaranties and the Collateral Documents
and for all other purposes other than for purposes of this Agreement and the
Notes, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the
Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement,
(vii) each Secured Hedge Agreement and (viii) each Intercreditor Agreement, in
each case as amended.
"LOAN PARTIES" means the Borrowers and the Guarantors.
"LOAN VALUE" means, with respect to any Eligible Collateral, an amount
equal to (a) with respect to Eligible Receivables, up to 85% of the value of
Eligible Receivables; (b) with respect to Eligible Inventory, up to 75% of the
value of Eligible Inventory less than 90 days old plus up to 50% of Eligible
Inventory over 90 days old less a liquidation reserve of $30,000,000; and (c)
with respect to Eligible Cash, up to 99% of the value of Eligible Cash, or, in
each case, such lower percentage of the value of any item of Eligible Collateral
determined by the Administrative Agent in its sole discretion exercised
commercially reasonably in accordance with customary business practice, PROVIDED
that the Administrative Agent shall give five Business Days notice of any change
in the foregoing percentages.
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any of the Parent Guarantor, the Parent Guarantor and
its Subsidiaries taken as a whole, MTS, MTS and its Subsidiaries taken as a
whole, Pinacor or Pinacor and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any of the Parent Guarantor, the Parent Guarantor and
its Subsidiaries taken as a whole, MTS, MTS and its Subsidiaries taken as a
whole, Pinacor or Pinacor and its Subsidiaries taken as a whole, (b) the rights
and remedies of any Agent or any Lender Party under any Transaction Document or
(c) the ability of any Loan Party to perform its Obligations under any
Transaction Document to which it is or is to be a party.
"MORTGAGES" has the meaning specified in Section 3.01(a)(xvii).
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
<PAGE>
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and at least one Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section 4064 or
4069 of ERISA in the event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or
other disposition of any asset or the incurrence or issuance of any Debt or the
sale or issuance of capital stock or other ownership or profit interest
(including, without limitation, any capital contribution) or any securities
convertible into or exchangeable for capital stock or other ownership or profit
interest or any warrants, rights, options or other securities to acquire capital
stock or other ownership or profit interest by any Person, the aggregate amount
of cash received from time to time (whether as initial consideration or through
payment or disposition of deferred consideration) by or on behalf of such Person
in connection with such transaction after deducting therefrom only (without
duplication) (a) reasonable and customary closing costs, brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other similar
fees and commissions, (b) the amount of taxes payable in connection with or as a
result of such transaction and (c) the amount of any Debt secured by a Lien on
such asset that, by the terms of the agreement or instrument governing such
Debt, is required to be repaid upon such disposition, in each case to the
extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party and are properly
attributable to such transaction or to the asset that is the subject thereof;
PROVIDED, HOWEVER, that in the case of taxes that are deductible under clause
(b) above but for the fact that, at the time of receipt of such cash, such taxes
have not been actually paid or are not then payable, such Loan Party or such
Subsidiary may deduct an amount (the "RESERVED AMOUNT") equal to the amount
reserved in accordance with GAAP for such Loan Party's or such Subsidiary's
reasonable estimate of such taxes, other than taxes for which such Loan Party or
such Subsidiary is indemnified, PROVIDED FURTHER, HOWEVER, that, at the time
such taxes are paid, an amount equal to the amount, if any, by which the
Reserved Amount for such taxes exceeds the amount of such taxes actually paid
shall constitute "Net Cash Proceeds" of the type for which such taxes were
reserved for all purposes hereunder.
"NOTE" means a promissory note of the Borrowers payable to the order of any
Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate
indebtedness to such Lender resulting from the Working Capital Advances, Letter
of Credit Advances and Swing Line Advances made by such Lender, as amended.
"NOTICE OF BORROWING" has the meaning specified in Section 2.02(a).
"NOTICE OF ISSUANCE" has the meaning specified in Section 2.03(a).
<PAGE>
"NOTICE OF RENEWAL" has the meaning specified in Section 2.01(c).
"NOTICE OF SWING LINE BORROWING" has the meaning specified in Section
2.02(b).
"NOTICE OF TERMINATION" has the meaning specified in Section 2.01(c). "NPL"
means the National Priorities List under CERCLA.
"OBLIGATION" means, with respect to any Person, any payment, performance or
other obligation of such Person of any kind, including, without limitation, any
liability of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding referred to in Section 6.01(f).
Without limiting the generality of the foregoing, the Obligations of any Loan
Party under the Loan Documents include (a) the obligation to pay principal,
interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by such Loan Party
under any Loan Document and (b) the obligation of such Loan Party to reimburse
any amount in respect of any of the foregoing that any Lender Party, in its sole
discretion, may elect to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and Development.
"OPEN YEAR" has the meaning specified in Section 4.01(r)(ii).
"OTHER TAXES" has the meaning specified in Section 2.12(b).
"PARENT GUARANTOR" has the meaning specified in the recital of parties to
this Agreement.
"PARENT GUARANTY" means the guaranty of the Parent Guarantor set forth in
Article VII of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"PERMITTED LIENS" means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for taxes, assessments and governmental charges or levies to the
extent not required to be paid under Section 5.01(b); (b) Liens imposed by law,
such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business securing
obligations that (i) are not overdue for a period of more than 30 days and (ii)
individually or together with all other Permitted Liens outstanding on any date
of determination do not materially adversely affect the use of the property to
which they relate; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
<PAGE>
statutory obligations; and (d) easements, rights of way and other encumbrances
on title to real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such property for
its present purposes.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PLEDGED DEBT" has the meaning specified in the Security Agreement.
"PREFERRED STOCK" means, with respect to any corporation, capital stock
issued by such corporation that is entitled to a preference or priority over any
other capital stock issued by such corporation upon any distribution of such
corporation's assets, whether by dividend or upon liquidation.
"PRO RATA SHARE" of any amount means, with respect to any Lender at any
time, the product of such amount TIMES a fraction the numerator of which is the
amount of such Lender's Working Capital Commitment at such time (or, if the
Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such
Lender's Working Capital Commitment as in effect immediately prior to such
termination) and the denominator of which is the Working Capital Facility at
such time (or, if the Commitments shall have been terminated pursuant to Section
2.05 or 6.01, the Working Capital Facility as in effect immediately prior to
such termination).
"RECEIVABLES" means all Receivables referred to in Section 1(c) of the
Security Agreement.
"RECEIVABLES SALES AGREEMENT" means the Purchase Agreement dated as of
April 30, 1997, between MicroAge Computer Centers, Inc., Pinacor and
NationsCredit Commercial Corporation of America dba MicroAge National Credit.
"REDEEMABLE" means, with respect to any capital stock or other ownership or
profit interest, Debt or other right or Obligation, any such right or Obligation
that (a) the issuer has undertaken to redeem at a fixed or determinable date or
dates, whether by operation of a sinking fund or otherwise, or upon the
occurrence of a condition not solely within the control of the issuer or (b) is
redeemable at the option of the holder.
"REGISTER" has the meaning specified in Section 9.07(d).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
<PAGE>
"RELATED DOCUMENTS" means any intercompany notes issued pursuant to Section
5.02(b)(ii), each agreement included in the Floor Planning Arrangements and each
Flooring Letter of Credit.
"REQUIRED LENDERS" means, at any time, Lenders owed or holding at least a
majority in interest of the sum of (a) the aggregate principal amount of the
Advances outstanding at such time and (b) the aggregate Available Amount of all
Letters of Credit outstanding at such time, or, if no such principal amount and
no Letters of Credit are outstanding at such time, Lenders holding at least a
majority in interest of the aggregate of Working Capital Commitments PROVIDED,
HOWEVER, that if any Lender shall be a Defaulting Lender at such time, there
shall be excluded from the determination of Required Lenders at such time (A)
the aggregate principal amount of the Advances owing to such Lender (in its
capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata
Share of the aggregate Available Amount of all Letters of Credit outstanding at
such time and (C) the Unused Working Capital Commitment of such Lender at such
time. For purposes of this definition, the aggregate principal amount of Swing
Line Advances owing to the Swing Line Bank and of Letter of Credit Advances
owing to the Issuing Bank and the Available Amount of each Letter of Credit
shall be considered to be owed to the Lenders ratably in accordance with their
respective Working Capital Commitments.
"RESPONSIBLE OFFICER" means any officer of any Loan Party or any of its
Subsidiaries.
"SECURED HEDGE AGREEMENT" means any Hedge Agreement required or permitted
under Article V that is entered into by and between any Loan Party and any Hedge
Bank.
"SECURED OBLIGATIONS" has the meaning specified in the Security Agreement.
"SECURED PARTIES" means the Agents, the Lender Parties and the Hedge Banks.
"SECURITY AGREEMENT" has the meaning specified in Section 3.01(a)(ii).
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or
any ERISA Affiliate and no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which any Loan Party or
any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe
<PAGE>
that it will, incur debts or liabilities beyond such Person's ability to pay
such debts and liabilities as they mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"STANDBY LETTER OF CREDIT" means any Letter of Credit issued under the
Letter of Credit Facility, other than a Trade Letter of Credit.
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"SUBSIDIARY GUARANTORS" means all Subsidiaries of the Parent Guarantor and
each other Subsidiary of any of them that shall be required to execute and
deliver a guaranty pursuant to Section 5.01(j) or Section 5.01(k).
"SUBSIDIARY GUARANTY" means a guaranty in substantially the form of Exhibit
E, together with each other guaranty delivered pursuant to Section 5.01(j), in
each case as amended, amended and restated, supplemented or otherwise modified
from time to time in accordance with its terms.
"SURVIVING DEBT" has the meaning specified in Section 3.01(c).
"SWING LINE ADVANCE" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.01(b) or (b) any Lender pursuant to Section 2.02(b).
"SWING LINE BANK" means Citibank.
"SWING LINE BORROWING" means a borrowing consisting of a Swing Line Advance
made by the Swing Line Bank pursuant to Section 2.01(b) or the Lenders pursuant
to Section 2.02(b).
"SWING LINE FACILITY" has the meaning specified in Section 2.01(b).
"TAX CERTIFICATE" has the meaning specified in Section 5.03(k)
<PAGE>
"TAXES" has the meaning specified in Section 2.12(a).
"TERMINATION DATE" means the earlier of October 31, 2002 and the date of
termination in whole of the Working Capital Commitments and the Letter of Credit
Commitment pursuant to Section 2.05 or 6.01.
"TRADE LETTER OF CREDIT" means any Letter of Credit that is issued under
the Letter of Credit Facility for the benefit of a supplier of Inventory to the
Borrowers or any of their respective Subsidiaries to effect payment for such
Inventory, the conditions to drawing under which include the presentation to the
Issuing Bank of negotiable bills of lading, invoices and related documents
sufficient, in the judgment of the Issuing Bank, to create a valid and perfected
lien on or security interest in such Inventory, bills of lading, invoices and
related documents in favor of the Issuing Bank.
"TRANSACTION DOCUMENTS" means, collectively, the Loan Documents and the
Related Documents.
"TYPE" refers to the distinction between Advances bearing interest at the
Base Rate and Advances bearing interest at the Eurodollar Rate.
"UNUSED WORKING CAPITAL COMMITMENT" means, with respect to any Lender at
any time, (a) such Lender's Working Capital Commitment at such time MINUS (b)
the sum of (i) the aggregate principal amount of all Working Capital Advances,
Swing Line Advances and Letter of Credit Advances made by such Lender (in its
capacity as a Lender) and outstanding at such time PLUS (ii) such Lender's Pro
Rata Share of (A) the aggregate Available Amount of all Letters of Credit
outstanding at such time, (B) the aggregate principal amount of all Letter of
Credit Advances made by the Issuing Bank pursuant to Section 2.03(c) and
outstanding at such time other than any such Letter of Credit Advance which, at
or prior to such time, has been assigned in part to such Lender pursuant to
Section 2.03(c) and (C) the aggregate principal amount of all Swing Line
Advances made by the Swing Line Bank pursuant to Section 2.01(b) and outstanding
at such time other than any such Swing Line Advance which, at or prior to such
time, has been assigned in part to such Lender pursuant to Section 2.02(b).
"VOTING STOCK" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.
"WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of ERISA,
that is maintained for employees of any Loan Party or in respect of which any
Loan Party could have liability.
<PAGE>
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of
Title IV of ERISA.
"WORKING CAPITAL ADVANCE" has the meaning specified in Section 2.01(a).
"WORKING CAPITAL BORROWING" means a borrowing consisting of simultaneous
Working Capital Advances of the same Type made by the Lenders.
"WORKING CAPITAL COMMITMENT" means, with respect to any Lender at any time,
(a) the amount set forth opposite such Lender's name on Schedule I hereto under
the caption "Working Capital Commitment", (b) if such Lender has become a Lender
hereunder pursuant to an Assumption Agreement, the amount set forth in such
Assumption Agreement or (c) if such Lender has entered into one or more
Assignment and Acceptances, set forth for such Lender in the Register maintained
by the Administrative Agent pursuant to Section 9.07(d) as such Lender's
"Working Capital Commitment", as such amount may be reduced at or prior to such
time pursuant to Section 2.05 or increased pursuant to Section 2.17.
"WORKING CAPITAL FACILITY" means, at any time, the aggregate amount of the
Lenders' Working Capital Commitments at such time.
SECTION 1.02. COMPUTATION OF TIME PERIODS; OTHER DEFINITIONAL PROVISIONS.
In this Agreement and the other Loan Documents in the computation of periods of
time from a specified date to a later specified date, the word "FROM" means
"from and including" and the words "TO" and "UNTIL" each mean "to but
excluding". References in the Loan Documents to any agreement or contract "AS
AMENDED" shall mean and be a reference to such agreement or contract as amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with its terms.
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(g) ("GAAP").
<PAGE>
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. THE ADVANCES AND THE LETTERS OF CREDIT. (a) THE WORKING
CAPITAL ADVANCES. Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make advances (each a "WORKING CAPITAL ADVANCE") to
the Borrowers jointly from time to time on any Business Day during the period
from the date hereof until the Termination Date in an amount for each such
Advance not to exceed such Lender's Unused Working Capital Commitment at such
time. Each Working Capital Borrowing shall be in an aggregate amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall
consist of Working Capital Advances made simultaneously by the Lenders ratably
according to their Working Capital Commitments. Within the limits of each
Lender's Unused Working Capital Commitment in effect from time to time, the
Borrowers may borrow under this Section 2.01(a), prepay pursuant to Section
2.06(a) and reborrow under this Section 2.01(a).
(b) THE SWING LINE ADVANCES. The Borrowers may jointly request the Swing
Line Bank to make, and the Swing Line Bank may, if in its sole discretion it
elects to do so, make, on the terms and conditions hereinafter set forth, Swing
Line Advances to the Borrowers jointly from time to time on any Business Day
during the period from the date hereof until the Termination Date (i) in an
aggregate amount not to exceed at any time outstanding $50,000,000 (the "SWING
LINE FACILITY") and (ii) in an amount for each such Swing Line Borrowing not to
exceed the aggregate of the Unused Working Capital Commitments of the Lenders at
such time. No Swing Line Advance shall be used for the purpose of funding the
payment of principal of any other Swing Line Advance. Each Swing Line Borrowing
shall be in an amount of $1,000,000 or an integral multiple of $250,000 in
excess thereof and shall be made as a Base Rate Advance. Within the limits of
the Swing Line Facility and within the limits referred to in clause (ii) above,
so long as the Swing Line Bank, in its sole discretion, elects to make Swing
Line Advances, the Borrowers may borrow under this Section 2.01(b), repay
pursuant to Section 2.04(b) or prepay pursuant to Section 2.06(a) and reborrow
under this Section 2.01(b).
(c) LETTERS OF CREDIT. The Issuing Bank agrees, on the terms and conditions
hereinafter set forth, to issue letters of credit (the "LETTERS OF CREDIT") for
the joint account of the Borrowers from time to time on any Business Day during
the period from the date hereof until 60 days before the Termination Date in an
aggregate Available Amount (i) for all Letters of Credit at any time not to
exceed at any time the lesser of (x) the Letter of Credit Facility at such time
and (y) the Issuing Bank's Letter of Credit Commitment at such time and (ii) for
each such Letter of Credit not to exceed the Unused Working Capital Commitments
of the Lenders at such time. No Letter of Credit (other than a Flooring Letter
of Credit) shall have an expiration date (including all rights of the Borrowers
or the beneficiary to require renewal) later than the earlier of 60 days before
the Termination Date (or, in the case of a Flooring Letter of Credit, later than
five days before the Termination Date) and (A) in the case of a Standby Letter
of Credit (other than a Flooring Letter of Credit), six months after the date of
issuance thereof, but may by its terms be
<PAGE>
renewable annually upon notice (a "NOTICE OF RENEWAL") given to the Issuing Bank
and the Administrative Agent on or prior to any date for notice of renewal set
forth in such Letter of Credit but in any event at least three Business Days
prior to the date of the proposed renewal of such Standby Letter of Credit and
upon fulfillment of the applicable conditions set forth in Article III unless
the Issuing Bank has notified the Borrowers (with a copy to the Administrative
Agent) on or prior to the date for notice of termination set forth in such
Letter of Credit but in any event at least 30 Business Days prior to the date of
automatic renewal of its election not to renew such Standby Letter of Credit (a
"NOTICE OF TERMINATION") and (B) in the case of a Trade Letter of Credit, 60
days after the date of issuance thereof; PROVIDED that the terms of each Standby
Letter of Credit that is automatically renewable annually shall (x) require the
Issuing Bank that issued such Standby Letter of Credit to give the beneficiary
named in such Standby Letter of Credit notice of any Notice of Termination, (y)
permit such beneficiary, upon receipt of such notice, to draw under such Standby
Letter of Credit prior to the date such Standby Letter of Credit otherwise would
have been automatically renewed and (z) not permit the expiration date (after
giving effect to any renewal) of such Standby Letter of Credit in any event to
be extended to a date later than 60 days before the Termination Date. If either
a Notice of Renewal is not given by the Borrowers or a Notice of Termination is
given by the Issuing Bank pursuant to the immediately preceding sentence, such
Standby Letter of Credit shall expire on the date on which it otherwise would
have been automatically renewed; PROVIDED, HOWEVER, that even in the absence of
receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless
instructed to the contrary by the Administrative Agent or the Borrowers, deem
that a Notice of Renewal had been timely delivered and in such case, a Notice of
Renewal shall be deemed to have been so delivered for all purposes under this
Agreement. Each Standby Letter of Credit shall contain a provision authorizing
the Issuing Bank to deliver to the beneficiary of such Letter of Credit, upon
the occurrence and during the continuance of an Event of Default, a notice (a
"DEFAULT TERMINATION NOTICE") terminating such Letter of Credit and giving such
beneficiary 15 days to draw such Letter of Credit. Within the limits of the
Letter of Credit Facility, and subject to the limits referred to above, the
Borrowers may request the issuance of Letters of Credit under this Section
2.01(c), repay any Letter of Credit Advances resulting from drawings thereunder
pursuant to Section 2.03(c) and request the issuance of additional Letters of
Credit under this Section 2.01(c).
SECTION 2.02. MAKING THE ADVANCES. (a) Except as otherwise provided in
Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not later
than 1:00 P.M. (New York City time) on the third Business Day prior to the date
of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar
Rate Advances, or not later than 12:00 noon (New York City time) on the date of
the proposed Borrowing in the case of a Borrowing consisting of Base Rate
Advances, by the Borrowers jointly to the Administrative Agent, which shall give
to each Lender prompt notice thereof by telex or telecopier. Each such notice of
a Borrowing (a "NOTICE OF BORROWING") shall be by telephone, confirmed
immediately in writing, or telex or telecopier, in substantially the form of
Exhibit B hereto, specifying therein the requested (i) date of such Borrowing,
(ii) Facility under which such Borrowing is to be made, (iii) Type of Advances
comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in
the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest
Period for each such Advance. Each Lender shall, before 2:00 P.M. (New York City
time) on the date
<PAGE>
of such Borrowing, make available for the account of its Applicable Lending
Office to the Administrative Agent at the Administrative Agent's Account, in
same day funds, such Lender's ratable portion of such Borrowing in accordance
with the respective Commitments under the applicable Facility of such Lender and
the other Lenders. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrowers by
crediting the Borrowers' Account; PROVIDED, HOWEVER, that, in the case of any
Working Capital Borrowing, the Administrative Agent shall first make a portion
of such funds equal to the aggregate principal amount of any Swing Line Advances
and Letter of Credit Advances made by the Swing Line Bank or the Issuing Bank,
as the case may be, and by any other Lender and outstanding on the date of such
Working Capital Borrowing, plus interest accrued and unpaid thereon to and as of
such date, available to the Swing Line Bank or the Issuing Bank, as the case may
be, and such other Lenders for repayment of such Swing Line Advances and Letter
of Credit Advances.
(b) Each Swing Line Borrowing shall be made on notice, given not later than
1:00 P.M. (New York City time) on the date of the proposed Swing Line Borrowing,
by the Borrowers jointly to the Swing Line Bank and the Administrative Agent.
Each such notice of a Swing Line Borrowing (a "NOTICE OF SWING LINE BORROWING")
shall be by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested (i) date of such Borrowing, (ii) amount of such
Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later
than the seventh day after the requested date of such Borrowing). If, in its
sole discretion, it elects to make the requested Swing Line Advance, the Swing
Line Bank will make the amount thereof available to the Administrative Agent at
the Administrative Agent's Account, in same day funds. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent will make such funds
available to the Borrowers by crediting the Borrowers' Account. Upon written
demand by the Swing Line Bank, with a copy of such demand to the Administrative
Agent, each other Lender shall purchase from the Swing Line Bank, and the Swing
Line Bank shall sell and assign to each such other Lender, such other Lender's
Pro Rata Share of such outstanding Swing Line Advance as of the date of such
demand, by making available for the account of its Applicable Lending Office to
the Administrative Agent for the account of the Swing Line Bank, by deposit to
the Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of such Swing Line Advance to be
purchased by such Lender. Each Borrower hereby agrees to each such sale and
assignment. Each Lender agrees to purchase its Pro Rata Share of an outstanding
Swing Line Advance on (i) the Business Day on which demand therefor is made by
the Swing Line Bank, PROVIDED that notice of such demand is given not later than
1:00 P.M. (New York City time) on such Business Day or (ii) the first Business
Day next succeeding such demand if notice of such demand is given after such
time. Upon any such assignment by the Swing Line Bank to any other Lender of a
portion of a Swing Line Advance, the Swing Line Bank represents and warrants to
such other Lender that the Swing Line Bank is the legal and beneficial owner of
such interest being assigned by it, but makes no other representation or
warranty and assumes no responsibility with respect to such Swing Line Advance,
the Loan Documents or any Loan Party. If and to the extent that any Lender shall
not have so made the amount of such Swing Line Advance available to the
Administrative Agent, such Lender agrees to pay to the Administrative Agent
forthwith on demand such amount
<PAGE>
together with interest thereon, for each day from the date of demand by the
Swing Line Bank until the date such amount is paid to the Administrative Agent,
at the Federal Funds Rate. If such Lender shall pay to the Administrative Agent
such amount for the account of the Swing Line Bank on any Business Day, such
amount so paid in respect of principal shall constitute a Swing Line Advance
made by such Lender on such Business Day for purposes of this Agreement, and the
outstanding principal amount of the Swing Line Advance made by the Swing Line
Bank shall be reduced by such amount on such Business Day.
(c) Anything in subsection (a) above to the contrary notwithstanding, (i)
except as provided below, the Borrowers may not select Eurodollar Rate Advances
for the initial Borrowing hereunder and for the period from the date hereof to
March 31, 2000 (or such earlier date as shall be specified in its sole
discretion by the Administrative Agent in a written notice to the Borrowers and
the Lenders) or for any Borrowing if the aggregate amount of such Borrowing is
less than $10,000,000 or if the obligation of the Lenders to make Eurodollar
Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10 and (ii)
Eurodollar Rate Advances may not be outstanding as part of more than ten
separate Borrowings; PROVIDED, HOWEVER, the Borrowers may select Eurodollar Rate
Advances for the period from the Initial Extension of Credit through December
31, 1999 if the duration of the Interest Period for such Eurodollar Rate Advance
is one or two weeks and for the period from December 31, 1999 through March 31,
2000 if the duration of the Interest Period for such Eurodollar Rate Advance is
one week, two weeks or one month.
(d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be
irrevocable and binding on the Borrowers. In the case of any Borrowing that the
related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Advances, the Borrowers shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
(e) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing under a Facility under which such
Lender has a Commitment that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrowers on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent, such Lender and
the Borrowers severally agree to repay or pay to the Administrative Agent
forthwith on demand such corresponding amount and to pay interest thereon, for
each day from the date such amount is made available to the Borrowers until the
date such amount is repaid or paid to the Administrative Agent, at (i) in the
case of the Borrowers, the interest rate applicable at such time under Section
2.07 to Advances comprising such Borrowing
<PAGE>
and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender
shall pay to the Administrative Agent such corresponding amount, such amount so
paid shall constitute such Lender's Advance as part of such Borrowing for all
purposes.
(f) The failure of any Lender to make the Advance to be made by it as part
of any Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Advance on the date of such Borrowing, but no Lender shall
be responsible for the failure of any other Lender to make the Advance to be
made by such other Lender on the date of any Borrowing.
SECTION 2.03. ISSUANCE OF AND DRAWINGS AND REIMBURSEMENT UNDER LETTERS OF
CREDIT. (a) REQUEST FOR ISSUANCE. (i) Each Letter of Credit other than a
Flooring Letter of Credit shall be issued upon notice, given not later than 1:00
P.M. (New York City time) on the tenth Business Day prior to the date of the
proposed issuance of such Letter of Credit, by the Borrowers jointly to the
Issuing Bank, which shall give to the Administrative Agent and each Lender
prompt notice thereof by telex or telecopier. Each such notice of issuance of a
Letter of Credit other than a Flooring Letter of Credit (a "NOTICE OF ISSUANCE")
shall be by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested (A) date of such issuance (which shall be a
Business Day), (B) Available Amount of such Letter of Credit, (C) expiration
date of such Letter of Credit, (D) name and address of the beneficiary of such
Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied
by such application and agreement for letter of credit as the Issuing Bank may
specify to the Borrowers for use in connection with such requested Letter of
Credit (a "LETTER OF CREDIT AGREEMENT"). If (x) the requested form of such
Letter of Credit is acceptable to the Issuing Bank in its sole discretion and
(y) it has not received notice of objection to such issuance from the Required
Lenders, the Issuing Bank will, upon fulfillment of the applicable conditions
set forth in Article III, make such Letter of Credit available to the Borrowers
at its office referred to in Section 9.02 or as otherwise agreed with the
Borrowers in connection with such issuance. In the event and to the extent that
the provisions of any Letter of Credit Agreement shall conflict with this
Agreement, the provisions of this Agreement shall govern.
(ii) Each Flooring Letter of Credit shall be issued upon notice, given not
later than 1:00 P.M. (New York City time) on the second Business Day prior to
the date of the proposed issuance of such Letter of Credit, by the Borrowers to
the Issuing Bank, which shall give to the Administrative Agent and each Lender
prompt notice thereof by telex or telecopier. Each Notice of Issuance for a
Flooring Letter of Credit shall be by telephone, confirmed immediately in
writing, or telex or telecopier, specifying therein the requested (A) date of
such issuance (which shall be a Business Day), (B) initial Available Amount of
such Letter of Credit, (C) expiration date of such Letter of Credit and (D) name
and address of the beneficiary of such Letter of Credit, which shall be a party
to a Floor Planning Arrangement and to an Intercreditor Agreement. Each Flooring
Letter of Credit shall be substantially in the form of Exhibit J hereto and
shall provide for a variable Available Amount to be determined by reference to a
certificate to be delivered by the Parent Guarantor to the Administrative Agent
and the Issuing Bank within two days after the end of each week. If it has not
received notice of objection to such issuance from the Required Lenders, the
Issuing Bank will, upon fulfillment of the applicable conditions
<PAGE>
set forth in Article III, make such Flooring Letter of Credit available to the
Borrowers at its office referred to in Section 9.02 or as otherwise agreed with
the Borrowers in connection with such issuance.
(b) LETTER OF CREDIT REPORTS. The Issuing Bank shall furnish (A) to the
Administrative Agent on the first Business Day of each week a written report
summarizing issuance and expiration dates of Letters of Credit issued during the
previous week, drawings during such week under all Letters of Credit and the
aggregate Available Amount of all Letters of Credit outstanding during such
week, (B) to each Lender on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued
during the preceding month and drawings during such month under all Letters of
Credit and (C) to the Administrative Agent and each Lender on the first Business
Day of each calendar quarter a written report setting forth the average daily
aggregate Available Amount during the preceding calendar quarter of all Letters
of Credit.
(c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. Upon written demand
by the Issuing Bank, with a copy of such demand to the Administrative Agent,
each Lender shall purchase from the Issuing Bank, and the Issuing Bank shall
sell and assign to each such Lender, such Lender's Pro Rata Share of such
outstanding Letter of Credit Advance as of the date of such purchase, by making
available for the account of its Applicable Lending Office to the Administrative
Agent for the account of the Issuing Bank, by deposit to the Administrative
Agent's Account, in same day funds, an amount equal to the portion of the
outstanding principal amount of such Letter of Credit Advance to be purchased by
such Lender. Promptly after receipt thereof, the Administrative Agent shall
transfer such funds to the Issuing Bank. Each Borrower hereby agrees to each
such sale and assignment. Each Lender agrees to purchase its Pro Rata Share of
an outstanding Letter of Credit Advance on (i) the Business Day on which demand
therefor is made by the Issuing Bank, PROVIDED that notice of such demand is
given not later than 1:00 P.M. (New York City time) on such Business Day, or
(ii) the first Business Day next succeeding such demand if notice of such demand
is given after such time. Upon any such assignment by the Issuing Bank to any
Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents
and warrants to such other Lender that the Issuing Bank is the legal and
beneficial owner of such interest being assigned by it, free and clear of any
liens, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Advance, the Loan Documents
or any Loan Party. If and to the extent that any Lender shall not have so made
the amount of such Letter of Credit Advance available to the Administrative
Agent, such Lender agrees to pay to the Administrative Agent forthwith on demand
such amount together with interest thereon, for each day from the date of demand
by the Issuing Bank until the date such amount is paid to the Administrative
Agent, at the Federal Funds Rate for its account or the account of the Issuing
Bank, as applicable. If such Lender shall pay to the Administrative Agent such
amount for the account of the Issuing Bank on any Business Day, such amount so
paid in respect of principal shall constitute a Letter of Credit Advance made by
such Lender on such Business Day for purposes of this Agreement, and the
outstanding principal
<PAGE>
amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced
by such amount on such Business Day.
(d) FAILURE TO MAKE LETTER OF CREDIT ADVANCES. The failure of any Lender to
make the Letter of Credit Advance to be made by it on the date specified in
Section 2.03(c) shall not relieve any other Lender of its obligation hereunder
to make its Letter of Credit Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make the Letter of Credit
Advance to be made by such other Lender on such date.
SECTION 2.04. REPAYMENT OF ADVANCES. (a) WORKING CAPITAL ADVANCES. The
Borrowers shall repay to the Administrative Agent for the ratable account of the
Lenders on the Termination Date the aggregate principal amount of the Working
Capital Advances then outstanding.
(b) SWING LINE ADVANCES. The Borrowers shall repay to the Administrative
Agent for the account of the Swing Line Bank and each other Lender that has made
a Swing Line Advance the outstanding principal amount of each Swing Line Advance
by each of them on the earlier of the maturity date specified in the applicable
Notice of Swing Line Borrowing (which maturity shall be no later than the
seventh day after the requested date of such Borrowing) and the Termination
Date.
(c) LETTER OF CREDIT ADVANCES. (i) The Borrowers shall repay to the
Administrative Agent for the account of the Issuing Bank and each other Lender
that has made a Letter of Credit Advance on the earlier of demand and the
Termination Date the outstanding principal amount of each Letter of Credit
Advance made by each of them.
(ii) The Obligations of the Borrowers under this Agreement, any Letter
of Credit Agreement and any other agreement or instrument relating to any Letter
of Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement, such Letter of Credit Agreement and
such other agreement or instrument under all circumstances, including, without
limitation, the following circumstances (it being understood that any such
payment by the Borrowers is without prejudice to, and does not constitute a
waiver of, any rights the Borrowers might have or might acquire as a result of
the payment by the Issuing Bank of any draft or the reimbursement by the
Borrowers thereof):
(A) any lack of validity or enforceability of any Loan Document,
any Letter of Credit Agreement, any Letter of Credit or any other
agreement or instrument relating thereto (all of the foregoing being,
collectively, the "L/C RELATED DOCUMENTS");
(B) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrowers in
respect of any L/C Related Document or any other amendment or waiver
of or any consent to departure from all or any of the L/C Related
Documents;
(C) the existence of any claim, set-off, defense or other right
that the Borrowers may have at any time against any beneficiary or any
transferee of a Letter of
<PAGE>
Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank or any other Person,
whether in connection with the transactions contemplated by the L/C
Related Documents or any unrelated transaction;
(D) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(E) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply
with the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral or
other collateral, or any release or amendment or waiver of or consent
to departure from the Guaranties or any other guarantee, for all or
any of the Obligations of the Borrowers in respect of the L/C Related
Documents; or
(G) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation,
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrowers, any Guarantor or any
other guarantor.
SECTION 2.05. TERMINATION OR REDUCTION OF THE COMMITMENTS. (a) OPTIONAL.
The Borrowers may, upon at least five Business Days' notice to the
Administrative Agent, terminate in whole or reduce in part the unused portions
of the Letter of Credit Facility and the Unused Working Capital Commitments;
PROVIDED, HOWEVER, that each partial reduction of a Facility (i) shall be in an
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof and (ii) shall be made ratably among the Lenders in accordance with
their Commitments with respect to such Facility.
(b) MANDATORY. (i) The Letter of Credit Facility shall be permanently
reduced from time to time on the date of each reduction in the Working Capital
Facility by the amount, if any, by which the amount of the Letter of Credit
Facility exceeds the Working Capital Facility after giving effect to such
reduction of the Working Capital Facility.
(ii) The Swing Line Facility shall be permanently reduced from time to
time on the date of each reduction in the Working Capital Facility by the
amount, if any, by which the amount of the Swing Line Facility exceeds the
Working Capital Facility after giving effect to such reduction of the Working
Capital Facility.
SECTION 2.06. PREPAYMENTS. (a) OPTIONAL. The Borrowers may, upon at least
one Business Day's notice in the case of Base Rate Advances and three Business
Days' notice in the case of Eurodollar Rate Advances, in each case to the
Administrative Agent stating the proposed date and aggregate principal amount of
the prepayment, and if such notice is given the Borrowers shall, prepay the
outstanding aggregate principal amount of the Advances comprising
<PAGE>
part of the same Borrowing in whole or ratably in part, together with accrued
interest to the date of such prepayment on the aggregate principal amount
prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an
aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000
in excess thereof and (y) if any prepayment of a Eurodollar Rate Advance is made
on a date other than the last day of an Interest Period for such Advance, the
Borrowers shall also pay any amounts owing pursuant to Section 9.04(c).
(b) MANDATORY. (i) The Borrowers shall, on the date of receipt of the Net
Cash Proceeds by any Loan Party or any of its Subsidiaries from (A) the sale,
lease, transfer or other disposition of any assets of any Loan Party or any of
its Subsidiaries (other than any sale, lease, transfer or other disposition of
assets pursuant to clause (i) or (ii) of Section 5.02(e)), (B) the incurrence or
issuance by any Loan Party or any of its Subsidiaries of any Debt (other than
Debt incurred or issued pursuant to Section 5.02(b)) and (C) the sale or
issuance by any Loan Party or any of its Subsidiaries of any capital stock or
other ownership or profit interest (including, without limitation, any capital
contribution), any securities convertible into or exchangeable for capital stock
or other ownership or profit interest or any warrants, rights or options to
acquire capital stock or other ownership or profit interest, prepay an aggregate
principal amount of the Advances comprising part of the same Borrowings equal to
the amount of such Net Cash Proceeds. Each such prepayment shall be applied as
set forth in clause (iv) below.
(ii) The Borrowers shall, on each Business Day, prepay an aggregate
principal amount of the Working Capital Advances comprising part of the same
Borrowings, the Letter of Credit Advances and the Swing Line Advances equal to
the amount by which (A) the sum of the aggregate principal amount of (x) the
Working Capital Advances, (y) the Letter of Credit Advances and (z) the Swing
Line Advances then outstanding plus the aggregate Available Amount of all
Letters of Credit then outstanding exceeds (B) the lesser of (x) the Working
Capital Facility and (y) the Loan Value of Eligible Collateral on such Business
Day MINUS $20,000,000.
(iii) The Borrowers shall, on each Business Day, pay to the
Administrative Agent for deposit in the L/C Cash Collateral Account an amount
sufficient to cause the aggregate amount on deposit in such Account to equal the
amount by which the aggregate Available Amount of all Letters of Credit then
outstanding exceeds the Letter of Credit Facility on such Business Day.
(iv) Prepayments of the Working Capital Facility made pursuant to
clause (i) and (ii) above shall be FIRST applied to prepay Letter of Credit
Advances then outstanding until such Advances are paid in full, SECOND applied
to prepay Swing Line Advances then outstanding until such Advances are paid in
full and THIRD applied to prepay Working Capital Advances then outstanding
comprising part of the same Borrowings until such Advances are paid in full.
(vi) All prepayments under this subsection (b) shall be made together
with accrued interest to the date of such prepayment on the principal amount
prepaid.
<PAGE>
SECTION 2.07. INTEREST. (a) SCHEDULED INTEREST. The Borrowers shall pay
interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) BASE RATE ADVANCES. During such periods as such Advance is a Base
Rate Advance, a rate per annum equal at all times to the sum of (A) the Base
Rate in effect from time to time PLUS (B) the Applicable Margin in effect from
time to time, payable in arrears quarterly on the last day of each March, June,
September and December during such periods and on the date such Base Rate
Advance shall be Converted or paid in full.
(ii) EURODOLLAR RATE ADVANCES. During such periods as such Advance is
a Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such
Interest Period for such Advance PLUS (B) the Applicable Margin in effect from
time to time, payable in arrears on the last day of such Interest Period and, if
such Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day of such
Interest Period and on the date such Eurodollar Rate Advance shall be Converted
or paid in full.
(b) DEFAULT INTEREST. Upon the occurrence and during the continuance of an
Event of Default, the Borrowers shall pay interest on (i) the unpaid principal
amount of each Advance owing to each Lender, payable in arrears on the dates
referred to in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid
on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the
fullest extent permitted by law, the amount of any interest, fee or other amount
payable under the Loan Documents that is not paid when due, from the date such
amount shall be due until such amount shall be paid in full, payable in arrears
on the date such amount shall be paid in full and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid,
in the case of interest, on the Type of Advance on which such interest has
accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on
Base Rate Advances pursuant to clause (a)(i) above.
(c) NOTICE OF INTEREST RATE. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to
Section 2.09 or a notice of selection of an Interest Period pursuant to the
terms of the definition of "Interest Period", the Administrative Agent shall
give notice to the Borrowers and each Lender of the applicable Interest Period
and the applicable interest rate determined by the Administrative Agent for
purposes of clause (a)(i) or (a)(ii) above.
SECTION 2.08. FEES. (a) COMMITMENT FEE. The Borrowers jointly and severally
agree to pay to the Administrative Agent for the account of the Lenders a
commitment fee, from the date hereof in the case of each Initial Lender and from
the effective date specified in the Assumption Agreement or in the Assignment
and Acceptance pursuant to which it became a Lender in the case of each other
Lender until the Termination Date, payable in arrears on the date of the initial
Borrowing hereunder, thereafter quarterly on the last day of each March, June,
<PAGE>
September and December, commencing December 31, 1999, and on the Termination
Date, at the rate equal to the Applicable Percentage from time to time on the
average daily Unused Working Capital Commitment of such Lender PLUS its Pro Rata
Share of the average daily outstanding Swing Line Advances during such quarter
other than any such Swing Line Advances which have been assigned in part to such
Lender pursuant to Section 2.03(c); PROVIDED, HOWEVER, that no commitment fee
shall accrue on any of the Commitments of a Defaulting Lender so long as such
Lender shall be a Defaulting Lender.
(b) LETTER OF CREDIT FEES, ETC. (i) The Borrowers jointly and severally
agree to pay to the Administrative Agent for the account of each Lender a
commission, payable in arrears quarterly on the last day of each March, June,
September and December, commencing December 31, 1999, and on the Termination
Date, on such Lender's Pro Rata Share of the average daily aggregate Available
Amount during such quarter of Letters of Credit outstanding from time to time at
the rate equal to the Applicable Letter of Credit Fee from time to time.
(ii) The Borrowers shall pay to the Issuing Bank, for its own account
a fronting fee, payable in arrears quarterly on the last day of each March,
June, September and December, commencing December 31, 1999, and on the
Termination Date, on the average daily aggregate Available Amount during such
quarter of Letters of Credit outstanding from time to time at the rate of 0.375%
per annum.
(c) AGENTS' FEES. The Borrowers jointly and severally agree pay to each
Agent for its own account such fees as may from time to time be agreed in
writing between the Parent Guarantor and such Agent.
SECTION 2.09. CONVERSION OF ADVANCES. (a) OPTIONAL. The Borrowers may on
any Business Day, upon notice given to the Administrative Agent not later than
1:00 P.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of the other Type; PROVIDED, HOWEVER, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(c), no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(c) and each Conversion of Advances comprising part
of the same Borrowing under any Facility shall be made ratably among the Lenders
in accordance with their Commitments under such Facility. Each such notice of
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for such Advances. Each notice of Conversion shall be
irrevocable and binding on the Borrowers.
(b) MANDATORY. (i) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $10,000,000, such Advances
shall automatically Convert into Base Rate Advances.
<PAGE>
(ii) If the Borrowers shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrowers and the Lenders,
whereupon each such Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate Advance.
(iii) Upon the occurrence and during the continuance of any Event of
Default, (x) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(y) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.
SECTION 2.10. INCREASED COSTS, ETC. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining or participating in Letters of Credit or of
agreeing to make or of making or maintaining Letter of Credit Advances
(excluding, for purposes of this Section 2.10, any such increased costs
resulting from (x) Taxes or Other Taxes (as to which Section 2.12 shall govern)
and (y) changes in the basis of taxation of overall net income or overall gross
income by the United States or by the foreign jurisdiction or state under the
laws of which such Lender Party is organized or has its Applicable Lending
Office or any political subdivision thereof), then the Borrowers jointly and
severally agree from time to time, upon demand by such Lender Party (with a copy
of such demand to the Administrative Agent), to pay to the Administrative Agent
for the account of such Lender Party additional amounts sufficient to compensate
such Lender Party for such increased cost. A certificate as to the amount of
such increased cost, submitted to the Borrowers by such Lender Party, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by any Lender Party or
any corporation controlling such Lender Party as a result of or based upon the
existence of such Lender Party's commitment to lend or to issue or participate
in Letters of Credit hereunder and other commitments of such type or the
issuance or maintenance of or participation in the Letters of Credit (or similar
contingent obligations), then, upon demand by such Lender Party (with a copy of
such demand to the Administrative Agent), the Borrowers jointly and severally
agree to pay to the Administrative Agent for the account of such Lender Party,
from time to time as specified by such Lender Party, additional amounts
sufficient to compensate such Lender Party in the light of such circumstances,
to the extent that such Lender Party reasonably determines such increase in
capital to be allocable to the existence of such Lender Party's commitment to
lend or to issue or participate in Letters of Credit hereunder or to the
issuance or maintenance of or participation in any Letters of Credit. A
certificate as to such amounts
<PAGE>
submitted to the Borrowers by such Lender Party shall be conclusive and binding
for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances, the Required Lenders
notify the Administrative Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Lenders of
making, funding or maintaining their Eurodollar Rate Advances for such Interest
Period, the Administrative Agent shall forthwith so notify the Borrowers and the
Lenders, whereupon (i) each such Eurodollar Rate Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a Base
Rate Advance and (ii) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrowers that such Lenders have
determined that the circumstances causing such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrowers
through the Administrative Agent, (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor or,
if required by applicable law, immediately, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
notify the Borrowers that such Lender has determined that the circumstances
causing such suspension no longer exist.
SECTION 2.11. PAYMENTS AND COMPUTATIONS. (a) The Borrowers shall make each
payment hereunder and under the Notes, irrespective of any right of counterclaim
or set-off (except as otherwise provided in Section 2.15), not later than 1:00
P.M. (New York City time) on the day when due in U.S. dollars to the
Administrative Agent at the Administrative Agent's Account in same day funds,
with payments being received by the Administrative Agent after such time being
deemed to have been received on the next succeeding Business Day. The
Administrative Agent will promptly thereafter cause like funds to be distributed
(i) if such payment by the Borrowers is in respect of principal, interest,
commitment fees or any other Obligation then payable hereunder and under the
Notes to more than one Lender Party, to such Lender Parties for the account of
their respective Applicable Lending Offices ratably in accordance with the
amounts of such respective Obligations then payable to such Lender Parties and
(ii) if such payment by the Borrowers is in respect of any Obligation then
payable hereunder to one Lender Party, to such Lender Party for the account of
its Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon any Assuming Lender becoming a Lender hereunder as
a result of a Commitment Increase pursuant to Section 2.17, and upon the Agent's
receipt of such Lender's Assumption Agreement and recording of the information
contained therein in the Register, from and after the applicable Increase Date,
the Agent shall make all payments hereunder and under any Notes issued in
connection therewith in respect of the interest assumed thereby to the Assuming
Lender. Upon its acceptance of an
<PAGE>
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 9.07(d), from and after the effective date of
such Assignment and Acceptance, the Administrative Agent shall make all payments
hereunder and under the Notes in respect of the interest assigned thereby to the
Lender Party assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves.
(b) All computations of interest, fees and Letter of Credit commissions
shall be made by the Administrative Agent on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest, fees or
commissions are payable. Each determination by the Administrative Agent of an
interest rate, fee or commission hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; PROVIDED, HOWEVER, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(d) Unless the Administrative Agent shall have received notice from the
Borrowers prior to the date on which any payment is due to any Lender Party
hereunder that the Borrowers will not make such payment in full, the
Administrative Agent may assume that the Borrowers have made such payment in
full to the Administrative Agent on such date and the Administrative Agent may,
in reliance upon such assumption, cause to be distributed to each such Lender
Party on such due date an amount equal to the amount then due such Lender Party.
If and to the extent the Borrowers shall not have so made such payment in full
to the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such Lender Party until the date such Lender Party repays such
amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.12. TAXES. (a) Any and all payments by the Borrowers hereunder or
under the Notes shall be made, in accordance with Section 2.11, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING, in the case of each Lender Party and each Agent, taxes that
are imposed on its overall net income by the United States and taxes that are
imposed on its overall net income (and franchise taxes imposed in lieu thereof)
by the state or foreign jurisdiction under the laws of which such Lender Party
or such Agent, as the case may be, is organized or any political subdivision
thereof and, in the case of each Lender Party, taxes that are imposed on its
overall net income (and franchise taxes imposed in lieu thereof) by the state or
foreign jurisdiction of such Lender Party's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges,
<PAGE>
withholdings and liabilities in respect of payments hereunder or under the Notes
being hereinafter referred to as "TAXES"). If the Borrowers shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note to any Lender Party or any Agent, (i) the sum payable by the Borrowers
shall be increased as may be necessary so that after the Borrowers and the
Administrative Agent have made all required deductions (including deductions
applicable to additional sums payable under this Section 2.12) such Lender Party
or such Agent, as the case may be, receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrowers shall make
all such deductions and (iii) the Borrowers shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrowers shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made by the Borrowers hereunder or under the Notes or from the
execution, delivery or registration of, performance under, or otherwise with
respect to, this Agreement or the Notes (hereinafter referred to as "OTHER
TAXES").
(c) The Borrowers jointly and severally agree to indemnify each Lender
Party and each Agent for and hold them harmless against the full amount of Taxes
and Other Taxes, and for the full amount of taxes of any kind imposed by any
jurisdiction on amounts payable under this Section 2.12, imposed on or paid by
such Lender Party or such Agent (as the case may be) and any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days from
the date such Lender Party or such Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrowers
shall furnish to the Administrative Agent, at its address referred to in Section
9.02, the original or a certified copy of a receipt evidencing such payment. In
the case of any payment hereunder or under the Notes by or on behalf of the
Borrowers through an account or branch outside the United States or by or on
behalf of the Borrowers by a payor that is not a United States person, if the
Borrowers determine that no Taxes are payable in respect thereof, the Borrowers
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of
subsections (d) and (e) of this Section 2.12, the terms "UNITED STATES" and
"UNITED STATES PERSON" shall have the meanings specified in Section 7701 of the
Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction outside
the United States shall, on or prior to the date of its execution and delivery
of this Agreement in the case of each Initial Lender or Initial Issuing Bank, as
the case may be, and on the date of the Assignment and Acceptance pursuant to
which it becomes a Lender Party in the case of each other Lender Party, and from
time to time thereafter as requested in writing by the Borrowers (but only so
long thereafter as such Lender Party remains lawfully able to do so), provide
each of the Administrative Agent and the Borrowers with two original Internal
Revenue Service forms 1001 or 4224, as appropriate, or any successor or other
form prescribed by the Internal Revenue Service, certifying that such Lender
Party is exempt from or entitled to a reduced rate of
<PAGE>
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the forms provided by a Lender Party at the time such Lender Party
first becomes a party to this Agreement indicate a United States interest
withholding tax rate in excess of zero, withholding tax at such rate shall be
considered excluded from Taxes unless and until such Lender Party provides the
appropriate forms certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be considered excluded from Taxes for periods
governed by such forms; PROVIDED, HOWEVER, that if, at the effective date of the
Assignment and Acceptance pursuant to which a Lender Party becomes a party to
this Agreement, the Lender Party assignor was entitled to payments under
subsection (a) of this Section 2.12 in respect of United States withholding tax
with respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Lender Party assignee on such date.
If any form or document referred to in this subsection (e) requires the
disclosure of information, other than information necessary to compute the tax
payable and information required on the date hereof by Internal Revenue Service
form 1001 or 4224, that the Lender Party reasonably considers to be
confidential, the Lender Party shall give notice thereof to the Borrowers and
shall not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender Party has failed to
provide the Borrowers with the appropriate form described in subsection (e)
above (OTHER THAN if such failure is due to a change in law occurring after the
date on which a form originally was required to be provided or if such form
otherwise is not required under subsection (e) above), such Lender Party shall
not be entitled to indemnification under subsection (a) or (c) of this Section
2.12 with respect to Taxes imposed by the United States by reason of such
failure; PROVIDED, HOWEVER, that should a Lender Party become subject to Taxes
because of its failure to deliver a form required hereunder, the Borrowers shall
take such steps as such Lender Party shall reasonably request to assist such
Lender Party to recover such Taxes.
SECTION 2.13. SHARING OF PAYMENTS, ETC. If any Lender Party shall obtain at
any time any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise, other than as a result of an assignment
pursuant to Section 9.07) (a) on account of Obligations due and payable to such
Lender Party hereunder and under the Notes at such time in excess of its ratable
share (according to the proportion of (i) the amount of such Obligations due and
payable to such Lender Party at such time to (ii) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
at such time) of payments on account of the Obligations due and payable to all
Lender Parties hereunder and under the Notes at such time obtained by all the
Lender Parties at such time or (b) on account of Obligations owing (but not due
and payable) to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount of
such Obligations owing to such Lender Party at such time to (ii) the aggregate
amount of the Obligations owing (but not due and payable) to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations owing (but not due and payable) to all Lender Parties hereunder and
under the Notes at such time obtained by all of the Lender Parties at such time,
such Lender Party shall forthwith purchase from the other Lender Parties such
<PAGE>
interests or participating interests in the Obligations due and payable or owing
to them, as the case may be, as shall be necessary to cause such purchasing
Lender Party to share the excess payment ratably with each of them; PROVIDED,
HOWEVER, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender Party, such purchase from each other
Lender Party shall be rescinded and such other Lender Party shall repay to the
purchasing Lender Party the purchase price to the extent of such Lender Party's
ratable share (according to the proportion of (i) the purchase price paid to
such Lender Party to (ii) the aggregate purchase price paid to all Lender
Parties) of such recovery together with an amount equal to such Lender Party's
ratable share (according to the proportion of (i) the amount of such other
Lender Party's required repayment to (ii) the total amount so recovered from the
purchasing Lender Party) of any interest or other amount paid or payable by the
purchasing Lender Party in respect of the total amount so recovered. Each
Borrower agrees that any Lender Party so purchasing a participation from another
Lender Party pursuant to this Section 2.13 may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender Party were the direct
creditor of the Borrowers in the amount of such participation.
SECTION 2.14. USE OF PROCEEDS. The proceeds of the Advances and issuances
of Letters of Credit shall be available (and each Borrowers agrees that it shall
use such proceeds and Letters of Credit) solely to pay transaction fees and
expenses, refinance certain Existing Debt, provide working capital for the
Borrowers and their respective Subsidiaries and for general business purposes.
SECTION 2.15. DEFAULTING LENDERS. (a) In the event that, at any one time,
(i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender
shall owe a Defaulted Advance to the Borrowers and (iii) the Borrowers shall be
required to make any payment hereunder or under any other Loan Document to or
for the account of such Defaulting Lender, then the Borrowers may, so long as no
Default shall occur or be continuing at such time and to the fullest extent
permitted by applicable law, set off and otherwise apply the Obligation of the
Borrowers to make such payment to or for the account of such Defaulting Lender
against the obligation of such Defaulting Lender to make such Defaulted Advance.
In the event that, on any date, the Borrowers shall so set off and otherwise
apply its obligation to make any such payment against the obligation of such
Defaulting Lender to make any such Defaulted Advance on or prior to such date,
the amount so set off and otherwise applied by the Borrowers shall constitute
for all purposes of this Agreement and the other Loan Documents an Advance by
such Defaulting Lender made on the date of such setoff under the Facility
pursuant to which such Defaulted Advance was originally required to have been
made pursuant to Section 2.01. Such Advance shall be considered, for all
purposes of this Agreement, to comprise part of the Borrowing in connection with
which such Defaulted Advance was originally required to have been made pursuant
to Section 2.01, even if the other Advances comprising such Borrowing shall be
Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant
to this subsection (a). The Borrowers shall notify the Administrative Agent at
any time the Borrowers exercises its right of set-off pursuant to this
subsection (a) and shall set forth in such notice (A) the name of the Defaulting
Lender and the Defaulted Advance required to be made by such Defaulting Lender
and (B) the amount set off and otherwise applied in respect of such Defaulted
<PAGE>
Advance pursuant to this subsection (a). Any portion of such payment otherwise
required to be made by the Borrowers to or for the account of such Defaulting
Lender which is paid by the Borrowers, after giving effect to the amount set off
and otherwise applied by the Borrowers pursuant to this subsection (a), shall be
applied by the Administrative Agent as specified in subsection (b) or (c) of
this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
any Agent or any of the other Lender Parties and (iii) the Borrowers shall make
any payment hereunder or under any other Loan Document to the Administrative
Agent for the account of such Defaulting Lender, then the Administrative Agent
may, on its behalf or on behalf of such other Agents or such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrowers to or for the account of such
Defaulting Lender to the payment of each such Defaulted Amount to the extent
required to pay such Defaulted Amount. In the event that the Administrative
Agent shall so apply any such amount to the payment of any such Defaulted Amount
on any date, the amount so applied by the Administrative Agent shall constitute
for all purposes of this Agreement and the other Loan Documents payment, to such
extent, of such Defaulted Amount on such date. Any such amount so applied by the
Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Agents or such other
Lender Parties, ratably in accordance with the respective portions of such
Defaulted Amounts payable at such time to the Administrative Agent, such other
Agents and such other Lender Parties and, if the amount of such payment made by
the Borrowers shall at such time be insufficient to pay all Defaulted Amounts
owing at such time to the Administrative Agent, such other Agents and such other
Lender Parties, in the following order of priority:
(i) FIRST, to the Agents for any Defaulted Amounts then owing to
them, in their capacities as such, ratably in accordance with such
respective Defaulted Amounts then owing to the Agents;
(ii) SECOND, to the Issuing Bank and the Swing Line Bank for any
Defaulted Amounts then owing to them, in their capacities as such,
ratably in accordance with such respective Defaulted Amounts then
owing to the Issuing Bank and the Swing Line Bank; and
(iii) THIRD, to any other Lender Parties for any Defaulted
Amounts then owing to such other Lender Parties, ratably in accordance
with such respective Defaulted Amounts then owing to such other Lender
Parties.
Any portion of such amount paid by the Borrowers for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
<PAGE>
(c) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance
or a Defaulted Amount and (iii) the Borrowers, any Agent or any other Lender
Party shall be required to pay or distribute any amount hereunder or under any
other Loan Document to or for the account of such Defaulting Lender, then the
Borrowers or such Agent or such other Lender Party shall pay such amount to the
Administrative Agent to be held by the Administrative Agent, to the fullest
extent permitted by applicable law, in escrow or the Administrative Agent shall,
to the fullest extent permitted by applicable law, hold in escrow such amount
otherwise held by it. Any funds held by the Administrative Agent in escrow under
this subsection (c) shall be deposited by the Administrative Agent in an account
with Citibank, in the name and under the control of the Administrative Agent,
but subject to the provisions of this subsection (c). The terms applicable to
such account, including the rate of interest payable with respect to the credit
balance of such account from time to time, shall be Citibank's standard terms
applicable to escrow accounts maintained with it. Any interest credited to such
account from time to time shall be held by the Administrative Agent in escrow
under, and applied by the Administrative Agent from time to time in accordance
with the provisions of, this subsection (c). The Administrative Agent shall, to
the fullest extent permitted by applicable law, apply all funds so held in
escrow from time to time to the extent necessary to make any Advances required
to be made by such Defaulting Lender and to pay any amount payable by such
Defaulting Lender hereunder and under the other Loan Documents to the
Administrative Agent or any other Lender Party, as and when such Advances or
amounts are required to be made or paid and, if the amount so held in escrow
shall at any time be insufficient to make and pay all such Advances and amounts
required to be made or paid at such time, in the following order of priority:
(i) FIRST, to the Agents for any amounts then due and payable by
such Defaulting Lender to them hereunder, in their capacities as such,
ratably in accordance with such amounts then due and payable to the
Agents;
(ii) SECOND, to the Issuing Bank and the Swing Line Bank for any
amounts then due and payable to them hereunder, in their capacities as
such, by such Defaulting Lender, ratably in accordance with such
amounts then due and payable to the Issuing Bank and the Swing Line
Bank;
(iii) THIRD, to any other Lender Parties for any amount then due
and payable by such Defaulting Lender to such other Lender Parties
hereunder, ratably in accordance with such respective amounts then due
and payable to such other Lender Parties; and
(iv) FOURTH, to the Borrowers for any Advance then required to be
made by such Defaulting Lender to the Borrowers pursuant to a
Commitment of such Defaulting Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such
<PAGE>
time under this Agreement and the other Loan Documents ratably in accordance
with the respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this Section
2.15 are in addition to other rights and remedies that the Borrowers may have
against such Defaulting Lender with respect to any Defaulted Advance and that
any Agent or any Lender Party may have against such Defaulting Lender with
respect to any Defaulted Amount.
SECTION 2.16. EVIDENCE OF DEBT. (a) Each Lender Party shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrowers to such Lender Party resulting from each Advance
owing to such Lender Party from time to time, including the amounts of principal
and interest payable and paid to such Lender Party from time to time hereunder.
Each Borrower agrees that upon notice by any Lender Party to the Borrowers (with
a copy of such notice to the Administrative Agent) to the effect that a
promissory note or other evidence of indebtedness is required or appropriate in
order for such Lender Party to evidence (whether for purposes of pledge,
enforcement or otherwise) the Advances owing to, or to be made by, such Lender
Party, the Borrowers shall promptly execute and deliver to such Lender Party,
with a copy to the Administrative Agent, a Note in substantially the form of
Exhibit A hereto, payable to the order of such Lender Party in a principal
amount equal to the Working Capital Commitment of such Lender Party. All
references to Notes in the Loan Documents shall mean Notes, if any, to the
extent issued hereunder. (b) The Register maintained by the Administrative Agent
pursuant to Section 9.07(d) shall include a control account, and a subsidiary
account for each Lender Party, in which accounts (taken together) shall be
recorded (i) the date and amount of each Borrowing made hereunder, the Type of
Advances comprising such Borrowing and, if appropriate, the Interest Period
applicable thereto, (ii) the terms of each Assumption Agreement and Assignment
and Acceptance delivered to and accepted by it, (iii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrowers to each Lender Party hereunder, and (iv) the amount of any sum
received by the Administrative Agent from the Borrowers hereunder and each
Lender Party's share thereof.
(c) Entries made in good faith by the Administrative Agent in the Register
pursuant to subsection (b) above, and by each Lender Party in its account or
accounts pursuant to subsection (a) above, shall be PRIMA FACIE evidence of the
amount of principal and interest due and payable or to become due and payable
from the Borrowers to, in the case of the Register, each Lender Party and, in
the case of such account or accounts, such Lender Party, under this Agreement,
absent manifest error; PROVIDED, HOWEVER, that the failure of the Administrative
Agent or such Lender Party to make an entry, or any finding that an entry is
incorrect, in the Register or such account or accounts shall not limit or
otherwise affect the obligations of the Borrowers under this Agreement.
SECTION 2.17. INCREASE IN THE AGGREGATE WORKING CAPITAL COMMITMENTS. (a)
The Borrowers may, at any time prior to the Termination Date, with the consent
of the Administrative Agent (not to be unreasonably withheld), request that the
aggregate amount of the Working Capital Commitments be increased by an amount of
$5,000,000 or an integral multiple
<PAGE>
of $1,000,000 in excess thereof (each a "COMMITMENT INCREASE") to be effective
as of a date that is at least 90 days prior to the scheduled Termination Date
then in effect (the "INCREASE DATE") as specified in the related notice to the
Administrative Agent; PROVIDED, HOWEVER that (i) in no event shall the aggregate
amount of the Commitment Increases exceed $50,000,000 and (ii) on the date of
any request by the Borrowers for a Commitment Increase and on the related
Increase Date, the applicable conditions set forth in Article III shall be
satisfied.
(b) The Administrative Agent shall promptly notify such Eligible Assignees
as it shall identify of a request by the Borrowers for a Commitment Increase,
which notice shall include (i) the proposed amount of such requested Commitment
Increase, (ii) the proposed Increase Date and (iii) the date by which Lenders
wishing to participate in the Commitment Increase must commit to an increase in
the amount of their respective Working Capital Commitments (the "COMMITMENT
DATE"). The requested Commitment Increase shall be allocated among the Eligible
Assignees willing to participate therein in such amounts as are agreed between
the Borrowers and the Administrative Agent.
(c) Promptly following each Commitment Date, the Administrative Agent shall
notify the Borrowers as to the amount, if any, by which the Eligible Assignees
are willing to participate in the requested Commitment Increase; PROVIDED,
HOWEVER, that the Working Capital Commitment of each such Eligible Assignee
shall be in an amount of $5,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(d) On each Increase Date, each Eligible Assignee that is not prior to such
date a Lender hereunder and accepts an offer to participate in a requested
Commitment Increase in accordance with Section 2.17(c) (each such Eligible
Assignee, an "ASSUMING LENDER") shall become a Lender party to this Agreement as
of such Increase Date and the Working Capital Commitment of each Eligible
Assignee that prior to such date is a and accepts an offer to participate in
such a requested Commitment Increase (an "INCREASING LENDER") shall be so
increased (or established) by such amount as of such Increase Date; PROVIDED,
HOWEVER, that the Administrative Agent shall have received on or before such
Increase Date the following, each dated such date:
(i) (A) certified copies of resolutions of the Board of Directors
of each of the Borrowers or the Executive Committee of such Board
approving the Commitment Increase and the corresponding modifications
to this Agreement, (B) a consent executed by each Guarantor approving
the Commitment Increase and the corresponding modifications to this
Agreement and (C) an opinion of counsel for the Borrowers (which may
be in-house counsel), in substantially the form of Exhibit G hereto;
(ii) an assumption agreement from each Assuming Lender, if any,
in form and substance satisfactory to the Borrowers and the
Administrative Agent (each an "ASSUMPTION AGREEMENT"), duly executed
by such Eligible Assignee, the Administrative Agent and the Borrowers;
and
<PAGE>
(iii) confirmation from each Increasing Lender of the increase in
the amount of its Working Capital Commitment in a writing satisfactory
to the Borrowers and the Administrative Agent.
On each Increase Date, upon fulfillment of the conditions set forth in the
immediately preceding sentence of this Section 2.17(d), the Administrative Agent
shall notify the Lenders (including, without limitation, each Assuming Lender)
and the Borrowers, on or before 1:00 P.M. (New York City time), by telecopier or
telex, of the occurrence of the Commitment Increase to be effected on such
Increase Date and shall record in the Register the relevant information with
respect to each Increasing Lender and each Assuming Lender on such date.
ARTICLE III
CONDITIONS OF LENDING AND
ISSUANCES OF LETTERS OF CREDIT
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. The
obligation of each Lender to make an Advance or of the Issuing Bank to issue a
Letter of Credit on the occasion of the Initial Extension of Credit hereunder is
subject to the satisfaction of the following conditions precedent before or
concurrently with the Initial Extension of Credit:
(a) The Administrative Agent shall have received on or before the day
of the Initial Extension of Credit the following, each dated such day
(unless otherwise specified), in form and substance satisfactory to the
Administrative Agent (unless otherwise specified) and (except for the
Notes) in sufficient copies for each Lender Party:
(i) The Notes payable to the order of the Lenders to the extent
requested in accordance with Section 2.16.
(ii) A security agreement in substantially the form of Exhibit D
hereto (together with each other security agreement and security
agreement supplement delivered pursuant to Section 5.01(j), in each
case as amended, the "SECURITY AGREEMENT"), duly executed by each Loan
Party, together with:
(A) certificates representing the Pledged Shares referred to
therein accompanied by undated stock powers executed in blank and
instruments evidencing the Pledged Debt indorsed in blank,
(B) acknowledgment copies of proper financing statements,
duly filed on or before the day of the Initial Extension of
Credit under the Uniform Commercial Code of all jurisdictions
that the Administrative Agent may deem necessary or desirable in
order to perfect and protect the first priority liens and
security interests created under the
<PAGE>
Security Agreement, covering the Collateral described in the
Security Agreement,
(C) completed requests for information, dated on or before
the date of the Initial Extension of Credit, listing the
financing statements referred to in clause (B) above and all
other effective financing statements filed in the jurisdictions
referred to in clause (B) above that name any Loan Party as
debtor, together with copies of such other financing statements,
(D) evidence of the completion of all other recordings and
filings of or with respect to the Security Agreement that the
Administrative Agent may deem necessary or desirable in order to
perfect and protect the Liens created thereby,
(E) evidence of the insurance required by the terms of the
Security Agreement,
(F) copies of the Assigned Agreements referred to in the
Security Agreement, together with a consent to such assignment,
in substantially the form of Exhibit B to the Security Agreement,
duly executed by each party to such Assigned Agreements other
than the Loan Parties,
(G) the Pledged Account Letters referred to in the Security
Agreement, duly executed by each Pledged Account Bank referred to
in the Security Agreement, and
(H) evidence that all other action that the Administrative
Agent may deem necessary or desirable in order to perfect and
protect the first priority liens and security interests created
under the Security Agreement has been taken (including, without
limitation, receipt of duly executed payoff letters, UCC-3
termination statements and landlords' and bailees' waiver and
consent agreements).
(iii) A guaranty in substantially the form of Exhibit E hereto
(together with each other guaranty and guaranty supplement delivered
pursuant to Section 5.01(j), in each case as amended, the "SUBSIDIARY
GUARANTY"), duly executed by each Subsidiary Guarantor.
(iv) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving the transactions contemplated
by the Transaction Documents and each Transaction Document to which it
is or is to be a party, and of all documents evidencing other
necessary corporate or other action and governmental and other third
party approvals and consents, if any, with respect to
<PAGE>
the transactions contemplated by the Transaction Documents and each
Transaction Document to which it is or is to be a party.
(v) A copy of a certificate of the Secretary of State of the
jurisdiction of organization of each Loan Party (other than any Loan
Party that is an Immaterial Subsidiary or Foreign Subsidiary), dated
reasonably near the date of the Initial Extension of Credit,
certifying (A) as to a true and correct copy of the charter of such
Loan Party and each amendment thereto on file in his office and (B)
that (1) such amendments are the only amendments to such Loan Party's
charter on file in his office, (2) such Loan Party has paid all
franchise taxes to the date of such certificate and (C) such Loan
Party is duly organized and in good standing or presently subsisting
under the laws of the State of the jurisdiction of its organization.
(vi) A copy of a certificate of the Secretary of State of the
jurisdiction of organization of each Loan Party (other than any Loan
Party that is an Immaterial Subsidiary or Foreign Subsidiary), dated
reasonably near the date of the Initial Extension of Credit, stating
that such Loan Party is duly qualified and in good standing in such
State and has filed all annual reports required to be filed to the
date of such certificate.
(vii) A certificate of each Loan Party, signed on behalf of such
Loan Party by its President or a Vice President and its Secretary or
any Assistant Secretary, dated the date of the Initial Extension of
Credit (the statements made in which certificate shall be true on and
as of the date of the Initial Extension of Credit), certifying as to
(A) the absence of any amendments to the charter of such Loan Party
since the date of the Secretary of State's certificate referred to in
Section 3.01(a)(v), (B) a true and correct copy of the bylaws of such
Loan Party as in effect on the date on which the resolutions referred
to in Section 3.01(a)(iv) were adopted and on the date of the Initial
Extension of Credit, (C) the due incorporation and good standing or
valid existence of such Loan Party under the laws of the jurisdiction
of its organization, and the absence of any proceeding for the
dissolution or liquidation of such Loan Party (D) the truth of the
representations and warranties contained in the Loan Documents as
though made on and as of the date of the Initial Extension of Credit
and (E) the absence of any event occurring and continuing, or
resulting from the Initial Extension of Credit, that constitutes a
Default.
(viii) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign each Transaction
Document to which it is or is to be a party and the other documents to
be delivered hereunder and thereunder.
(ix) Certified copies of each of the Related Documents, duly
executed by the parties thereto and in form and substance satisfactory
to the
<PAGE>
Lender Parties, together with all agreements, instruments and other
documents delivered in connection therewith as the Administrative
Agent shall request.
(x) Certificates in substantially the form of Exhibit F hereto
attesting to the Solvency of each Loan Party after giving effect to
the transactions contemplated by the Transaction Documents, from its
chief financial officer.
(xi) An Intercreditor Agreement, in form and substance
satisfactory to the Lender Parties (as amended, to the extent
permitted under the Loan Documents, or replaced in accordance with
Section 5.02(b)(iii)(I) the "INTERCREDITOR AGREEMENT"), among the
Collateral Agent, the applicable Borrower and each respective secured
creditor of such Borrower, duly executed by each such secured creditor
of such Borrower and such Borrower.
(xii) Such financial, business and other information regarding
each Loan Party and its Subsidiaries as the Lender Parties shall have
requested, including, without limitation, information as to possible
contingent liabilities, tax matters, environmental matters,
obligations under Plans, Multiemployer Plans and Welfare Plans,
collective bargaining agreements and other arrangements with
employees, audited annual financial statements dated November 1, 1998,
interim financial statements dated the end of the most recent fiscal
quarter for which financial statements are available (or, in the event
the Lender Parties' due diligence review reveals material changes
since such financial statements, as of a later date within 45 days of
the day of the Initial Extension of Credit), pro forma financial
statements as to the Parent Guarantor and forecasts prepared by
management of the Parent Guarantor, in form and substance satisfactory
to the Lender Parties, of balance sheets, income statements and cash
flow statements on a monthly basis for the first year following the
day of the Initial Extension of Credit and on an annual basis for each
year thereafter until the Termination Date.
(xiii) A letter, in form and substance satisfactory to the
Administrative Agent, from the Parent Guarantor to
PricewaterhouseCoopers LLC, its independent certified public
accountants, advising such accountants that the Agents and the Lender
Parties have been authorized to exercise all rights of the Parent
Guarantor to require such accountants to disclose any and all
financial statements and any other information of any kind that they
may have with respect to the Parent Guarantor and its Subsidiaries and
directing such accountants to comply with any reasonable request of
any Agent or any Lender Party for such information.
(xiv) Evidence of insurance naming the Collateral Agent as
additional insured and loss payee with such responsible and reputable
insurance companies or associations, and in such amounts and covering
such risks, as is satisfactory to the Lender Parties, including,
without limitation, business interruption insurance.
<PAGE>
(xv) Certified copies of each employment agreement and other
compensation arrangement with each executive officer of any Loan Party
or any of its Subsidiaries.
(xvi) A Notice of Borrowing or Notice of Issuance, as applicable,
and a Borrowing Base Certificate relating to the Initial Extension of
Credit.
(xvii) Deeds of trust, trust deeds and mortgages in substantially
the form of Exhibit E hereto and covering the properties listed on
Schedule 4.01(t) (together with each other mortgage delivered pursuant
to Section 5.01(j), in each case as amended, amended and restated,
supplemented or otherwise modified from time to time in accordance
with their terms, the "MORTGAGES"), duly executed by the appropriate
Loan Party, together with evidence that all action that the
Administrative Agent may deem necessary or desirable in order to
create valid first and subsisting Liens on the property described in
the Mortgages has been taken.
(xviii) A favorable opinion of Snell & Wilmer, counsel for the
Loan Parties, in substantially the form of Exhibit G hereto and as to
such other matters as any Lender Party through the Administrative
Agent may reasonably request.
(xix) A favorable opinion of Lionel, Sawyer & Collins, Ballard
Spahr Andrews & Ingersoll, Schumaker, Loop and Kendrick, LLP,
Winstead, Sechrest & Minick, P.C., local counsel to the Lender Parties
in Nevada, New Jersey, Ohio and Texas, respectively, in substantially
the form of Exhibit H hereto and as to such other matters as any
Lender Party through the Administrative Agent may reasonably request.
(b) The Lender Parties shall be satisfied with the legal structure and
capitalization of each Loan Party and each of its Subsidiaries the capital
stock of which Subsidiaries is being pledged pursuant to the Loan
Documents, including the terms and conditions of the charter, bylaws and
each class of capital stock or other equity interest of each Loan Party and
each such Subsidiary and of each agreement or instrument relating to such
structure or capitalization.
(c) The Lender Parties shall be satisfied that all Existing Debt,
other than the Debt identified on Schedule 4.01(u) hereto (the "SURVIVING
DEBT"), has been prepaid, redeemed or defeased in full or otherwise
satisfied and extinguished and that all such Surviving Debt shall be on
terms and conditions satisfactory to the Lender Parties.
(d) Before giving effect to the transactions contemplated by the
Transaction Documents and except as disclosed in the Parent Guarantor's
quarterly report on Form 10-Q for the quarter ended August 1, 1999 or
otherwise disclosed to the Lender Parties in
<PAGE>
writing prior to the date hereof, there shall have occurred no Material
Adverse Change since November 1, 1998.
(e) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
would be reasonably likely to have a Material Adverse Effect other than the
matters described on Schedule 4.01(f) hereto (the "DISCLOSED LITIGATION")
or (ii) purports to affect the legality, validity or enforceability of any
Transaction Document or the consummation of the or the other transactions
contemplated by the Transaction Documents, and there shall have been no
adverse change in the status, or financial effect on any Loan Party or any
of its Subsidiaries, of the Disclosed Litigation from that described on
Schedule 4.01(f) hereto.
(f) All governmental and third party consents and approvals necessary
in connection with the transactions contemplated by the Transaction
Documents shall have been obtained (without the imposition of any
conditions that are not acceptable to the Lender Parties) and shall remain
in effect; and no law or regulation shall be applicable in the judgment of
the Lender Parties, in each case that restrains, prevents or imposes
materially adverse conditions upon the transactions contemplated by the
Transaction Documents or the rights of the Loan Parties or their
Subsidiaries freely to transfer or otherwise dispose of, or to create any
Lien on, any properties now owned or hereafter acquired by any of them.
(g) The Lender Parties shall have completed a due diligence
investigation of the Parent Guarantor and its Subsidiaries in scope, and
with results, satisfactory to the Lender Parties, and nothing shall have
come to the attention of the Lender Parties during the course of such due
diligence investigation to lead them to believe that the Information
Memorandum was or has become misleading, incorrect or incomplete in any
material respect; without limiting the generality of the foregoing, the
Lender Parties shall have been given such access to the management,
records, books of account, contracts and properties of the Parent Guarantor
and its Subsidiaries as they shall have requested.
(h) The Borrowers shall have paid all accrued fees of the Agents and
the Lender Parties and all reasonable accrued expenses of the Agents
(including the reasonable accrued fees and expenses of counsel to the
Administrative Agent and local counsel to the Lender Parties).
(i) The Lender Parties shall be satisfied with the Parent Guarantor's
and each Borrower's management.
(j) The Borrowers shall have entered into one or more committed
inbound inventory flooring arrangements for an amount not less than
$250,000,000 and for a term ending no earlier than the Termination Date and
with terms and conditions satisfactory to the Lender Parties, and the
Lender Parties shall be satisfied with the terms and conditions of each
other inbound inventory flooring arrangement to which any Loan Party is a
party.
<PAGE>
SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING, INCREASE DATE,
ISSUANCE AND INCREASE OF AVAILABLE AMOUNT. The obligation of each Lender to make
an Advance (other than a Letter of Credit Advance made by the Issuing Bank or a
Lender pursuant to Section 2.03(c) and a Swing Line Advance made by a Lender
pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the
initial Borrowing) and the obligation of the Issuing Bank to issue a Letter of
Credit (including the initial issuance), renew a Letter of Credit or increase
the Available Amount of a Flooring Letter of Credit, the right of the Borrowers
to request a Swing Line Borrowing and each Commitment Increase shall be subject
to the further conditions precedent that on the date of such Borrowing,
issuance, renewal or increase (a) the following statements shall be true (and
each of the giving of the applicable Notice of Borrowing, Notice of Swing Line
Borrowing, Notice of Issuance, Notice of Renewal, request for increase in
Available Amount or request for Commitment Increase and the acceptance by the
Borrowers of the proceeds of such Borrowing or of such Letter of Credit or the
renewal of such Letter of Credit shall constitute a representation and warranty
by the Borrowers that both on the date of such notice and on the date of such
Borrowing, issuance, renewal or increase or such Increase Date such statements
are true):
(i) the representations and warranties contained in each Loan
Document are correct on and as of such date, before and after giving
effect to such Borrowing, issuance, renewal or increase and to the
application of the proceeds therefrom, as though made on and as of
such date other than any such representations or warranties that, by
their terms, refer to a specific date other than the date of such
Borrowing, issuance, renewal or increase, in which case as of such
specific date;
(ii) no Default has occurred and is continuing, or would result
from such Borrowing, issuance, renewal or increase or from the
application of the proceeds therefrom; and
(iii) for each Working Capital Advance or Swing Line Advance made
by the Swing Line Bank or issuance or renewal of any Letter of Credit
or increase in the Available Amount of a Flooring Letter of Credit,
(A) the sum of the Loan Values of the Eligible Collateral MINUS
$20,000,000 exceeds (B) the aggregate principal amount of the Working
Capital Advances PLUS Swing Line Advances PLUS Letter of Credit
Advances to be outstanding PLUS the aggregate Available Amount of all
Letters of Credit to be outstanding after giving effect to such
Advance, issuance, renewal or increase, respectively;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender Party through the Administrative Agent may
reasonably request.
SECTION 3.03. DETERMINATIONS UNDER SECTION 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lender Parties unless an
officer of the Administrative Agent responsible for
<PAGE>
the transactions contemplated by the Loan Documents shall have received notice
from such Lender Party prior to the Initial Extension of Credit specifying its
objection thereto and if the Initial Extension of Credit consists of a
Borrowing, such Lender Party shall not have made available to the Administrative
Agent such Lender Party's ratable portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS AND THE
PARENT GUARANTOR. Each Borrower and the Parent Guarantor represents and warrants
as follows:
(a) Each Loan Party and each of its Subsidiaries (i) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) is duly qualified as a foreign
corporation, foreign limited liability company or foreign limited
partnership, as the case may be, and in good standing in each other
jurisdiction in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed and (iii) has all
requisite power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of each Loan Party, showing as of the date hereof
(as to each such Subsidiary) the jurisdiction of its organization, the
number of shares of each class of capital stock authorized, and the number
outstanding, on the date hereof and the percentage of the outstanding
shares of each such class owned (directly or indirectly) by such Loan Party
and the number of shares covered by all outstanding options, warrants,
rights of conversion or purchase and similar rights at the date hereof. All
of the outstanding capital stock of all of each Loan Party's Subsidiaries
has been validly issued, is fully paid and non-assessable and is owned by
such Loan Party or one or more of its Subsidiaries free and clear of all
Liens, except those created under the Collateral Documents.
(c) The execution, delivery and performance by each Loan Party of each
Transaction Document to which it is or is to be a party, and the
consummation of the transactions contemplated by the Transaction Documents,
are within such Loan Party's powers, have been duly authorized by all
necessary corporate or other action, and do not (i) contravene such Loan
Party's charter or bylaws, (ii) violate any law, rule, regulation
(including, without limitation, Regulation X of the Board of Governors of
the Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of, or
constitute a default or require any payment to be made under, any contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting any Loan Party, any of its Subsidiaries
or any of their properties or (iv) except for the Liens created under the
Loan Documents, result
<PAGE>
in or require the creation or imposition of any Lien upon or with respect
to any of the properties of any Loan Party or any of its Subsidiaries. No
Loan Party or any of its Subsidiaries is in violation of any such law,
rule, regulation, order, writ, judgment, injunction, decree, determination
or award or in breach of any such contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument, the violation or breach
of which could be reasonably likely to have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery, recordation,
filing or performance by any Loan Party of any Transaction Document to
which it is or is to be a party, or for the consummation of the
transactions contemplated by the Transaction Documents, (ii) the grant by
any Loan Party of the Liens granted by it pursuant to the Collateral
Documents, (iii) the perfection or maintenance of the Liens created under
the Collateral Documents (including the first priority nature thereof) or
(iv) the exercise by any Agent or any Lender Party of its rights under the
Loan Documents or the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for the authorizations, approvals, actions,
notices and filings listed on Schedule 4.01(d) hereto, all of which have
been duly obtained, taken, given or made and are in full force and effect.
(e) This Agreement has been, and each other Transaction Document when
delivered hereunder will have been, duly executed and delivered by each
Loan Party party thereto. This Agreement is, and each other Transaction
Document when delivered hereunder will be, the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan
Party in accordance with its terms, except as such enforceability may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally.
(f) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) would be reasonably likely to have a Material
Adverse Effect (other than the Disclosed Litigation) or (ii) purports to
affect the legality, validity or enforceability of any Transaction Document
or the consummation of the transactions contemplated by the Transaction
Documents, and there has been no adverse change in the status, or financial
effect on any Loan Party or any of its Subsidiaries, of the Disclosed
Litigation from that described on Schedule 4.01(f) hereto.
(g) The Consolidated balance sheets of the Parent Guarantor and its
Subsidiaries as at November 1, 1998, and the related Consolidated
statements of income and Consolidated statement of cash flows of the Parent
Guarantor and its Subsidiaries for the fiscal year then ended, accompanied
by an unqualified opinion of PricewaterhouseCoopers LLC, independent public
accountants, and the Consolidated and Consolidating balance sheets of the
Parent Guarantor and its Subsidiaries as at August 1, 1999, and the related
Consolidated and Consolidating statements of income and
<PAGE>
Consolidated statement of cash flows of the Parent Guarantor and its
Subsidiaries for the nine months then ended, duly certified by the chief
financial officer of the Parent Guarantor, copies of which have been
furnished to each Lender Party, fairly present, subject, in the case of
said balance sheet as at August 1, 1999, and said statements of income and
cash flows for the nine months then ended, to year-end audit adjustments,
the Consolidated and Consolidating financial condition of the Parent
Guarantor and its Subsidiaries as at such dates and the Consolidated and
Consolidating results of operations of the Parent Guarantor and its
Subsidiaries for the periods ended on such dates, all in accordance with
generally accepted accounting principles applied on a consistent basis,
and, except as disclosed in the Parent Guarantor's quarterly report on Form
10-Q for the quarter ended August 1, 1999 or otherwise disclosed to the
Lender Parties in writing prior to the date hereof, since November 1, 1998,
there has been no Material Adverse Change.
(h) The Consolidated and Consolidating pro forma balance sheets of the
Parent Guarantor and its Subsidiaries as at September 30, 1999, and the
related Consolidated and Consolidating pro forma statements of income and
cash flows of the Parent Guarantor and its Subsidiaries for the eleven
months then ended, certified by the chief financial officer of the Parent
Guarantor, copies of which have been furnished to each Lender Party, fairly
present the Consolidated and Consolidating pro forma financial condition of
the Parent Guarantor and its Subsidiaries as at such date and the
Consolidated and Consolidating pro forma results of operations of the
Parent Guarantor and its Subsidiaries for the period ended on such date, in
each case giving effect to the transactions contemplated by the Transaction
Documents, all in accordance with GAAP.
(i) The Consolidated and Consolidating forecasted balance sheets,
statements of income and statements of cash flows of the Parent Guarantor
and its Subsidiaries delivered to the Lender Parties pursuant to Section
3.01(a)(xvi) or 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in light of the
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, the Parent Guarantor best estimate of
its future financial performance.
(j) Neither the Information Memorandum nor any other information,
exhibit or report furnished by or on behalf of any Loan Party to any Agent
or any Lender Party in connection with the negotiation and syndication of
the Loan Documents or pursuant to the terms of the Loan Documents contained
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements made therein not misleading.
(k) No Loan Party is engaged in the business of extending credit for
the purpose of purchasing or carrying Margin Stock, and no proceeds of any
Advance or drawings under any Letter of Credit will be used to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
<PAGE>
(l) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither any Loan
Party nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company"
or of a "subsidiary company" or a "holding company", as such terms are
defined int he Public Utility Holding Company Act of 1935, as amended.
Neither the making of any Advances, nor the issuance of any Letters of
Credit, nor the application of the proceeds or repayment thereof by the
Borrowers, nor the consummation of the other transactions contemplated by
the Transaction Documents, will violate any provision of any such Act or
any rule, regulation or order of the Securities and Exchange Commission
thereunder.
(m) Neither any Loan Party nor any of its Subsidiaries is a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction that would be
reasonably likely to have a Material Adverse Effect.
(n) All filings and other actions necessary or desirable to perfect
and protect the security interest in the Collateral created under the
Collateral Documents have been duly made or taken and are in full force and
effect, and the Collateral Documents create in favor of the Collateral
Agent for the benefit of the Secured Parties a valid and, together with
such filings and other actions, perfected first priority security interest
in the Collateral, securing the payment of the Secured Obligations, and all
filings and other actions necessary or desirable to perfect and protect
such security interest have been duly taken. The Loan Parties are the legal
and beneficial owners of the Collateral free and clear of any Lien, except
for the liens and security interests created or permitted under the Loan
Documents.
(o) Each Loan Party (other than each Loan Party that is an Immaterial
Subsidiary) is, individually and together with its Subsidiaries, Solvent.
(p) (i) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan.
(ii) Neither any Loan Party nor any ERISA Affiliate has incurred
or is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan.
(iii) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and no such Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated,
within the meaning of Title IV of ERISA.
<PAGE>
(iv) Schedule B (Actuarial Information) to the most recent annual
report (Form 5500 Series) for each Plan, copies of which have been
filed with the Internal Revenue Service and furnished to the Lender
Parties, is complete and accurate and fairly presents the funding
status of such Plan, and since the date of such Schedule B there has
been no material adverse change in such funding status.
(q) (i) The operations and properties of each Loan Party and each of
its Subsidiaries comply in all material respects with all applicable
Environmental Laws and Environmental Permits, all past non-compliance with
such Environmental Laws and Environmental Permits has been resolved without
ongoing obligations or costs, and no circumstances exist that would be
reasonably likely to (A) form the basis of an Environmental Action against
any Loan Party or any of its Subsidiaries or any of their properties that
could have a Material Adverse Effect or (B) cause any such property to be
subject to any restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(ii) To the best of the Borrowers' knowledge, none of the
properties currently or formerly owned or operated by any Loan Party
or any of its Subsidiaries is listed or proposed for listing on the
NPL or on the CERCLIS or any analogous foreign, state or local list or
is adjacent to any such property; there are no and never have been any
underground or aboveground storage tanks or any surface impoundments,
septic tanks, pits, sumps or lagoons in which Hazardous Materials are
being or have been treated, stored or disposed on any property
currently owned or operated by any Loan Party or any of its
Subsidiaries or, to the best of its knowledge, on any property
formerly owned or operated by any Loan Party or any of its
Subsidiaries; there is no asbestos or asbestos-containing material on
any property currently owned or operated by any Loan Party or any of
its Subsidiaries; and to the best of the Borrowers' knowledge,
Hazardous Materials have not been released, discharged or disposed of
on any property currently or formerly owned or operated by any Loan
Party or any of its Subsidiaries in violation of Environmental Laws.
(iii) Neither any Loan Party nor any of its Subsidiaries is
undertaking, and has not completed, either individually or together
with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials in
violation of Environmental Laws at any site, location or operation,
either voluntarily or pursuant to the order of any governmental or
regulatory authority or the requirements of any Environmental Law; and
all Hazardous Materials generated, used, treated, handled or stored
at, or transported to or from, any property currently or formerly
owned or operated by any Loan Party or any of its Subsidiaries have
been disposed of in a manner not reasonably expected to result in
material liability to any Loan Party or any of its Subsidiaries.
(r) (i) Each Loan Party and each of its Subsidiaries and Affiliates
has filed, has caused to be filed or has been included in all tax returns
(Federal, state, local and
<PAGE>
foreign) required to be filed and has paid all taxes shown thereon to be
due, together with applicable interest and penalties.
(ii) Set forth on Schedule 4.01(r) hereto is a complete and
accurate list, as of the date hereof, of each taxable year of each
Loan Party and each of its Subsidiaries and Affiliates for which
Federal income tax returns have been filed and for which the
expiration of the applicable statute of limitations for assessment or
collection has not occurred by reason of extension or otherwise (an
"OPEN YEAR").
(iii) The aggregate unpaid amount, as of the date hereof, of
adjustments to the Federal income tax liability of each Loan Party and
each of its Subsidiaries and Affiliates proposed by the Internal
Revenue Service with respect to Open Years does not exceed $7,500,000.
No issues have been raised by the Internal Revenue Service in respect
of Open Years that, in the aggregate, would be reasonably likely to
have a Material Adverse Effect.
(iv) The aggregate unpaid amount, as of the date hereof, of
adjustments to the state, local and foreign tax liability of each Loan
Party and its Subsidiaries and Affiliates proposed by all state, local
and foreign taxing authorities (other than amounts arising from
adjustments to Federal income tax returns) does not exceed $7,500,000.
No issues have been raised by such taxing authorities that, in the
aggregate, would be reasonably likely to have a Material Adverse
Effect.
(s) Neither the business nor the properties of any Loan Party or any
of its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that would be reasonably likely to have a Material Adverse
Effect.
(t) Set forth on Schedule 4.01(t) hereto is a complete and accurate
list of all Existing Debt (other than Surviving Debt), showing as of the
date hereof the principal amount outstanding thereunder.
(u) Set forth on Schedule 4.01(u) hereto is a complete and accurate
list of all Surviving Debt, showing as of the date hereof the principal
amount outstanding or, in the case of a revolving credit facility, the
aggregate amount of the commitments thereunder, the maturity date thereof
and the amortization schedule therefor.
(v) Set forth on Schedule 4.01(v) hereto is a complete and accurate
list of all real property owned by any Loan Party or any of its
Subsidiaries, showing as of the date hereof the street address, county or
other relevant jurisdiction, state, record owner and book and estimated
fair value thereof. Each Loan Party or such Subsidiary has good, marketable
and insurable fee simple title to such real property, free and clear of all
Liens, other than Liens created or permitted by the Loan Documents.
<PAGE>
(w) Set forth on Schedule 4.01(w) hereto is a complete and accurate
list of all leases of real property under which any Loan Party or any of
its Subsidiaries is the lessee, showing as of the date hereof the street
address, county or other relevant jurisdiction, state, lessor, lessee,
expiration date and annual rental cost thereof. Each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable in
accordance with its terms.
(x) Set forth on Schedule 4.01(x) hereto is a complete and accurate
list of all Investments held by any Loan Party or any of its Subsidiaries
on the date hereof, showing as of the date hereof the amount, obligor or
issuer and maturity, if any, thereof.
(y) Set forth on Schedule 4.01(y) hereto is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights,
and all applications therefor and licenses thereof, of each Loan Party or
any of its Subsidiaries, showing as of the date hereof the jurisdiction in
which registered, the registration number, the date of registration and the
expiration date.
(z) The Parent Guarantor has (i) initiated a review and assessment of
all material business areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers, vendors and
customers) that could be adversely affected by the risk that computer
applications used by the Parent Guarantor or any of its Subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999 (the "YEAR 2000 PROBLEM"), (ii) developed a
plan and timetable for addressing the Year 2000 Problem on a timely basis
and (iii) to date, implemented that plan in accordance with such timetable.
Based on the foregoing, the Parent Guarantor believes that all computer
applications (including those of its suppliers, vendors and customers) that
are material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000
("YEAR 2000 COMPLIANT"), except to the extent that a failure to do so could
not reasonably be expected to have a Material Adverse Effect.
(aa) The Parent Guarantor has, independently and without reliance upon
the Administrative Agent or any Lender Party and based on such documents
and information as it has deemed appropriate, made its own credit analysis
and decision to enter into the Parent Guaranty and each other Loan Document
to which it is or is to be a party, and the Parent Guarantor has
established adequate means of obtaining from each Loan Party on a
continuing basis information pertaining to, and is now and on a continuing
basis will be completely familiar with, the business, condition (financial
or otherwise), operations, performance, properties and prospects of such
Loan Party.
<PAGE>
ARTICLE V
COVENANTS OF THE BORROWERS AND THE PARENT GUARANTOR
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance or any other
Obligation of any Loan Party under any Loan Document shall remain unpaid, any
Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, each Borrower and the Parent Guarantor will:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970.
(b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; PROVIDED, HOWEVER, that neither the
Parent Guarantor nor any of its Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim that is being contested
in good faith and by proper proceedings and as to which appropriate
reserves are being maintained, unless and until any Lien resulting
therefrom attaches to its property and becomes enforceable against its
other creditors.
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause
each of its Subsidiaries to obtain and renew all Environmental Permits
necessary for its operations and properties; and conduct, and cause each of
its Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove, mitigate and clean up all Hazardous Materials from any
of its properties, in accordance with the requirements of all Environmental
Laws; PROVIDED, HOWEVER, that neither the Parent Guarantor nor any of its
Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or other action to the extent that its obligation to do so is
being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
(d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks
as is usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Parent Guarantor
or such Subsidiary operates.
<PAGE>
(e) PRESERVATION OF LEGAL EXISTENCE, ETC. Preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, its existence,
legal structure, legal name, rights (charter and statutory), permits,
licenses, approvals, privileges and franchises; PROVIDED, HOWEVER, that the
Parent Guarantor and its Subsidiaries may consummate any merger or
consolidation permitted under Section 5.02(d) and PROVIDED FURTHER that
neither the Parent Guarantor nor any of its Subsidiaries shall be required
to preserve any right, permit, license, approval, privilege or franchise if
the Board of Directors of the Parent Guarantor or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Parent Guarantor or such Subsidiary, as the
case may be, and that the loss thereof is not disadvantageous in any
material respect to the Parent Guarantor, such Subsidiary or the Lender
Parties.
(f) VISITATION RIGHTS. At any reasonable time and from time to time
and after providing at least two Business Days prior written notice if no
Default shall have occurred and be continuing, permit any of the Agents or
any of the Lender Parties or any agents or representatives thereof, to
examine and make copies of and abstracts from the records and books of
account of, and visit the properties of, the Parent Guarantor and any of
its Subsidiaries, and to discuss the affairs, finances and accounts of the
Parent Guarantor and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants.
(g) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Parent Guarantor and each such Subsidiary in accordance with generally
accepted accounting principles in effect from time to time.
(h) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(i) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Parent Guarantor or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a Person
not an Affiliate.
(j) COVENANT TO GUARANTEE OBLIGATIONS AND GIVE SECURITY. Upon (x) the
request of the Collateral Agent following the occurrence and during the
continuance of a Default, (y) the formation or acquisition of any new
direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of
any property by any Loan Party, and such property, in the judgment of the
Collateral Agent, shall not already be subject to a perfected first
<PAGE>
priority security interest in favor of the Collateral Agent for the benefit
of the Secured Parties, then the Borrowers shall, in each case at the
Borrowers' expense:
(i) in connection with the formation or acquisition of a
Subsidiary, within 10 days after such formation or acquisition, cause
each such Subsidiary, and cause each direct and indirect parent of
such Subsidiary (if it has not already done so), to duly execute and
deliver to the Collateral Agent a guaranty or guaranty supplement, in
form and substance satisfactory to the Collateral Agent, guaranteeing
the other Loan Parties' obligations under the Loan Documents,
(ii) within 10 days after such request, formation or acquisition,
furnish to the Collateral Agent a description of the real and personal
properties of the Loan Parties and their respective Subsidiaries in
detail satisfactory to the Agent,
(iii) within 15 days after such request, formation or
acquisition, duly execute and deliver, and cause each such Subsidiary
and each direct and indirect parent of such Subsidiary (if it has not
already done so) to duly execute and deliver, to the Collateral Agent
mortgages, pledges, assignments, security agreement supplements and
other security agreements, as specified by and in form and substance
satisfactory to the Collateral Agent, securing payment of all the
Obligations of the applicable Loan Party, such Subsidiary or such
parent, as the case may be, under the Loan Documents and constituting
Liens on all such properties,
(iv) within 30 days after such request, formation or acquisition,
take, and cause such Subsidiary or such parent to take, whatever
action (including, without limitation, the recording of mortgages, the
filing of Uniform Commercial Code financing statements and the giving
of notices) may be necessary or advisable in the opinion of the
Collateral Agent to vest in the Collateral Agent (or in any
representative of the Collateral Agent designated by it) valid and
subsisting Liens on the properties purported to be subject to the
mortgages, pledges, assignments, security agreement supplements and
security agreements delivered pursuant to this Section 5.01(j),
enforceable against all third parties in accordance with their terms,
(v) within 60 days after such request, formation or acquisition,
deliver to the Collateral Agent, upon the request of the Collateral
Agent in its sole discretion, a signed copy of a favorable opinion,
addressed to the Collateral Agent and the other Secured Parties, of
counsel for the Loan Parties acceptable to the Collateral Agent as to
the matters contained in clauses (i), (iii) and (iv) above, as to such
guaranties, guaranty supplements, pledges, assignments, security
agreement supplements and security agreements being legal, valid and
binding obligations of each Loan Party thereto enforceable in
accordance with their terms and as to such other matters as the
Collateral Agent may reasonably request,
<PAGE>
(vi) as promptly as practicable after such request, formation or
acquisition, deliver, upon the request of the Collateral Agent in its
sole discretion, to the Collateral Agent with respect to each parcel
of real property owned or held by the entity that is the subject of
such request, formation or acquisition title reports, surveys and
engineering, soils and other reports, and environmental assessment
reports, each in scope, form and substance satisfactory to the
Collateral Agent, PROVIDED, HOWEVER, that to the extent that any Loan
Party or any of its Subsidiaries shall have otherwise received any of
the foregoing items with respect to such real property, such items
shall, promptly after the receipt thereof, be delivered to the
Collateral Agent,
(vii) upon the occurrence and during the continuance of a
Default, promptly cause to be deposited any and all cash dividends
paid or payable to it or any of its Subsidiaries from any of its
Subsidiaries from time to time into the Cash Collateral Account, and
with respect to all other dividends paid or payable to it or any of
its Subsidiaries from time to time, promptly execute and deliver, or
cause such Subsidiary to promptly execute and deliver, as the case may
be, any and all further instruments and take or cause such Subsidiary
to take, as the case may be, all such other action as the Collateral
Agent may deem necessary or desirable in order to obtain and maintain
from and after the time such dividend is paid or payable a perfected,
first priority lien on and security interest in such dividends, and
(viii) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take all
such other action as the Collateral Agent may deem necessary or
desirable in obtaining the full benefits of, or in perfecting and
preserving the Liens of, such guaranties, mortgages, pledges,
assignments, security agreement supplements and security agreements.
(k) FURTHER ASSURANCES. (i) Promptly upon request by any Agent, or any
Lender Party through the Administrative Agent, correct, and cause each of
its Subsidiaries promptly to correct, any material defect or error that may
be discovered in any Loan Document or in the execution, acknowledgment,
filing or recordation thereof, and
(ii) Promptly upon request by any Agent, or any Lender Party
through the Administrative Agent, do, execute, acknowledge, deliver,
record, re-record, file, re-file, register and re-register any and all
such further acts, deeds, conveyances, pledge agreements, assignments,
financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances
and other instruments as any Agent, or any Lender Party through the
Administrative Agent, may reasonably require from time to time in
order to (A) carry out more effectively the purposes of the Loan
Documents, (B) to the fullest extent permitted by applicable law,
subject any Loan Party's or any of its Subsidiaries' properties,
assets, rights or interests to the Liens now or hereafter intended to
be covered by any of the Collateral Documents, (C) perfect and
<PAGE>
maintain the validity, effectiveness and priority of any of the
Collateral Documents and any of the Liens intended to be created
thereunder and (D) assure, convey, grant, assign, transfer, preserve,
protect and confirm more effectively unto the Secured Parties the
rights granted or now or hereafter intended to be granted to the
Secured Parties under any Loan Document or under any other instrument
executed in connection with any Loan Document to which any Loan Party
or any of its Subsidiaries is or is to be a party, and cause each of
its Subsidiaries to do so.
(l) PERFORMANCE OF RELATED DOCUMENTS. Perform and observe, and cause
each of its Subsidiaries to perform and observe, all of the terms and
provisions of each Related Document to be performed or observed by it,
maintain each such Related Document in full force and effect, enforce such
Related Document in accordance with its terms, take all such action to such
end as may be from time to time requested by the Administrative Agent and,
upon request of the Administrative Agent, make to each other party to each
such Related Document such demands and requests for information and reports
or for action as any Loan Party or any of its Subsidiaries is entitled to
make under such Related Document.
(m) COMPLIANCE WITH TERMS OF LEASEHOLDS. Make all payments and
otherwise perform all obligations in respect of all leases of real property
to which the Parent Guarantor or any of its Subsidiaries is a party, keep
such leases in full force and effect and not allow such leases to lapse or
be terminated or any rights to renew such leases to be forfeited or
cancelled, notify the Administrative Agent of any default by any party with
respect to such leases and cooperate with the Administrative Agent in all
respects to cure any such default, and cause each of its Subsidiaries to do
so.
(n) CASH CONCENTRATION ACCOUNT; L/C CASH COLLATERAL ACCOUNT. (i)
Maintain, and cause each of its Subsidiaries to maintain, main cash
concentration with Citibank and lockbox accounts into which all proceeds of
Collateral are paid with one or more banks acceptable to the Collateral
Agent that have accepted the assignment of such accounts to the Collateral
Agent for the benefit of the Secured Parties pursuant to the Security
Agreement.
(ii) Establish and maintain a L/C Cash Collateral Account upon
the Collateral Agent's request.
(o) INTEREST RATE HEDGING. Enter into prior to April 1, 2000, and
maintain at all times thereafter, interest rate Hedge Agreements with
Persons acceptable to the Administrative Agent, covering a notional amount
of not less than $100,000,000 and providing for such Persons to make
payments thereunder for a period of no less than three years to the extent
of increases in interest rates greater than 3% above the weighted average
Eurodollar Rate on the date hereof.
<PAGE>
(p) CONDITIONS SUBSEQUENT.
(i) Use its best efforts promptly to deliver to the
Administrative Agent within 60 days after the Initial Extension of
Credit, in form and substance satisfactory to the Administrative
Agent, landlord consents and bailee letters from such Persons as the
Administrative Agent may request, providing the Administrative Agent
with the right to receive notice of default under the applicable
lease, the right to repossess such Inventory at any time, and such
other rights as may be reasonably acceptable to the Administrative
Agent; and
(ii) within 30 days after the Initial Extension of Credit,
evidence that counterparts of the Mortgages have been duly recorded in
all filing or recording offices that the Administrative Agent may deem
necessary or desirable in order to create a valid first and subsisting
Lien on the property described therein in favor of the Secured Parties
and that all filing and recording taxes and fees have been paid.
SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance or any other
Obligation of any Loan Party under any Loan Document shall remain unpaid, any
Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, neither any Borrower nor the Parent Guarantor will, at any
time:
(a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character
(including, without limitation, accounts) whether now owned or hereafter
acquired, or sign or file or suffer to exist, or permit any of its
Subsidiaries to sign or file or suffer to exist, under the Uniform
Commercial Code of any jurisdiction, a financing statement that names the
Parent Guarantor or any of its Subsidiaries as debtor, or sign or suffer to
exist, or permit any of its Subsidiaries to sign or suffer to exist, any
security agreement authorizing any secured party thereunder to file such
financing statement, or assign, or permit any of its Subsidiaries to
assign, any accounts or other right to receive income, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) Liens existing on the date hereof and described on Schedule
5.02(a) hereto;
(iv) Liens arising in connection with Capitalized Leases
permitted under Section 5.02(b)(iii)(B); PROVIDED that no such Lien
shall extend to or cover any Collateral or assets other than the
assets subject to such Capitalized Leases;
<PAGE>
(v) Liens arising in connection with Floor Planning Arrangements;
(vi) Liens securing Debt permitted under Section 5.02(b)(iii)(E);
and
(vii) Liens securing Debt permitted under Section
5.02(b)(iii)(H).
(b) DEBT. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt,
except:
(i) in the case of the Borrowers, Debt in respect of Hedge
Agreements designed to hedge against fluctuations in interest rates
incurred in the ordinary course of business and consistent with
prudent business practice with the aggregate Agreement Value thereof
not to exceed $10,000,000 at any time outstanding;
(ii) in the case of any Subsidiary of any Borrower, Debt owed to
such Borrower or to a wholly owned Subsidiary of such Borrower,
PROVIDED that, in each case, such Debt (x) shall constitute Pledged
Debt, (y) shall be on terms acceptable to the Administrative Agent and
(z) shall be evidenced by promissory notes in form and substance
satisfactory to the Administrative Agent and such promissory notes
shall be pledged as security for the Obligations under the Loan
Documents of the holder thereof and delivered to the Collateral Agent
pursuant to the terms of the Security Agreement; and
(iii) in the case of the Loan Parties,
(A) Debt under the Loan Documents,
(B) Capitalized Leases not to exceed in the aggregate
$25,000,000 at any time outstanding,
(D) the Surviving Debt,
(E) Debt secured by a mortgage on the real property located
at 1330 West Southern, Tempe, Arizona in an aggregate principal
amount not to exceed $15,000,000,
(F) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business,
(G) Debt under the Floor Planning Arrangements,
(H) Debt under inventory flooring arrangements provided by a
manufacturer of computer equipment, secured by inventory and
equipment bearing the trademark or tradename of such
manufacturer, provided that
<PAGE>
(x) such manufacturer has entered into an intercreditor agreement
with the Administrative Agent in substantially the form of
Exhibit K hereto and (y) the aggregate principal amount of such
Debt shall not exceed $100,000,000; and
(I) Debt extending the maturity of , or refunding or
refinancing, in whole or in part, Debt described in clauses (D)
and (G) (other than the Floor Planning Arrangement to which IBM
Credit Corporation is a party) above, PROVIDED that (1) the terms
of any such extending, refunding or refinancing Debt, and of any
agreement entered into and of any instrument issued in connection
therewith, are otherwise permitted by the Loan Documents, (2) the
terms relating to principal amount, amortization, maturity,
collateral (if any) and subordination (if any), and other
material terms taken as a whole, of any such extending, refunding
or refinancing Debt, and of any agreement entered into and of any
instrument issued in connection therewith, are no less favorable
in any material respect to the Loan Parties or the Lender Parties
than the terms of any agreement or instrument governing the Debt
being extended, refunded or refinanced and the interest rate
applicable to such extending refunding or refinancing Debt does
not exceed the then applicable market interest rate, (3) in the
case of any Surviving Debt, the principal amount of such
Surviving Debt shall not be increased above the principal amount
thereof outstanding immediately prior to such extension,
refunding or refinancing and (4) in the case of any Floor
Planning Arrangement, the creditors thereof shall have entered
into Intercreditor Agreements with the Collateral Agent and the
applicable Borrower that are no less favorable in any material
respect to the Loan Parties or the Lender Parties than the terms
of the Intercreditor Agreement entered into with the creditor of
such Floor Planning Arrangement being extended, refunded or
refinanced.
(c) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
(d) MERGERS, ETC. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so,
except that any Subsidiary of any Borrower may merge into or consolidate
with any other Subsidiary of such Borrower, PROVIDED that, in the case of
any such merger or consolidation, the Person formed by such merger or
consolidation shall be a wholly owned Subsidiary of such Borrower;
PROVIDED, HOWEVER, that in each case, immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a Default
and, in the case of any such merger to which any Borrower is a party, such
Borrower is the surviving corporation.
(e) SALES, ETC., OF ASSETS. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any assets, or
<PAGE>
grant any option or other right to purchase, lease or otherwise acquire any
assets other than Inventory to be sold in the ordinary course of its
business, except:
(i) sales of Inventory in the ordinary course of its business;
(ii) sales of Receivables in the ordinary course of its business
pursuant to the Receivables Sales Agreement;
(iii) sales of assets for cash and for fair value in an aggregate
amount not to exceed $10,000,000 in any Fiscal Year; and
(iv) the sale of any real property listed on Schedule 4.01(v) for
cash and for fair value in a sale-leaseback transaction or otherwise;
PROVIDED that in the case of sales of assets pursuant to clauses (iii)
and (iv) above, the Borrowers shall, on the date of receipt by any Loan
Party or any of its Subsidiaries of the Net Cash Proceeds from such
sale, prepay the Advances pursuant to, and in the amount and order of
priority set forth in, Section 2.06(b)(i), as specified therein.
(f) INVESTMENTS IN OTHER PERSONS. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person, except,
(i) Investments by the Parent Guarantor and its Subsidiaries in
their Subsidiaries outstanding on the date hereof;
(ii) loans and advances to employees in the ordinary course of
the business of the Parent Guarantor and its Subsidiaries as presently
conducted in an aggregate principal amount not to exceed $500,000 at
any time outstanding;
(iii) Investments by the Parent Guarantor and its Subsidiaries in
Cash Equivalents in an aggregate principal amount not to exceed
$5,000,000 at any time outstanding;
(iv) Investments existing on the date hereof and described on
Schedule 4.01(x) hereto;
(v) Investments by the Borrowers in Hedge Agreements permitted
under Section 5.02(b)(i)(A);
(vi) Investments consisting of intercompany Debt permitted under
Section 5.02(b)(ii); and
(vii) Investments in Subsidiaries not existing on the date hereof
that are formed with an initial capitalization of $1,000,000 or less,
PROVIDED that the
<PAGE>
aggregate Investments permitted under this clause (vii) shall not
exceed $5,000,000 in any Fiscal Year.
(g) RESTRICTED PAYMENTS. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its capital
stock or any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, return any capital to its stockholders as such,
make any distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such or issue or sell any
capital stock or any warrants, rights or options to acquire such capital
stock, or permit any of its Subsidiaries to do any of the foregoing or
permit any of its Subsidiaries to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of the Parent Guarantor or
any warrants, rights or options to acquire such capital stock or to issue
or sell any capital stock or any warrants, rights or options to acquire
such capital stock, except that, so long as no Default shall have occurred
and be continuing at the time of any action described in clause (i) or (ii)
below or would result therefrom:
(i) the Parent Guarantor may (A) declare and pay dividends and
distributions payable only in common stock of the Parent Guarantor and
(B) except to the extent the Net Cash Proceeds thereof are required to
be applied to the prepayment of the Advances pursuant to Section
2.06(b), purchase, redeem, retire, defease or otherwise acquire shares
of its capital stock with the proceeds received contemporaneously from
the issue of new shares of its capital stock with equal or inferior
voting powers, designations, preferences and rights,
(ii) any Subsidiary of any Borrower may (A) declare and pay cash
dividends to such Borrower and (B) declare and pay cash dividends to
any other Loan Party of which it is a Subsidiary, (iii) the Borrowers
may pay cash dividends or otherwise transfer funds to the Parent
Guarantor or MicroAge Computer Centers, Inc. for operating expenses
incurred in the normal course of business by the Parent Guarantor or
MicroAge Computer Centers, Inc. or paid by the Parent Guarantor or
MicroAge Computer Centers, Inc. on behalf of the Borrowers. Such
expenses include all payroll and benefits costs for all Subsidiaries
of the Parent Guarantor, telephone, travel, rent and other occupancy
costs, professional expenses, including consulting, audit, accounting
and legal expenses, corporate insurance expenses, data processing
costs and other operating expenses.
(iv) the Parent Guarantor and the Borrowers may issue stock
options to the directors and employees of such Loan Party.
(h) AMENDMENTS OF CONSTITUTIVE DOCUMENTS. Amend, or permit any of its
Subsidiaries to amend, its certificate of incorporation or bylaws or other
constitutive documents in any material respect.
<PAGE>
(i) ACCOUNTING CHANGES. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in (i) accounting policies or
reporting practices, except as required by generally accepted accounting
principles or (ii) Fiscal Year.
(j) PREPAYMENTS, ETC., OF DEBT. Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt,
except (i) the prepayment of the Advances in accordance with the terms of
this Agreement and (ii) regularly scheduled or required repayments or
redemptions of Surviving Debt, or amend, modify or change in any manner any
term or condition of any Surviving Debt, or permit any of its Subsidiaries
to do any of the foregoing other than to prepay any Debt payable to any
Borrower.
(k) AMENDMENT, ETC., OF RELATED DOCUMENTS. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner any term or condition of any
Related Document or give any consent, waiver or approval thereunder, waive
any default under or any breach of any term or condition of any Related
Document, agree in any manner to any other amendment, modification or
change of any term or condition of any Related Document or take any other
action in connection with any Related Document that would impair the value
of the interest or rights of any Loan Party thereunder or that would impair
the rights or interests of any Agent or any Lender Party, or otherwise
amend Sections 2.1, 9.2 or 10 of the Agreement for Inventory Financing
dated as of October 28, 1999 between IBM Credit Corporation, MTS Holding
Company, MicroAge Computer Centers, Inc., MicroAge Technology Services,
L.L.C. and Pinacor, or Section I(A) or (B) of Attachment A thereto , or
permit any of its Subsidiaries to do any of the foregoing.
(m) NEGATIVE PLEDGE. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets except (i) in favor of the Secured Parties or
(ii) in connection with (A) any Surviving Debt and (B) any Capitalized
Lease permitted by Section 5.02(b)(iii)(C) solely to the extent that such
Capitalized Lease prohibits a Lien on the property subject thereto.
(n) PARTNERSHIPS, ETC. Become a general partner in any general or
limited partnership or joint venture, or permit any of its Subsidiaries to
do so, other than any Subsidiary the sole assets of which consist of its
interest in such partnership or joint venture.
(o) SPECULATIVE TRANSACTIONS. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or any similar speculative transactions.
(p) CAPITAL EXPENDITURES. Make, or permit any of its Subsidiaries to
make, any Capital Expenditures
<PAGE>
that would cause the aggregate of all such Capital Expenditures made by the
Parent Guarantor and its Subsidiaries in any period set forth below to
exceed the amount set forth below for such period:
Period Amount
------ ------
Fiscal Quarter ended January 31, 2000 $ 7,400,000
Two Fiscal Quarters ended April 30, 2000 $14,800,000
Three Fiscal Quarters ended July 31, 2000 $22,200,000
Four Fiscal Quarters ended October 31, 2000 $29,600,000
Fiscal Quarter ended January 31, 2001 $ 9,300,000
Two Fiscal Quarters ended April 30, 2001 $18,600,000
Three Fiscal Quarters ended July 31, 2001 $27,900,000
Four Fiscal Quarters ended October 31, 2001 $36,200,000
Fiscal Quarter ended January 31, 2002 $11,300,000
Two Fiscal Quarters ended April 30, 2002 $22,600,000
Three Fiscal Quarters ended July 31, 2002 $33,900,000
Four Fiscal Quarters ended October 31, 2002 $45,200,000
(q) FORMATION OF SUBSIDIARIES. Organize or invest, or permit any
Subsidiary to organize or invest, in any new Subsidiary other than as
permitted by Section 5.02(f) (vii).
(r) LIMITATION ON PAYMENT RESTRICTIONS. Enter into or suffer to exist,
or permit any Subsidiary to enter into or suffer to exist, any agreement
limiting the ability of any of its Subsidiaries to declare or pay dividends
or other distributions in respect of its capital stock or make loans or
advances to, or otherwise transfer assets to or invest in, the Parent
Guarantor or any Subsidiary of the Parent Guarantor (whether through a
covenant restricting dividends, loans, asset transfers or investments, a
financial covenant or otherwise), except the Loan Documents.
SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance or any other
Obligation of any Loan Party under any Loan Document shall remain unpaid, any
Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Parent Guarantor will furnish to the Agents and the
Lender Parties:
(a) DEFAULT NOTICE. As soon as possible and in any event within two
days after the occurrence of each Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect continuing
on the date of such statement, a statement of the chief financial officer
of the Parent Guarantor setting forth details of such Default and the
action that the Parent Guarantor has taken and proposes to take with
respect thereto.
(b) ANNUAL FINANCIALS. As soon as available and in any event within 90
days after the end of each Fiscal Year, a copy of the annual audit report
for such year for the Parent Guarantor and its Subsidiaries, including
therein Consolidated balance sheets of the Parent Guarantor and its
Subsidiaries as of the end of such Fiscal Year and Consolidated statements
of income and a Consolidated statement of cash flows of the
<PAGE>
Parent Guarantor and its Subsidiaries for such Fiscal Year, in each case
accompanied by an opinion acceptable to the Required Lenders of
PricewaterhouseCoopers LLC or other independent public accountants of
recognized standing acceptable to the Required Lenders, together with (i) a
certificate of such accounting firm to the Lender Parties stating that in
the course of the regular audit of the business of the Parent Guarantor and
its Subsidiaries, which audit was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting firm
has obtained no knowledge that a Default has occurred and is continuing, or
if, in the opinion of such accounting firm, a Default has occurred and is
continuing, a statement as to the nature thereof, (ii) a schedule in form
satisfactory to the Administrative Agent of the computations used by such
accountants in determining, as of the end of such Fiscal Year, compliance
with the covenants contained in Section 5.04, PROVIDED that in the event of
any change in GAAP used in the preparation of such financial statements,
the Parent Guarantor shall also provide, if necessary for the determination
of compliance with Section 5.04, a statement of reconciliation conforming
such financial statements to GAAP, (iii) Consolidating balance sheets of
the Parent Guarantor and the Borrowers as of the end of such Fiscal Year
and Consolidating statements of income and cash flows of the Parent
Guarantor and the Borrowers for such Fiscal Year, all in reasonable detail
and duly certified by the chief financial officer of the Parent Guarantor
as having been prepared in accordance with GAAP and (iv) a certificate of
the chief financial officer of the Parent Guarantor stating that no Default
has occurred and is continuing or, if a default has occurred and is
continuing, a statement as to the nature thereof and the action that the
Parent Guarantor has taken and proposes to take with respect thereto.
(c) QUARTERLY FINANCIALS. As soon as available and in any event within
45 days after the end of each of the first three quarters of each Fiscal
Year, Consolidated and Consolidating balance sheets of the Parent Guarantor
and its Subsidiaries as of the end of such quarter and Consolidated and
Consolidating statements of income and a Consolidated statement of cash
flows of the Parent Guarantor and its Subsidiaries for the period
commencing at the end of the previous fiscal quarter and ending with the
end of such fiscal quarter and Consolidated and Consolidating statements of
income and a Consolidated statement of cash flows of the Parent Guarantor
and its Subsidiaries for the period commencing at the end of the previous
Fiscal Year and ending with the end of such quarter, setting forth in each
case in comparative form the corresponding figures for the corresponding
period of the preceding Fiscal Year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief financial
officer of the Parent Guarantor as having been prepared in accordance with
GAAP, together with (i) a certificate of said officer stating that no
Default has occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof and the action that the
Parent Guarantor has taken and proposes to take with respect thereto and
(ii) a schedule in form satisfactory to the Administrative Agent of the
computations used by the Parent Guarantor in determining compliance with
the covenants contained in Section 5.04, PROVIDED that in the event of any
change in GAAP used in the preparation of such financial statements, the
Parent Guarantor shall also provide, if necessary for the
<PAGE>
determination of compliance with Section 5.04, a statement of
reconciliation conforming such financial statements to GAAP.
(d) MONTHLY FINANCIALS. As soon as available and in any event within
30 days after the end of each month, a Consolidated balance sheet of the
Parent Guarantor and its Subsidiaries as of the end of such month and
Consolidated and Consolidating statements of income and a Consolidated
statement of cash flows of the Parent Guarantor and its Subsidiaries for
the period commencing at the end of the previous month and ending with the
end of such month and Consolidated and Consolidating statements of income
and a Consolidated statement of cash flows of the Parent Guarantor and its
Subsidiaries for the period commencing at the end of the previous Fiscal
Year and ending with the end of such month, setting forth in each case in
comparative form the corresponding figures for the corresponding month of
the preceding Fiscal Year, all in reasonable detail and duly certified by
the chief financial officer or controller of the Parent Guarantor.
(e) ANNUAL FORECASTS. As soon as available and in any event no later
than 45 days after the end of each Fiscal Year, forecasts prepared by
management of the Parent Guarantor, in form satisfactory to the
Administrative Agent, of balance sheets, income statements and cash flow
statements on a monthly basis for the Fiscal Year following such Fiscal
Year and on an annual basis for each Fiscal Year thereafter until the
Termination Date.
(f) LITIGATION. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries of the type described in Section 4.01(f), and promptly
after the occurrence thereof, notice of any adverse change in the status or
the financial effect on any Loan Party or any of its Subsidiaries of the
Disclosed Litigation from that described on Schedule 4.01(f) hereto.
(g) SECURITIES REPORTS. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports that any
Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration
statements, that any Loan Party or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that may
be substituted therefor, or with any national securities exchange.
(h) CREDITOR REPORTS. Promptly after the furnishing thereof, copies of
any statement or report furnished to any holder of Debt securities of any
Loan Party or of any of its Subsidiaries pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required
to be furnished to the Lender Parties pursuant to any other clause of this
Section 5.03.
(i) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of all
notices, requests and other documents received by any Loan Party or any of
its Subsidiaries under
<PAGE>
or pursuant to any Related Document or instrument, indenture, loan or
credit or similar agreement regarding or related to any breach or default
by any party thereto or any other event that could materially impair the
value of the interests or the rights of any Loan Party or otherwise have a
Material Adverse Effect and copies of any amendment, modification or waiver
of any provision of any Related Document or instrument, indenture, loan or
credit or similar agreement and, from time to time upon request by the
Administrative Agent, such information and reports regarding the Related
Documents and such instruments, indentures and loan and credit and similar
agreements as the Administrative Agent may reasonably request.
(j) REVENUE AGENT REPORTS. Within 10 days after receipt, copies of all
Revenue Agent Reports (Internal Revenue Service Form 886), or other written
proposals of the Internal Revenue Service, that propose, determine or
otherwise set forth positive adjustments to the Federal income tax
liability of the affiliated group (within the meaning of Section 1504(a)(1)
of the Internal Revenue Code) of which the Parent Guarantor is a member
aggregating $3,000,000 or more.
(k) TAX CERTIFICATES. Promptly, and in any event within five Business
Days after the due date (with extensions) for filing the final Federal
income tax return in respect of each taxable year, a certificate (a "TAX
Certificate"), signed by the President or the chief financial officer or
controller of the Parent Guarantor, stating that the Parent Guarantor has
paid to the Internal Revenue Service or other taxing authority the full
amount that the Parent Guarantor is required to pay in respect of Federal
income tax for such year.
(l) ERISA. (i) ERISA EVENTS AND ERISA REPORTS. (A) Promptly and in any
event within 10 days after any Loan Party or any ERISA Affiliate knows or
has reason to know that any ERISA Event has occurred, a statement of the
chief financial officer of the Parent Guarantor describing such ERISA Event
and the action, if any, that such Loan Party or such ERISA Affiliate has
taken and proposes to take with respect thereto and (B) on the date any
records, documents or other information must be furnished to the PBGC with
respect to any Plan pursuant to Section 4010 of ERISA, a copy of such
records, documents and information.
(ii) PLAN TERMINATIONS. Promptly and in any event within two
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention
to terminate any Plan or to have a trustee appointed to administer any
Plan.
(iii) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event
within five Business Days after receipt thereof by any Loan Party or
any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies
of each notice concerning (A) the imposition of Withdrawal Liability
by any such Multiemployer Plan, (B) the reorganization or termination,
within the meaning of Title IV of ERISA, of any such Multiemployer
Plan or
<PAGE>
(C) the amount of liability incurred, or that may be incurred, by such
Loan Party or any ERISA Affiliate in connection with any event
described in clause (A) or (B).
(iv) PLAN ANNUAL REPORTS. Promptly and in any event within 30
days after the filing thereof with the Internal Revenue Service,
copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Plan.
(m) ENVIRONMENTAL CONDITIONS. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that could reasonably be expected
to have a Material Adverse Effect.
(n) REAL PROPERTY. As soon as available and in any event within 30
days after the end of each Fiscal Year, a report supplementing Schedules
4.01(v) and 4.01(w) hereto, including an identification of all real and
leased property disposed of by the Parent Guarantor or any of its
Subsidiaries during such Fiscal Year, a list and description (including the
street address, county or other relevant jurisdiction, state, record owner,
book value thereof, and in the case of leases of property, lessor, lessee,
expiration date and annual rental cost thereof) of all real property
acquired or leased during such Fiscal Year and a description of such other
changes in the information included in such Schedules as may be necessary
for such Schedules to be accurate and complete.
(o) INSURANCE. As soon as available and in any event within 30 days
after the end of each Fiscal Year, a report summarizing the insurance
coverage (specifying type, amount and carrier) in effect for each Loan
Party and its Subsidiaries and containing such additional information as
any Agent, or any Lender Party through the Administrative Agent, may
reasonably specify.
(p) BORROWING BASE CERTIFICATE. As soon as available and in any event
no later than the close of business on Wednesday of each week, a Borrowing
Base Certificate, as at the end of the immediately preceding Monday of such
week, certified by the chief financial officer, executive vice president,
controller, treasurer or assistant treasurer of the Parent Guarantor.
(q) OTHER INFORMATION. Such other information respecting the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Loan Party or any of its Subsidiaries as any Agent, or any
Lender Party through the Administrative Agent, may from time to time
reasonably request.
SECTION 5.04. FINANCIAL COVENANTS. So long as any Advance or any other
Obligation of any Loan Party under any Loan Document shall remain unpaid, any
Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Parent Guarantor will:
<PAGE>
(a) DEBT TO EBITDA RATIO. Maintain at all times a Debt/EBITDA Ratio of
not more than the amount set forth below for each period set forth below:
Period Ratio
------ -----
Four Fiscal Quarters ended January 31, 2000 6.70:1.00
Four Fiscal Quarters ended April 30, 2000 5.20:1.00
Four Fiscal Quarters ended July 31, 2000 5.10:1.00
Four Fiscal Quarters ended October 31, 2000 4.60:1.00
Four Fiscal Quarters ended January 31, 2001 3.80:1.00
Four Fiscal Quarters ended April 30, 2001 3.60:1.00
Four Fiscal Quarters ended July 31, 2001 3.40:1.00
Four Fiscal Quarters ended October 31, 2001 3.40:1.00
Four Fiscal Quarters ended January 31, 2002 3.40:1.00
Four Fiscal Quarters ended April 30, 2002 3.40:1.00
Four Fiscal Quarters ended July 31, 2002 3.30:1.00
(b) FIXED CHARGE COVERAGE RATIO. Maintain at all times a Fixed Charge
Coverage Ratio of not less than the ratio set forth below for each period
set forth below:
Period Ratio
------ -----
Fiscal Quarter ended April 30, 2000 1.00:1.00
Two Fiscal Quarters ended July 31, 2000 1.10:1.00
Three Fiscal Quarters ended October 31, 2000 1.20:1.00
Four Fiscal Quarters ended January 31, 2001 1.20:1.00
Four Fiscal Quarters ended April 30, 2001 1.25:1.00
Four Fiscal Quarters ended July 31, 2001 1.25:1.00
Four Fiscal Quarters ended October 31, 2001 1.25:1.00
Four Fiscal Quarters ended January 31, 2002 1.25:1.00
Four Fiscal Quarters ended April 30, 2002 1.25:1.00
Four Fiscal Quarters ended July 31, 2002 1.25:1.00
(c) MINIMUM EBITDA. Maintain at all times EBITDA of the Parent
Guarantor and its Subsidiaries not less than the amount set forth below for
each period set forth below:
Period Amount
------ ------
Fiscal Quarter ended January 31, 2000 $ 7,000,000
Two Fiscal Quarters ended April 30, 2000 $ 26,000,000
<PAGE>
Three Fiscal Quarters ended July 31, 2000 $ 47,000,000
Four Fiscal Quarters ended October 31, 2000 $ 70,000,000
Four Fiscal Quarters ended January 31, 2001 $ 85,000,000
Four Fiscal Quarters ended April 30, 2001 $ 90,000,000
Four Fiscal Quarters ended July 31, 2001 $ 95,000,000
Four Fiscal Quarters ended October 31, 2001 $ 95,000,000
Four Fiscal Quarters ended January 31, 2002 $ 95,000,000
Four Fiscal Quarters ended April 30, 2002 $100,000,000
Four Fiscal Quarters ended July 31, 2002 $105,000,000
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing:
(a) (i) the Borrowers shall fail to pay any principal of any Advance
when the same shall become due and payable or (ii) the Borrowers shall fail
to pay any interest on any Advance, or any Loan Party shall fail to make
any other payment under any Loan Document, in each case under this clause
(ii) within five days after the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Parent Guarantor or any Borrower shall fail to perform or
observe any term, covenant or agreement contained in Section 2.14, 5.01(e),
(f), (i), (j), or (o), 5.02, 5.03 or 5.04; or
(d) any Loan Party shall fail to perform or observe any other term,
covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 15 days
after the earlier of the date on which
<PAGE>
(A) a Responsible Officer becomes aware of such failure or (B) written
notice thereof shall have been given to the Parent Guarantor by any Agent
or any Lender Party; or
(e) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Debt that is outstanding in a principal amount (or, in the case of
any Hedge Agreement, an Agreement Value) of at least $7,500,000 either
individually or in the aggregate (but excluding Debt outstanding hereunder)
of such Loan Party or such Subsidiary (as the case may be), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating
to any such Debt, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise to cause, or to permit the holder thereof to cause, such Debt to
mature; or any such Debt shall be declared to be due and payable or
required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be made,
in each case prior to the stated maturity thereof; or
(f) any Loan Party or any of its Subsidiaries (other than such Loan
Party or such Subsidiary that is an Immaterial Subsidiary) shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against any Loan Party or any of its Subsidiaries (other than such Loan
Party or such Subsidiary that is an Immaterial Subsidiary) seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official
for it or for any substantial part of its property and, in the case of any
such proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or any Loan Party or any of its Subsidiaries (other
than such Loan Party or such Subsidiary that is an Immaterial Subsidiary)
shall take any corporate or other action to authorize any of the actions
set forth above in this subsection (f); or
(g) any judgments or orders, either individually or in the aggregate,
for the payment of money in excess of $7,500,000 shall be rendered against
any Loan Party or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10
<PAGE>
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(h) any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect, and there shall be any period of 15 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
(i) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 or 5.01(j) shall for any reason cease to be valid and
binding on or enforceable against any Loan Party party to it, or any such
Loan Party shall so state in writing; or
(j) any Collateral Document after delivery thereof pursuant to Section
3.01 or 5.01(j) shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority lien on and
security interest in the Collateral purported to be covered thereby; or
(k) Jeffrey McKeever shall at any time for any reason cease to be
active in the management of the Parent Guarantor; or
(l) a Change of Control shall occur; or
(m) any ERISA Event shall have occurred with respect to a Plan and the
sum (determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which an ERISA Event shall have occurred and then exist (or
the liability of the Loan Parties and the ERISA Affiliates related to such
ERISA Event) exceeds $7,500,000; or
(n) any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans by the
Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined
as of the date of such notification), exceeds $7,500,000 or requires
payments exceeding $3,000,000 per annum; or
(o) any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of
ERISA, and as a result of such reorganization or termination the aggregate
annual contributions of the Loan Parties and the ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such reorganization or
termination occurs by an amount exceeding $7,500,000;
<PAGE>
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the Commitments of each Lender Party and the obligation of each Lender
Party to make Advances (other than Letter of Credit Advances by the Issuing Bank
or a Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender
pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit
to be terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Required Lenders, (A) by notice
to the Borrowers, declare the Notes, all interest thereon and all other amounts
payable under this Agreement and the other Loan Documents to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by each
Borrower, (B) by notice to each party required under the terms of any agreement
in support of which a Standby Letter of Credit is issued, request that all
Obligations under such agreement be declared to be due and payable and (C) by
notice to the Issuing Bank, direct the Issuing Bank to deliver a Default
Termination Notice to the beneficiary of each Standby Letter of Credit issued by
it, and the Issuing Bank shall deliver such Default Termination Notices;
PROVIDED, HOWEVER, that in the event of an actual or deemed entry of an order
for relief with respect to any Borrower under the Federal Bankruptcy Code, (x)
the Commitments of each Lender Party and the obligation of each Lender Party to
make Advances (other than Letter of Credit Advances by the Issuing Bank or a
Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender pursuant
to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit shall
automatically be terminated and (y) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by each Borrower.
SECTION 6.02. ACTIONS IN RESPECT OF THE LETTERS OF CREDIT UPON DEFAULT. If
any Event of Default shall have occurred and be continuing, the Administrative
Agent may, or shall at the request of the Required Lenders, irrespective of
whether it is taking any of the actions described in Section 6.01 or otherwise,
make demand upon the Borrowers to, and forthwith upon such demand the Borrowers
will, pay to the Collateral Agent on behalf of the Lender Parties in same day
funds at the Collateral Agent's office designated in such demand, for deposit in
the L/C Cash Collateral Account, an amount equal to the aggregate Available
Amount of all Letters of Credit then outstanding. If at any time the
Administrative Agent or the Collateral Agent determines that any funds held in
the L/C Cash Collateral Account are subject to any right or claim of any Person
other than the Agents and the Lender Parties or that the total amount of such
funds is less than the aggregate Available Amount of all Letters of Credit, the
Borrowers will, forthwith upon demand by the Administrative Agent or the
Collateral Agent, pay to the Collateral Agent, as additional funds to be
deposited and held in the L/C Cash Collateral Account, an amount equal to the
excess of (a) such aggregate Available Amount over (b) the total amount of
funds, if any, then held in the L/C Cash Collateral Account that the
Administrative Agent or the Collateral Agent, as the case may be, determines to
be free and clear of any such right and claim. Upon the drawing of any Letter of
Credit for which funds are on deposit in the L/C Cash Collateral Account, such
funds shall be applied to reimburse the Issuing Bank or Lenders, as applicable,
to the extent permitted by applicable law.
<PAGE>
ARTICLE VII
PARENT GUARANTY
SECTION 7.01. GUARANTY. (a) The Parent Guarantor hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at scheduled
maturity or on any date of a required prepayment or by acceleration, demand or
otherwise, of all Obligations of each Loan Party now or hereafter existing under
the Loan Documents, (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent, and
whether for principal, interest, fees, expenses or otherwise (such Obligations
being the "GUARANTEED OBLIGATIONS"), and agrees to pay any and all expenses
(including, without limitation, reasonable counsel fees and expenses) incurred
by the Administrative Agent or the Lender Parties in enforcing any rights under
this Guaranty or any other Loan Documents. Without limiting the generality of
the foregoing, the Parent Guarantor's liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by each Loan
Party to the Administrative Agent or any Lender Party under or in respect of the
Loan Documents but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
any Loan Party.
(b) The Parent Guarantor hereby unconditionally and irrevocably agrees
that in the event any payment shall be required to be made to the
Administrative Agent or any Lender Party under this Guaranty or any other
guaranty, the Parent Guarantor will contribute, to the maximum extent
permitted by law, such amounts to each other guarantor so as to maximize
the aggregate amount paid to the Administrative Agent or any Lender Parties
under or in respect of the Loan Documents.
SECTION 7.02. GUARANTY ABSOLUTE. The Parent Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Loan Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent, the Administrative Agents or the Lenders with respect
thereto. The Obligations of the Parent Guarantor under this Guaranty are
independent of the Guaranteed Obligations or any other Obligations of any Loan
Party under the Loan Documents, and a separate action or actions may be brought
and prosecuted against the Parent Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against any Borrower or whether
any Borrower is joined in any such action or actions. The liability of the
Parent Guarantor under this Guaranty shall be irrevocable, absolute and
unconditional irrespective of, and the Parent Guarantor hereby irrevocably
waives any defenses it may now or hereinafter have in any way relating to, any
or all of the following:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
<PAGE>
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Loan Documents, or any other
amendment or waiver of or any consent to departure from any Loan Document,
including, without limitation, any increase in the Guaranteed Obligations
resulting from the extension of additional credit to any Borrower, the
Parent Guarantor or any of their Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any collateral,
or any taking, release or amendment or waiver of or consent to departure
from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Loan Party under the Loan Documents
or any other assets of any Borrower, the Parent Guarantor or any of their
Subsidiaries;
(e) any change, restructuring or termination of the corporate or other
legal structure or existence of any Borrower, the Parent Guarantor or any
of their Subsidiaries;
(f) any failure of the Administrative Agent or any Lender Party to
disclose to any Loan Party any information relating to the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Loan Party now or hereafter known to the Administrative
Agent or any Lender Party (the Parent Guarantor waiving any duty on the
part of the Administrative Agent or any Lender Party to disclose such
information); or
(h) any other circumstance (including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any Lender Party that might otherwise
constitute a defense available to, or a discharge of, any Borrower, the
Parent Guarantor or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any Lender Party
upon the insolvency, bankruptcy or reorganization of any Borrower, the Parent
Guarantor or any of their Subsidiaries or otherwise, all as though such payment
had not been made.
SECTION 7.03. WAIVER. (a) The Parent Guarantor hereby unconditionally and
irrevocably waives promptness, diligence, notice of acceptance, presentment,
demand for performance, notice of nonperformance, default, acceleration, protest
or dishonor and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any Lender Party protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Loan Party
or any other Person or any Collateral.
<PAGE>
(b) The Parent Guarantor hereby unconditionally and irrevocably waives
any right to revoke this Guaranty and acknowledges that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether
existing now or in the future.
(c) The Parent Guarantor hereby unconditionally and irrevocably waives
(i) any defense arising by reason of any claim or defense based upon an
election of remedies by the Administrative Agent or any Lender Party that
in any manner impairs, reduces, releases or otherwise adversely affects the
subrogation, reimbursement, exoneration, contribution or indemnification
rights of the Parent Guarantor or other rights of the Parent Guarantor to
proceed against any of the Loan Parties, any other guarantor or any other
Person or any Collateral and (ii) any defense based on any right of set-off
or counterclaim against or in respect of the Obligations of the Parent
Guarantor hereunder.
(d) The Parent Guarantor acknowledges that the Administrative Agent
may, without notice to or demand upon the Parent Guarantor and without
affecting the liability of the Parent Guarantor under this Guaranty,
foreclose under any mortgage by nonjudicial sale, and the Parent Guarantor
hereby waives any defense to the recovery by the Administrative Agent and
the other Lender Parties against the Parent Guarantor of any deficiency
after such nonjudicial sale and any defense or benefits that may be
afforded by applicable law.
(e) The Parent Guarantor hereby unconditionally and irrevocably waives
any duty on the part of the Administrative Agent or any Lender Party to
disclose to the Parent Guarantor any matter, fact or thing relating to the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any other Loan Party or any of its Subsidiaries
now or hereafter known by the Administrative Agent or any Lender Party.
(f) The Parent Guarantor acknowledges that it will receive substantial
direct and indirect benefits from the financing arrangements contemplated
by the Loan Documents and that the waivers set forth in Section 7.02 and
this Section 7.03 are knowingly made in contemplation of such benefits.
SECTION 7.04. PAYMENTS FREE AND CLEAR OF TAXES, ETC. (a) Any and all
payments made by the Parent Guarantor under or in respect of this Guaranty or
any other Loan Document shall be made, in accordance with Section 2.11, free and
clear of and without deduction for any and all present or future Taxes. If the
Parent Guarantor shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to any Lender Party or the Administrative Agent,
(i) the sum payable by the Parent Guarantor by the Parent Guarantor shall be
increased as may be necessary so that after the Parent Guarantor and the
Administrative Agent have made all required deductions (including deductions
applicable to additional sums payable under this Section 7.04) such Lender Party
or the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Parent
Guarantor shall make such deductions and (iii) the Parent Guarantor shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
<PAGE>
(b) In addition, the Parent Guarantor agrees to pay any present or
future Other Taxes that arise from any payment made under or in respect of
this Guaranty or any other Loan Document or from the execution, delivery or
registration of, performance under, or otherwise with respect to, this
Guaranty and the other Loan Documents.
(c) The Parent Guarantor will indemnify each Lender Party and the
Agents for the full amount of Taxes or Other Taxes and for the full amount
of taxes of any kind imposed by any jurisdiction on amounts payable under
this Section 7.04, imposed on or paid by such Lender Party or Agent and any
liability (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section) paid by such
Lender Party or any Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date
such Lender Party or such Agent (as the case may be) makes written demand
therefor.
(d) Within 30 days after the date of any payment of Taxes by or on
behalf of the Parent Guarantor, the Parent Guarantor shall furnish to the
Administrative Agent, at its address referred to in Section 9.02, the
original or a certified copy of a receipt evidencing such payment. In the
case of any payment hereunder by or on behalf of the Parent Guarantor
through an account or branch outside the United States or by or on behalf
of the Parent Guarantor by a payor that is not a United States person, if
the Parent Guarantor determines that no Taxes are payable in respect
thereof, the Parent Guarantor shall furnish, or shall cause such payor to
furnish, to the Administrative Agent, at such address, an opinion of
counsel acceptable to the Administrative Agent stating that such payment is
exempt from Taxes. For purposes of subsections (d) and (e) of this Section
5, the terms "UNITED STATES" and "UNITED STATES PERSON" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.
(e) Without prejudice to the survival of any other agreement of the
Parent Guarantor hereunder, the agreements and obligations of the Parent
Guarantor contained in Section 7.01(a) (with respect to enforcement
expenses), the last sentence of Section 7.02 and this Section 7.04 shall
survive the payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty.
SECTION 7.05. CONTINUING GUARANTY; ASSIGNMENTS. This Guaranty is a
continuing guaranty and shall (a) remain in full force and effect until the
latest of (i) the cash payment in full of the Guaranteed Obligations and all
other amounts payable under this Guaranty, (ii) the Termination Date and (iii)
the latest date of expiration or termination of all Letters of Credit and all
Secured Hedge Agreements, (b) be binding upon the Parent Guarantor, its
successors and assigns and (c) inure to the benefit of and be enforceable by the
Lender Parties, the Administrative Agent and their successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any Lender
Party may assign or otherwise transfer all or any portion of its rights and
obligations hereunder (including, without limitation, all or any portion of its
Commitment, the Advances owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
benefits in
<PAGE>
respect thereof granted to such Lender herein or otherwise, in each case as
provided in Section 9.07. The Parent Guarantor shall not have the right to
assignment rights hereunder or any interest herein without the prior written
consent of the Administrative Agent.
SECTION 7.06. SUBROGATION. The Parent Guarantor hereby unconditionally and
irrevocably agrees not to exercise any rights that it may now or hereafter
acquire against any Borrower, any Loan Party or any other insider guarantor that
arise from the existence, payment, performance or enforcement of the Parent
Guarantor's Obligations under this Agreement or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Administrative Agent or any Lender Party against any
Borrower or any other insider guarantor or any Collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from any
Borrower, any Loan Party or any other insider guarantor, directly or indirectly,
in cash or other property or by set-off or in any other manner, payment or
security on account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations and all other amounts payable under this Guaranty shall
have been paid in full in cash, all Letters of Credit and all Secured Hedge
Agreements shall have expired or been terminated and the Commitments shall have
expired or terminated. If any amount shall be paid to the Parent Guarantor in
violation of the preceding sentence at any time prior to the latest of (a) the
payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Guaranty, (b) the Termination Date and (c) the latest date of
expiration or termination of all Letters of Credit and all Secured Hedge
Agreements, such amount shall be received and held in trust for the benefit of
the Administrative Agent and the Lender Parties, shall be segregated from other
property and funds of the Parent Guarantor and shall forthwith be paid to the
Administrative Agent in the same form as so received (with any necessary
endorsement or assignment) to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Loan Documents, or to be held
as Collateral for any Guaranteed Obligations or other amounts payable under this
Guaranty thereafter arising. If (i) the Parent Guarantor shall make payment to
the Administrative Agent or any Lender Party of all or any part of the
Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be paid in full in cash, (iii) the
Termination Date shall have occurred and (iv) all Letters of Credit and all
Secured Hedge Agreements shall have been expired or been terminated, the
Administrative Agent and the Lender Parties will, at the Parent Guarantor's
request and expense, execute and deliver to the Parent Guarantor appropriate
documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to the Parent Guarantor of an interest in
the Guaranteed Obligations resulting from such payment by the Parent Guarantor.
SECTION 7.07. SUBORDINATION. The Parent Guarantor hereby subordinates any
and all debts, liabilities and other Obligations owed to the Parent Guarantor by
each Loan Party (the "SUBORDINATED OBLIGATIONS") to the Guaranteed Obligations
to the extent and in the manner hereinafter set forth in this Section 7.07:
<PAGE>
(a) PROHIBITED PAYMENTS, ETC. Except during the continuance of an
Event of Default (including the commencement and continuation of any
proceeding under any Bankruptcy Law relating to any Loan Party), the Parent
Guarantor may receive regularly scheduled payments from any Loan Party on
account of the Subordinated Obligations. After the occurrence and during
the continuance of any Event of Default (including the commencement and
continuation of any proceeding under any Bankruptcy Law relating to any
Loan Party), however, unless the Administrative Agent otherwise agrees, the
Parent Guarantor shall not demand, accept or take any action to collect any
payment on account of the Subordinated Obligations.
(b) PRIOR PAYMENT OF GUARANTEED OBLIGATIONS. In any proceeding under
any Bankruptcy Law relating to any Loan Party, the Parent Guarantor agrees
that the Secured Parties shall be entitled to receive payment in full in
cash of all Guaranteed Obligations (including all interest and expenses
accruing after the commencement of a proceeding under any Bankruptcy Law,
whether or not constituting an allowed claim in such proceeding ("POST
PETITION INTEREST")) before the Parent Guarantor receives payment of any
Subordinated Obligations.
(c) TURN-OVER. After the occurrence and during the continuance of any
Event of Default (including the commencement and continuation of any
proceeding under any Bankruptcy Law relating to any other Loan Party), the
Parent Guarantor shall, if the Administrative Agent so requests, collect,
enforce and receive payments on account of the Subordinated Obligations as
trustee for the Lender Parties and deliver such payments to the
Administrative Agent on account of the Guaranteed Obligations (including
all Post Petition Interest), together with any necessary endorsements or
other instruments of transfer, but without reducing or affecting in any
manner the liability of the Parent Guarantor under the other provisions of
this Guaranty.
(d) ADMINISTRATIVE AGENT AUTHORIZATION. After the occurrence and
during the continuance of any Event of Default (including the commencement
and continuation of any proceeding under any Bankruptcy Law relating to any
other Loan Party), the Administrative Agent is authorized and empowered
(but without any obligation to so do), in its discretion, (i) in the name
of the Parent Guarantor, to collect and enforce, and to submit claims in
respect of, Subordinated Obligations and to apply any amounts received
thereon to the Guaranteed Obligations (including any and all Post Petition
Interest), and (ii) to require the Parent Guarantor (A) to collect and
enforce, and to submit claims in respect of, Subordinated Obligations and
(B) to pay any amounts received on such obligations to the Administrative
Agent for application to the Guaranteed Obligations (including any and all
Post Petition Interest).
<PAGE>
ARTICLE VIII
THE AGENTS
SECTION 8.01. AUTHORIZATION AND ACTION. Each Lender Party (in its
capacities as a Lender, the Swing Line Bank (if applicable), the Issuing Bank
(if applicable) and on behalf of itself and its Affiliates as potential Hedge
Banks) hereby appoints and authorizes each Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents as are delegated to such Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), no
Agent shall be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding upon all Lender Parties and all holders
of Notes; PROVIDED, HOWEVER, that no Agent shall be required to take any action
that exposes such Agent to personal liability or that is contrary to this
Agreement or applicable law. Each Agent agrees to give to each Lender Party
prompt notice of each notice given to it by the Parent Guarantor or any Borrower
pursuant to the terms of this Agreement.
SECTION 8.02. AGENTS' RELIANCE, ETC. Neither any Agent nor any of their
respective directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder thereof until, in the case of
the Administrative Agent, the Administrative Agent receives and accepts an
Assumption Agreement entered into by an Assuming Lender as provided in Section
2.17 or an Assignment and Acceptance entered into by the Lender that is the
payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in
the case of any other Agent, such Agent has received notice from the
Administrative Agent that it has received and accepted such Assignment and
Acceptance, in each case as provided in Section 9.07; (b) may consult with legal
counsel (including counsel for any Loan Party), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender Party and shall not be responsible to any Lender Party for any
statements, warranties or representations (whether written or oral) made in or
in connection with the Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of any Loan Document on the part of any Loan Party or to inspect
the property (including the books and records) of any Loan Party; (e) shall not
be responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
<PAGE>
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 8.03. CITIBANK AND AFFILIATES. With respect to its Commitments, the
Advances made by it and the Notes issued to it, Citibank shall have the same
rights and powers under the Loan Documents as any other Lender Party and may
exercise the same as though it were not an Agent; and the term "Lender Party" or
"Lender Parties" shall, unless otherwise expressly indicated, include Citibank
in its individual capacities. Citibank and its affiliates may accept deposits
from, lend money to, act as trustee under indentures of, accept investment
banking engagements from and generally engage in any kind of business with, any
Loan Party, any of its Subsidiaries and any Person who may do business with or
own securities of any Loan Party or any such Subsidiary, all as if Citibank were
not an Agent and without any duty to account therefor to the Lender Parties.
SECTION 8.04. LENDER PARTY CREDIT DECISION. Each Lender Party acknowledges
that it has, independently and without reliance upon any Agent or any other
Lender Party and based on the financial statements referred to in Section 4.01
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender Party
also acknowledges that it will, independently and without reliance upon any
Agent or any other Lender Party and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement.
SECTION 8.05. INDEMNIFICATION. (a) Each Lender Party severally agrees to
indemnify each Agent (to the extent not promptly reimbursed by the Borrowers)
from and against such Lender Party's ratable share (determined as provided
below) of any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against such
Agent in any way relating to or arising out of the Loan Documents or any action
taken or omitted by such Agent under the Loan Documents; PROVIDED, HOWEVER, that
no Lender Party shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct as found in a final, non-appealable judgment by a court of
competent jurisdiction. Without limitation of the foregoing, each Lender Party
agrees to reimburse each Agent promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrowers under Section 9.04, to the extent that such Agent is
not promptly reimbursed for such costs and expenses by the Borrowers.
(b) Each Lender Party severally agrees to indemnify the Issuing Bank
(to the extent not promptly reimbursed by the Borrowers) from and against
such Lender Party's ratable share (determined as provided below) of any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the
Issuing Bank in any way relating to or arising out of the Loan Documents or
any action taken or omitted by the Issuing
<PAGE>
Bank under the Loan Documents; PROVIDED, HOWEVER, that no Lender Party
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Issuing Bank's gross negligence or willful
misconduct as found in a final, non-appealable judgment by a court of
competent jurisdiction. Without limitation of the foregoing, each Lender
Party agrees to reimburse the Issuing Bank promptly upon demand for its
ratable share of any costs and expenses (including, without limitation,
fees and expenses of counsel) payable by the Borrowers under Section 9.04,
to the extent that the Issuing Bank is not promptly reimbursed for such
costs and expenses by the Borrowers.
(c) For purposes of this Section 8.05, the Lender Parties' respective
ratable shares of any amount shall be determined, at any time, according to
the sum of (i) the aggregate principal amount of the Advances outstanding
at such time and owing to the respective Lender Parties, (ii) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters
of Credit outstanding at such time and (iii) their respective Unused
Working Capital Commitments at such time; PROVIDED that the aggregate
principal amount of Swing Line Advances owing to the Swing Line Bank and of
Letter of Credit Advances owing to the Issuing Bank shall be considered to
be owed to the Lenders ratably in accordance with their respective Working
Capital Commitments. The failure of any Lender Party to reimburse any Agent
or the Issuing Bank, as the case may be, promptly upon demand for its
ratable share of any amount required to be paid by the Lender Parties to
such Agent or the Issuing Bank, as the case may be, as provided herein
shall not relieve any other Lender Party of its obligation hereunder to
reimburse such Agent or the Issuing Bank, as the case may be, for its
ratable share of such amount, but no Lender Party shall be responsible for
the failure of any other Lender Party to reimburse such Agent or the
Issuing Bank, as the case may be, for such other Lender Party's ratable
share of such amount. Without prejudice to the survival of any other
agreement of any Lender Party hereunder, the agreement and obligations of
each Lender Party contained in this Section 8.05 shall survive the payment
in full of principal, interest and all other amounts payable hereunder and
under the other Loan Documents.
SECTION 8.06. SUCCESSOR AGENTS. Any Agent may resign at any time by giving
written notice thereof to the Lender Parties and the Borrowers and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lender Parties, appoint a successor Agent, which shall be a commercial bank
organized under the laws of the United States or of any State thereof and having
a combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent and, in the case of a
successor Collateral Agent, upon the execution and filing or recording of such
financing statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Collateral Documents, such successor Agent shall succeed to
and become vested with all the rights, powers, discretion,
<PAGE>
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under the Loan Documents. If within
45 days after written notice is given of the retiring Agent's resignation or
removal under this Section 8.06 no successor Agent shall have been appointed and
shall have accepted such appointment, then on such 45th day (i) the retiring
Agent's resignation or removal shall become effective, (ii) the retiring Agent
shall thereupon be discharged from its duties and obligations under the Loan
Documents and (iii) the Required Lenders shall thereafter perform all duties of
the retiring Agent under the Loan Documents until such time, if any, as the
Required Lenders appoint a successor Agent as provided above. After any retiring
Agent's resignation or removal hereunder as Agent shall have become effective,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
SECTION 8.07. OTHER AGENTS. Each Lender Party hereby
acknowledges that neither the Documentation Agent, Syndication Agent nor any
other Lender Party designated as any "Agent" on the signature pages hereof has
any responsibilities or liability hereunder other than in its capacity as a
Lender, the titles Documentation Agent and Syndication Agent being purely
honorary in nature.
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. (a) No amendment or waiver of any provision
of this Agreement or the Notes or any other Loan Document, nor consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by the Required Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED, HOWEVER, that (i) no amendment, waiver or
consent shall, unless in writing and signed by all of the Lenders (other than
any Lender Party that is, at such time, a Defaulting Lender), do any of the
following at any time: (A) waive any of the conditions specified in Section 3.01
or, in the case of the Initial Extension of Credit, Section 3.02, (B) change the
number of Lenders or the percentage of (1) the Commitments, (2) the aggregate
unpaid principal amount of the Advances or (3) the aggregate Available Amount of
outstanding Letters of Credit that, in each case, shall be required for the
Lenders or any of them to take any action hereunder, (C) reduce or limit the
obligations of the Parent Guarantor under Section 7.01 or of any Subsidiary
Guarantor under Section 1 of the Subsidiary Guaranty or otherwise limit such
Guarantor's liability with respect to the Obligations owing to the Agents and
the Lender Parties, (D) release all or substantially all of the Collateral in
any transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on all or substantially all of
the Collateral in any transaction or series of related transactions to secure
any Obligations other than Obligations owing to the Secured Parties under the
Loan Documents, (E) amend Section 2.13 or this Section 9.01, (F) increase the
Commitments of the Lenders, (G) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (H) postpone any date
scheduled for any payment of principal of, or interest on, the Notes pursuant to
Section 2.04 or 2.07 or any date fixed for payment of any fees or other amounts
payable hereunder, (I) limit the liability of any Loan Party under any of the
Loan Documents or (J) increase the percentages included in clauses (a) or (b) of
the definition of "Loan Value" and (ii) no amendment, waiver or consent shall,
unless in writing and signed by Lenders having 66 2/3% of the Working Capital
Commitments at such time (other than any Lender Party that is, at such time, a
Defaulting Lender), do any of the following at any time: (A) reduce the dollar
amount of the liquidation reserve included in clause (b) of the definition of
"Loan Value", (B) decrease the liquidity reserve set forth on the Borrowing Base
Certificate, (C) reduce the dollar amount set forth in Section 2.06(b)(ii) or
3.02(a)(iii)(A) or (D) waive the condition specified in Section 3.02(a)(iii);
PROVIDED FURTHER that no amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Bank or the Issuing Bank, as the case may be, in
addition to the Lenders required above to take such action, affect the rights or
obligations of the Swing Line Bank or of the Issuing Bank, as the case may be,
under this Agreement; and PROVIDED FURTHER that no amendment, waiver or consent
shall, unless in writing and signed by an Agent in addition to the Lenders
required above to take such action, affect the rights or duties of such Agent
under this Agreement or the other Loan Documents.
<PAGE>
(b) If, in connection with any proposed amendment or waiver of any of
the provisions of this Agreement or any other Loan Document as contemplated
by clauses (i) through (ix) of Section 9.01(a) above, the consent of the
Required Lenders is obtained but the consent of one or more of such other
Lenders whose consent is not obtained, then the Administrative Agent shall
have the right to purchase (and such Lender shall sell) the interest of
each such non-consenting Lender, together with accrued and unpaid interest,
and assume each such Lender's Commitment.
SECTION 9.02. NOTICES, ETC. All notices and other communications provided
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered, if to
the Parent Guarantor, the Borrowers or any other Loan Party, at the address or
the Parent Guarantor at 2400 South MicroAge Way, Tempe, Arizona 85282,
Attention: Chief Financial Officer, with a copy to Corporate Counsel; if to any
Initial Lender or the Initial Issuing Bank, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other Lender Party,
at its Domestic Lending Office specified in the Assumption Agreement or the
Assignment and Acceptance pursuant to which it became a Lender Party; if to the
Collateral Agent, at its address at 399 Park Avenue, New York, New York 10043,
Attention: Jeff Nitz; and if to the Administrative Agent, at its address at 399
Park Avenue, New York, New York 10043, Attention: Jeff Nitz; or, as to the
Parent Guarantor, any Borrower or the Administrative Agent, at such other
address as shall be designated by such party in a written notice to the other
parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the
Administrative Agent. All such notices and communications shall, when mailed,
telegraphed, telecopied or telexed, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, respectively, except that notices and communications to any
Agent pursuant to Article II, III or VII shall not be effective until received
by such Agent. Delivery by telecopier of an executed counterpart of any
amendment or waiver of any provision of this Agreement or the Notes or of any
Exhibit hereto to be executed and delivered hereunder shall be effective as
delivery of an original executed counterpart thereof.
SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of any Lender
Party or any Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. COSTS AND EXPENSES. (a) The Borrowers jointly and severally
agree to pay on demand (i) all reasonable costs and expenses of each Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without limitation,
(A) all due diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for each Agent with respect thereto, with respect to advising such Agent as to
its rights and responsibilities, or the perfection, protection or preservation
of rights or interests, under the Loan Documents, with
<PAGE>
respect to negotiations with any Loan Party or with other creditors of any Loan
Party or any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of each Agent and
each Lender Party in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation, any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally (including, without
limitation, the reasonable fees and expenses of counsel for the Administrative
Agent and each Lender Party with respect thereto).
(b) The Borrowers jointly and severally agree to indemnify and hold
harmless each Agent, each Lender Party and each of their Affiliates and
their officers, directors, employees, agents and advisors (each, an
"INDEMNIFIED PARTY") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees
and expenses of counsel) that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection
with or by reason of (including, without limitation, in connection with any
investigation, litigation or proceeding or preparation of a defense in
connection therewith) (i) the Facilities, the actual or proposed use of the
proceeds of the Advances or the Letters of Credit, the Transaction
Documents or any of the transactions contemplated thereby or (ii) the
actual or alleged presence of Hazardous Materials on any property of any
Loan Party or any of its Subsidiaries or any Environmental Action relating
in any way to any Loan Party or any of its Subsidiaries, except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful
misconduct. In the case of an investigation, litigation or other proceeding
to which the indemnity in this Section 9.04(b) applies, such indemnity
shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated by the
Transaction Documents are consummated. The Borrowers also agrees not to
assert any claim against any Agent, any Lender Party or any of their
Affiliates, or any of their respective officers, directors, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to
the Facilities, the actual or proposed use of the proceeds of the Advances
or the Letters of Credit, the Transaction Documents or any of the
transactions contemplated by the Transaction Documents.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrowers to or for the account of a Lender
Party other than on the last day of the Interest Period for such Advance,
as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i)
or 2.10(d), acceleration of the maturity of the Notes pursuant to Section
6.01 or for any other reason, or if the Borrowers fail to make any payment
or prepayment of an Advance for which a notice of prepayment has been given
or that is otherwise required to be made, whether pursuant to Section 2.04,
2.06 or 6.01 or otherwise, the Borrowers shall, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party any amounts
required to
<PAGE>
compensate such Lender Party for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or such failure to
pay or prepay, as the case may be, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender Party to fund or maintain
such Advance.
(d) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may
be paid on behalf of such Loan Party by the Administrative Agent or any
Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrowers contained in Sections 2.10 and 2.12 and this
Section 9.04 shall survive the payment in full of principal, interest and
all other amounts payable hereunder and under any of the other Loan
Documents. SECTION 9.05. RIGHT OF SET-OFF. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 6.01 to
authorize the Administrative Agent to declare the Notes due and payable
pursuant to the provisions of Section 6.01, each Agent and each Lender
Party and each of their respective Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set
off and otherwise apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at
any time owing by such Agent, such Lender Party or such Affiliate to or for
the credit or the account of the Parent Guarantor or any Borrower against
any and all of the Obligations of the Parent Guarantor or the Borrowers now
or hereafter existing under the Loan Documents, irrespective of whether
such Agent or such Lender Party shall have made any demand under this
Agreement or such Note or Notes and although such obligations may be
unmatured. Each Agent and each Lender Party agrees promptly to notify the
Parent Guarantor or the applicable Borrower after any such set-off and
application; PROVIDED, HOWEVER, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of each
Agent and each Lender Party and their respective Affiliates under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Agent, such Lender Party and
their respective Affiliates may have.
SECTION 9.06. BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Borrowers, the Parent Guarantor and each Agent
and the Administrative Agent shall have been notified by each Initial Lender and
the Initial Issuing Bank that such Initial Lender and the Initial Issuing Bank
has executed it and thereafter shall be binding upon and inure to the benefit of
the Borrowers, the Parent Guarantor, each Agent and each Lender Party and their
respective successors and assigns, except that no Borrower shall have the right
to assign its rights hereunder or any interest herein without the prior written
consent of the Lender Parties.
<PAGE>
SECTION 9.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to
one or more Eligible Assignees all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment or Commitments, the Advances owing to it and the Note or Notes held
by it); PROVIDED, HOWEVER, that (i) each such assignment shall be of a uniform,
and not a varying, percentage of all rights and obligations under and in respect
of all of the Facilities, (ii) except in the case of an assignment to a Person
that, immediately prior to such assignment, was a Lender or an assignment of all
of a Lender's rights and obligations under this Agreement, the aggregate amount
of the Commitments being assigned to such Eligible Assignee pursuant to such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000, (iii)
each such assignment shall be to an Eligible Assignee, (iv) no such assignments
shall be permitted without the consent of the Administrative Agent until the
Administrative Agent shall have notified the Lender Parties that syndication of
the Commitments hereunder has been completed, and (v) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (x)
the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or
Issuing Bank, as the case may be, hereunder and (y) the Lender or Issuing
Bank assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance
covering all of the remaining portion of an assigning Lender's or Issuing
Bank's rights and obligations under this Agreement, such Lender or Issuing
Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, each
Lender Party assignor thereunder and each assignee thereunder confirm to
and agree with each other and the other parties thereto and hereto as
follows: (i) other than as provided in such Assignment and Acceptance, such
assigning Lender Party makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with any Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, any Loan
Document or any other instrument or document furnished pursuant thereto;
(ii) such assigning Lender Party makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Loan Party or the performance or observance by any Loan Party of any of its
obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon
<PAGE>
any Agent, such assigning Lender Party or any other Lender Party and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes each Agent to take
such action as agent on its behalf and to exercise such powers and
discretion under the Loan Documents as are delegated to such Agent by the
terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
this Agreement are required to be performed by it as a Lender or Issuing
Bank, as the case may be.
(d) The Administrative Agent shall maintain at its address referred to
in Section 9.02 a copy of each Assumption Agreement and each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lender Parties and the
Commitment under each Facility of, and principal amount of the Advances
owing under each Facility to, each Lender Party from time to time (the
"REGISTER"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrowers, the Agents and
the Lender Parties may treat each Person whose name is recorded in the
Register as a Lender Party hereunder for all purposes of this Agreement.
The Register shall be available for inspection by any Borrower or any
Lender Party at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee, together with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the
form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give
prompt notice thereof to the Borrowers and each other Agent. In the case of
any assignment by a Lender, within five Business Days after its receipt of
such notice, the Borrowers, at their own expense, shall execute and deliver
to the Administrative Agent in exchange for the surrendered Note or Notes a
new Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it under each Facility pursuant to such Assignment
and Acceptance and, if any assigning Lender has retained a Commitment
hereunder under such Facility, a new Note to the order of such assigning
Lender in an amount equal to the Commitment retained by it hereunder. Such
new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be
dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit A hereto.
(f) The Issuing Bank may assign to an Eligible Assignee all of its
rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; PROVIDED, HOWEVER, that (i) each such assignment
shall be to an Eligible Assignee and (ii) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance,
together with a processing and recordation fee of $3,500.
<PAGE>
(g) Each Lender Party may sell participations to one or more Persons
(other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitments, the Advances owing
to it and the Note or Notes (if any) held by it); PROVIDED, HOWEVER, that
(i) such Lender Party's obligations under this Agreement (including,
without limitation, its Commitments) shall remain unchanged, (ii) such
Lender Party shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) such Lender Party shall
remain the holder of any such Note for all purposes of this Agreement, (iv)
the Borrowers, the Agents and the other Lender Parties shall continue to
deal solely and directly with such Lender Party in connection with such
Lender Party's rights and obligations under this Agreement and (v) no
participant under any such participation shall have any right to approve
any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by any Loan Party therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, postpone any date
fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or release all or substantially all of the
Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 9.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Parent Guarantor or the
Borrowers furnished to such Lender Party by or on behalf of the Borrowers;
PROVIDED, HOWEVER, that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information received by it from such
Lender Party.
(i) Notwithstanding any other provision set forth in this Agreement,
any Lender Party may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of
Governors of the Federal Reserve System.
SECTION 9.08. 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.
Manual delivery of an executed counterpart of a signature page to this Agreement
by telecopier shall be effective as delivery of an original executed counterpart
of this Agreement.
SECTION 9.09. NO LIABILITY OF THE ISSUING BANK. The Borrowers assume all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers or directors shall be liable or responsible for:
(a) the use that may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should
<PAGE>
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
(c) payment by the Issuing Bank against presentation of documents that do not
comply with the terms of a Letter of Credit, including failure of any documents
to bear any reference or adequate reference to the Letter of Credit; or (d) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except that the Borrowers shall have a claim against the
Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the
extent of any direct, but not consequential, damages suffered by the Borrowers
that the Borrowers prove were caused by (i) the Issuing Bank's willful
misconduct or gross negligence as determined in a final, non-appealable judgment
by a court of competent jurisdiction in determining whether documents presented
under any Letter of Credit comply with the terms of the Letter of Credit or (ii)
the Issuing Bank's willful failure to make lawful payment under a Letter of
Credit after the presentation to it of a draft and certificates strictly
complying with the terms and conditions of the Letter of Credit. In furtherance
and not in limitation of the foregoing, the Issuing Bank may accept documents
that appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
SECTION 9.10. RELEASE OF COLLATERAL. Upon the sale, lease, transfer or
other disposition of any item of Collateral of any Loan Party in accordance with
the terms of the Loan Documents, the Collateral Agent will, at the Borrowers'
expense, execute and deliver to such Loan Party such documents as such Loan
Party may reasonably request to evidence the release of such item of Collateral
from the assignment and security interest granted under the Collateral Documents
in accordance with the terms of the Loan Documents.
SECTION 9.11. JURISDICTION, ETC. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan Documents in the
courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection
that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of
the other Loan Documents to which it is a party in any New York State or
federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
<PAGE>
SECTION 9.12. GOVERNING LAW. This Agreement and the Notes shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 9.13. WAIVER OF JURY TRIAL. Each of the Parent Guarantor, the
Borrowers, the Agents and the Lender Parties irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to any of the Loan
Documents, the Advances or the actions of any Agent or any Lender Party in the
negotiation, administration, performance or enforcement thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MICROAGE TECHNOLOGY SERVICES, L.L.C.,
as Borrower
By /s/ James R. Daniel
-------------------------------------
Title: Treasurer
------------------------------
PINACOR, INC.,
as Borrower
By /s/ James R. Daniel
-------------------------------------
Title: Treasurer
------------------------------
MICROAGE, INC.,
as Parent Guarantor
By /s/ James R. Daniel
-------------------------------------
Title: CFO, ExVP & Treasurer
------------------------------
CITIBANK, N.A.,
as Administrative Agent
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
CITIBANK, N.A.,
as Collateral Agent
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
<PAGE>
IBM CREDIT CORPORATION,
as Documentation Agent
By /s/ Ronald J. Bachner
-------------------------------------
Title: Manager, Commercial Financing
Solutions Americas
------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Syndication Agent
By /s/ J. Lee
-------------------------------------
Title: Vice President
------------------------------
INITIAL LENDERS
CITIBANK, N.A.
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
IBM CREDIT CORPORATION
By /s/ Ronald J. Bachner
-------------------------------------
Title: Manager, Commercial Financing
Solutions Americas
------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ J. Lee
-------------------------------------
Title: Vice President
------------------------------
FLEET CAPITAL CORPORATION
By /s/ Peter L. Skavla
-------------------------------------
Title: Senior Vice President
------------------------------
<PAGE>
MELLON BANK, N.A.
By /s/ R. Shirinyam
-------------------------------------
Title: Vice President
------------------------------
IBJ WHITEHALL BUSINESS
CREDIT CORPORATION
By /s/
-------------------------------------
Title:
------------------------------
DEBIS FINANCIAL SERVICES, INC.
By /s/ James M. Vandervark
-------------------------------------
Title: President ABL Division
------------------------------
FINOVA CAPITAL CORPORATION
By /s/
-------------------------------------
Title:
------------------------------
INITIAL ISSUING BANK
CITIBANK, N.A.
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
<PAGE>
SWING LINE BANK
CITIBANK, N.A.
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
<PAGE>
INITIAL ISSUING BANK
CITIBANK, N.A.
By /s/ Claudia Slacik
-------------------------------------
Title: Vice President
------------------------------
<PAGE>
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
================================================================================
Working Letter of Domestic Eurodollar
Capital Credit Lending Lending
Name of Initial Lender Commitment Commitment Office Office
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<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_______________ Dated: _________ __, ____
FOR VALUE RECEIVED, the undersigned, MicroAge Technology Services, L.L.C.,
a Delaware limited liability company, and Pinacor, Inc., a Delaware corporation
(collectively, the "BORROWERS"), jointly and severally HEREBY PROMISE TO PAY to
the order of _________________________ (the "LENDER") for the account of its
Applicable Lending Office (as defined in the Credit Agreement referred to below)
the aggregate principal amount of the Working Capital Advances (as defined
below) owing to the Lender by the Borrowers pursuant to the Credit Agreement
dated as of October 28, 1999 (as amended, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"; terms defined therein being used
herein as therein defined) among the Borrowers, MicroAge, Inc., the Lender and
certain other lender parties party thereto, Citibank, N.A., as Collateral Agent,
IBM Credit Corporation, as Documentation Agent, The CIT Group/Business Credit,
Inc., as Syndication Agent, and Citibank, N.A., as Administrative Agent and for
the Lender and such other lender parties, on the Termination Date.
The Borrowers jointly and severally promise to pay interest on the unpaid
principal amount of each Working Capital Advance from the date of such Working
Capital Advance until such principal amount is paid in full, at such interest
rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Administrative Agent, at
_______________, _______________ __________ in same day funds. Each Working
Capital Advance owing to the Lender by the Borrowers and the maturity thereof,
and all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto,
which is part of this Promissory Note; PROVIDED, HOWEVER, that the failure of
the Lender to make any such recordation or endorsement shall not affect the
Obligations of the Borrowers under this Promissory Note.
This Promissory Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other things,
(i) provides for the making of advances (the "WORKING CAPITAL ADVANCES") by the
Lender to the Borrowers from time to time in an aggregate amount not to exceed
at any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrowers resulting from each such Working Capital Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The obligations of the
Borrowers under this Promissory Note and
<PAGE>
the other Loan Documents, and the obligations of the other Loan Parties under
the Loan Documents, are secured by the Collateral as provided in the Loan
Documents.
MICROAGE TECHNOLOGY SERVICES, L.L.C.,
as Borrower
By /s/ James R. Daniel
-------------------------------------
Title: Treasurer
------------------------------
PINACOR, INC.,
as Borrower
By /s/ James R. Daniel
-------------------------------------
Title: Treasurer
------------------------------
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
================================================================================
Amount of Unpaid
Amount of Principal Paid Principal Notation
Date Advance or Prepaid Balance Made By
================================================================================
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<PAGE>
EXHIBIT B
FORM OF
NOTICE OF BORROWING
Citibank, N.A.,
as Administrative Agent
under the Credit Agreement
referred to below
____________________
____________________ [Date]
Attention: ____________________________
Ladies and Gentlemen:
The undersigned, MicroAge Technology Services, L.L.C. and Pinacor, Inc.,
refer to the Credit Agreement dated as of October 28, 1999 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
the terms defined therein being used herein as therein defined), among the
undersigned,, MicroAge, Inc., the Lender Parties party thereto, Citibank, N.A.,
as Collateral Agent, IBM Credit Corporation, as Documentation Agent, and The CIT
Group/Business Credit, Inc., as Syndication Agent, and Citibank, N.A., as
Administrative Agent and for the Lender Parties, and hereby jointly gives you
notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"PROPOSED BORROWING") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _________ __, ____.
(ii) The Facility under which the Proposed Borrowing is requested is the
_______________ Facility.
(iii) The Type of Advances comprising the Proposed Borrowing is [Base Rate
Advances] [Eurodollar Rate Advances].
(iv) The aggregate amount of the Proposed Borrowing is $__________.
[(v) The initial Interest Period for each Eurodollar Rate Advance made as
part of the Proposed Borrowing is __________ month[s].]
<PAGE>
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan Document
are correct on and as of the date of the Proposed Borrowing, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date other than any
such representations or warranties that, by their terms, refer to a
specific date other than the date of the Proposed Borrowing, in which case,
as of such specific date;
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default; and
(C) the sum of the Loan Values of the Eligible Collateral MINUS
$20,000,000 exceeds the aggregate principal amount of the Working Capital
Advances PLUS Swing Line Advances PLUS Letter of Credit Advances to be
outstanding PLUS the Available Amount of all Letters of Credit then
outstanding after giving effect to the Proposed Borrowing.
Manual delivery of an executed counterpart of this Notice of Borrowing by
telecopier shall be effective as delivery of an original executed counterpart of
this Notice of Borrowing.
Very truly yours,
MICROAGE TECHNOLOGY SERVICES, L.L.C.
By: /s/ James R. Daniel
------------------------------------------
Title: Treasurer
-------------------------------------
PINACOR, INC.
By: /s/ James R. Daniel
------------------------------------------
Title: Treasurer
-------------------------------------
<PAGE>
EXHIBIT C
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of October 28, 1999 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"; the terms defined therein, unless otherwise defined herein, being
used herein as therein defined) among, MicroAge Technology Services, L.L.C., a
Delaware limited liability company ("MTS"), Pinacor, Inc., a Delaware
corporation ("PINACOR", and together with MTS, the "BORROWERS"), MicroAge, Inc.,
a Delaware corporation (the "PARENT GUARANTOR"), the Lender Parties party
thereto, Citibank, N.A., as Collateral Agent, IBM Credit Corporation, as
Documentation Agent, The CIT Group/Business Credit, Inc., as Syndication Agent,
and Citibank, N.A., as Administrative Agent and for the Lender Parties.
Each "Assignor" referred to on Schedule 1 hereto (each, an "ASSIGNOR") and
each "Assignee" referred to on Schedule 1 hereto (each, an "ASSIGNEE") agrees
severally with respect to all information relating to it and its assignment
hereunder and on Schedule 1 hereto as follows:
1. Such Assignor hereby sells and assigns, without recourse except as to
the representations and warranties made by it herein, to such Assignee, and such
Assignee hereby purchases and assumes from such Assignor, an interest in and to
such Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement. After giving
effect to such sale and assignment, such Assignee's Commitments and the amount
of the Advances owing to such Assignee will be as set forth on Schedule 1
hereto.
2. Such Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest or interests being assigned by it hereunder and
that such interest or interests are free and clear of any adverse claim; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
any Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, any Loan Document or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note or Notes held by such Assignor and requests that the
Administrative Agent exchange such Note or Notes for a new Note or Notes payable
to the order of such Assignee in an amount equal to the Commitments assumed by
such Assignee pursuant hereto or new Notes payable to the order of such Assignee
in an amount equal to the Commitments assumed by such Assignee pursuant
<PAGE>
hereto and such Assignor in an amount equal to the Commitments retained by such
Assignor under the Credit Agreement, respectively, as specified on Schedule 1
hereto.
3. Such Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon any Agent, any Assignor or any other Lender Party and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan Documents as are
delegated to such Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Lender Party; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 2.12 of
the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. The effective date for this Assignment and Acceptance (the
"EFFECTIVE Date") shall be the date of acceptance hereof by the Administrative
Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, (i) such Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender Party thereunder and (ii) such Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement (other than its
rights and obligations under the Loan Documents that are specified under the
terms of such Loan Documents to survive the payment in full of the Obligations
of the Loan Parties under the Loan Documents to the extent any claim thereunder
relates to an event arising prior to the Effective Date of this Assignment and
Acceptance) and, if this Assignment and Acceptance covers all of the remaining
portion of the rights and obligations of such Assignor under the Credit
Agreement, such Assignor shall cease to be a party thereto.
6. Upon such acceptance and recording by the Administrative Agent, from and
after the Effective Date, the Administrative Agent shall make all payments under
the Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to such Assignee. Such Assignor and such
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
<PAGE>
8. This Assignment and Acceptance 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. Manual delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of an original executed counterpart of
this Assignment and Acceptance.
IN WITNESS WHEREOF, each Assignor and each Assignee have caused Schedule 1
to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
<PAGE>
SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<CAPTION>
ASSIGNOR
WORKING CAPITAL FACILITY
<S> <C> <C> <C> <C> <C>
Percentage interest assigned % % % % %
Working Capital Commitment assigned $ $ $ $ $
Aggregate outstanding principal amount of
Working Capital Advances assigned $ $ $ $ $
Principal amount of Note
payable to ASSIGNOR $ $ $ $ $
LETTER OF CREDIT FACILITY
Letter of Credit Commitment assigned $ $ $ $ $
Letter of Credit Commitment retained $ $ $ $ $
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASSIGNEE
WORKING CAPITAL FACILITY
<S> <C> <C> <C> <C> <C>
Percentage interest assigned % % % % %
Working Capital Commitment assigned $ $ $ $ $
Aggregate outstanding principal amount of
Working Capital Advances assigned $ $ $ $ $
Principal amount of Note
payable to ASSIGNEE $ $ $ $ $
LETTER OF CREDIT FACILITY
Letter of Credit Commitment assumed $ $ $ $ $
</TABLE>
<PAGE>
Effective Date (if other than date of acceptance by Administrative Agent):
(1) _________ __, ____
ASSIGNORS
, as Assignor
--------------------------
By
----------------------------------------
Title:
------------------------------------
Dated: _________ __, ____
, as Assignor
--------------------------
By
----------------------------------------
Title:
------------------------------------
Dated: _________ __, ____
, as Assignor
--------------------------
By
----------------------------------------
Title:
------------------------------------
Dated: _________ __, ____
, as Assignor
--------------------------
By
----------------------------------------
Title:
------------------------------------
Dated: _________ __, ____
, as Assignor
--------------------------
By
----------------------------------------
Title:
------------------------------------
Dated: _________ __, ____
- ----------
(1) This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Administrative Agent.
<PAGE>
ASSIGNEES
, as Assignee
--------------------------
By
-----------------------------------------
Title:
----------------------------------
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
, as Assignee
--------------------------
By
-----------------------------------------
Title:
----------------------------------
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
, as Assignee
--------------------------
By
-----------------------------------------
Title:
----------------------------------
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
, as Assignee
--------------------------
By
-----------------------------------------
Title:
----------------------------------
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
, as Assignee
--------------------------
By
-----------------------------------------
Title:
----------------------------------
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
Accepted (2)[and Approved] this ____
day of ___________, ____
CITIBANK, N.A.,
as Administrative Agent
By /s/ Claudia Slacik
- ------------------------------
Title: Vice President
- ------------------------------
(3)[Approved this ____ day
of _____________, ____
MICROAGE, INC.
By /s/ James R. Daniel
- ------------------------------
Title: CFO, ExVP & Treasurer
- ------------------------------
- ----------
(2) Required if the Assignee is an Eligible Assignee solely by reason of clause
(a)(viii) or (b) of the definition of "Eligible Assignee".
(3) See footnote 2.
AMENDMENT NO. 1 AND WAIVER TO THE
CREDIT AGREEMENT
Dated as of January 30, 2000
AMENDMENT NO. 1 AND WAIVER TO THE CREDIT AGREEMENT (this "AMENDMENT")
among MicroAge Technology Services, L.L.C., a Delaware limited liability
company, and Pinacor, Inc., a Delaware corporation (the "BORROWERS"), MicroAge,
Inc., a Delaware corporation (the "PARENT GUARANTOR"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "LENDERS"), IBM Credit Corporation, as
documentation agent, The CIT Group/Business Credit, as syndication agent, and
Citibank, N.A., as collateral agent and administrative agent (the "AGENT") for
the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrowers, the Parent Guarantor, the Lenders and the Agent
have entered into a Credit Agreement dated as of October 28, 1999 (the "CREDIT
AGREEMENT"). Capitalized terms not otherwise defined in this Amendment have the
same meanings as specified in the Credit Agreement.
(2) The Borrowers have requested that the Credit Agreement be amended
to permit the amendment of Attachment E to the Amended and Restated Agreement
for Wholesale Financing dated October 29, 1999 (the "IBMCC AGREEMENT") between
IBM Credit Corporation, MicroAge Computer Centers, Inc., MTS Holding Company and
the Borrowers from time to time to amend the list of authorized suppliers with
the consent of only the Agent. The Borrowers have further requested that the
Required Lenders consent to the amendment of the IBMCC Agreement as set forth on
Schedule I attached to this Amendment.
(3) As described in Schedule II attached to this Amendment, the
Borrowers have proposed to create two new bankruptcy-remote Subsidiaries (the
"NEW MORTGAGE SUBSIDIARIES") to facilitate a $13,000,000 mortgage financing on
the property located at 1330 West Southern, Tempe, Arizona (the "PROPERTY"). The
proposed lender of such mortgage financing has requested that the New
Subsidiaries be excluded from the operation of Section 5.01(j) of the Credit
Agreement (Covenant to Guarantee Obligations and Give Security).
(4) As described in Schedule III attached to this Amendment, the
Borrowers have proposed to sell the assets of the Latin American Division of
Pinacor and Pinacor's Subsidiaries that distribute technology products in Latin
America (collectively, "PLA"). The proposed structure of the sale of PLA
includes an Investment in the buyer of such assets in the form of intercompany
notes and an agreement to provide a $4,000,000 letter of credit for such buyer
for a period of six months.
1
<PAGE>
(5) The Borrowers have proposed to form a new Subsidiary of MTS (the
"BTOB SUBSIDIARY") to which MTS would contribute its business to business
Internet assets and business. The Borrowers have requested that up to 20% of the
capital stock of the BtoB Subsidiary be made available as stock options or other
equity incentives for officers and employees of the BtoB Subsidiary.
(6) The Borrowers have requested that the financial covenants
contained in Section 5.04 the Credit Agreement be amended as set forth below.
(7) The Borrowers have requested that the Required Lenders authorize
the Agent to amend the Intercreditor Agreement dated as of October 29, 1999 (the
"IBM INTERCREDITOR AGREEMENT") between IBM Credit Corporation and the Agent to
permit IBM Credit Corporation to have a first priority Lien on all Receivables
owed to the Borrowers from time to time by International Business Machines
Corporation and IBM Credit Corporation as security for the Borrowers'
obligations under the IBMCC Agreement.
(8) The Required Lenders are, on the terms and conditions stated
below, willing to grant the request of the Borrowers and the Borrowers and the
Required Lenders have agreed to amend the Credit Agreement as hereinafter set
forth.
SECTION 1. PHASE I AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective as of January 30, 2000 and subject to the satisfaction
of the conditions precedent set forth in Section 6(a), hereby amended as
follows:
(a) Section 1.01 is amended as follows:
(i) deleting the definition of "Fixed Charge Coverage Ratio" in
its entirety;
(ii) adding the following definition in the appropriate
alphabetical order:
"INTEREST COVERAGE RATIO" means, at any date of determination,
the ratio of (a) Consolidated EBITDA to (b) interest payable on, and
amortization of debt discount in respect of, all Debt for Borrowed
Money (including expenses incurred under the Receivables Sales
Agreements and flooring subsidies), in each case, of or by the Parent
Guarantor and its Subsidiaries during the applicable period most
recently ended for which financial statements are required to be
delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as
the case may be.
(iii) by amending clause (a) of the definition of "Debt/EBITDA
Ratio" in full to read as follows:
(a) the average of the sum of (i) Consolidated total Debt for Borrowed
Money plus (ii) the Available Amount of Letters of Credit, in each
case of the Parent Guarantor and its Subsidiaries as at the end of
2
<PAGE>
each week ended within the most recently ended fiscal quarter of the
Parent Guarantor for which financial statements are required to be
delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as
the case may be,
(iv) by amending the definition of "Applicable Letter of Credit
Fee" by (1) deleting the phrase "4.25:1.0 or greater" below the phrase
"LEVEL VI" in the chart and substituting therefor the phrase "4.25:1.0
or greater, but less than 6.00:1.0", and (2) inserting at the bottom
of the chart the following new "LEVEL VII":
LEVEL VII
---------
6.00:1.0 or greater 3.125%
and (3) by deleting in clause (B) of the PROVISO the phrase
"Level VI" and substituting therefor the phrase "Level VII";
and (v) by amending the definition of "Applicable Margin" by (1)
deleting the phrase "4.25:1.0 or greater" below the phrase "LEVEL VI"
in the chart and substituting therefor the phrase "4.25:1.0 or
greater, but less than 6.00:1.0", and (2) inserting at the bottom of
the chart the following new "LEVEL VII":
LEVEL VII
---------
6.00:1.0 or greater 2.50% 3.50%
and (3) by deleting in clause (B) of the PROVISO the phrase
"Level VI" and substituting therefor the phrase "Level VII".
(b) Section 2.06(b)(ii) is hereby amended by inserting immediately
after the phrase "the Letter of Credit Advances and the Swing Line
Advances" the phrase "and deposit an amount in the L/C Cash Collateral
Account".
(c) Section 5.02(b)(iii)(E) is amended in full to read as follows:
(E) Debt secured by a mortgage on the real property located at
1330 West Southern, Tempe, Arizona in an aggregate principal amount
not to exceed $15,000,000, together with indemnification and guaranty
of rent obligations customary for such mortgage financings,
(d) Section 5.02(g)(iv) is amended in full to read as follows:
(iv) the Parent Guarantor and the Borrowers may issue stock
options to the directors and employees of such Loan Party and the
Subsidiary of MTS capitalized with the business to business Internet
assets and business of MTS (the "BTOB SUBSIDIARY") may issue stock
options to the officers and employees of the BtoB Subsidiary in an
aggregate amount not to exceed 20% of the capital stock of the BtoB
Subsidiary.
3
<PAGE>
(e) Section 5.02(k) is amended by (i) adding after the date "October
28, 1999" the parenthetical "(the "IBMCC AGREEMENT")" and (ii) adding to
the end thereof the following proviso:
PROVIDED, that any amendment to Attachment E (Authorized Suppliers) of
the IBMCC Agreement may be made with the consent of the Administrative
Agent.
(f) Section 5.03(b) is amended by inserting immediately after the
phrase "As soon as available and" the following language:
(x) in any event within 45 days after the end of each Fiscal Year,
preliminary Consolidated and Consolidating statements of income and
cash flows of the Parent Guarantor and its Subsidiaries for such
Fiscal Year, in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer of the
Parent Guarantor as having been prepared in accordance with GAAP,
together with (i) a certificate of said officer stating that no
Default has occurred and is continuing or, if a Default has occurred
and is continuing, a statement as to the nature thereof and the action
that the Parent Guarantor has taken and proposes to take with respect
thereto and (ii) a schedule in form satisfactory to the Administrative
Agent of the computations used by the Parent Guarantor in determining
compliance with the covenants contained in Section 5.04, PROVIDED that
in the event of any change in GAAP used in the preparation of such
financial statements, the Parent Guarantor shall also provide, if
necessary for the determination of compliance with Section 5.04, a
statement of reconciliation conforming such financial statements to
GAAP and (y)
(g) Section 5.03(d) is amended by inserting immediately after the
phrase "within 30 days after the end of each month" the parenthetical
phrase "(other than any month that is the last month of a Fiscal Year or of
the first three fiscal quarters of a Fiscal Year for which financial
statements are delivered pursuant to Section 5.03(b) or (c), as the case
may be)".
(h) Section 5.03(n) is amended by deleting the figure "30" and
substituting therefor the figure "60".
(i) Section 5.03(o) is amended by deleting the figure "30" and
substituting therefor the figure "60".
(j) Section 5.04(a) is amended by deleting the table set forth therein
and substituting therefor the following:
4
<PAGE>
Period Ratio
------ -----
Four Fiscal Quarters ended April 30, 2000 17.00:1.00
Four Fiscal Quarters ended July 31, 2000 22.00:1.00
Four Fiscal Quarters ended October 31, 2000 9.50:1.00
Four Fiscal Quarters ended January 31, 2001 6.00:1.00
Four Fiscal Quarters ended April 30, 2001 5.00:1.00
Four Fiscal Quarters ended July 31, 2001 4.00:1.00
Four Fiscal Quarters ended October 31, 2001 3.50:1.00
Four Fiscal Quarters ended January 31, 2002 3.50:1.00
Four Fiscal Quarters ended April 30, 2002 3.50:1.00
Four Fiscal Quarters ended July 31, 2002 3.50:1.00
(k) Section 5.04(b) is amended in full to read as follows:
(b) INTEREST COVERAGE RATIO. Maintain at all times an Interest
Coverage Ratio of not less than the ratio set forth below for each period
set forth below:
Period Ratio
------ -----
Fiscal Quarter ended April 30, 2000 0.25:1.00
Two Fiscal Quarters ended July 31, 2000 0.55:1.00
Three Fiscal Quarters ended October 31, 2000 0.90:1.00
Four Fiscal Quarters ended January 31, 2001 1.10:1.00
Four Fiscal Quarters ended April 30, 2001 1.30:1.00
Four Fiscal Quarters ended July 31, 2001 1.50:1.00
Four Fiscal Quarters ended October 31, 2001 1.75:1.00
Four Fiscal Quarters ended January 31, 2002 2.00:1.00
Four Fiscal Quarters ended April 30, 2002 2.00:1.00
Four Fiscal Quarters ended July 31, 2002 2.00:1.00
(l) Section 5.04(c) is amended by deleting the table set forth therein
and substituting therefor the following:
Period Amount
------ ------
Fiscal Quarter ended April 30, 2000 $ 2,500,000
Two Fiscal Quarters ended July 31, 2000 $12,000,000
Three Fiscal Quarters ended October 31, 2000 $26,000,000
Four Fiscal Quarters ended January 31, 2001 $51,000,000
Four Fiscal Quarters ended April 30, 2001 $72,000,000
Four Fiscal Quarters ended July 31, 2001 $85,000,000
Four Fiscal Quarters ended October 31, 2001 $90,000,000
Four Fiscal Quarters ended January 31, 2002 $90,000,000
Four Fiscal Quarters ended April 30, 2002 $90,000,000
Four Fiscal Quarters ended July 31, 2002 $90,000,000
5
<PAGE>
SECTION 2. PHASE I WAIVERS TO THE CREDIT AGREEMENT. Effective as of
January 30, 2000 and subject to the satisfaction of the conditions precedent set
forth in Section 6(a), the Required Lenders hereby agree to waive (a) Section
5.02(k) of the Credit Agreement to permit the Borrowers to enter into an
amendment to the IBMCC Agreement to reflect the terms set forth on Schedule I to
this Amendment, (b) Section 5.02(f) of the Credit Agreement to permit the
Borrowers to contribute the Property to the New Mortgage Subsidiaries, Section
5.01(j) of the Credit Agreement to exclude the New Mortgage Subsidiaries from
the operation of Section 5.01(j) of the Credit Agreement and Section 5.02(q) to
permit the creation of the New Mortgage Subsidiaries, and (c) Section 5.02(f) of
the Credit Agreement to permit the contribution of the assets and business of
the business to business Internet operations of MTS to the BtoB Subsidiary and
further Investments in an aggregate amount outstanding not to exceed $15,000,000
at any time and Section 5.02(q) to permit the creation of the BtoB Subsidiary
(it being understood that the provisions of Section 5.01(j) shall be applicable
to the BtoB Subsidiary).
SECTION 3. CONSENT TO AMENDMENT OF IBM INTERCREDITOR AGREEMENT.
Effective as of January 30, 2000 and subject to the satisfaction of the
conditions precedent set forth in Section 6(a), the Required Lenders hereby (a)
consent and authorize the Agent to enter into an amendment to the IBM
Intercreditor Agreement to permit IBM Credit Corporation to have a first
priority Lien on the Receivables owed to the Borrowers by International Business
Machines as security for the Borrowers' obligations under the IBMCC Agreement
and (b) consent to the amendment of the IBMCC Agreement to reflect the terms set
forth on Schedule I to this Amendment.
SECTION 4. PHASE II AMENDMENTS TO THE CREDIT AGREEMENT. The Credit
Agreement is, effective as of January 30, 2000 and subject to the satisfaction
of the conditions precedent set forth in Section 6(b), hereby amended by
inserting at the end of Section 9.01(a)(i)(C) the following parenthetical
phrase: "(other than to release any Subsidiary Guarantor, the stock or assets of
which have been sold in accordance with Section 5.02(e))".
SECTION 5. PHASE II WAIVERS TO THE CREDIT AGREEMENT. Effective as of
January 30, 2000 and subject to the satisfaction of the conditions precedent set
forth in Section 6(b), the Lenders hereby agree to waive Section 5.02(e) of the
Credit Agreement to permit the Borrowers to sell the assets of PLA and Section
5.02(f) of the Credit Agreement to permit the Borrowers to acquire an equity
6
<PAGE>
interest in the buyer of the assets of PLA and to provide a letter of credit in
an amount not to exceed $4,000,000 to the buyer of the assets of PLA for a
period not to exceed six months.
SECTION 6. CONDITIONS OF EFFECTIVENESS. (a) PHASE I. Sections 1, 2 and
3 of this Amendment shall become effective as of January 30, 2000 (other than
Sections 1(a)(iv) and (v) which shall become effective as of February 17, 2000),
and only when, on or before February 17, 2000 the Agent shall have received (i)
counterparts of this Amendment executed by the Borrower and the Required Lenders
or, as to any of the Lenders, advice satisfactory to the Agent that such Lender
has executed this Amendment, (ii) the consent attached hereto executed by each
Subsidiary Guarantor, (iii) a notice from the Borrowers delivered in accordance
with Section 2.05(a) of the Credit Agreement reducing the Working Capital
Facility and the Working Capital Commitments of the Lenders ratably by not less
than $150,000,000, (iv) evidence that the provisions of the IBMCC Agreement have
been amended or waived in a manner consistent with Sections 1 and 2 of this
Amendment and (v) an amendment fee for the account of the Lenders equal to an
agreed percentage of the Working Capital Commitments of the Lenders after giving
effect to the notice delivered pursuant to clause (c) above. The effectiveness
of this Amendment is conditioned upon the accuracy of the factual matters
described herein. This Amendment is subject to the provisions of Section 9.01 of
the Credit Agreement.
(b) PHASE II. Sections 4 and 5 of this Amendment shall become
effective as of January 30, 2000, after the satisfaction of the conditions set
forth in 6(a) above, when and only when, on or before February 17, 2000 the
Agent shall have received counterparts of this Amendment executed by all the
Lenders or, as to any of the Lenders, advice satisfactory to the Agent that such
Lender has executed this Amendment.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The
Borrowers represent and warrant as follows:
(a) Each Loan Party is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Loan Documents, as amended hereby, to which it is or is
to be a party, and the consummation of the transactions contemplated
hereby, are within each Loan Party's powers, have been duly authorized by
all necessary corporate or other action and do not (i) contravene any Loan
Party's charter, by-laws or other organizational documents, (ii) violate
any law, rule or regulation (including, without limitation, Regulation X of
the Board of Governors of the Federal Reserve System), or any order, writ,
judgment, injunction, decree, determination or award, binding on or
affecting any Loan Party, any of its Subsidiaries or any of their
properties, (iii) conflict with or result in the breach of, or constitute a
default under, any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument binding on or affecting any Loan Party,
any of its Subsidiaries or any of their properties or (iv) except for the
Liens created under the Collateral Documents, as amended hereby, result in
or require the creation or imposition of any Lien upon or with respect to
any of the properties of any Loan Party or any of its Subsidiaries.
7
<PAGE>
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery or performance by
any Loan Party of this Amendment or any of the Loan Documents, as amended
hereby, to which it is or is to be a party.
(d) This Amendment has been duly executed and delivered by each
Borrower and the Parent Guarantor. This Amendment and each of the other
Loan Documents, as amended hereby, to which any Loan Party is a party are
legal, valid and binding obligations of such Loan Party, enforceable
against such Loan Party in accordance with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any
court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect (other than the Disclosed
Litigation) or (ii) purports to affect the legality, validity or
enforceability of this Amendment or any of the other Loan Documents, as
amended hereby, or the consummation of any of the transactions contemplated
hereby.
SECTION 8. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment, are and shall continue to
be in full force and effect and are hereby in all respects ratified and
confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Amendment.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 9. COSTS AND EXPENSES. The Borrowers agree to pay on demand
all costs and expenses of the Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder
8
<PAGE>
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 10. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 11. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MICROAGE TECHNOLOGY SERVICES, L.L.C.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
PINACOR, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
9
<PAGE>
Agreed as of the date first above written:
CITIBANK, N.A.,
as Agent and as Lender
By /s/ Citibank Signatory
-------------------------------------
Title: Vice President
IBM CREDIT CORPORATION
By /s/ Ronald J. Bachner
-------------------------------------
Title: Mgr. Com & Specialty Financing
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ Janet Makki
-------------------------------------
Title: AVP
FLEET CAPITAL CORPORATION
By /s/ Carmen Caporrino
-------------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ R. Shirinyam
-------------------------------------
Title: Vice President
IBJ WHITEHALL BUSINESS
CREDIT CORPORATION
By IBJ Whitehall Signatory
-------------------------------------
Title: Vice President
10
<PAGE>
DEBIS FINANCIAL SERVICES, INC.
By
-------------------------------------
Title:
FINOVA CAPITAL CORPORATION
By
-------------------------------------
Title:
GMAC COMMERCIAL CREDIT LLC
By
-------------------------------------
Title:
HELLER FINANCIAL INC.
By
-------------------------------------
Title:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By
-------------------------------------
Title:
FIRST SOURCE FINANCIAL, L.L.P.
By
-------------------------------------
Title:
11
<PAGE>
CONSENT
Dated as of February 11, 2000
The undersigned, each a Subsidiary Guarantor under the Subsidiary
Guaranty dated as of October 28, 1999 (collectively, the "SUBSIDIARY GUARANTY")
in favor of the Agent and the Lenders parties to the Credit Agreement referred
to in the foregoing Amendment, hereby consents to such Amendment and hereby
confirms and agrees that (a) notwithstanding the effectiveness of such
Amendment, the Subsidiary Guaranty and each other Loan Document to which the
undersigned is a party (including, without limitation, the Security Agreement)
is, and shall continue to be, in full force and effect and is hereby ratified
and confirmed in all respects, and (b) the Collateral Documents to which each of
the undersigned is a party and all of the Collateral described therein do, and
shall continue to, secure the payment of all of the Secured Obligations (in each
case, as defined therein).
153000 CANADA LTD.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
COMPLETE DISTRIBUTION, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
CONNECTWORKS, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
12
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CONTRACT PC, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
ECADVANTAGE, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
INTERPC DE COLOMBIA
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
INTERPC DE VENEZUELA
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
INTRACOM MARKETING, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MAXSOURCE, L.L.C.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
13
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MCCI HOLDING COMPANY
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MCSS, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE ADMINISTRATION, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE COMPUTER CENTERS, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE DEUTSCHLAND GMBH
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE EUROPE LIMITED
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE GOVERNMENT, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
14
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MICROAGE INFOSYSTEMS SERVICES, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE INFOSYSTEMS SERVICES EUROPE
LIMITED
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE L & D L.L.C.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE OF CALIFORNIA, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE PAYMASTER, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE TECHNOLOGIES, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
15
<PAGE>
MICROAGE TELESERVICES, L.L.C.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE (UK) LIMITED
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MICROAGE VENTURES, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
MTS HOLDING COMPANY
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
PCC CLEARANCE, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
PHOENIX CONNECTIONS, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
16
<PAGE>
PINACOR LOGISTICS SERVICES, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
PRI TECH SOLUTIONS, INC.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
QUALITY INTEGRATION SERVICES, L.L.C.
By /s/ Jeffrey D. McKeever
-------------------------------------
Title: Chairman
17
AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING
TABLE OF CONTENTS
SECTION 1. DEFINITIONS; ATTACHMENTS 1
1.1. Definitions. 1
1.2. Other Defined Terms. 7
1.3. Attachments. 7
SECTION 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES 7
2.1. Credit Line. 7
2.2. Product Advances. 7
2.3. Finance and Other Charges. 9
2.4. Customer Account Statements. 9
2.5. Shortfall. 10
2.6. Application of Payments. 10
2.7. Prepayment and Reborrowing By Customer. 10
SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS 10
3.1. Power of Attorney. 10
SECTION 4. SECURITY -- COLLATERAL 11
4.1. Grant. 11
4.2. Further Assurances. 12
SECTION 5. CONDITIONS PRECEDENT 12
5.1. Conditions Precedent to the Effectiveness of this Agreement. 12
5.2. Conditions Precedent to Each Product Advance. 13
53. Post Closing. 13
SECTION 6. REPRESENTATIONS AND WARRANTIES 13
6.1. Organization and Qualifications. 13
6.2 Subsidiaries 13
6.3. Rights in Collateral; Priority of Liens. 13
6.4. No Conflicts. 14
6.5. Enforceability. 14
6.6. Locations of Offices, Records and Inventory. 14
6.7. Fictitious Business Names. 14
6.8. Organization. 14
6.9. No Judgments or Litigation. 14
6.10. No Defaults. 14
6.11. Labor Matters. 15
6.12. Compliance with Law. 15
6.13. ERISA. 15
6.14. Compliance with Environmental Laws. 15
6.15. Intellectual Property. 15
6.16. Licenses and Permits. 15
6.17. Investment Company. 16
6.18. Taxes and Tax Returns. 16
6.19. Affiliate/Subsidiary Transactions. 16
6.20. Accuracy and Completeness of Information. 16
6.21. Recording Taxes. 16
6.22. Indebtedness. 16
SECTION 7. AFFIRMATIVE COVENANTS 16
7.1. Financial and Other Information. 16
7.2. Location of Collateral. 18
7.3. Changes in Customer. 18
7.4. Corporate Existence. 19
7.5. ERISA. 19
7.6. Environmental Matters. 19
7.7. Collateral Books and Records/Collateral Audit. 19
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7.8. Insurance; Casualty Loss. 20
7.9. Taxes. 20
7.10. Compliance With Laws. 21
7.11. Fiscal Year. 21
7.12. Intellectual Property. 21
7.13. Maintenance of Property. 21
7.14. Collateral. 21
7.15. Subsidiaries. 21
7.16. Additional Covenants. 22
7.17. Joint and Several Guaranty. 22
7.18. Parentl Guaranty. 23
SECTION 8. NEGATIVE COVENANTS 25
8.1. Liens. 25
8.2. Disposition of Assets. 25
8.3. Corporate Changes. 25
8.4. Mergers, Inc.. 25
8.5. Guaranties. 26
8.6. Restricted Payments. 26
8.7. Investments. 26
8.8. Affiliate/Subsidiary Transactions. 27
8.9. ERISA. 27
8.10 Additional Negative Pledges. 27
8.11. Storage of Collateral with Bailees and Warehousemen. 27
8.12. Indebtedness. 28
8.13. Loans. 28
SECTION 9. DEFAULT 28
9.1. Event of Default. 28
9.2. Acceleration. 29
9.3. Remedies. 29
9.4. Waiver. 30
SECTION 10. FINANCIAL COVENANT DEFINITIONS; FINANCIAL COVENANTS 31
10.1. Financial Covenant Definitions. 31
10.2. Financial Covenants. 34
SECTION 11 MISCELLANEOUS 36
11.1. Term; Termination. 36
11.2. Indemnification. 36
11.3. Additional Obligations. 36
11.4. LIMITATION OF LIABILITY. 36
11.5. Alteration/Waiver. 37
11.6. Severability. 37
11.7. Entire Agreement. 37
11.8. One Loan. 37
11.9. Additional Collateral. 37
11.10. No Merger or Novations. 37
11.11. Paragraph Titles. 38
11.12. Binding Effect; Assignment. 38
11.13. Notices; E-Business Acknowledgment. 38
11.14. Counterparts. 40
11.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. 40
11.16. JURY TRIAL WAIVER. 41
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AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING
This AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING (as amended,
supplemented or otherwise modified from time to time, this "Agreement") amends
and restates that Agreement for Wholesale Financing dated December 17, 1993 (as
amended from time to time, the "AWF") and is hereby dated as of the 29th day of
October, 1999, by and between IBM CREDIT CORPORATION, a Delaware corporation
with a place of business at North Castle Drive, Armonk, New York 10504 ("IBM
Credit"), MTS HOLDING COMPANY, a Delaware corporation with a place of business
at 2400 South MicroAge Way, Tempe, Arizona 85282 ("MTSI"), MICROAGE COMPUTER
CENTERS, INC., a Delaware corporation with a place of business at 2400 South
MicroAge Way, Tempe, Arizona 85282 ("MCCI"), MICROAGE TECHNOLOGY SERVICES,
L.L.C., a Delaware corporation with a place of business at 2400 South MicroAge
Way, Tempa, Arizona 85282 ("MTS" and PINACOR, INC., a Delaware corporation with
a place of business at 2400 South MicroAge Way, Tempe, Arizona 85282 ("Pinacor",
and together with , MCCI, MTS and MTSI, the "Customers" and individually a
"Customer") and MICROAGE, INC., a Delaware corporation with a place of business
at 2400 South MicroAge Way, Tempe, Arizona 85282 (the "Parent"). Notwithstanding
the foregoing, and unless otherwise indicated, any obligation of a "Customer" or
"Customers" herein shall be the joint and several obligation of MTS, MTSI, MCCI
and Pinacor.
WITNESSETH
WHEREAS, IBM Credit and Customers are parties to that certain AWF pursuant
to which IBM Credit finances the Customers' acquisition of inventory and
equipment;
WHEREAS, Parent has provided a Collateralized Guaranty in favor of IBM
Credit to guaranty the Customers' obligations under the AWF;
WHEREAS, in the course of Customers' operations, the Customers intend to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers (the "Products") (as of the date hereof the Authorized
Suppliers are as set forth on Attachment E hereto which may be amended from time
to time);
WHEREAS, the parties hereto desire to amend and restate the AWF for the
purposes of, among other things, increasing the credit line under the AWF to
finance its purchase of Products from such Authorized Suppliers, subject to the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the AWF is hereby amended and
restated in its entirety as follows:
SECTION 1. DEFINITIONS; ATTACHMENTS
1.1. DEFINITIONS. The following terms shall have the following respective
meaning in this Agreement (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Affiliate": with respect to each Loan Party, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by such Loan Party; (ii) at least 10% of such Loan Party's equity is
owned, directly or indirectly, by such Person; or (iii) at least 10% of
Customer's equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. Each of Loan Party's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of such Loan Party for purposes of this Agreement.
"Agreement": as defined in the caption.
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"Auditors": a nationally recognized firm of independent certified public
accountants selected by the Loan Parties and satisfactory to IBM Credit.
"Authorized Brands": the Products bearing the trandemarks and trade names set
forth on Attachment J on which IBM Credit has valid and enforceable first, prior
and perfected Liens.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Product Advances at such time plus the amount of a Credit Request.
"Average Daily Balance": for each Product Advance for a given period of time,
the sum of the unpaid principal of such Product Advance as of each day during
such period of time, divided by the number of days in such period of time.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by the Loan Parties to
IBM Credit from time to time, as provided herein, signed by the chief executive
officer, chief financial officer, executive vice president, controller,
treasurer or assistant treasurer of the Parent and each Customer, substantially
in the form and detail of Attachment F hereto detailing and certifying, among
other items: a summary of the Loan Parties' Authorized Brands on hand financed
by IBM Credit, the Customers' Authorized Brands on hand (excluding Authorized
Brands delivered but not invoiced by an Authorized Supplier) financed by IBM
Credit by quantity, type, model, Authorized Supplier's invoice price (net of all
applicable price reduction credits) to the Customers (if any Customer acquires
Authorized Brands through an Authorized Supplier that is an Affiliate of such
Customer the value to be assigned to such Authorized Brands shall be based on
the Authorized Supplier's invoice price less the Affiliate's gross profit (net
of all applicable price reduction credits)) and the total of the line item
values for all Authorized Brands listed on the report, the amounts and aging of
the Loan Parties accounts payable as of a specified date, all of the Loan
Parties IBM Credit borrowing activity during a specified period and the total
amount of the Loan Parties' Borrowing Base as well as the Loan Parties'
Outstanding Product Advances, Available Credit and any Shortfall Amount as of a
specified date.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Consolidated" refers to the consolidation of accounts in accordance with GAAP.
"Consolidating" refers to the presentation of the Consolidated financial
statements of the Parent and the Consolidated financial statements of each
Customer.
"Credit Agreement": The Credit Agreement as of October 29, 1999 among the
Customers and Parent, Citibank, N.A. as Collateral Agent and the lenders that
are signatories to the Credit Agreement.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
2
<PAGE>
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, demand letter, obligation, cause
of action, allegation, order, notice of non-compliance, violation, injury,
judgment, penalty or fine, cost or expense, resulting from the violation of any
Environmental Laws or the imposition of any Lien pursuant to any Environmental
Laws by any Governmental Authority by any Governmental Authority or third party
for damages, contribution, indemnification, cost recovery, compensation or
relief.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.
"Event of Default": as defined in Section 9.1.
"Extended Period Finance Charge: as defined in Attachment A.
"Financial Statements": the Consolidated and Consolidating balance sheets
(including, without limitation, securities such as stocks and investment bonds),
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of the Parent and the Customers for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"Fiscal Year" means a fiscal year of the Parent and its Consolidated
Subsidiaries ending on the Sunday nearest to October 31 in any calendar year.
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to either Customer, provided that such Person executes an
Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a
subordination agreement with IBM Credit in form and substance satisfactory to
IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customers a financing charge. IBM Credit shall
calculate the Customers' Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. Each Customer understands that if an Authorized Supplier withdraws or
reduces its funding of a Free Financing Period, IBM Credit may not offer, may
change or may cease to offer a Free Financing Period for the Customers'
purchases of Products.
"Free Financing Period Exclusion Fee": as defined in Attachment A.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"Guarantor": the Parent and all Subsidiaries of Parent and each Customer.
"Guaranty: each guaranty entered into by a Guarantor for the benefit of IBM
Credit.
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<PAGE>
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" which exist
in measurable quantity in excess of any applicable standard established under
any Environmental Laws.
"IBM Credit": as defined in the caption.
"Immaterial Subsidiary": means any Subsidiary of the Parent for which the total
assets of such Subsidiary do not exceed $25,000 .
"Indemnified Persons": as defined in Section 11.2.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases entered into, now or in
the future, with IBM Credit), (3) all obligations of such Person in respect of
letters of credit, banker's acceptances or similar obligations issued or created
for the account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"Intercompany Debt": the Indebtedness owed to any Loan Party or to a wholly
owned Subsidiary of such Loan Party from any other Loan Party or its
Subsidiaries.
"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"LIBOR" shall mean, as of the date of determination, the thirty (30) day average
of the one-month London Interbank Offered Rate as published by Bloomberg L.P.
("Bloomberg") for the previous calendar month or, in the event such average is
no longer published by Bloomberg, such other thirty day average as IBM Credit
may, in its reasonable discretion, use for determining LIBOR.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Loan Parties": means the Customers and the Parent.
"Losses": as defined in Section 7.14 (C).
"Material Adverse Effect" means a material adverse effect on (a) the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any of the Parent, the Parent and its Subsidiaries taken as a
whole, MTSI, MTSI and its Subsidiaries taken as a whole, Pinacor or Pinacor and
its Subsidiaries taken as a whole, (b) the rights and remedies of IBM Credit
under this Agreement or any Other Document or (c) the ability of any Loan Party
to perform its Obligations under this Agreement or any Other Document to which
it is or is to be a party.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
4
<PAGE>
reorganization or like proceeding, relating to any Loan Party, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from such
Loan Party to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, operating and repurchase
agreement, contracts and similar agreements executed by any Loan Party and
delivered to IBM Credit, pursuant to this Agreement or otherwise, and all
amendments, supplements and other modifications to the foregoing from time to
time.
"Other Charges": as set forth in Attachment A.
"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Product Advances charged to the Customers account with IBM Credit.
"Parent": MicroAge, Inc.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) Capital Leases as defined in Section 10.1 of this Agreement:
(6) guaranties in favor of IBM Credit;
(7) Intercompany Debt; and
8) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of Five Million Dollars ($5,000,000) (exclusive of (A) any amounts that are duly
bonded to the satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full);
5
<PAGE>
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of each Loan Party;
(7) extensions and renewals of the foregoing Permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of any Loan Party's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement or pursuant to Permitted
Indebtedness; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person" means an individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Policies": all policies of insurance required to be maintained by each Loan
Party under this Agreement or any of the Other Documents.
"Product Advance": any advance of funds made (excluding funds committed to be
made by IBM Credit under this Agreement for which Products have not been
delivered by the Authorized Supplier to any Customer) for the account of any
Customer to an Authorized Supplier in respect of an invoice delivered or to be
delivered by such Authorized Supplier to IBM Credit describing Products
purchased by such Customer, including any such advance made as of the date
hereof pursuant to the AWF.
"Product Financing Period": for each Product Advance, equal to the Free
Financing Period for such Product Advance or if there is no Free Financing
Period, such period as IBM Credit may determine from time to time.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in any Loan Party's business not to exceed the lesser of
(1) the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.
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"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness, which include Capital
Leases (as defined in Section 10,1 of this Agreement .
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.5.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Termination Date": shall mean October 18, 2002 or such other date as IBM Credit
and Customer may agree in writing from time to time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
1.2. OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. ATTACHMENTS. All attachments, exhibits, schedules and other addenda hereto,
including, but not limited to, Attachment A and Attachment B, are specifically
incorporated herein by reference and made a part of this Agreement.
SECTION 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES
2.1. CREDIT LINE. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (i) the date on which this Agreement is terminated pursuant to
Section 11.1 and (ii) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9.2, IBM Credit agrees to extend to the Customers a credit
line ("Credit Line") in the amount set forth in Attachment A pursuant to which
IBM Credit will make to the Customers, from time to time, Product Advances in an
aggregate amount at any one time outstanding not to exceed the Available Credit.
Notwithstanding any other term or provision of this Agreement, IBM Credit may,
at any time and from time to time, in its sole and absolute discretion (x)
temporarily increase the amount of the Credit Line set forth in Attachment A and
subsequently reset the Credit Line to the original amount of the Credit Line set
forth in Attachment A, in each case upon written notice to the Customers, and
(y) make Product Advances pursuant to this Agreement upon the request of
Customers in an aggregate amount at any one time outstanding in excess of the
Credit Line.
2.2. PRODUCT ADVANCES. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customers'
purchase of Products from Authorized Suppliers (as defined in the recitals to
this Agreement) upon at least a two-day prior written notice from Authorized
Suppliers. Each Customer hereby authorizes and directs IBM Credit to pay the
proceeds of Product Advances directly to the applicable Authorized Supplier in
respect of invoices delivered to IBM Credit for such Products by such Authorized
Supplier and acknowledges that (i) any delivery to IBM Credit of an invoice by
an Authorized Supplier shall be deemed as a request for a Product Advance by
such Customer, and (ii) each such Product Advance constitutes a loan by IBM
Credit to the Customers pursuant to this Agreement as if the Customers received
the proceeds of the Product Advance directly from IBM Credit. IBM Credit may in
its sole discretion, upon written notice to Customers, cease to include a
supplier as an Authorized Supplier.
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(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Each Product
Advance shall be due and payable the day following the last day of the Free
Financing Period; provided, however, IBM Credit shall extend the date payment is
due for a period of thirty (30) calendar days commencing on the day after the
end of the Free Financing Period to and including the thirtieth day following
the end of such Free Financing Period (the "Extended Period") provided that the
Customers have adequate Available Credit and provided, further that no Event of
Default has occurred under this Agreement, During the Extended Period, each
Product Advance shall accrue a finance charge specified in Attachment A as the
Extended Period Finance Charge. Each Product Advance shall accrue a finance
charge on the Average Daily Balance thereof from and including the first (1st)
day following the end of the Free Financing Period, if any, for such Product
Advance, or if no such Free Financing Period shall be in effect, from and
including the date of invoice for such Product Advance, in each case, to and
including the date such Product Advance shall become due and payable in
accordance with the terms of this Agreement. In addition, for any Product
Advance with respect to which a Free Financing Period shall not be in effect,
Customer shall pay a Free Financing Period Exclusion Fee. Such fee shall be due
and payable on the date set forth in a statement of transaction or billing
statement for such Product Advance. If it is determined that amounts received
from Customers were in excess of the highest rate permitted by law, then the
amount representing such excess shall be considered reductions to principal of
Product Advances.
(C) Each Customer acknowledges that IBM Credit does not warrant the
Collateral. Customers shall be obligated to pay IBM Credit in full even if the
Collateral is defective or fails to conform to the warranties extended by the
Authorized Supplier. The Obligations of Customers shall not be affected by any
dispute a Customer may have with any manufacturer, distributor or Authorized
Supplier. No Customer will assert any claim or defense which it may have against
any manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Each Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to such Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit for a Customer may be applied by IBM Credit to the
Outstanding Product Advances of such Customer, provided, however (i) in no event
shall IBM Credit refund any proceeds of a Supplier Credit until the indefeasible
payment in full of all of the Obligations, and (ii) Customer may direct
application as long as no Default exists. Any Supplier Credits collected by IBM
Credit shall in no way reduce Customers' debt to IBM Credit in respect of the
Outstanding Product Advances until such Supplier Credits are applied by IBM
Credit, which in each case shall be applied promptly by IBM Credit; provided,
however, that in the event such discount, credit, rebate or bonus must be
returned or disgorged or is otherwise unavailable for application, then
Customers' obligations will be reinstated as if such discount, credit, rebate or
bonus had never been applied.
(E) IBM Credit may apply any payments and Supplier Credits received by IBM
Credit to reduce finance charges first and then to principal amounts of Product
Advances owed by Customers. IBM Credit may apply principal payments to the
oldest (earliest) invoices (and related Product Advances) first, but, in any
case, all principal payments will be applied in respect of the Outstanding
Product Advances made for Products which have been sold, lost, stolen,
destroyed, damaged or otherwise disposed of prior to any other application
thereof.
(F) Each Loan Party will indemnify and hold IBM Credit harmless from and
against any claims or demands asserted by any Person relating to or arising from
the Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of either Customer or the Parent or any of their
Subsidiaries, or any act or failure to act by any Loan Party except to the
extent such claims or demands are directly attributable to IBM Credit's gross
negligence or willful misconduct. Nothing contained in the foregoing shall
impair any rights or claims which either Customer may have against any
manufacturer, distributor or Authorized Supplier.
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2.3. FINANCE AND OTHER CHARGES. (A) Finance charges for a Product Advance for a
calendar month shall be equal to (i) one twelfth (1/12) of the applicable
Product Financing Charge multiplied by (ii) the Average Daily Balance of such
Product Advance for the period when such finance charge accrues during such
calendar month multiplied by (iii) the actual number of days during such
calendar month when such finance charge accrues divided by (iv) thirty (30).
Late charges pursuant to subsection (D) of this Section 2.3 for a Product
Advance for a calendar month shall be equal to (i) one twelfth (1/12) of the
Delinquency Fee Rate multiplied by (ii) the Average Daily Balance of such
Product Advance for the period when such Product Advance is past due during such
calendar month multiplied by (iii) the actual number of days during such
calendar month when such Product Advance is past due divided by (iv) thirty
(30).
(B) The Customers hereby agree to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customers also agree to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit. The
Customers hereby acknowledge that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Product
Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customers'
Outstanding Product Advances.
(D) If any amount owed under this Agreement, including, without limitation,
any Product Advance, is not paid when due (whether at maturity, by acceleration
or otherwise), the unpaid amount thereof will bear a late charge from and
including the day after it was due and payable to and including the date IBM
Credit receives payment thereof, at a per annum rate equal to the lesser of (a)
the amount set forth in Attachment A to this Agreement as the "Delinquency Fee
Rate" and (b) the highest rate from time to time permitted by applicable law. In
addition, if any Shortfall Amount shall not be paid when due pursuant to Section
2.5 hereof, Customers shall pay IBM Credit a Shortfall Transaction Fee. If it is
determined that amounts received from Customers were in excess of such highest
rate, then the amount representing such excess, shall be considered reductions
to principal of Product Advances.
2.4. CUSTOMER ACCOUNT STATEMENTS. (A) IBM Credit will send statements of each
transaction ("SOT") hereunder to each Customer with respect to Product Advances
and other charges due on Customer's account with IBM Credit. Each SOT shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within sixty (60) calendar days after such SOT is received by such Customer,
Customer provides IBM Credit written notice specifying the error(s), if any,
contained therein by amount and transaction. In each case, in which a Customer
submits to International Business Machines Corporation ("IBM") a credit request
for a Supplier Credit ("Credit Request"), IBM Credit will add the amount of the
Credit Request to the amount of Available Credit , provided, however, that such
request (i) is verifiable by IBM, and (ii) has been submitted to IBM Credit
according to the dispute process, including but not limited to submitting all
Credit Requests via the Internet within sixty (60) days of the date of invoice,
or within thirty (30) days from the date of return of a Product damaged in
transit. The Available Credit will be decreased by the amount of the Credit
Request if IBM does not deem such Credit Request valid or invalid within thirty
(30) days of receipt of such request. For purposes of this Agreement, Credit
Request shall mean a request for a Supplier Credit to be issued by IBM for
Products (i) invoiced but not delivered, (ii) invoiced in an incorrect amount or
(iii) returned to IBM because damaged intransit.
(B) IBM Credit will send a monthly billing statements to each Customer with
respect to Product Advances, finance charges and Other Charges due. Each billing
statement shall be deemed, absent manifest error, to be correct and shall
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constitute an account stated with respect to each finance charge and Other
Charge described therein unless within sixty (60) calendar days after such
billing statement is received by such Customer, Customer provides IBM Credit
written notice objecting that such amount is incorrectly described therein and
specifying the error(s), if any, contained therein.
For each Credit Request submitted by a Customer more than thirty (30) days from
the date of invoice or the date any damaged Product is returned to IBM, an
Extended Period Finance Charge and Delinquency Fee Rate shall be charged on the
amount of such Credit Request as applicable, and IBM Credit shall deduct the
amount of such Credit Request from the Outstanding Product Advances subject to
the process set forth in Section 2.4 of this Agreement. IBM Credit may at any
time adjust such SOTs or billing statements to comply with applicable law and
this Agreement.
2.5. SHORTFALL. If on any date the Outstanding Product Advances owed by the
Customers to IBM Credit exceeds the Maximum Advance Amount (such excess, the
"Shortfall Amount"), the Customers shall immediately pay to IBM Credit an amount
equal to such Shortfall Amount.
2.6. APPLICATION OF PAYMENTS. The Customers hereby agree that all checks and
other instruments delivered to IBM Credit on account of Customers' Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. Subject to Section 2.2 (E) of this Agreement, Customer may direct
application of any all application of any and all payment as long as no Default
exists. In the Event of a Default, each Customer waives the right to direct the
application of any and all payments at any time or times hereafter received by
IBM Credit on account of the Customers' Obligations. The Loan Parties agree that
IBM Credit shall have the continuing exclusive right to apply and reapply any
and all such payments to Customers' Obligations in such manner as IBM Credit may
deem advisable notwithstanding any entry by IBM Credit upon any of its books and
records.
2.7. PREPAYMENT AND REBORROWING BY CUSTOMERS. (A) Customers may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customers or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customers.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Product Advances
may be reborrowed by Customers in accordance with the provisions of this
Agreement.
SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. POWER OF ATTORNEY. Each Loan Party hereby irrevocably appoints IBM Credit,
with full power of substitution, as its true and lawful attorney-in-fact with
full power, in good faith and in compliance with commercially reasonable
standards, in the discretion of IBM Credit, to:
(A) sign the name of such Loan Party on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated and given under this Agreement
and the Other Documents;
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(B) endorse the name of such Loan Party upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations; and
(C) sign the name of such Loan Party on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise; and
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(D) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse such Loan Party's name on any check, draft, instrument or
other item of payment of the proceeds of the Policies with respect to the
Collateral.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement and the Other Documents
are in effect or any Obligations remain outstanding. Nothing done by IBM Credit
pursuant to such power of attorney will reduce any Loan Parties' Obligations
other than Customers' payment Obligations to the extent IBM Credit has received
monies.
SECTION 4. SECURITY -- COLLATERAL
4.1. GRANT. To secure the Loan Parties' full and punctual payment and
performance of the Obligations (including obligations under any leases any Loan
Party may enter into, now or in the future, with IBM Credit) when due (whether
at the stated maturity, by acceleration or otherwise), each Loan Party hereby
grants IBM Credit a security interest in all of each Loan Party's right, title
and interest in and to the following property, whether now owned or hereafter
acquired or existing and wherever located:
(A) all inventory and equipment and all parts thereof, attachments,
accessories and accessions thereto and raw materials and work in progress
therefor, finished goods, thereof and materials used or consumed in manufacture,
production, preparation or shipping thereof, interest in mass or a joint or
other interest or right of any kind (including, without limitation, goods in
which such Loan Party has an interest or right as consignee), products thereof
and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to such Loan Party, whether or not
arising out of or in connection with the sale or lease of goods or the rendering
of services whether or not earned by performance, and all books, invoices,
documents and other records in any form evidencing or relating to any of the
foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the accounts, contract rights, chattel paper, instruments, deposit accounts,
obligations or general intangibles; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets, together with all security interests in property under
any Other Document, shall be collectively defined herein as the "Collateral".
Each Loan Party covenants and agrees with IBM Credit that: (a) the security
constituted to by this Agreement is in addition to any other security from time
to time held by IBM Credit and (b) the security hereby created is a continuing
security interest and will cover and secure the payment of all Obligations both
present and future of each Loan Party to IBM Credit.
4.2. FURTHER ASSURANCES. Each Loan Party shall, from time to time upon the
request of IBM Credit, execute and deliver to IBM Credit, or cause to be
executed and delivered, at such time or times as IBM Credit may reasonably
request such other and further documents, certificates and instruments that IBM
Credit may deem necessary to perfect and maintain perfected IBM Credit's
security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement and the Other Documents. Each
Loan Party shall make appropriate entries on its books and records disclosing
IBM Credit's security interests in the Collateral.
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SECTION 5. CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement and the obligation of IBM Credit to make an
initial Product Advance is subject to the satisfaction of , or waiver in writing
by IBM Credit of compliance with, the following conditions precedent:
(A) this Agreement executed and delivered by each Customer, the Parent and
IBM Credit;
(B) a favorable opinion of counsel for the Loan Parties in substantially
the form of Attachment H;
(C) a certificate of the secretary or an assistant secretary of each Loan
Party, in a form and substance acceptable to IBM Credit, certifying that, among
other items, (i) such Loan Party is a corporation organized under the laws of
the State of its incorporation and has its principal place of business as stated
therein, (ii) such Loan Party is registered to conduct business in specified
states and localities, (iii) true and complete copies of the articles of
incorporation and by-laws of such Loan Party are delivered therewith, together
with all amendments and addenda thereto as in effect on the date thereof, (iv)
the resolution as stated in the certificate is a true, accurate and compared
copy of the resolution adopted by such Loan Party's Board of Directors
authorizing the execution, delivery and performance of this Agreement and each
Other Document executed and delivered in connection herewith, and (v) the names
and true signatures of the officers of such Loan Party authorized to sign this
Agreement and the Other Documents;
(D) copies of certificates dated as of a recent date from the Secretary of
State or other appropriate authority evidencing the good standing of each Loan
Party in the jurisdiction of its organization and in each other jurisdiction
where the ownership or lease of its property or the conduct of its business
requires it to qualify to do business;
(E) copies of all approvals and consents from any Person in each case in
form and substance reasonably satisfactory to IBM Credit, which are required to
enable each Loan Party to authorize, or required in connection with, (a) the
execution, delivery or performance of this Agreement and each of the Other
Documents, and (b) the legality, validity, binding effect or enforceability of
this Agreement and each of the Other Documents;
(F) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
each Loan Party as set forth in Attachment A;
(G) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by each Loan Party and each Guarantor whose guaranty to
IBM Credit is intended to be secured by a pledge of its assets;
(H) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B;
(I) the Credit Agreement, with terms and conditions satisfactory to IBM
Credit, shall be executed and delivered by the parties thereto; and
(J) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2. CONDITIONS PRECEDENT TO EACH PRODUCT ADVANCE. No Product Advance will be
required to be made or renewed by IBM Credit under this Agreement unless, on and
as of the date of such Product Advance, the following statements shall be true
to the satisfaction of IBM Credit:
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(A) The representations and warranties contained in this Agreement and in
each Other Document are true and correct in all material respects on and as of
the date of such Product Advance as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Product Advance or the application of the proceeds thereof would result in or
would constitute an Event of Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Product
Advance, no Shortfall Amount exists.
Except as Customers have otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.2 (A)) for
an Product Advance hereunder shall be deemed to be a representation and warranty
by Customers that, as of and on the date of such Product Advance, the statements
set forth in (A) through (D) above are true statements. No such disclosures by
Customers to IBM Credit shall in any manner be deemed to satisfy the conditions
precedent to each Product Advance that are set forth in this Section 5.2.
5.3. POST CLOSING. Parent agrees to use its best efforts to provide, within
sixty (60) days after the Closing Date, an executed waiver of landlord lien, in
a for the seven (7) major distribution facilities, in each case in form and
substance satisfactory to IBM Credit.
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, each Loan Party represents
and warrants to IBM Credit as follows:
6.1. ORGANIZATION AND QUALIFICATIONS. Each Loan Party and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
power and authority to own its properties and assets and to transact the
businesses in which it presently is engaged and (iii) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction where it
presently is engaged in business and is required to be so qualified.
6.2. SUBSIDIARIES. Set forth in Attachment B hereto is a complete and accurate
list of all Subsidiaries of each Loan Party, showing (as to each such
Subsidiary) the jurisdiction of its incorporation, and its chief executive
office.
6.3. RIGHTS IN COLLATERAL; PRIORITY OF LIENS. Each Loan Party and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by each
Loan Party and each of its Subsidiaries pursuant to this Agreement, the
Guaranties and the Other Documents in the Collateral constitute the valid and
enforceable first, prior and perfected Liens on the Collateral, except to the
extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit or (iii) a Permitted Lien.
6.4. NO CONFLICTS. The execution, delivery and performance by each Loan Party of
this Agreement and each of the Other Documents (i) are within its corporate
power; (ii) are duly authorized by all necessary corporate action; (iii) are not
in contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.
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6.5. ENFORCEABILITY. This Agreement and all of the Other Documents executed and
delivered by each Loan Party in connection herewith are the legal, valid and
binding obligations of such Loan Party, and are enforceable in accordance with
their terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.6. LOCATIONS OF OFFICES, RECORDS AND INVENTORY. The address of the principal
place of business and chief executive office of each Loan Party and each of its
Subsidiaries as set forth on Attachment B or on any notice provided by such Loan
Party to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and
records of each Loan Party are maintained exclusively at such location.
There is no jurisdiction in which any Loan Party or any of its Subsidiaries has
any assets, equipment or inventory (except for vehicles and inventory in transit
for processing) other than those jurisdictions identified on Attachment B or on
any notice provided by the Loan Parties to IBM Credit pursuant to Section 7.7(C)
of this Agreement. Attachment B, as amended from time to time by any notice
provided by any Loan Party to IBM Credit in accordance with Section 7.7(C) of
this Agreement, also contains a complete list of the legal names and addresses
of each warehouse at which such Loan Party's and its Subsidiaries' inventory is
stored. None of the receipts received by any Loan Party or its Subsidiaries from
any warehouseman states that the goods covered thereby are to be delivered to
bearer or to the order of a named person or to a named person and such named
person's assigns.
6.7. FICTITIOUS BUSINESS NAMES. To the best of each Loan Party's knowledge after
due inquiry, no Loan Party nor any of its Subsidiaries has used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
6.8. ORGANIZATION. All of the outstanding capital stock of each Loan Party has
been validly issued, is fully paid and nonassessable.
6.9. NO JUDGMENTS OR LITIGATION. Except as set forth on Attachment B, no
judgments, orders, writs or decrees in excess of Five Million Dollars
($5,000,000) are outstanding against any Loan Party nor is there now pending or,
to the best of such Loan Parties' knowledge after due inquiry, threatened, any
litigation, contested claim, investigation, arbitration, or governmental
proceeding by or against any Loan Party.
6.10. NO DEFAULTS. Except as set forth in Attachment B and to the best of each
Loan Party's knowledge after due inquiry, no Loan Party is in default under any
term of any indenture, contract, lease, agreement, instrument or other
commitment in excess of Five Million Dollars ($5,000,000) to which it is a party
or by which it, or any of its properties are bound. No Loan Party has knowledge
of any dispute regarding any such indenture, contract, lease, agreement,
instrument or other commitment. No Default or Event of Default has occurred and
is continuing.
6.11. LABOR MATTERS. Except as set forth on any notice provided by Loan Parties
to IBM Credit pursuant to Section 7.1(H) of this Agreement, no Loan Party is a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against any Loan Party which could
reasonably be expected to have a Material Adverse Effect.
6.12. COMPLIANCE WITH LAW. No Loan Party has violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.13. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which each Customer
has established, maintained, or to which it is required to contribute
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(collectively, the "Plans") is in compliance with all applicable provisions of
ERISA and the Code and the rules and regulations thereunder as well as the
Plan's terms and conditions. There have been no "prohibited transactions" and no
"reportable event" has occurred within the last 60 months with respect to any
Plan. No Loan Party has a "multi-employer benefit plan". As used in this
Agreement the terms "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", and "multi-employer benefit plan" have the respective
meanings assigned to them in Section 3 of ERISA and any applicable rules and
regulations thereunder. No Loan Party has incurred any "accumulated funding
deficiency" within the meaning of ERISA or incurred any liability to the Pension
Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than
for premiums due in the ordinary course).
6.14. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as otherwise disclosed in
Attachment B:
(A) Each Loan Party has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) no Loan Party has generated, transported or disposed of any
Hazardous Substances in violation of any Environmental Laws; (ii) no Loan Party
is currently generating, transporting or disposing of any Hazardous Substances
in violation of any Environmental Laws; (iii) no Loan Party has knowledge that
(a) any of its real property (whether owned, leased, or otherwise directly or
indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances in violation of any Environmental Laws;
or (b) any of its business operations have contaminated lands or waters of
others with any Hazardous Substances in violation of any Environmental Laws;
(iv) no Loan Party and its respective assets are subject to any Environmental
Liability and, to the best of any Loan Party's knowledge, any threatened
Environmental Liability; (v) no Loan Party has received any notice of or
otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substance for which any Loan Party may be liable; (vi) no Loan
Party is in violation of any Environmental Law in violation of any Environmental
Laws; (vii) there are no proceedings or investigations pending against any Loan
Party with respect to any violation or alleged violation of any Environmental
Law; provided however, that the parties acknowledge that any generation,
transportation, use, storage and disposal of certain such Hazardous Substances
in any Loan Party's or its Subsidiaries' business shall be excluded from
representations (i) and (ii) above, provided, further, that each Loan Party is
at all times generating, transporting, utilizing, storing and disposing such
Hazardous Substances in accordance with all applicable Environmental Laws and in
a manner designed to minimize the risk of any spill, contamination, release or
discharge of Hazardous Substances other than as authorized by Environmental
Laws.
6.15. INTELLECTUAL PROPERTY. Each Loan Party possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade names
and trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.16. LICENSES AND PERMITS. Each Loan Party has obtained and holds in full force
and effect all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary for the operation of its businesses as presently
conducted. No Loan Party is in violation of the terms of any such franchise,
license, lease, permit, certificate, authorization, qualification, easement,
right of way, right or approval.
6.17. INVESTMENT COMPANY. No Loan Party is (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.
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6.18. TAXES AND TAX RETURNS. Each Loan Party has timely filed all federal,
state, and local tax returns and other reports which it is required by law to
file, and has either duly paid all taxes, fees and other governmental charges
indicated to be due on the basis of such reports and returns or pursuant to any
assessment received by any Loan Party, or made provision for the payment thereof
in accordance with GAAP. The charges and reserves on the books of each Loan
Party in respect of taxes or other governmental charges are in accordance with
GAAP. No tax liens have been filed against any Loan Party or any of its
property.
6.19. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party is a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
Subsidiary of such Loan Party is a party except (i) in the ordinary course of
and pursuant to the reasonable requirements of such Loan Party's business and
(ii) upon fair and reasonable terms no less favorable to such Loan Party than it
could obtain in a comparable arm's-length transaction with an unaffiliated
Person.
6.20. ACCURACY AND COMPLETENESS OF INFORMATION. All factual information
furnished by or on behalf of each Loan Party to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any of the Other Documents,
or any transaction contemplated hereby or thereby is or will be true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.
6.21. RECORDING TAXES. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Loan Parties or arrangements for the
payment of such amounts by Loan Parties have been made to the satisfaction of
IBM Credit.
6.22. INDEBTEDNESS. No Loan Party (i) has Indebtedness, other than Permitted
Indebtedness; and (ii) has guaranteed the obligations of any other Person
(except as permitted by Section 8.5).
SECTION 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. FINANCIAL AND OTHER INFORMATION. Each Loan Party shall cause to be
furnished to IBM Credit the following information within the following time
periods:
(A) Annual Financial Statements. As soon as available and in any event
within 90 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for the Parent and its Subsidiaries, including therein
Consolidated balance sheets of the Parent and its Subsidiaries as of the end of
such Fiscal Year and Consolidated statements of income and a Consolidated
statement of cash flows of the Parent and its Subsidiaries for such Fiscal Year,
in each case accompanied by an opinion acceptable to IBM Credit of Auditor,
together with (i) a certificate of such Auditor to IBM Credit stating that in
the course of the regular audit of the business of the Parent and its
Subsidiaries, which audit was conducted by such Auditor in accordance with
generally accepted auditing standards, such Auditor has obtained no knowledge
that a Default has occurred and is continuing, or if, in the opinion of such
Auditor, a Default has occurred and is continuing, a statement as to the nature
thereof, (ii) a schedule in form satisfactory to IBM Credit of the computations
used by such accountants in determining, as of the end of such Fiscal Year,
compliance with the covenants contained in Section 10.2, provided that in the
event of any change in GAAP used in the preparation of such Financial
Statements, the Parent shall also provide, if necessary for the determination of
compliance with Section 10.2 a statement of reconciliation conforming such
Financial Statements to GAAP, (iii) Consolidating balance sheets of the Parent
and the Customers as of the end of such Fiscal Year and Consolidating statements
of income and cash flows of the Parent and the Borrowers for such Fiscal Year,
all in reasonable detail and duly certified by the chief financial officer of
the Parent as having been prepared in accordance with GAAP and (iv) a
certificate of the chief financial officer of the Parent stating that no Default
has occurred and is continuing or, if a default has occurred and is continuing,
a statement as to the nature thereof and the action that the Parent has taken
and proposes to take with respect thereto;
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(B) Quarterly Financial Statement. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each Fiscal
Year, Consolidated and Consolidating balance sheets of the Parent and its
Subsidiaries as of the end of such quarter and Consolidated and Consolidating
statements of income and a Consolidated statement of cash flows of the Parent
and its Subsidiaries for the period commencing at the end of the previous fiscal
quarter and ending with the end of such fiscal quarter and Consolidated and
Consolidating statements of income and a Consolidated statement of cash flows of
the Parent and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding Fiscal Year, all in reasonable detail and duly certified
(subject to year-end audit adjustments) by the chief financial officer of the
Parent as having been prepared in accordance with GAAP, together with (i) a
certificate of said officer stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement as to
the nature thereof and the action that the Parent has taken and proposes to take
with respect thereto and (ii) a schedule in form satisfactory to IBM Credit of
the computations used by the Parent in determining compliance with the covenants
contained in Section 10.2, provided that in the event of any change in GAAP used
in the preparation of such Financial Statements, the Parent shall also provide,
if necessary for the determination of compliance with Section 10.2, a statement
of reconciliation conforming such financial statements to GAAP;
(C) Monthly Financial Statement. As soon as available and in any event
within 30 days after the end of each month, a Consolidated balance sheet of the
Parent and its Subsidiaries as of the end of such month and Consolidated and
Consolidating statements of income and a Consolidated statement of cash flows of
the Parent and its Subsidiaries for the period commencing at the end of the
previous month and ending with the end of such month and Consolidated and
Consolidating statements of income and a Consolidated statement of cash flows of
the Parent and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
month of the preceding Fiscal Year, all in reasonable detail and duly certified
by the chief financial officer or controller of the Parent;
(D) Annual Forecasts. As soon as available and in any event no later than
45 days after the end of each Fiscal Year, forecasts prepared by management of
the Parent, in form satisfactory to IBM Credit, of balance sheets, income
statements and cash flow statements on a monthly basis for the Fiscal Year
following such Fiscal Year and on an annual basis for each Fiscal Year
thereafter until the Termination Date;
(E) promptly after any Loan Party obtains knowledge of (i) the occurrence
of a Default or Event of Default, or (ii) the existence of any condition or
event which would result in such Loan Party's failure to satisfy the conditions
precedent to Product Advances set forth in Section 5, a certificate of the chief
executive officer or chief financial officer of such Loan Party specifying the
nature thereof and the Loan Party's proposed response thereto, each in
reasonable detail;
(F) promptly after any Loan Party obtains knowledge of (i) any
proceeding(s) being instituted or threatened to be instituted by or against such
Loan Party in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign), or (ii)
any actual or prospective change, development or event which, in any such case,
has had or could reasonably be expected to have a Material Adverse Effect, a
certificate of the chief executive officer or chief financial officer of such
Loan Party specifying the nature thereof and the Loan Party's proposed response
thereto, each in reasonable detail;
(G) promptly after any Loan Party obtains knowledge that (i) any order,
judgment or decree in excess of Five Million Dollars ($5,000,000) shall have
been entered against such Loan Party or any of its properties or assets, or (ii)
it has received any notification of a material violation of any Requirement of
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Law from any Governmental Authority, a certificate of the chief executive
officer or chief financial officer of such Loan Party specifying the nature
thereof and the Loan Party's proposed response thereto, each in reasonable
detail;
(H) promptly after any Loan Party learns of any material labor dispute to
which such Loan Party may become a party, any strikes or walkouts relating to
any of its plants or other facilities, and the expiration of any labor contract
to which the Loan Party is a party or by which it is bound, a certificate of the
chief executive officer or chief financial officer of such Loan Party specifying
the nature thereof and the Loan Party's proposed response thereto, each in
reasonable detail;
(I) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or any Loan Party's
business affairs and financial condition;
(J) on the second Business Day of each week, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the first
Business Day of the same week;
(K) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports that any Loan Party or any of its
Subsidiaries sends to its stockholders, and copies of all regular, periodic and
special reports, and all registration statements, that any Loan Party or any of
its Subsidiaries files with the Securities and Exchange Commission or any
governmental authority that may be substituted therefor, or with any national
securities exchange
Each certificate, schedule and report provided by any Loan Party to IBM Credit
shall be signed by an authorized officer of such Loan Party, which signature
shall be deemed a representation and warranty that the information contained in
such certificate, schedule or report is true and accurate in all material
respects on the date as of which such certificate, schedule or report is made
and does not omit to state a material fact necessary in order to make the
statements contained therein not misleading at such time. Each financial
statement delivered pursuant to this Section 7.1 shall be prepared in accordance
with GAAP applied consistently throughout the periods reflected therein and with
prior periods.
7.2. LOCATION OF COLLATERAL. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by any Loan Party to IBM Credit in accordance with
Section 7.7(C). Such locations shall be certified quarterly to IBM Credit
substantially in the form of Attachment G. Each Loan Party shall certify to IBM
Credit on a monthly basis the legal name and, if any, the fictitious names, of
such Loan Party and all of its Subsidiaries and identify the address of all
locations such Loan Party and Subsidiaries have Collateral.
7.3. CHANGES IN CUSTOMERS. Each Loan Party shall provide thirty (30) days prior
written notice to IBM Credit of any change in such Loan Party's or any of its
Subsidiaries' name including the addition of fictitious names, chief executive
office and principal place of business, organization, form of ownership or
corporate structure; provided, however, that each Loan Party's compliance with
this covenant shall not relieve it of any of its other obligations or any other
provisions under this Agreement or any of the Other Documents limiting actions
of the type described in this Section.
7.4. CORPORATE EXISTENCE. Each Loan Party shall (A) maintain , and cause each of
its Subsidiaries to maintain its corporate existence and each Loan Party and
each of its Subsidiaries shall maintain, in full force and effect all licenses,
bonds, franchises, leases and qualifications to do business, and all contracts
and other rights necessary to the profitable conduct of its business, provided,
however, that the Parent and its Subsidiaries may consummate any merger or
consolidation permitted under Section 8.4 and provided further that neither the
Parent nor any of its Subsidiaries shall be required to preserve any right,
permit, license, approval, privilege or franchise if the Board of Directors of
the Parent or such Subsidiary shall determine that the preservation thereof is
no longer desirable in the conduct of the business of the Parent or such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to the Parent, such Subsidiary or IBM Credit, (B)
continue in, and limit its operations to, the same general lines of business as
presently conducted by it unless otherwise permitted in writing by IBM Credit
and (C) comply with all Requirements of Law.
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7.5. ERISA. Each Loan Party shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC (as defined in Section 6.12 of this Agreement) has instituted or
will institute proceedings to terminate any Plan. Notwithstanding the foregoing,
no Loan Party shall have the obligation to notify IBM Credit as to any
"reportable event" as to which the 30-day notice requirement of Section 4043(b)
has been waived by the PBGC, until such time as such Loan Party is required to
notify the PBGC of such reportable event. Such notification shall include a
certificate of the chief financial officer of such Loan Party's setting forth
details as to such "reportable event" and the action which such Loan Party
proposes to take with respect thereto, together with a copy of any notice of
such "reportable event" which may be required to be filed with the PBGC, or any
notice delivered by the PBGC evidencing its intent to institute such
proceedings. Upon request of IBM Credit, each Loan Party shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. ENVIRONMENTAL MATTERS. (A) Each Loan Party and any other Person under each
Loan Party's control (including, without limitation, agents and Affiliates under
such control) shall (i) comply with all Environmental Laws in all material
respects, and (ii) undertake to use commercially reasonable efforts to prevent
any unlawful release of any Hazardous Substance in violation of any
Environmental Laws by each Loan Party or such Person into, upon, over or under
any property now or hereinafter owned, leased or otherwise controlled (directly
or indirectly) by such Loan Party.
(B) Each Loan Party shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any Governmental
Authority with respect to the presence of any Hazardous Substances on or in any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by such Loan Party, (ii) all claims made or threatened by any Person
or Governmental Authority such against any Loan Party or any of Loan Party's
assets relating to any loss or injury resulting from any Hazardous Substance,
(iii) any Loan Party's discovery of evidence of unlawful disposal of or
environmental contamination by any Hazardous Substance on any property now or
hereinafter owned, leased or otherwise controlled (directly or indirectly) by
such Loan Party, and (iv) any occurrence or condition which could constitute a
violation of any Environmental Law.
7.7. COLLATERAL BOOKS AND RECORDS/COLLATERAL AUDIT. (A) Each Loan Party agrees
to maintain books and records pertaining to the Collateral in such detail, form
and scope as is consistent with good business practice, and agrees that such
books and records will reflect IBM Credit's interest in the Collateral.
(B) Each Loan Party agrees that IBM Credit or its agents may enter upon the
premises of any Loan Party at any time and from time to time, during normal
business hours and upon reasonable notice under the circumstances, and at any
time at all on and after the occurrence and during the continuance of an Event
of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting
and/or copying (at Loan Parties' expense) any and all records pertaining
thereto, and (iii) discussing the affairs, finances and business of the Loan
Party with any officers, employees and directors of such Loan Party or with the
Auditors. Each Loan Party also agrees to provide IBM Credit with such reasonable
information and documentation that IBM Credit deems necessary to conduct the
foregoing activities.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Each Loan Party shall give IBM Credit thirty (30) days prior written
notice of any change in the location of any Collateral, the location of its
books and records or in the location of its chief executive office or place of
business from the locations specified in Attachment B, and will execute in
advance of such change and cause to be filed and/or delivered to IBM Credit any
financing statements, landlord or other lien waivers, or other documents
reasonably required by IBM Credit, all in form and substance reasonably
satisfactory to IBM Credit.
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(D) Each Loan Party agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit herein.
7.8. INSURANCE; CASUALTY LOSS. (A) Each Loan Party agrees to maintain with
financially sound and reputable insurance companies: (i) insurance on its
properties, (ii) public liability insurance against claims for personal injury
or death as a result of the use of any products sold by it and (iii) insurance
coverage against other business risks, in each case, in at least such amounts
and against at least such risks as are usually and prudently insured against in
the same general geographical area by companies of established repute engaged in
the same or a similar business. Each Loan Party will furnish to IBM Credit, upon
its written request, the insurance certificates with respect to such insurance.
In addition, all Policies so maintained are to name IBM Credit as an additional
insured as its interest may appear.
(B) Without limiting the generality of the foregoing, each Loan Party,
shall keep and maintain, at its sole expense, the Collateral insured for an
amount not less than the amount set forth on Attachment A from time to time
opposite the caption "Collateral Insurance Amount" against all loss or damage
under an "all risk" Policy with companies mutually acceptable to IBM Credit and
each Loan Party with a lender's loss payable endorsement or mortgagee clause in
form and substance reasonably satisfactory to IBM Credit designating that any
loss payable thereunder with respect to such Collateral shall be payable to IBM
Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on
account of the Customers' Outstanding Product Advances. Each Customer agrees to
instruct each insurer to give IBM Credit, by endorsement upon the Policy issued
by it or by independent instruments furnished to IBM Credit, at least ten (10)
days written notice before any Policy shall be altered or canceled and that no
act or default of any Loan Party or any other person shall affect the right of
IBM Credit to recover under the Policies. Each Loan Party hereby agrees to
direct all insurers under the Policies to pay all proceeds with respect to the
Collateral directly to IBM Credit. If any Loan Party fails to pay any cost,
charges or premiums, or if any Loan Party fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit
hereunder shall be considered an additional debt owed by Loan Parties to IBM
Credit and are due and payable immediately upon receipt of an invoice by IBM
Credit.
7.9. TAXES. Each Loan Party agrees to pay, when due, all taxes lawfully levied
or assessed against such Loan Party or any of the Collateral before any penalty
or interest accrues thereon unless such taxes are being contested, in good
faith, by appropriate proceedings promptly instituted and diligently conducted
and an adequate reserve or other appropriate provisions have been made therefor
as required in order to be in conformity with GAAP and an adverse determination
in such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. COMPLIANCE WITH LAWS. Each Loan Party agrees to comply with all
Requirements of Law applicable to the Collateral or any part thereof, or to the
operation of its business.
7.11. FISCAL YEAR. Each Loan Party agrees to maintain its Fiscal Year unless
such Loan Party provides IBM Credit at least thirty (30) days prior written
notice of any change thereof.
7.12. INTELLECTUAL PROPERTY. Each Loan Party shall do and cause to be done all
things necessary to preserve and keep in full force and effect all registrations
of Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. MAINTENANCE OF PROPERTY. Each Loan Party shall maintain all of its
material properties (business and otherwise) in good condition and repair
(ordinary wear and tear excepted) and pay and discharge all costs of repair and
maintenance thereof and all rental and mortgage payments and related charges
pertaining thereto and not commit or permit any waste with respect to any of its
material properties.
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7.14. COLLATERAL. Each Loan Party shall:
(A) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral in excess of Five Million Dollars ($5,000,000),
provided, however Loan Party shall promptly notify IBM Credit, in any event, if
such loss, theft or destruction of or damage to any of the Collateral causes a
Shortfall Amount. Each Loan Party shall diligently file and prosecute its claim
for any award or payment in connection with any such loss, theft, destruction of
or damage to Collateral. Each Loan Party shall, upon demand of IBM Credit, make,
execute and deliver any assignments and other instruments sufficient for the
purpose of assigning any such award or payment to IBM Credit, free of
encumbrances of any kind whatsoever;
(B) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(C) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(D) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of each Loan Party, each Loan Party will promptly and duly
execute and deliver such further instruments and documents and take such further
action as IBM Credit may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests granted herein and the
payment of any and all recording taxes and filing fees in connection therewith.
7.15. SUBSIDIARIES. IBM Credit may require that a Subsidiary other than an
Immaterial Subsidiary become a party to this Agreement and may require all
Subsidiaries, Immaterial or otherwise, to become a party to any other agreement
executed in connection with this Agreement as a Guarantor or surety. Each
Customer will comply, and cause all Subsidiaries to comply with Sections 7 and 8
of this Agreement, as if such sections applied directly to such Subsidiaries.
7.16. ADDITIONAL COVENANTS. Each Loan Party acknowledges and agrees that such
Loan Party shall comply with the other covenants set forth in the attachments,
exhibits and other addenda incorporated herein and made a part of this
Agreement.
7.17. JOINT AND SEVERAL GUARANTY. (A) Each Customer hereby jointly and severally
guarantees to IBM Credit the prompt payment when due and the full, prompt, and
faithful performance of any and all Obligations upon which any Customer is in
any manner obligated, heretofore, now, or hereafter owned, contracted or
acquired by IBM Credit pursuant to this Agreement, whether the same are
individual, joint or several, primary, secondary, direct, contingent or
otherwise. Each Customer irrevocably subordinates to the full payment of amounts
due IBM Credit any and all rights to which it may be entitled, by operation of
law or otherwise, upon making any payment hereunder (i) to be subrogated to the
rights of IBM Credit against another Customer hereto with respect to such
payment or otherwise to be reimbursed, indemnified or exonerated by another
Customer in respect thereof, or (ii) to receive any payment, in the nature of
contribution or for any other reason, from another Customer hereto with respect
to such payment.
(B) Notwithstanding any provision herein to the contrary, the liability of
each Customer hereunder shall in no event exceed the maximum amount that is
valid and enforceable in any action or proceeding involving any applicable state
corporate law or any applicable state or federal bankruptcy, insolvency,
reorganization, fraudulent conveyance or other law involving the rights of
creditors generally.
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(C) The liability of each Customer hereunder is direct, absolute and
unconditional and shall not be affected by any extension, renewal or other
change in the terms of payment or performance thereof, or the release,
settlement or compromise of or with any party liable for the payment or
performance thereof, the release or nonperfection of any security thereunder, or
any change in any Customer's financial condition. Each Customer's obligation
pursuant to this Section 7.17 shall continue for so long as any sums owing to
IBM Credit by either Customer remains outstanding and unpaid, unless terminated
in the manner provided herein. Each Customer acknowledges that its obligations
hereunder are in addition to and independent of any agreement or transaction
between IBM Credit and any other Customer or any other Person creating or
reserving any lien, encumbrance or security interest in any property of any
other Customer or any other Person as security for any obligation of such
Customer.
(D) Each Customer has made an independent investigation of the financial
condition of each other Customer and guarantees the Obligations based on that
investigation and not upon any representations made by IBM Credit. Each Customer
acknowledges that it has access to current and future Customer financial
information which will enable each Customer to continuously remain informed of
each other Customer's financial condition. Each Customer also consents to and
agrees that the guarantees provided in this Section 7.17 and the Obligations
shall not be affected by IBM Credit's subsequent increases or decreases in the
credit line that IBM Credit may grant to any Customer; substitutions, exchanges
or releases of all or any part of the Collateral now or hereafter securing any
of the Obligations; sales or other dispositions of any or all of the Collateral
now or hereafter securing any of the Obligations without demands, advertisement
or notice of the time or place of the sales or other dispositions, realizing on
the Collateral to the extent IBM Credit, in its sole discretion deems proper.
(E) With respect to the guarantees provided hereunder, each Customer, in
its capacity as a guarantor, waives if permitted by applicable law (1) demand,
protest and all notices of protest or dishonor, (2) all notices of payment and
nonpayment, (3) all notices required by law, (4) any and all defenses, including
but not limited to any defense which it may have against any manufacturer,
distributor or Authorized Supplier, (5) any and all rights of set-off Customers
may have against IBM Credit and (6) all notices of nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guarantees at any time held by IBM Credit on which any Customer may, in any way,
be liable and each Customer hereby ratifies and confirms whatever IBM Credit may
do in that regard.
(F) This guaranty obligation and any and all obligations, liabilities,
terms and provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against either Customer,
whether such proceedings, actions and/or claims are federal and/or state.
7.18. PARENT GUARANTY. A. Guaranty. (i) The Parent hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at scheduled
maturity or on any date of a required prepayment or by acceleration, demand or
otherwise, of all Obligations of each Customer and its Subsidiaries now or
hereafter existing under this Agreement and any Other Document, (including,
without limitation, any extensions, modifications, substitutions, amendments or
renewals of any or all of the foregoing Obligations), whether direct or
indirect, absolute or contingent, and whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
agrees to pay any and all expenses (including, without limitation, reasonable
counsel fees and expenses) incurred by IBM Credit in enforcing any rights under
this Guaranty or any Other Document. Without limiting the generality of the
foregoing, the Parent's liability shall extend to all amounts that constitute
part of the Guaranteed Obligations and would be owed by each Customer to IBM
Credit under or in respect of this Agreement or any Other Document but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Loan Party.
(ii) The Parent hereby unconditionally and irrevocably agrees that in the event
any payment shall be required to be made to IBM Credit under this Guaranty or
any other guaranty, the Parent will contribute, to the maximum extent permitted
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by law, such amounts to each other guarantor so as to maximize the aggregate
amount paid to IBM Credit under or in respect of this Agreement or any Other
Document.
B. Guaranty Absolute. The Parent guarantees that the Guaranteed Obligations will
be paid strictly in accordance with the terms of this Agreement or any Other
Document, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of IBM Credit with
respect thereto. The Obligations of the Parent under this Guaranty are
independent of the Guaranteed Obligations or any other Obligations of any Loan
Party under this Agreement or any Other Document, and a separate action or
actions may be brought and prosecuted against the Parent to enforce this
Guaranty, irrespective of whether any action is brought against any Loan Party
or whether any Loan Party is joined in any such action or actions. The liability
of the Parent under this Guaranty shall be irrevocable, absolute and
unconditional irrespective of, and the Parent hereby irrevocably waives any
defenses it may now or hereinafter have in any way relating to, any or all of
the following:
(i) any lack of validity or enforceability of this Agreement or any Other
Document or any agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in any other term
of, all or any of the Guaranteed Obligations or any other Obligations of any
other Loan Party under this Agreement or any Other Document, or any other
amendment or waiver of or any consent to departure from this Agreement or any
Other Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any Customer,
the Parent or any of their Subsidiaries or otherwise;
(iii) any taking, exchange, release or non perfection of any collateral, or any
taking, release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Guaranteed Obligations;
(iv) any manner of application of collateral, or proceeds thereof, to all or any
of the Guaranteed Obligations, or any manner of sale or other disposition of any
collateral for all or any of the Guaranteed Obligations or any other Obligations
of any other Loan Party under this Agreement or any Other Document or any other
assets of either Customer, the Parent or any of their Subsidiaries;
(v) any change, restructuring or termination of the corporate structure or
existence of either Customer, the Parent or any of their Subsidiaries;
(vi) any failure of IBM Credit to disclose to any Loan Party or any of their
Subsidiaries any information relating to the business, condition (financial or
otherwise), operations, performance, properties or prospects of any Loan Party
now or hereafter known to IBM Credit (the Parent waiving any duty on the part of
IBM Credit to disclose such information); or
(vii) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by IBM Credit
that might otherwise constitute a defense available to, or a discharge of,
either Customer, the Parent or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by IBM Credit upon the insolvency, bankruptcy or
reorganization of either Customer, the Parent or any of their Subsidiaries or
otherwise, all as though such payment had not been made.
C. Waiver. (i) The Parent hereby unconditionally and irrevocably waives
promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Guaranty and any requirement that IBM Credit protect, secure, perfect
or insure any Lien or any property subject thereto or exhaust any right or take
any action against any Loan Party or any other Person or any Collateral.
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(ii) The Parent hereby unconditionally and irrevocably waives any right to
revoke this Guaranty and acknowledges that this Guaranty is continuing in nature
and applies to all Guaranteed Obligations, whether existing now or in the
future.
(iii) The Parent hereby unconditionally and irrevocably waives (x) any defense
arising by reason of any claim or defense based upon an election of remedies by
IBM Credit that in any manner impairs, reduces, releases or otherwise adversely
affects the subrogation, reimbursement, exoneration, contribution or
indemnification rights of the Parent or other rights of the Parent to proceed
against any of the Loan Parties, any other guarantor or any other Person or any
Collateral and (y) any defense based on any right of set off or counterclaim
against or in respect of the Obligations of the Parent hereunder.
(iv) The Parent hereby unconditionally and irrevocably waives any duty on the
part of IBM Credit to disclose to the Parent any matter, fact or thing relating
to the business, condition (financial or otherwise), operations, performance,
properties or prospects of any other Loan Party or any of its Subsidiaries now
or hereafter known by IBM Credit.
(v) The Parent acknowledges that it will receive substantial direct and indirect
benefits from the financing arrangements contemplated by this Agreement and the
Other Documents and that the waivers set forth in Sections 7.18 B. and 7.18 C.
are knowingly made in contemplation of such benefits.
D. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and
shall (a) remain in full force and effect until the latest of (i) the cash
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty, (ii) the Termination Date and, (b) be binding upon the
Parent, its successors and assigns and (c) inure to the benefit of and be
enforceable by IBM Credit and its successors, transferees and assigns.
E. Subrogation. The Parent hereby unconditionally and irrevocably agrees not to
exercise any rights that it may now or hereafter acquire against either Customer
or any other insider guarantor that arise from the existence, payment,
performance or enforcement of the Parent's Obligations under this Agreement or
any Other Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of IBM Credit against either Customer or any
other insider guarantor or any Collateral, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from either Customer or any
other insider guarantor, directly or indirectly, in cash or other property or by
set off or in any other manner, payment or security on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall have been paid in full in cash.
If any amount shall be paid to the Parent in violation of the preceding sentence
at any time prior to the latest of (a) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty, and
(b) the Termination Date such amount shall be received and held in trust for the
benefit of IBM Credit, shall be segregated from other property and funds of the
Parent and shall forthwith be paid to IBM Credit in the same form as so received
(with any necessary endorsement or assignment) to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of this Agreement or
any Other Document, or to be held as Collateral for any Guaranteed Obligations
or other amounts payable under this Guaranty thereafter arising. .
SECTION 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder:
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8.1. LIENS. No Loan Party will, directly or indirectly mortgage, assign, pledge,
transfer, create, incur, assume, permit to exist or otherwise permit any Lien or
judgment to exist on any of its property, assets, revenues or goods, whether
real, personal or mixed, whether now owned or hereafter acquired, except for
Permitted Liens.
8.2. DISPOSITION OF ASSETS. No Loan Party will, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of, or permit any of its
Subsidiaries to sell, assign, transfer or otherwise dispose of any assets other
than (i) sales of inventory and receivables (pursuant "Receivables Sales
Agreement": as defined in Section 10.1 of this Agreement) in the ordinary course
of business and short term rental of inventory as demonstrations in amounts not
material to it, and (ii) voluntary dispositions of individual assets and
obsolete or worn out property in the ordinary course of business, provided, that
the aggregate book value of all such assets and property so sold or disposed of
under this section 8.2 (ii) in any Fiscal Year shall not exceed 5% of the
consolidated assets of the Loan Party or its Subsidiaries as of the beginning of
such Fiscal Year; (iii) sales of assets for cash and for fair market value in an
aggregate amount not to exceed Ten Million Dollars ($10,000,000) in any Fiscal
Year; and (iv) the sale of the assets [Real Property] listed on Attachment B for
cash and for fair market value in a sale-leaseback transaction or otherwise.
8.3. CORPORATE CHANGES. No Loan Party will, or permit any of its Subsidiaries
to, without the prior written consent of IBM Credit, directly or indirectly,
merge, consolidate, liquidate, dissolve or enter into or engage in any operation
or activity materially different from that presently being conducted by any Loan
Party or any Guarantor, provided, however, that the Parent and its Subsidiaries
may consummate any merger or consolidation permitted under Section 8.4 of this
Agreement and provided further that neither the Parent nor any of its
Subsidiaries shall be required to preserve any right, permit, license approval,
privilege or franchise if the Board of Directors of the Parent or such
Subsidiary shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Parent or such Subsidiary, as the case may
be, and that the loss thereof is not disadvantageous in any material respect to
the Parent, such Subsidiary or IBM Credit.
8.4. MERGERS, ETC. No Loan Party shall merge into or consolidate with any Person
or permit any Person to merge into it, or permit any of its Subsidiaries to do
so, except that any Subsidiary of any Customer may merge into or consolidate
with any other Subsidiary of such Customer, provided that, in the case of any
such merger or consolidation, the Person formed by such merger or consolidation
shall be a wholly owned Subsidiary of such Customer; provided, however, that in
each case, immediately after giving effect thereto, no event shall occur and be
continuing that constitutes a Default and, in the case of any such merger to
which any Customer is a party, such Customer is the surviving corporation.
8.5. GUARANTIES. No Loan Party will, directly or indirectly, assume, guaranty,
endorse, or otherwise become liable upon the obligations of any other Person
except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities in connection with the sale of inventory or other
asset dispositions permitted hereunder, (iii) for guaranties solely in favor of
IBM Credit (iv) as provided for under Permitted Indebtedness, (v) any corporate
guaranties and (vi) real estate.
8.6. RESTRICTED PAYMENTS. Except that (A) Parent may (i) declare and pay
dividends and distributions payable only in common stock of the Parent and (ii)
except to the extent the net cash proceeds thereof are required to be applied to
the prepayment of the advances pursuant to Section 2.06(b) of the Credit
Agreement, purchase, redeem, retire, defease or otherwise acquire shares of its
capital stock with the proceeds received contemporaneously from the issue of new
shares of its capital stock with equal or inferior voting powers, designations,
preferences and rights, (B) any Subsidiary of any Customer may (i) declare and
pay cash dividends to such Customer and (ii) declare and pay cash dividends to
any other Loan Party of which it is a Subsidiary, (C) the Customers may pay cash
dividends or otherwise transfer funds to the Parent or MCCI. for operating
expenses incurred in the normal course of business by the Parent or MCCI or paid
by the Parent or MCCI on behalf of the Customers. Such expenses include all
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payroll and benefits costs for all Subsidiaries of the Parent, telephone,
travel, rent and other occupancy costs, professional expenses, including
consulting, audit, accounting and legal expenses, corporate insurance expenses,
data processing costs and other operating expenses, and (D) the Parent and the
Customers may issue stock options to the directors and employees of such Loan
Party, no Loan Party will, directly or indirectly: (i) declare or pay any
dividend (other than dividends payable solely in common stock of any Loan Party
or any Guarantor) on, or make any payment on account of, or set apart assets for
a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
any Loan Party or any warrants, options or rights to purchase any such capital
stock, whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of any Loan Party or any Guarantor; or (ii) make any optional
payment or prepayment on or redemption (including, without limitation, by making
payments to a sinking or analogous fund) or repurchase of any Indebtedness
(other than the Obligations).
8.7. INVESTMENTS. No Loan Party will, directly or indirectly, make, maintain or
acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to principal
and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to any Loan Party or any Guarantor in
settlement of claims against others by reason of an event of bankruptcy or a
composition or the readjustment of debt or a reorganization of any debtor of any
Loan Party or any Guarantors; and
(D) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation. (E) Investments by the Parent and its
Subsidiaries in their Subsidiaries outstanding on the date hereof;
(F) loans and advances to employees in the ordinary course of the business
of the Parent and its Subsidiaries as presently conducted in an aggregate
principal amount not to exceed Five Hundred Thousand Dollars ($500,000) at any
time outstanding;
(G) Investments by the Parent and its Subsidiaries in cash equivalents in
an aggregate principal amount not to exceed Five Million Dollars ($5,000,000) at
any time outstanding;
(H) Investments existing on the date hereof and described on Attachment B
hereto;
(I) Investments by the Borrowers in Hedge Agreements (as defined in Section
10 of this Agreement);
(J) Investments in Subsidiaries not existing on the date hereof that are
formed with an initial capitalization of One Million Dollars ($1,000,000) or
less, provided that the aggregate Investments permitted under this clause (J)
shall not exceed ($5,000,000) in any Fiscal Year.
8.8. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party will, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of either Customer or
any Guarantor except in the ordinary course of business and pursuant to the
reasonable requirements of any Loan Party's or any Guarantor's business upon
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fair and reasonable terms no less favorable to such Loan Party or Guarantor than
could be obtained in a comparable arm's-length transaction with an unaffiliated
Person, provided, however no Loan Party will, or permit any of its Subsidiaries
to, transfer, sell, exchange or dispose of any Collateral to any Affiliate or
Subsidiary of any Loan Party except if such transfer, sale, exchange or
disposition is subject to IBM Credit's security interest in such Collateral.
8.9. ERISA. No Loan Party will (A) terminate any Plan so as to incur a material
liability to the PBGC (as defined in Section 6.12 of this Agreement), (B) permit
any "prohibited transaction" involving any Plan (other than a "multi-employer
benefit plan") which would subject any Loan Party or any Guarantor to a material
tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to
pay to any Plan any contribution which they are obligated to pay under the terms
of such Plan, if such failure would result in a material "accumulated funding
deficiency", whether or not waived, (D) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Plan (other than a
"multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in
Section 7.5. As used in this Agreement, the terms "accumulated funding
deficiency" and "reportable event" shall have the respective meanings assigned
to them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in the Code and ERISA. For purposes of this Section 8.9, the
terms "material liability", "tax", "penalty", "accumulated funding deficiency"
and "risk of termination" shall mean a liability, tax, penalty, accumulated
funding deficiency or risk of termination which could reasonably be expected to
have a Material Adverse Effect.
8.10. ADDITIONAL NEGATIVE PLEDGES. No Loan Party will, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of Collateral or any part thereof after the occurrence and
during the continuance of an Event of Default.
8.11. STORAGE OF COLLATERAL WITH BAILEES AND WAREHOUSEMEN. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless the Loan Party or Guarantor will, concurrently with
the delivery of such Collateral to such party, cause such party to issue and
deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing
the storage of such Collateral.
8.12. INDEBTEDNESS. No Loan Party will create, incur, assume or permit to exist
any Indebtedness, except for Permitted Indebtedness.
8.13. LOANS. No Loan Party will make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or Parent or to any
officer, director or stockholder of any Loan Party or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement, and (i) stock option plans,
(ii) employee loans and (iii) Permitted Indebtedness.
SECTION 9. DEFAULT
9.1. EVENT OF DEFAULT. Any one or more of the following events shall constitute
an Event of Default by any Loan Party under this Agreement and the Other
Documents:
(A) The failure to make timely payment of the Obligations or any part
thereof when due and payable if such failure is not cured within five (5) days
of the date due during which period Customer shall be charged the Delinquency
Fee Rate set forth in Attachment A beginning on the day after the payment was
due and including the day payment is received;
(B) The failure to comply with or observe any term, covenant or agreement
contained in this Agreement or any of the Other Documents and such failure is
not cured within fifteen (15) Business Days after the earlier of the date on
which (A) a chief executive officer, chief financial officer, executive vice
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president, controller, treasurer or assistant treasurer of any Loan Party
becomes aware of such failure or (B) written notice thereof shall have been
given to the Parent by IBM Credit;
(C) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of any Loan Party or any of its officers, employees or
agents or by or on behalf of any Guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(D) Any Loan Party or any of its any Subsidiaries or any Guarantor shall
generally not pay its debts as such debts become due, become or otherwise
declare itself insolvent, file a voluntary petition for bankruptcy protection,
have filed against it any involuntary bankruptcy petition, cease to do business
as a going concern, make any assignment for the benefit of creditors, or a
custodian, receiver, trustee, liquidator, administrator or person with similar
powers shall be appointed for any Loan Party, any Subsidiary or any Guarantor or
any of its respective properties or have any of its respective properties seized
or attached, or take any action to authorize, or for the purpose of
effectuating, the foregoing, provided, however, that any Loan Party or any of
its Subsidiaries or any Guarantor shall have a period of sixty (60) days within
which to discharge any involuntary petition for bankruptcy or similar
proceeding;
(E) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;
(F) The entry of any judgment against any Loan Party or any Guarantor in an
amount in excess of Seven Million Five Hundred Thousand Dollars ($7,500,000) and
such judgment is not satisfied, dismissed, stayed or superseded by bond within
thirty (30) days after the day of entry thereof (and in the event of a stay or
supersedeas bond, such judgment is not discharged within thirty (30) days after
termination of any such stay or bond) or such judgment is not fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full;
(G) Any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any amount payable in respect of the
Credit Agreement and such failure shall continue after the applicable cure
period, if any, specified in the Credit Agreement; or any other event shall
occur or condition shall exist under the Credit Agreement or any agreement or
instrument relating thereto, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of the Credit
Agreement or otherwise to cause the debt to mature;
(H) The dissolution or liquidation of any Loan Party or any of Subsidiaries
or its directors or stockholders shall take any action to dissolve or liquidate
either Customer, any Subsidiary or any Guarantor unless otherwise provided for
herein;
(I) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of its opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
(J) There issues a warrant of distress for any rent or taxes with respect
to the warehouse facilities located in Tempe, AZ, Miami, FL, Paulsboro, NJ,
Sparks, NV, Allen, TX and Cincinnati, OH and any additional warehouse locations
occupied by any Loan Party or any of its Subsidiaries Af in or upon which the
Collateral, or any part thereof, may at any time be situated and such warrant
shall continue for a period of ten (10) Business Days from the date such warrant
is issued;
(K) Any Loan Party (other than an Immaterial Subsidiary suspends business
for a period of five (5) consecutive days;
(L) The occurrence of any event or condition that permits the holder of any
Indebtedness in excess of Five Million Dollars ($5,000,000) arising in one or
more related or unrelated transactions to accelerate the maturity thereof or the
failure of any Loan Party to pay when due any such Indebtedness;
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(M) Any Guaranty of any or all of the Obligations executed by any Guarantor
(other than an Immaterial Guarantor) in favor of IBM Credit, shall at any time
for any reason cease to be in full force and effect or shall be declared to be
null and void by a court of competent jurisdiction or the validity or
enforceability thereof shall be contested or denied by any such Guarantor, or
any such Guarantor shall deny that it has any further liability or obligation
thereunder or any such Guarantor shall fail to comply with or observe any of the
terms, provisions or conditions contained in any such Guaranty;
(N) Any Loan Party is in default under the material terms of any of the
Other Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which exceeds Seven Million Five
Hundred Thousand Dollars ($7,500,000);
(P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of any Loan Party.
9.2. ACCELERATION. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against any Loan Party: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(D) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and (b) immediately terminate the Credit Line hereunder.
9.3. REMEDIES. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Collateral, or IBM Credit may use (at
the expense of the Loan Parties) such of the supplies or space of the Loan
Parties business or otherwise, as may be necessary to properly administer and
control the Collateral or the handling of collections and realizations thereon;
and (ii) foreclose the security interests created pursuant to this Agreement by
any available judicial procedure, or to take possession of any or all of the
Collateral without judicial process and to enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(B) Upon the occurrence and during the continuance of an Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of each Loan Party or IBM Credit, or in the name of such other party as IBM
Credit may designate, either at public or private sale or at any broker's board,
in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion determines that
any of the Collateral requires rebuilding, repairing, maintenance or
preparation, IBM Credit shall have the right, at its option, to do such of the
aforesaid as it deems necessary for the purpose of putting such Collateral in
such saleable form as IBM Credit shall deem appropriate. Each Loan Party hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and in
accordance with the terms of a repurchase agreement between IBM Credit and the
manufacturer or any supplier (including any Authorized Supplier) of such
Collateral constitutes a commercially reasonable sale. Each Loan Party agrees,
at the request of IBM Credit, to assemble the Collateral and to make it
available to IBM Credit at places which IBM Credit shall select, whether at the
premises of the Loan Party or elsewhere, and to make available to IBM Credit the
premises and facilities of the Loan Parties for the purpose of IBM Credit's
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taking possession of, removing or putting such Collateral in saleable form. If
notice of intended disposition of any Collateral is required by law, it is
agreed that ten (10) Business Days notice shall constitute reasonable
notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit
is hereby granted, upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, an irrevocable,
non-exclusive license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by each Loan Party
in its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Loan Parties' Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Loan Parties shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Loan
Parties or their successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. WAIVER. If IBM Credit seeks to take possession of any of the Collateral by
any court process each Loan Party hereby irrevocably waives to the extent
permitted by applicable law any bonds, surety and security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession and any demand for possession of the Collateral prior to the
commencement of any suit or action to recover possession thereof. In addition,
each Loan Party waives to the extent permitted by applicable law all rights of
set-off it may have against IBM Credit. Each Loan Party further waives to the
extent permitted by applicable law presentment, demand and protest, and notices
of non-payment, non-performance, any right of contribution, dishonor, and any
other demands, and notices required by law.
SECTION 10. FINANCIAL COVENANT DEFINITIONS; FINANCIAL COVENANTS
10.1. FINANCIAL COVENANT DEFINITIONS. Solely for purposes of this Section 10,
the following terms shall have the following meanings:
"Administrative Agent": Citibank, N.A..
"Agreement Value": means, for each Hedge Agreement, on any date of
determination, an amount determined by the Administrative Agent equal to: (a) in
the case of a Hedge Agreement documented pursuant to the Master Agreement
(Multicurrency-Cross Border) published by the International Swap and Derivatives
Association, Inc. (the "Master Agreement"), the amount, if any, that would be
payable by any Loan Party or any of its Subsidiaries to its counterparty to such
Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on
such date of determination, (ii) such Loan Party or Subsidiary was the sole
"Affected Party", and (iii) the Administrative Agent was the sole party
determining such payment amount (with the Administrative Agent making such
determination pursuant to the provisions of the form of Master Agreement); or
(b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market
value of such Hedge Agreement, which will be the unrealized loss on such Hedge
Agreement to the Loan Party or Subsidiary of a Loan Party to such Hedge
Agreement determined by the Administrative Agent based on the settlement price
of such Hedge Agreement on such date of determination, or (c) in all other
cases, the mark-to-market value of such Hedge Agreement, which will be the
unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a
Loan Party to such Hedge Agreement determined by the Administrative Agent as the
amount, if any, by which (i) the present value of the future cash flows to be
paid by such Loan Party or Subsidiary exceeds (ii) the present value of the
future cash flows to be received by such Loan Party or Subsidiary pursuant to
such Hedge Agreement; capitalized terms used and not otherwise defined in this
definition shall have the respective meanings set forth in the above described
Master Agreement
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Borrowers: as defined in the Credit Agreement.
"Capital Expenditures": means, for any Person for any period, the sum of,
without duplication, (a) all expenditures made, directly or indirectly, by such
Person or any of its Subsidiaries during such period for equipment, fixed
assets, real property or improvements, or for replacements or substitutions
therefor or additions thereto, that have been or should be, in accordance with
GAAP, reflected as additions to property, plant or equipment on a Consolidated
balance sheet of such Person or have a useful life of more than one year plus
(b) the aggregate principal amount of all Debt (including Obligations under
Capitalized Leases) assumed or incurred in connection with any such
expenditures. For purposes of this definition, the purchase price of equipment
that is purchased simultaneously with the trade-in of existing equipment or with
insurance proceeds shall be included in Capital Expenditures only to the extent
of the gross amount of such purchase price less the credit granted by the seller
of such equipment for the equipment being traded in at such time or the amount
of such proceeds, as the case may be.
"Capitalized Leases": means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Concentration Account": has the meaning specified in the Security
Agreement.
"Contingent Obligation": means, with respect to any Person, any Obligation or
arrangement of such Person to guarantee or intended to guarantee any Debt,
leases, dividends or other payment Obligations ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, (a) the direct or indirect guarantee,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the Obligation of a primary obligor, (b) the Obligation to make
take-or-pay or similar payments, if required, regardless of nonperformance by
any other party or parties to an agreement or (c) any Obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, assets, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the holder of such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made (or, if less, the maximum amount of
such primary obligation for which such Person may be liable pursuant to the
terms of the instrument evidencing such Contingent Obligation) or, if not stated
or determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.
"Debt": of any Person means, without duplication for purposes of calculating
financial ratios, (a) all indebtedness of such Person for borrowed money, (b)
all Obligations of such Person for the deferred purchase price of property or
services (other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capitalized
Leases, (f) all Obligations of such Person under acceptance, letter of credit or
similar facilities, (g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any capital stock of
or other ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, valued, in the case
of Redeemable Preferred Stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) all Obligations of
such Person in respect of Hedge Agreements, valued at the Agreement Value
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thereof, (i) all Contingent Obligations of such Person and (j) all indebtedness
and other payment Obligations referred to in clauses (a) through (i) above of
another Person secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such indebtedness or other payment Obligations.
"Debt/EBITDA Ratio": means, at any date of determination, the ratio of (a) the
average Consolidated total Debt for Borrowed Money of the Parent Guarantor and
its Subsidiaries as at the end of each week ended within the most recently ended
fiscal quarter of the Parent Guarantor for which Financial Statements are
required to be delivered to the Lender Parties pursuant to Section 7.1(A) or (B)
of this Agreement, as the case may be, to (b) Consolidated EBITDA of the Parent
Guarantor and its Subsidiaries for such fiscal quarter and the immediately
preceding three fiscal quarters.
"Debt for Borrowed Money": of any Person means all Debt of the types described
in clauses (a) through (e) of the definition of "Debt" less amounts on deposit
in the Cash Concentration Account.
"EBITDA": means, for any period, the sum, determined on a Consolidated basis, of
(a) net income (or net loss), (b) interest expense (including implied interest
expenses incurred under the Receivables Sales Agreement and flooring subsidies,
in each case determined on a basis consisted with past practice, (c) income tax
expense, (d) depreciation expense, (e) amortization expense, (f) extraordinary,
non-recurring, transactional or unusual losses deducted in calculating net
income less extraordinary, non-recurring, transactional or unusual gains added
in calculating net income and (g) any non-cash expenses, non-cash losses or
other non-cash charges resulting from the writedown in the valuation of any
assets in each case of the Parent Guarantor and its Subsidiaries, determined in
accordance with GAAP for such period. The amounts referred to in clauses (f) and
(g) are agreed to be $152,298,000 and $5,411,000 for the second and third
quarters of Fiscal Year 1999, respectively.
"Fee Letter": means the fee letter dated September 9, 1999 between the Parent
Guarantor and the Administrative Agent, as amended.
"Fixed Charge Coverage Ratio" means, at any date of determination, the ratio of
(a) Consolidated EBITDA minus Capital Expenditures to (b) interest payable on,
and amortization of debt discount in respect of, all Debt for Borrowed Money
(including expenses incurred under the Receivables Sales Agreements and
floorplanning subsidies, in each case determined on a basis consistent with past
practice), in each case, of or by the Parent Guarantor and its Subsidiaries
during the applicable period most recently ended for which financial statements
are required to be delivered to the Lender Parties pursuant to Section 5.03(b)
of the Credit Agreement or (c), as the case may be.
"Guarantors" means the Parent Guarantor and the Subsidiary Guarantors.
"Hedge Agreements": means interest rate swap, cap or collar agreements, interest
rate future or option contracts, currency swap agreements, currency future or
option contracts and other hedging agreements.
"Hedge Bank": means any Lender Party or an Affiliate of a Lender Party in its
capacity as a party to a Secured Hedge Agreement.
"Issuing Bank": as defined in the Credit Agreement.
"Lender Party": as defined in the Credit Agreement.
"Lenders: as defined in the Credit Agreement.
"Letter of Credit Advance": means an advance made by the Issuing Bank or any
Lender pursuant to Section 2.03(c) of the Credit Agreement.
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"Letter of Credit Agreement": has the meaning specified in Section 2.03(a) of
the Credit Agreement.
"Letter of Credit Commitment": means, with respect to the Issuing Bank at any
time, the amount set forth opposite the Issuing Bank's name on Schedule I hereto
under the caption "Letter of Credit Commitment" or, if the Issuing Bank has
entered into one or more Assignment and Acceptances, set forth for the Issuing
Bank in the Register maintained by the Administrative Agent pursuant to Section
9.07(d) of the Credit Agreement as the Issuing Bank's "Letter of Credit
Commitment", as such amount may be reduced at or prior to such time pursuant to
Section 2.05 of the Credit Agreement.
"Letter of Credit Facility": means, at any time, an amount equal to the lesser
of (a) the amount of the Issuing Bank's Letter of Credit Commitment at such time
and (b) $150,000,000, as such amount may be reduced at or prior to such time
pursuant to Section 2.05 of the Credit Agreement.
"Letters of Credit": has the meaning specified in Section 2.01(c) of the Credit
Agreement.
"Lien" means any lien, security interest or other charge or encumbrance of any
kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan Parties": means the Borrowers and the Guarantors.
"Loan Documents": means (a) for purposes of the Credit Agreement and the Notes
and any amendment, supplement or modification hereof or thereof, (i) this
Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents,
(v) the Fee Letter, (vi) each Letter of Credit Agreement and (vii) each
Intercreditor Agreement and (b) for purposes of the Guaranties and the
Collateral Documents and for all other purposes other than for purposes of the
Credit Agreement and the Notes, (i) the Credit Agreement, (ii) the Notes, (iii)
the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each
Letter of Credit Agreement, (vii) each Secured Hedge Agreement and (viii) each
Intercreditor Agreement, in each case as amended.
"Note": means a promissory note of any Borrower payable to the order of any
Lender, in substantially the form of Exhibit A to the Credit Agreement,
evidencing the aggregate indebtedness of such Borrower to such Lender resulting
from the Working Capital Advances, Letter of Credit Advances and Swing Line
Advances made by such Lender to such Borrower, as amended.
"Obligation": means, with respect to any Person, any payment, performance or
other obligation of such Person of any kind, including, without limitation, any
liability of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding referred to in Section 6.01(f) of
the Credit Agreement. Without limiting the generality of the foregoing, the
Obligations of any Loan Party under the Loan Documents include (a) the
obligation to pay principal, interest, Letter of Credit commissions, charges,
expenses, fees, attorneys' fees and disbursements, indemnities and other amounts
payable by such Loan Party under the Loan Document and (b) the obligation of
such Loan Party to reimburse any amount in respect of any of the foregoing that
any Lender Party, in its sole discretion, may elect to pay or advance on behalf
of such Loan Party.
"Parent Guarantor": MicroAge, Inc..
"Preferred Stock": means, with respect to any corporation, capital stock issued
by such corporation that is entitled to a preference or priority over any other
capital stock issued by such corporation upon any distribution of such
corporation's assets, whether by dividend or upon liquidation.
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"Receivables Sales Agreement": means the Purchase Agreement dated as of April
30, 1997, between MicroAge Computer Centers, Inc., Pinacor, Inc., and
NationsCredit Commercial Corporation of America dba MicroAge National Credit..
"Redeemable": means, with respect to any capital stock or other ownership or
profit interest, Debt or other right or Obligation, any such right or Obligation
that (a) the issuer has undertaken to redeem at a fixed or determinable date or
dates, whether by operation of a sinking fund or otherwise, or upon the
occurrence of a condition not solely within the control of the issuer or (b) is
redeemable at the option of the holder.
"Security Agreement": has the meaning specified in Section 3.01(a)(ii) of the
Credit Agreement.
"Subsidiary Guarantors" means all Subsidiaries of the Parent Guarantor and each
other Subsidiary of any of them that shall be required to execute and deliver a
guaranty pursuant to Section 5.01(j) or Section 5.01(k) of the Credit
Agreement..
"Swing Line Advance": means an advance made by (a) Citibank, N.A. pursuant to
Section 2.01(b)or (b) any Lender pursuant to Section 2.02(b) of the Credit
Agreement.
"Working Capital Advance": as defined in Section 2.01(a) of the Credit
Agreement.
10.2. FINANCIAL COVENANTS. So long as any Product Advance or any other
Obligation of any Loan Party under this Agreement or any Other Documents shall
remain unpaid, the Parent will:
(a) DEBT TO EBITDA RATIO. Maintain at all times a Debt/EBITDA Ratio of not
more than the amount set forth below for each period set forth below:
PERIOD RATIO
------ -----
Four Fiscal Quarters ended January 31, 2000 6.70:1.00
Four Fiscal Quarters ended April 30, 2000 5.20:1.00
Four Fiscal Quarters ended July 31, 2000 5.10:1.00
Four Fiscal Quarters ended October 31, 2000 4.60:1.00
Four Fiscal Quarters ended January 31, 2001 3.80:1.00
Four Fiscal Quarters ended April 30, 2001 3.60:1.00
Four Fiscal Quarters ended July 31, 2001 3.40:1.00
Four Fiscal Quarters ended October 31, 2001 3.40:1.00
Four Fiscal Quarters ended January 31, 2002 3.40:1.00
Four Fiscal Quarters ended April 30, 2002 3.40:1.00
Four Fiscal Quarters ended July 31, 2002 3.30:1.00
(b) FIXED CHARGE COVERAGE RATIO. Maintain at all times a Fixed Charge
Coverage Ratio of not less than the ratio set forth below for each period set
forth below.
PERIOD RATIO
------ -----
Fiscal Quarter ended April 30, 2000 1.00:1.00
Two Fiscal Quarters ended July 31, 2000 1.10:1.00
Three Fiscal Quarters ended October 31, 2000 1.20:1.00
Four Fiscal Quarters ended January 31, 2001 1.20:1.00
Four Fiscal Quarters ended April 30, 2001 1.25:1.00
Four Fiscal Quarters ended July 31, 2001 1.25:1.00
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Four Fiscal Quarters ended October 31, 2001 1.25:1.00
Four Fiscal Quarters ended January 31, 2002 1.25:1.00
Four Fiscal Quarters ended April 30, 2002 1.25:1.00
Four Fiscal Quarters ended July 31, 2002 1.25:1.00
(c) MINIMUM EBIDTA. Maintain at all times EBITDA of the Parent Guarantor
and its Subsidiaries not less than the amount set forth below for each period
set forth below.
PERIOD $ AMOUNT
------ --------
Fiscal Quarter ended January 31, 2000 7,000,000
Two Fiscal Quarters ended April 30, 2000 26,000,000
Three Fiscal Quarters ended July 31, 2000 47,000,000
Four Fiscal Quarters ended October 31, 2000 70,000,000
Four Fiscal Quarters ended January 31, 2001 85,000,000
Four Fiscal Quarters ended April 30, 2001 90,000,000
Four Fiscal Quarters ended July 31, 2001 95,000,000
Four Fiscal Quarters ended October 31, 2001 95,000,000
Four Fiscal Quarters ended January 31, 2002 95,000,000
Four Fiscal Quarters ended April 30, 2002 100,000,000
Four Fiscal Quarters ended July 31, 2002 105,000,000
SECTION 11. MISCELLANEOUS
11.1. TERM; TERMINATION. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Loan Parties that they intend to terminate this Agreement which date
shall be no less than ninety (90) days following the receipt by IBM Credit of
such written notice, and (iii) termination by IBM Credit after the occurrence
and during the continuance of an Event of Default. Upon the date that this
Agreement is terminated, all of the Obligations shall be immediately due and
payable in their entirety, even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of the Obligations, no
termination of this Agreement or any of the Other Documents shall in any way
affect or impair (i) the Obligations to IBM Credit including, without
limitation, any transaction or event occurring prior to and after such
termination, or (ii) IBM Credit's rights hereunder, including, without
limitation, IBM Credit's security interest in the Collateral. On and after a
Termination Date IBM Credit may, but shall not be obligated to, upon the request
of Loan Parties, continue to provide Product Advances hereunder.
11.2. INDEMNIFICATION. Each Loan Party hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Loan Parties, (ii)
any Person that shall be acquired by any Loan Party or (iii) any Person that any
Loan Party may acquire all or substantially all of the assets of, or (b)
directly or indirectly, relating to the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby or
thereby or to any of the Collateral or to any act or omission of either Customer
in connection therewith. Notwithstanding the foregoing, no Loan Party shall be
obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which
are a result of IBM Credit's gross negligence or willful misconduct. The
indemnity provided herein shall survive the termination of this Agreement.
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11.3. ADDITIONAL OBLIGATIONS. IBM Credit, without waiving or releasing any
Obligation or Default of the Loan Parties, may perform any Obligations of the
Loan Parties that the Loan Parties shall fail or refuse to perform and IBM
Credit may, at any time or times hereafter, but shall be under no obligation to
do so, pay, acquire or accept any assignment of any security interest, lien,
encumbrance or claim against the Collateral asserted by any person. All sums
paid by IBM Credit in performing in satisfaction or on account of the foregoing
and any expenses, including reasonable attorney's fees, court costs, and other
charges relating thereto, shall be a part of the Obligations, payable on demand
and secured by the Collateral.
11.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSONS SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY ANY LOAN PARTY IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER AGREEMENT, ANY DELAY, OMISSION OR ERROR IN THE ELECTRONIC
TRANSMISSION OR RECEIPT OF ANY E-DOCUMENT, OR ANY CLAIMS IN ANY MANNER RELATED
THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSONS HAVE ANY
LIABILITY TO ANY LOAN PARTY OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED
TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE EVENT ANY LOAN PARTY REQUESTS IBM
CREDIT TO EFFECT A WITHDRAWAL OR DEBIT OF FUNDS FROM AN ACCOUNT OF SUCH LOAN
PARTY, THEN IN NO EVENT SHALL IBM CREDIT BE LIABLE FOR ANY AMOUNT IN EXCESS OF
ANY AMOUNT INCORRECTLY DEBITED, EXCEPT IN THE EVENT OF IBM CREDIT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. NO PARTY SHALL BE LIABLE FOR ANY FAILURE TO
PERFORM ITS OBLIGATIONS IN CONNECTION WITH ANY E-DOCUMENT, WHERE SUCH FAILURE
RESULTS FROM ANY ACT OF GOD OR OTHER CAUSE BEYOND SUCH PARTY'S REASONABLE
CONTROL (INCLUDING, WITHOUT LIMITATION, ANY MECHANICAL, ELECTRONIC OR
COMMUNICATIONS FAILURE) WHICH PREVENTS SUCH PARTY FROM TRANSMITTING OR RECEIVING
E-DOCUMENTS.
11.5. ALTERATION/WAIVER. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by each Loan Party
and by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by any
Loan Party of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any of the Other Documents shall not waive,
affect or diminish any right of IBM Credit thereafter to demand strict
compliance and performance thereof. Any waiver by IBM Credit of any Default by
any Loan Party under this Agreement or any of the Other Documents shall not
waive or affect any other Default by such Loan Party under this Agreement or any
of the Other Documents, whether such Default is prior or subsequent to such
other Default and whether of the same or a different type. None of the
undertakings, agreements, warranties, covenants, and representations of each
Loan Party contained in this Agreement or the Other Documents and no Default by
any Loan Party shall be deemed waived by IBM Credit unless such waiver is in
writing signed by an authorized representative of IBM Credit.
11.6. SEVERABILITY. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.
11.7. ENTIRE AGREEMENT. This Agreement and the Other Documents constitute the
entire agreement among the parties relative to the subject matter hereof. Any
previous agreement among the parties with respect hereof is superseded by this
Agreement and the Other Documents.
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11.8. ONE LOAN. All Product Advances heretofore, now or at any time or times
hereafter made by IBM Credit to any Loan Party under this Agreement or the Other
Documents shall constitute one loan secured by IBM Credit's security interests
in the Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Loan Parties to
IBM Credit or any assignor of IBM Credit.
11.9. ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or
collected by IBM Credit with respect to other property of any Loan Party in
possession of IBM Credit at any time or times hereafter are hereby pledged by
such Loan Party to IBM Credit as security for the payment of the Obligations and
shall be applied promptly by IBM Credit on account of the Obligations; provided,
however, IBM Credit may release to the Loan Parties such portions of such
monies, reserves and proceeds as IBM Credit may from time to time determine, in
its sole discretion.
11.10. NO MERGER OR NOVATIONS. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by each Loan Party that
the claims of IBM Credit arising hereunder and existing as of the date hereof
constitute continuing claims arising out of the Obligations of the Loan Parties'
under the AWF. Each Loan Party acknowledges and agrees that such Obligations
outstanding as of the date hereof have not been satisfied or discharged and that
this Agreement is not intended to effect a novation of the Obligations under the
AWF.
(B) Neither the obtaining of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the Obligations of each Loan Party
to IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
11.11. PARAGRAPH TITLES. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
11.12. BINDING EFFECT; ASSIGNMENT. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Loan Parties and
their respective successors and assigns; provided, that the Loan Parties shall
have no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
11.13. NOTICES; E-BUSINESS ACKNOWLEDGMENT. (A) Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served, given
or delivered hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) upon receipt if deposited in the United
States mails, first class mail, with proper postage prepaid, (ii) upon receipt
of confirmation or answerback if sent by telecopy, or other similar facsimile
transmission, (iii) one Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (iv) when delivered, if hand-delivered by
messenger, all of which shall be properly addressed to the party to be notified
and sent to the address or number indicated as follows:
(i) If to IBM Credit at: (ii) If to Customer at:
IBM Credit Corporation MTS Holding Company
5000 Executive Parkway, Suite 450 2400 South MicroAge Way
San Ramon, CA Tempe, AZ 85282
Attention: Region Manager, West Attention: VP, Corporate Counsel
Facsimile: 925-277-5675 Facsimile: 480-366-2157
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(iii) If to Customer at: (iv) If to Customer at:
Pinacor, Inc. MicroAge Computer Centers, Inc.
2400 South MicroAge Way 2400 South MicroAge Way
Tempe, AZ 85282 Tempe, AZ 85282
Attention: VP, Corporate Counsel Attention: VP, Corporate Counsel
Facsimile: 480-366-2157 Facsimile: 480-366-2157
(v) If to Parent at: (vi) If to Customer at:
MicroAge, Inc. MicroAge Technology Services, L.L.C.
2400 South MicroAge Way 2400 South MicroAge Way
Tempe, AZ 85282 Tempe, AZ 85282
Attention: VP, Corporate Counsel Attention: VP, Corporate Counsel
Facsimile: 480-366-2157 Facsimile: 480-366-2157
or to such other address or number as each party designates to the other in the
manner prescribed herein.
(B) (i) Each party may electronically transmit to or receive from the other
party certain documents set forth in Attachment I ("E-Documents") via the
Internet or electronic data interchange ("EDI"). Any transmission of data which
is not an E-Document shall have no force or effect between the parties. EDI
transmissions may be sent directly or through any third party service provider
("Provider") with which either party may contract. Each party shall be liable
for the acts or omissions of its Provider while handling E-Documents for such
party, provided, that if both parties use the same Provider, the originating
party shall be liable for the acts or omissions of such Provider as to such
E-Document. Some information to be made available to each Loan Party will be
specific to each Customer and will require each Loan Party's registration with
IBM Credit before access is provided. After IBM Credit has approved the
registration submitted by each Loan Party, IBM Credit shall provide an ID and
password(s) to an individual designated by each Loan Party ("Loan Party
Recipient"). Each Loan Party accepts responsibility for the designated
individual's distribution of the ID and password(s) within its organization and
each Loan Party will take reasonable measures to ensure that passwords are not
shared or disclosed to unauthorized individuals. Each Loan Party will conduct an
annual review of all IDs and passwords to ensure they are accurate and properly
authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT ITS
DISCRETION AT ANY TIME. E-Documents shall not be deemed to have been properly
received, and no E-Document shall give rise to any obligation, until accessible
to the receiving party at such party's receipt computer at the address specified
herein. Upon proper receipt of an E-Document, the receiving party shall promptly
transmit a functional acknowledgment in return. A functional acknowledgment
shall constitute conclusive evidence that an E-Document has been properly
received. If any transmitted E-Document is received in an unintelligible or
garbled form, the receiving party shall promptly notify the originating party in
a reasonable manner. In the absence of such a notice, the originating party's
records of the contents of such E-Document shall control.
(ii) Each party shall use those security procedures which are reasonably
sufficient to ensure that all transmissions of E-Documents are authorized and to
protect its business records and data from improper access. Any E-Document
received pursuant to this Section 11.13 shall have the same effect as if the
contents of the E-Document had been sent in paper rather than electronic form.
The conduct of the parties pursuant to this Section 11.13 shall, for all legal
purposes, evidence a course of dealing and a course of performance accepted by
the parties. The parties agree not to contest the validity or enforceability of
E-Documents under the provisions of any applicable law relating to whether
certain agreements are to be in writing or signed by the party to be bound
thereby. The parties agree, as to any E-Document accompanied by each Loan
Party's, that IBM Credit can reasonably rely on the fact that such E-Document is
properly authorized by each Loan Party. E-Documents, if introduced as evidence
on paper in any judicial, arbitration, mediation or administrative proceedings,
will be admissible as between the parties to the same extent and under the same
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conditions as other business records originated and maintained in documentary
form. No party shall contest the admissibility of copies of E-Documents under
either the business records exception to the hearsay rule or the best evidence
rule on the basis that the E-Documents were not originated or maintained in
documentary form.
LOAN PARTY RECIPIENT INFORMATION for Internet transmissions:
(PLEASE PRINT)
Name of Loan Party's Designated Central Contact Authorized to Receive IDs and
Passwords:
James Domaz for MTSI
e-mail Address: [email protected]
Phone Number: 480- 366-
James Domaz for MCCI
e-mail Address: [email protected]
Phone Number: 480-366-
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James Domaz for Pinacor
e-mail Address: [email protected]
Phone Number: 480-366
James Domaz for MTS
e-mail Address: [email protected]
Phone Number: 480- 366
James Domaz for MicroAge, Inc.
e-mail Address: [email protected]
Phone Number: 480-366
11.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
11.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, EACH LOAN PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO EACH LOAN PARTY AT ITS
ADDRESS SET FORTH IN SECTION 11.13 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING
EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
11.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND EACH LOAN PARTY HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE LOAN
PARTIES ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
11.17. INTERCREDITOR AGREEMENTS. EACH OF THE PARTIES HERETO HEREBY ACKNOWLEDGES
THAT ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE OTHER DOCUMENTS
DEFINED HEREIN ARE SUBJECT OF THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.
40
<PAGE>
IN WITNESS WHEREOF, each Loan Party has read this entire Agreement, and has
caused its authorized representatives to execute this Agreement and has caused
its corporate seal to be affixed hereto as of the date first written above.
IBM CREDIT CORPORATION MTS HOLDING COMPANY
By: /s/ Ronald J. Bachner____________ By: /s/ James R. Daniel_________________
Print Name: Ronald J. Bachner Print Name: James R. Daniel_____________
Title: Mgr, Commercial Financing Title: Treasurer________________________
Solutions Americas
PINACOR, INC. MICROAGE COMPUTER CENTERS, INC.
By: /s/ James R. Daniel______________ By: /s/ James R. Daniel_________________
Print Name: James R. Daniel__________ Print Name: James R. Daniel_____________
Title: Treasurer_____________________ Title: Treasurer________________________
MICROAGE, INC. MICROAGE TECHNOLOGY SERVICES, L.L.C.
By: /s/ James R. Daniel______________ By: /s/ James R. Daniel_________________
Print Name: James R. Daniel__________ Print Name: James R. Daniel_____________
Title: CFO, ExVP & Treasurer_________ Title: Treasurer________________________
ACKNOWLEDGMENT, WAIVER AND AMENDMENT NO. 1
TO
AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING
ACKNOWLEDGMENT, WAIVER AND AMENDMENT NO. 1 TO THE AMENDED AND RESTATED
AGREEMENT FOR WHOLESALE FINANCING (this "Amendment") is made as of January 30,
2000 by and among IBM CREDIT CORPORATION, a Delaware corporation, MTS HOLDING
COMPANY, a Delaware corporation ("MTSI"), MICROAGE COMPUTER CENTERS, INC., a
Delaware corporation ("MCCI"), MICROAGE TECHNOLOGY SERVICES, L.L.C., a Delaware
limited liability company ("MTS") and PINACOR, INC., a Delaware corporation
("Pinacor", and together with, MCCI, MTS and MTSI, the "Customers" and
individually a "Customer") and MICROAGE, INC., a Delaware corporation (the
"Parent", and together with MTSI, MCCI, MTS and Pinacor, the "Loan Parties").
Notwithstanding the foregoing, and unless otherwise indicated, any obligation of
a "Customer" or "Customers" herein shall be the joint and several obligation of
MTS, MTSI, MCCI and Pinacor.
RECITALS
A. Customers, Parent and IBM Credit have entered into that certain Amended
and Restated Agreement for Wholesale Financing dated as of October 29,1999 (as
amended by this Amendment and as further amended, supplemented or otherwise
modified from time to time, the "Agreement"). All capitalized terms not
otherwise defined herein shall have the respective meanings set forth in the
Agreement.
B. As described in Schedule I attached to this Amendment, the Loan Parties
have proposed to create two new bankruptcy-remote Subsidiaries (the "New
Mortgage Subsidiaries") to facilitate a $13,000,000 mortgage financing on the
property at 1003 West Southern, Tempe, Arizona (the "Property"). The proposed
lender of such mortgage financing has requested that the New Subsidiaries be
excluded from the operation of Section 7.15 of the Agreement (Subsidiaries).
C. As described in Schedule II attached to this Amendment, the Loan Parties
have proposed to sell the assets of Latin America Division of Pinacor and
Pinacor's Subsidiaries that distribute technology product in Latin America
(Collectively, "PLA"). The proposed structure of the sale of PLA includes an
Investment in the buyer of such assets in the form of intercompany notes and an
agreement to arrange to have issued a $4,000,000 letter of credit for the
account of such buyer for a period of six months.
D. The Loan Parties have proposed to form a new Subsidiary of MTS (the
"BtoB Subsidiary") to which MTS would contribute its business to business
Internet assets and business. The Loan Parties have requested that up to 20% of
the capital stock of the BtoB Subsidiary be made available as stock options or
other equity incentives for officers, directors and employees of the BtoB
Subsidiary.
E. The Loan Parties have requested that (i) the financial covenants
contained in Section 10.2 of the Agreement be amended as set forth below, (ii)
certain other covenants contained in the Agreement be amended as set forth
below, and (iii) IBM Credit waive certain terms and provisions of the Agreement
as set forth below.
F. IBM Credit is willing to waive such terms and provisions, on the terms
and conditions stated below, and is willing to grant the request of the Loan
Parties and the Loan Parties and IBM Credit have agreed to amend the Agreement
as hereinafter set forth.
Page 1 of 12
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Loan Parties and IBM Credit hereby agree as follows:
SECTION 1. MODIFICATION OF AGREEMENT. The Amendment is effective as of January
30, 2000 and, subject to the satisfaction of the conditions precedent set forth
in Section 3, the Agreement is hereby amended as follows:
A. Attachment A to the Amended and Restated Agreement for Wholesale
Financing is hereby amended by deleting such Attachment A in its entirety and
substituting, in lieu thereof, the Attachment A attached hereto. Such new
Attachment A shall be effective as of the date specified in the new Attachment
A. The changes contained in the new Attachment A include, without limitation,
the following:
(a) Section I. (A) is amended by decreasing the Credit Line from Two
Hundred Fifty Million Dollars ($250,000,000) to Two Hundred Twenty Million
Dollars ($220,000,000);
(b) Section I. (B) (ii) is amended by decreasing the percentage of
collateral value IBM Credit willl give for an Irrevocable Letter of Credit,
issued by an Issuing Bank under the Credit Agreement to IBM Credit ("ILOC") from
(i) 150% to 133% for the period beginning February 8, 2000 and ending April 7,
2000 May 14, 2000, (ii) 125% to 110% for the period beginning April 8May 15,
2000 and ending on the Termination Date of the amount available to be drawn
under such ILOC.
(c) Section I. (B) is further amended by adding the following paragraph at
the end of this Section:
"Notwithstanding any other provision of the Agreement, the Borrowing Base
as defined in Section I(B) of this Attachment A shall not exceed the sum of (i)
the value of the Authorized Brand Borrowing Base and (ii) the available amount
of the ILOC and (iii) Thirty Million Dollars ($30,000,000)."
(d) Section I.(D) is amended by increasing the Extended Period Finance
Charge from LIBOR plus 300 basis points to LIBOR plus 375 basis points.
(e) Section I.(E) is amended by increasing the Delinquency Fee Rate from
LIBOR plus 550 basis points to LIBOR plus 650 basis points.
B. Section 1.1 of the Agreement is hereby amended by deleting item (8) of
the definition of "Permitted Indebtedness" in its entirety, and substituting, in
lieu thereof, the following:
"(8) Indebtedness secured by a mortgage on the real property located at
1330 West Southern, Tempe, Arizona in an aggregate principal amount not to
exceed $15,000,000, together with indemnification and guaranty of rent
obligations customary for such mortgage financings; and"
C. Section 1.1 of the Agreement is hereby amended by inserting immediately
following (8) of the definition "Permitted Indebtedness", the following:
"(9) other Indebtedness consented to by IBM Credit in writing prior to
incurring such Indebtedness."
D. Section 1.1. of the Agreement is hereby amended by adding the following
definition of "BtoB Subsidiary" in the proper alphabetical order:
"BtoB Subsidiary" means the Subsidiary of MTS capitalized with business to
business Internet assets and business to business of MTS."
Page 2 of 12
<PAGE>
E. Section 8.6(D) is hereby amended in full to read as follows:
"(D) the Parent and the Customers and the BtoB Subsidiary may issue stock
options to the directors, officers and employees of such Loan Party:"
F. Section 7.1(A) of the Agreement is hereby amended by inserting,
immediately following the phrase "As soon as available and", the following
language:
"(x) in any event within 45 days after the end of each Fiscal Year,
preliminary Consolidated and Consolidating statements of income and cash flows
of the Parent and its Subsidiaries for such Fiscal Year, in reasonable detail
and duly certified (subject to year-end audit adjustments) by the chief
financial officer of the Parent as having been prepared in accordance with GAAP,
together with (i) a certificate of said officer stating no Default has occurred
and is continuing or, if a Default had occurred and is continuing, a statement
as to the nature thereof and the action that the Parent has taken and proposes
to take with respect thereto and (ii) a schedule in form satisfactory to IBM
Credit of the computations used by the Parent in determining compliance with the
covenants contained in Section 10.2, PROVIDED that in the event of any change in
GAAP used in the preparation of such Financial Statements, the Parent shall also
provide, if necessary for the determination of compliance with Section 10.2, a
statement of reconciliation conforming such Financial Statements to GAAP and
(y)"
G. Section 7.1(C) of the Agreement is hereby amended by inserting,
immediately following the phrase "within 30 days after the end of each month",
the parenthetical phrase "(other than any month that is the last month of a
Fiscal Year or of the first three fiscal quarters of a Fiscal Year for which
Financial Statements are delivered pursuant to Section 7.1(A) or (B), as the
case may be)".
H. Section 7.1(J) of the Agreement is hereby amended by deleting this
Section in its entirety and substituting, in lieu thereof, the following:
"on each Business Day, or as otherwiase agreed in writing, a Collateral
Management Report, as of the end of the previous Business Day;"
I. Section 10.1 of the Agreement is hereby amended by (i) deleting the
definition of "Fixed Charged Coverage Ratio" in its entirety, and (ii) adding
the following definition in the appropriate alphabetical order:
"'Interest Coverage Ratio' means, at any date of determination, the ratio
of (a) Consolidated EBITDA to (b) interest payable on, and amortization of debt
discount in respect of, all Debt for Borrowed Money (including expenses incurred
under the Receivables Sales Agreements and flooring subsidiaries, in each case,
of or by the Parent Guarantor and its Subsidiaries during the applicable period
most recently ended for which financial statements are required to the delivered
to IBM Credit pursuant to Section 7.1(A) or (B), as the case may be."
and (iii) by amending clause (a) of the definition of "Debt/EBITDA Ratio" in
full to read as follows:
"(a) the average of the sum of (i) Consolidated total Debt for Borrowed
Money plus (ii) the Available Amount of Letters of Credit, in each case of the
Parent Guarantor and its Subsidiaries as at the end of each week ended within
the most recently ended fiscal quarter of the Parent Guarantor for which
financial statements are required to be delivered to IBM Credit pursuant to
Section 7.1 (A) or (B), as the case may be".
J. Section 10.2(a) of the Agreement is hereby amended by deleting the table
set forth therein in its entirety and substituting therefor the following table:
Page 3 of 12
<PAGE>
PERIOD RATIO
------ -----
Four Fiscal Quarters ended April 30, 2000 17.00:1.00
Four Fiscal Quarters ended July 31, 2000 17.00:1.00
Four Fiscal Quarters ended October 31, 2000 8.00:1.00
Four Fiscal Quarters ended January 31, 2001 6.00:1.00
Four Fiscal Quarters ended April 30, 2001 5.00:1.00
Four Fiscal Quarters ended July 31, 2001 4.00:1.00
Four Fiscal Quarters ended October 31, 2001 3.50:1.00
Four Fiscal Quarters ended January 31, 2002 3.50:1.00
Four Fiscal Quarters ended April 30, 2002 3.50:1.00
Four Fiscal Quarters ended July 31, 2002 3.50:1.00
K. Section 10.2(b) of the Agreement is hereby amended in full to read as
follows:
(b) INTEREST COVERAGE RATIO. Maintain at all times an Interest Coverage
Ratio of not less than the ratio set forth for each period set forth below.
PERIOD RATIO
------ -----
For the Month ended February 29, 2000 0.20:1.00
For the Month ended March 31, 2000 0.30:1.00
Fiscal Quarter ended April 30, 2000 0.30:1.00
Two Fiscal Quarters ended July 31, 2000 0.60:1.00
Three Fiscal Quarters ended October 31, 2000 1.00:1.00
Four Fiscal Quarters ended January 31, 2001 1.10:1.00
Four Fiscal Quarters ended April 30, 2001 1.30:1.00
Four Fiscal Quarters ended July 31, 2001 1.50:1.00
Four Fiscal Quarters ended October 31, 2001 1.75:1.00
Four Fiscal Quarters ended January 31, 2002 2.00:1.00
Four Fiscal Quarters ended April 30, 2002 2.00:1.00
Four Fiscal Quarters ended July 31, 2002 2.00:1.00
L. Section 10.2(c) of the Agreement is hereby amended by deleting the table
set forth therein in its entirety and substituting therefor the following table:
PERIOD $ AMOUNT
------ --------
Two Fiscal Quarters ended April 30, 2000 5,000,000
Three Fiscal Quarters ended July 31, 2000 18,000,000
Four Fiscal Quarters ended October 31, 2000 41,000,000
Four Fiscal Quarters ended January 31, 2001 65,000,000
Four Fiscal Quarters ended April 30, 2001 80,000,000
Four Fiscal Quarters ended July 31, 2001 85,000,000
Four Fiscal Quarters ended October 31, 2001 90,000,000
Four Fiscal Quarters ended January 31, 2002 90,000,000
Four Fiscal Quarters ended April 30, 2002 90,000,000
Four Fiscal Quarters ended July 31, 2002 95,000,000
Page 4 of 12
<PAGE>
M. The Agreement is hereby modified by deleting Attachment F in its
entirety and substituting, in lieu thereof, the Attachment F attached hereto.
SECTION 2. ADDITIONAL WAIVERS TO THE AGREEMENT. Effective January 30, 2000 and
subject to the satisfaction of the conditions precedent set forth in Section 3,
IBM Credit hereby agrees to waive compliance with the representations
requirements of (a) (i) Section 8.7(E) of the Agreement to but only to permit
the Loan Parties to contribute the Property to the New Mortgage Subsidiaries and
(ii) Section 7.15 of the Agreement to the extent required to exclude the New
Mortgage Subsidiaries from the operation of Section 7.15 of the Agreement, (b)
(i) Section 8.2 of the Agreement to but only to permit the Loan Parties to sell
the assets of PLA, (ii) Section 8.7 of the Agreement to but only to permit the
Loan Parties to acquire an equity interest in the buyer of the assets of PLA and
(iii) Section 8.12 of the Agreement to but only to provide a letter of credit in
an amount not to exceed $4,000,000 to the buyer of the assets for a period not
to exceed six months, (c) Section 8.7 of the Agreement to but only to permit the
contribution of the assets and business of the business Internet operations of
MTS to the BtoB Subsidiary and further investment in an aggregate amount
outstanding not to exceed $15,000,000 at any time and (d) Section 8.8 to but
only to permit the creation of the BtoB Subsidiary.
SECTION 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as
of January 30, 2000, and only when, on or before February 11, 2000 IBM Credit
shall have received (a) counterparts of this Amendment duly executed by the Loan
Parties, (b) the consent attached hereto duly executed by each Subsidiary, (c)
evidence that the provisions of the Credit Agreement have been waived or amended
in a manner consistent with Sections 1 and 2 of this Amendment, and (d) an
amendment and waiver fee in immediately available funds equal to Seven Hundred
Seventy Thousand Dollars ($770,000), (e) the Acknowledgement attached hereto,
duly executed by Citibank N.A., as Administrative Agent and (f) amendment to the
Irrevocable Letter of Credit NO. NY-20511-30026459, to provide for adjustments
in the Available Amount (as defined therein) consistent with Attachment F to the
Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES. The Loan Parties
represent and warrant as follows:
(a) Each Loan Party is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and is duly
qualified and authorized to do business and is in good standing in each
jurisdiction it presently is engaged in business and is required to be so
qualified.
(b) The execution, delivery and performance by the Loan Parties of this
Amendment and the Agreement and Other Documents, as amended hereby, to which it
is or is to be a party, and the consummation of the transactions contemplated
hereby, are within each Loan Party's powers, have been duly authorized by all
necessary corporate or other action and do not (i) contravene any Loan Party's
charter, by-laws or other organizational documents, (ii) violate any law, rule
or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting any Loan
Party, any of its Subsidiaries or any of their properties, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting any Loan Party, any of its Subsidiaries or any of their
properties or (iv) except for the Liens contemplated under the Agreement, as
amended hereby, result in or require the creation or imposition of any Lien upon
or with respect to any of the properties of any Loan Party or any of its
Subsidiaries.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery or performance by any Loan
Party of this Amendment or the Agreement or any of the Other Documents, as
amended hereby, to which it is or is to be a party.
(d) This Amendment has been duly executed and delivered by each Loan Party.
This Amendment and each of the Agreement and Other Documents, as amended hereby,
to which any Loan Party, is a party are legal, valid and binding obligations of
such Loan Party, enforceable against such Loan Party in accordance with their
respective terms.
Page 5 of 12
<PAGE>
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries (including, without
limitation, any Environmental Liability) pending or threatened before any court,
Governmental Authority or arbitrator that (i) would be reasonably likely to have
a Material Adverse Effect (other than the Disclosed Litigation set forth in
Attachment B) or (ii) purports to affect the legality, validity or
enforceability of this Amendment or any Other Documents, as amended hereby, or
the consummation of any of the transactions contemplated hereby.
SECTION 5. REFERENCE TO AND EFFECT ON THE AGREEMENT. (a) On and after the
effectiveness of this Amendment, each reference in the Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Agreement, and each reference in the Other Documents to "the Agreement",
thereunder", "thereof" or words of like import referring to the Agreement shall
mean and be a reference to the Agreement, as amended by this Amendment.
(b) The Agreement, and each of the Other Documents, as specifically amended
by this Amendment, are and shall continue to be in full force and effect and are
hereby in all respects ratified and confirmed. Without limiting the generality
of the foregoing, the Agreement and all of the Collateral described therein do
and shall continue to secure the payment of all Obligations of the Loan Parties
under the Agreement and Other Documents, in each case as amended by this
Amendment.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as an amendment or waiver of, or an
indication of IBM Credit's willingness to amend or waive, any right, power or
remedy of IBM Credit under the Agreement or the Other Documents, nor constitute
an amendment or waiver of any provision of the Agreement or the Other Documents
or the same Sections of the Agreement amended hereby for any other date or time
period other than specified herein (whether or not such other provisions or
compliance with such Sections for another date or time period are effected by
the circumstances addressed in this Amendment).
SECTION 6. COSTS AND EXPENSES. The Loan Parties agree to pay on demand all costs
and expenses of IBM Credit in connection with the preparation, execution,
delivery and administrations, modification and amendment of this Amendment and
the other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel for IBM Credit).
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute but one and the same agreement.
Delivery of any executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 8. GOVERNING LAW. This Amendment and the rights and obligations of the
parties under this Amendment shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York without regard to the
principles of the conflicts of laws thereof.
Page 6 of 12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers thereunto duly undersigned, as of the date first
above written.
IBM CREDIT CORPORATION MTS HOLDING COMPANY
By: /s/ Ronald J. Bachner By: /s/ James R. Daniel
--------------------------------- ------------------------------------
Print Name: Ronald J. Bachner Print Name: James R. Daniel
Title: Mgr, Commercial Financing Title: Treasurer
Solutions Americas
PINACOR, INC. MICROAGE COMPUTER CENTERS, INC.
By: /s/ James R. Daniel By: /s/ James R. Daniel
--------------------------------- ------------------------------------
Print Name: James R. Daniel Print Name: James R. Daniel
Title: Treasurer Title: Treasurer
MICROAGE, INC. MICROAGE TECHNOLOGY SERVICES, L.L.C.
By: /s/ James R. Daniel By: MTS HOLDING COMPANY, MANAGER
---------------------------------
Print Name: James R. Daniel By: /s/ James R. Daniel
Title: Treasurer ------------------------------------
Print Name: James R. Daniel
Title: Treasurer
Page 7 of 12
<PAGE>
CONSENT
Dated as of February 17, 2000
The undersigned, each a Guarantor under the Amended and Restated
Collateralized Guaranty dated as of October 29, 1999 (collectively the
"undersigned") in favor of IBM Credit, hereby consents to the attached Amendment
and hereby confirms and agrees that (a) notwithstanding the effectiveness of
such Amendment, the Amended and Restated Collateralized Guaranty and each Other
Document to which the undersigned is a party is and shall continue to be, in
full force and effect and is hereby ratified and confirmed in all respects, and
(b) the Amended and Restated Collateralized Guaranty to which each of the
undersigned is a party and all of the Collateral described therein do, and shall
continue to, secure the payment of the Obligations (in each case, as defined
therein).
MCCI HOLDING COMPANY
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE TELESERVICES, L.L.C.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
QUALITY INTEGRATION SERVICES, L.L.C.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MAXSOURCE, L.L.C.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
Page 8 of 12
<PAGE>
MICROAGE L&D L.L.C.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE OF CALIFORNIA, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MCSS, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
CLERIS, INC. (F/K/A ECADVANTAGE, INC.)
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
PINACOR LOGISTICS SERVICES, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
COMPLETE DISTRIBUTION, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
Page 9 of 12
<PAGE>
CONTRACT PC, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
CONNECTWORKS, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
PHOENIX CONNECTIONS, INC.
By: /s/ Kandi Egan
-------------------------------------
Print Name: Kandi Egan
-----------------------------
Title: President
----------------------------------
MICROAGE ADMINISTRATION, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE TECHNOLOGIES, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE VENTURES, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
Page 10 of 12
<PAGE>
MICROAGE PAYMASTER, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
INTRACOM MARKETING, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
PCCLEARANCE, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE INFOSYSTEMS SERVICES, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
PRITECH SOLUTIONS, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
MICROAGE GOVERNMENT, INC.
By: /s/ Jeffrey D. McKeever
-------------------------------------
Print Name: Jeffrey D. McKeever
-----------------------------
Title: Chairman
----------------------------------
Page 11 of 12
<PAGE>
ACKNOWLEDGMENT
The undersigned, Citibank, N.A., as Administrative Agent on behalf of the
Lenders under the Credit Agreement (as defined in the Agreement defined below)
acknowledges receipt of a copy of the foregoing amendment to the Amended and
Restated Agreement for Wholesale Financing, dated as of October 29, 1999 (as
amended, supplemented or otherwise modified from to time, the "Agreement")
between IBM Credit Corporation, MTS Holding Company, MicroAge Computer Centers,
Inc., MicroAge Technology Services, L.L.C., Pinacor, Inc. and MicroAge, Inc.,
and consents to the terms thereof.
Executed this 17th day of February 2000.
CITIBANK, N.A., as Administrative Agent
By: /s/ Citibank Signatory
--------------------------------
Title:
--------------------------
Page 12 of 12
EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
MICROAGE, INC
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
(in thousands, except per share data)
Fiscal years ended
--------------------------------------
October 31, November 3, November 2,
1999 1998 1997
---- ---- ----
Basic
Weighted average common shares 20,571 19,783 16,731
======= ======= =======
Diluted
Weighted average shares from basic 20,571 19,783 16,731
Dilutive effect of stock options
and warrants -- -- 904
------- ------- -------
Weighted average common and common
equivalent shares outstanding -
fully diluted 20,571 19,783 17,635
======= ======= =======
Net income (loss) $(169,022) $(8,325) $25,197
Net income (loss) per common and
common equivalent share:
Basic $ (8.22) $ (0.42) $ 1.51
Diluted $ (8.22) $ (0.42) $ 1.43
SUBSIDIARIES
(AS OF 10/31/99)
I. MicroAge Computer Centers, Inc., a Delaware corporation, Subsidiaries:
A. 153000 Canada Limited, a Canadian corporation
B. MCCI Holding Company, a Delaware corporation, Subsidiaries:
1. ECadvantage, Inc., a Delaware corporation
2. MTS Holding Company, a Delaware corporation, Subsidiaries:
(A) MicroAge of California, Inc., a California corporation
(B) MicroAge Deutschland GmbH, a German corporation
(C) MicroAge Infosystems Services Europe, Limited, a United
Kingdom corporation, Subsidiaries:
(1) MicroAge Europe Limited, a United Kingdom corporation
(2) MicroAge (UK) Limited, a United Kingdom corporation
(D) MaxSource, L.L.C., a Delaware limited liability company
(E) MicroAge Technology Services, L.L.C., a Delaware limited
liability company
(F) MicroAge Teleservices, L.L.C., a Delaware limited liability
company
(G) Quality Integration Services, L.L.C., a Delaware limited
liability company
(H) MCSS, Inc., a Delaware corporation
3. Pinacor, Inc., a Delaware corporation, Subsidiaries:
(A) Pinacor Logistics Services, Inc., a Delaware corporation
(B) Complete Distribution, Inc., a Delaware corporation
(C) Contract PC, Inc., a Delaware corporation
(D) InterPC de Venezuela, a Venezuela corporation
(E) InterPC de Bolivia, a Bolivia corporation
(F) InterPC de Ecuador, an Ecuador corporation
(G) InterPC de Colombia, a Colombia corporation
(H) ConnectWorks, Inc., a Delaware corporation, Subsidiaries:
(1) Phoenix Connections, Inc., a Delaware corporation
<PAGE>
II. MicroAge Administration, Inc., a Delaware corporation
III. MicroAge Technologies, Inc., a Delaware corporation
IV. MicroAge Ventures, Inc., a Delaware corporation
V. IntraCom Marketing, Inc., a Delaware corporation
VI. PCClearance, Inc., a Delaware corporation
VII. MicroAge Government, Inc., a Delaware corporation
VIII. MicroAge Paymaster, Inc., a Delaware corporation
IX. MicroAge Infosystems Services, Inc., a Delaware corporation
X. PriTech Solutions, Inc., a Delaware corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-18967, No. 33-26351, No. 33-26565, No. 33-33370,
No. 33-51978, No. 33-58899, No. 33-58901, No. 33-81040, No. 333-26247, No.
333-42939, No. 333-49961, No. 333-73273 and No. 333-82033), on Form S-3 (No.
33-35674, No. 333-27349, No. 333-35613, No. 333-36281, No. 333-40007, No.
333-41145, No. 333-58435 and No. 333-62763) and Form S-2 (No. 33-38764 and No.
33-33094) of MicroAge, Inc. of our report dated February 17, 2000 appearing on
page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
February 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED OCTOBER
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 67,656
<SECURITIES> 0
<RECEIVABLES> 250,066
<ALLOWANCES> 29,680
<INVENTORY> 336,653
<CURRENT-ASSETS> 651,845
<PP&E> 225,833
<DEPRECIATION> 123,708
<TOTAL-ASSETS> 786,643
<CURRENT-LIABILITIES> 592,514
<BONDS> 0
0
0
<COMMON> 208
<OTHER-SE> 132,894
<TOTAL-LIABILITY-AND-EQUITY> 786,643
<SALES> 6,149,613
<TOTAL-REVENUES> 6,149,613
<CGS> 5,776,633
<TOTAL-COSTS> 5,776,633
<OTHER-EXPENSES> 41,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,042
<INCOME-PRETAX> (194,610)
<INCOME-TAX> (25,588)
<INCOME-CONTINUING> (169,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,022)
<EPS-BASIC> (8.22)
<EPS-DILUTED> (8.22)
</TABLE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR
COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENT
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. MicroAge, Inc.
("MicroAge" or the "Company") intends to qualify both its written and oral
forward-looking statements for protection under the Reform Act and any other
similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those and
other uncertainties and risks, the investment community is urged not to place
undue reliance on written or oral forward-looking statements of MicroAge. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, MicroAge undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events, or changes to future operating results over time.
MicroAge provides the following risk factor disclosure in connection with
its continuing effort to qualify its written and oral forward-looking statements
under the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include the disclosures contained in the Annual Report on Form 10-K
to which this statement is appended as an exhibit and also include the
following:
RISK FACTORS
INTENSE COMPETITION
The Company operates in intensely competitive markets in both the systems
integration industry as well as the microcomputer products distribution
industry. The principal competitive factors in the systems integration industry
include the breadth and quality of product and service offerings, product
availability, pricing, and expertise and size of workforce. The microcomputer
products distribution industry is characterized by intense competition based
primarily on price, product availability, speed and accuracy of delivery,
effectiveness of sales and marketing programs, credit availability, ability to
tailor specific solutions to customer needs, quality and breadth of product
lines and services, availability of technical and product information, and
recruitment and retention of resellers. The Company also faces increasing
competition from direct marketers, such as Dell Computer Corporation and
Gateway, Inc., that distribute products directly to end-users. While the Company
<PAGE>
believes that it competes favorably with respect to each of these factors, there
can be no assurance that it will continue to do so in the future. Additionally,
certain of the Company's current and potential competitors, in both the systems
integration industry and the microcomputer products distribution industry, have
greater financial, technical, marketing, and other resources than the Company.
As a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to the development, promotion, and sales of their products and services, or to
be more effective in responding to competitive bidding situations than the
Company.
NARROW MARGINS
The Company has experienced low operating and gross profit margins caused
by intense price competition within its industry. The Company's margins
decreased in fiscal 1999 versus fiscal 1998. Future operating and gross profit
margins may be adversely affected by market pressures, the introduction of new
Company initiatives, changes in revenue mix, the Company's utilization of early
payment discount opportunities, vendor pricing actions, changes in supplier
incentive funds, and other competitive and economic pressures.
DEPENDENCE ON SUPPLIER INCENTIVE FUNDS
The Company receives funds from certain suppliers which are earned through
marketing programs or meeting purchasing, sales, or other objectives established
by the supplier. Supplier incentive funds decreased in fiscal 1999 versus fiscal
1998. There can be no assurance that these programs will be continued by the
suppliers. A substantial reduction in the supplier funds available to the
Company would have a material adverse effect on the Company's business,
financial condition, and results of operations.
PRODUCT SUPPLY; DEPENDENCE ON KEY VENDORS
The computer reseller industry continues to experience product supply
shortages and customer order backlogs due to the inability of certain
manufacturers to supply certain products. In addition, certain vendors have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that vendors will be able to
maintain an adequate supply of products to fulfill all of the Company's customer
orders on a timely basis. Although the Company has not historically encountered
such conditions, the failure to obtain adequate product supplies, if competitors
were able to obtain them, could have a material adverse effect on the Company's
business, financial condition, and results of operations.
Three vendors of the Company each represented more than 10% of total
product sales for the fiscal year ended October 31, 1999. They were Compaq
Computer Corporation ("Compaq"), Hewlett-Packard Company ("Hewlett- Packard"),
and International Business Machines Corporation ("IBM"). In fiscal 1999, sales
of products from Compaq, Hewlett-Packard, and IBM represented 22%, 20%, and 15%,
respectively, of the Company's total product sales. During fiscal 1999 and
fiscal 1998, sales of these three manufacturers' products represented
approximately 57% and 58%, respectively, of the Company's revenue from product
sales.
-2-
<PAGE>
During the quarter ended August 1, 1999, the Company announced a change in
the Pinacor product sourcing relationship with Compaq. In October, 1999, the
Company began sourcing certain Compaq products from other Compaq distributors
instead of sourcing directly from Compaq. Compaq has indicated that Pinacor
remains an authorized distributor and reseller and will be able to distribute
the full range of Compaq products. In addition, Pinacor will continue to order
some products directly from Compaq. During the quarter ended August 1, 1999,
Compaq sales decreased approximately $75 million, or 20%, when compared to the
quarter ended May 2, 1999, and for the quarter ended October 31, 1999 Compaq
sales decreased an additional $97 million compared to the quarter ended May 2,
1999. The Company expects a further decline in Compaq revenue as the full impact
of the change in the sourcing relationship is realized. In addition to the
expected declines in Compaq revenue, the Company believes that sales of other
suppliers' products may decrease as customers that purchase Compaq products from
other sources move purchases of other products to those sources. This change
will have a negative impact on the Company's operating results; however, the
amount of the impact cannot be determined at this time.
The Company's agreements with its vendors generally are renewed
periodically and permit termination by the vendor without cause, generally upon
30 to 90 days' notice, depending on the vendor. In addition, the Company's
business is dependent upon price and related terms and product availability
provided by its key vendors. Although the Company considers its relationships
with Hewlett-Packard and IBM to be good, there can be no assurance that these
relationships will continue as presently in effect or that changes by one or
more of these key vendors in their volume discount schedules or other marketing
programs would not adversely affect the Company. Termination or nonrenewal of
the Company's agreements with Hewlett-Packard or IBM would have a material
adverse effect on the Company's business, financial condition, and results of
operations.
In the past year, the Company has experienced dramatic changes in its
suppliers' terms and conditions. A number of larger OEMs reduced rebates or
incentive funds, returns allowances, and price protection offered to resellers.
Further negative changes in these terms and conditions would have a material
adverse effect on the Company's business.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may vary significantly from quarter to
quarter depending on certain factors, including, but not limited to, demand for
the Company's information technology products and services; the amount of
supplier incentive funds received by the Company (see "Dependence on Supplier
Incentive Funds" above); the results of acquired businesses; product
availability; competitive conditions; new product introductions; changes in
customer order patterns; and general economic conditions. In particular, the
Company's operating results are sensitive to changes in the mix of product and
service revenues, product margins, inventory adjustments, and interest rates.
Although the Company attempts to control its expense levels, these levels are
based, in part, on anticipated revenues. Therefore, the Company may not be able
to control spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, quarterly period-to-period comparisons of the Company's
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. In addition, although the Company's
-3-
<PAGE>
financial performance has not exhibited significant seasonality in the past, the
Company and the computer industry in general tend to follow a sales pattern with
peaks occurring near the end of the calendar year, due primarily to special
vendor promotions and year-end business purchases.
RISK OF DECLINES IN INVENTORY VALUE
The Company's business is subject to the risk that the value of its
inventory will be adversely affected by price reductions by suppliers or by
technological changes affecting the usefulness or desirability of the products
comprising the inventory. It is the policy of most suppliers of the Company's
products to protect distributors such as the Company, who purchase directly from
such suppliers, from the loss in value of inventory due to technological change
or the supplier's price reductions. Under the terms of many of the Company's
distribution agreements, suppliers will credit the Company for inventory losses
resulting from the supplier's price reductions if the Company complies with
certain conditions. However, suppliers are taking steps to reduce such price
protection. In addition, under many of the Company's agreements, the Company has
the right to return for credit or exchange for other products a portion of the
inventory items purchased, within a designated period of time. Since the Company
can return only a portion of its inventory, the Company could be forced to
liquidate nonreturnable aged inventory at prices below the Company's cost. A
supplier who elects to terminate a distribution agreement may repurchase from
the distributor the supplier's products carried in the distributor's inventory.
The industry practices discussed above are sometimes not embodied in written
agreements and do not protect the Company in all cases from declines in
inventory value. No assurance can be given that such practices will continue,
that unforeseen new product developments will not materially adversely affect
the Company, or that the Company will be able to successfully manage its
existing and future inventories. The Company establishes reserves for estimated
losses due to obsolete inventory in the normal course of business. Historically,
the Company has not experienced losses due to obsolete inventory materially in
excess of established inventory reserves. However, significant declines in
inventory value in excess of established inventory reserves could have a
material adverse affect on the Company's business, financial condition, or
results of operations.
CAPITAL INTENSIVE NATURE OF BUSINESS
The Company's business requires significant levels of capital to finance
accounts receivable and product inventory that is not financed by trade
creditors. 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 will continue to increase.
On October 28, 1999, the Company replaced its existing financing agreements
with new financing facilities (the "Facilities"). The Facilities, as amended,
provide for borrowing of up to $540 million and include a $300 million revolving
credit facility (the "Credit Facility") and $240 million in inventory financing
facilities (the "New Inventory Facilities"). The Credit Facility includes a $145
million sublimit for the issuance of letters of credit.
-4-
<PAGE>
Borrowings under the Facilities are secured by substantially all of the
Company's assets, subject to other liens permitted under the Facilities. The
Facilities contain certain restrictive covenants, including capital expenditure
limitations, a minimum fixed charge coverage ratio, a minimum earnings before
interest, taxes, depreciation and amortization (EBITDA) amount and a minimum
debt to EBITDA ratio.
Borrowings under the Facilities are limited based on borrowing base
formulas which consider eligible inventories, eligible accounts receivable, and
letters of credit. Borrowings are also subject to the satisfaction of customary
conditions, including the absence of any material adverse change in the
Company's business or financial condition. The Company anticipates lower revenue
in its fiscal quarter ending January 30, 2000 due to the Company sourcing
relationship and to lower customer demand related to Y2K concerns. With lower
operating activity, eligible assets in the borrowing base calculations are
likely to decrease. There can be no assurances that the Company will be able to
borrow adequate amounts on terms acceptable to the Company.
The unavailability of a significant portion of, or the loss of, the
Facilities or trade credit from vendors would have a material adverse effect on
the Company's business, financial condition, and results of operations. There
can be no assurance that the Company will be able to borrow adequate amounts on
terms acceptable to the Company.
DEPENDENCE ON INFORMATION SYSTEMS
The Company depends on a variety of information systems for its operations,
particularly its centralized information processing system which supports, among
other things, inventory management, order processing, shipping, receiving, and
accounting. Although the Company has not in the past experienced significant
failures or down time of its centralized information processing system or any of
its other information systems, any such failure or significant down time could
prevent the Company from taking customer orders, printing product pick-lists,
and/or shipping product and could prevent customers from accessing price and
product availability information from the Company. In such event, the Company
could be at a severe disadvantage in determining appropriate product pricing or
the adequacy of inventory levels or in reacting to rapidly changing market
conditions. A failure of the Company's information systems which impacts any of
these functions could have a material adverse effect on the Company's business,
financial condition, or results of operations. In addition, the inability of the
Company to attract and retain the highly-skilled personnel required to
implement, maintain, and operate its centralized information processing system
and the Company's other information systems could have a material adverse effect
on the Company's business, financial condition, or results of operations. In
order to react to changing market conditions, the Company must continuously
expand and improve its centralized information processing system and its other
information systems. There can be no assurance that the Company's information
systems will not fail, that the Company will be able to attract and retain
qualified personnel necessary for the operation of such systems, or that the
Company will be able to expand and improve its information systems.
-5-
<PAGE>
DEPENDENCE ON INDEPENDENT SHIPPING COMPANIES
The Company relies almost entirely on arrangements with independent
shipping companies for the delivery of its products. Products are shipped from
suppliers to the Company through a variety of independent common carriers.
Currently, United Parcel Service ("UPS") delivers a majority of the Company's
products to its reseller customers. The termination of the Company's
arrangements with UPS or other independent shipping companies, or the failure or
inability of one or more of these independent shipping companies to deliver
products from suppliers to the Company, or products from the Company to its
reseller customers or their end-user customers could have a material adverse
effect on the Company's business, financial condition, or results of operations.
For instance, an employee work stoppage or slow-down at one or more of these
independent shipping companies could materially impair that shipping company's
ability to perform the services required by the Company. There can be no
assurance that the services of any of these independent shipping companies will
continue to be available to the Company on terms as favorable as those currently
available or that these companies will choose or be able to perform their
required shipping services for the Company.
TECHNOLOGICAL CHANGE
The Company's industry is subject to rapid technological change, new
and enhanced product specification requirements, and evolving industry
standards. These changes may cause inventory and stock to decline substantially
in value or to become obsolete. In addition, suppliers may give the Company
limited or no access to new products being introduced. Although the Company
believes that it has adequate price protection and other arrangements with its
suppliers to avoid bearing the costs associated with these changes, no assurance
can be given that future technological or other changes will not have a material
adverse effect on the Company's business, financial condition, or results of
operations. See "Risk of Declines in Inventory Value."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's results of
operations, changes in earnings estimates by research analysts, conditions in
the computer industry, or general market or economic conditions, among other
factors. In addition, in recent years the stock market has experienced
significant price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices of many technology companies, often
unrelated to the operating performance of the specific companies. Such market
fluctuations could materially adversely affect the market price for the Common
Stock.
-6-
