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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File
Number 1-5620
SAFEGUARD SCIENTIFICS, INC.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1609753
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 The Safeguard Building
435 Devon Park Drive, Wayne, PA 19087
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 293-0600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
Common Stock ($.10 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of common stock held by non-affiliates (based on the
closing price on the New York Stock Exchange) on March 20, 1998 was
approximately $1.0 billion. For purposes of determining this amount only,
Registrant has defined affiliates as including (a) the executive officers named
in Part III of this 10-K report, (b) all directors of Registrant, and (c) each
shareholder that has informed Registrant by March 20, 1998 that it is
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the beneficial owner of 10% or more of the outstanding common stock of
Registrant.
The number of shares outstanding of the Registrant's Common Stock, as of March
20, 1998 was 31,955,366.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Form 10-K:
PART I
Item 1(b) Page 33 of the Annual Report to Shareholders for the year ended
December 31, 1997, which page is filed as part of Exhibit 13
hereto.
PART II
Items 5, 6,
7 and 8 Pages 27 to 46 of the Annual Report to Shareholders for the
year ended December 31, 1997, which pages are filed as part of
Exhibit 13 hereto.
PART III
Items 10, 11,
12 and 13 Definitive Proxy Statement relative to the May 7, 1998
annual meeting of shareholders of Registrant, to be filed within
120 days after the end of the year covered by this Form 10-K
Report.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF THE BUSINESS
OVERVIEW
Safeguard Scientifics, Inc. ("Safeguard" or the "Company") is engaged in the
business of identifying, acquiring interests in, and developing
entrepreneurially-driven partnership companies, most of which are engaged in
information technology businesses, broadly defined to include all activities
related to the acquisition, processing and dissemination of information and
related technology to improve business and personal productivity. The most
significant of Safeguard's partnership companies are engaged in the delivery of
personal computer services, including procurement and configuration of personal
computers, application software and related products, network integration, and
technical support. In addition, partnership companies in the information
technology industry are engaged in outsourcing and the development, sale, and
implementation of strategic business software and services, imaging equipment
and software, multimedia technology and services, and telecommunications
technology.
Safeguard develops these partnership companies by providing active strategic
management, operating guidance, acquisition and disposition assistance, board
and management recruitment, and innovative financing. Safeguard also
participates in the management of several associated venture funds. The Company
realizes value for its shareholders through the appreciation of the Company's
Common Stock, by taking partnership companies public (generally through an offer
by a partnership company to Safeguard shareholders of rights to purchase stock
of the partnership company in its initial public offering [a "rights
offering"]), through the continued operations of partnership companies, and
through the sale of partnership companies. The partnership company generally
sells newly-issued shares in a rights offering, although Safeguard and other
stockholders usually sell some of their shares in the rights offering as well.
In either case, after taking a partnership company public, Safeguard generally
retains a significant ownership interest and board representation, and continues
to provide strategic, managerial, and operational support. Safeguard completed
three rights offerings in 1997 and eight since 1990, including Cambridge
Technology Partners, Inc. ("Cambridge")(NASDAQ:CATP), Coherent Communications
Systems Corporation ("Coherent")(NASDAQ:CCSC), USDATA Corporation
("USDATA")(NASDAQ:USDC), Integrated Systems Consulting Group, Inc.
("ISCG")(NASDAQ:ISCG), Sanchez Computer Associates, Inc.
("Sanchez")(NASDAQ:SCAI), Diamond Technology Partners, Incorporated
("Diamond")(NASDAQ:DTPI), ChromaVision Medical Systems, Inc.
("ChromaVision")(NASDAQ:CVSN), and OAO Technology Solutions, Inc.
("OAO")(NASDAQ:OAOT). In February 1998, a rights offering commenced for DocuCorp
International, Inc. ("DocuCorp")(NASDAQ:DOCC), which is expected to be completed
in March 1998.
RECENT DEVELOPMENTS
The Company met its goal to complete three rights offerings in 1997, bringing to
its shareholders Diamond, a management consulting firm that develops
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digital business strategies to improve its clients' competitive positions,
ChromaVision, a developer of an automated cellular imaging system for use in a
wide variety of clinical and research applications, and OAO, a provider of a
wide range of outsourced information technology solutions and professional
services.
Consolidated net sales for 1997 were $1.99 billion, a 4% decrease from 1996. The
decrease was primarily attributable to the sale of Premier Solutions and Pioneer
Metal Finishing during 1997 and decreased product sales at CompuCom Systems, the
Company's largest business unit, as CompuCom primarily focused on increasing
earnings through growth in its higher-margin services business in 1997.
CompuCom's earnings increased by 26% over 1996 (before non-recurring gains).
CompuCom's share of the Company's consolidated net sales has risen steadily from
76% in 1990 to 98% in 1997. CompuCom is a leading provider of network
integration services to large- and medium-sized businesses throughout the
United States.
In 1997, Safeguard invested in three significant new partnership companies,
eMerge Vision Systems, Technology Systems Corporation, and Pacific Title/Mirage.
Safeguard invested in another new partnership company, Who?Vision Systems, an XL
Vision spin out company, in February 1998. Safeguard intends to continue its
strategy, begun in 1996, to seek to establish new relationships each year with
only a select number of partnership companies and to make larger investments in
the companies. Safeguard also made follow-on investments in Intellisource,
MultiGen, and Whisper Communications, among others, to support their
continued growth.
In February 1998, the Company commenced a rights offering for DocuCorp
International, a provider of enterprise-wide document automation software
products and services, which was created by a May 1997 merger between FormMaker
Software, a previous Safeguard partnership company, and Image Sciences, Inc.
Pennsylvania Early Stage Partners was formed in early 1998 in cooperation with
the Commonwealth of Pennsylvania and the Pennsylvania Public School Employees'
Retirement System to invest in "catalyst" stage companies primarily in
Pennsylvania.
SCP Private Equity Partners completed its fundraising with $265 million of
capital committed.
Cambridge completed a major strategic acquisition of UK based Peter Chadwick
Holdings Limited, and added over 1,200 net new employees during the year.
Coherent continued its strong growth, and in February 1998 announced an
agreement to merge with Tellabs, subject to stockholder and regulatory
approvals.
Several partnership companies completed acquisitions to further their growth,
including ISCG, OAO, Sanchez, RMS Information Systems, and The Intellisource
Group.
Intellisource secured major long-term outsourcing contracts with Shell Services,
Oglethorpe Power and Avon.
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Whisper Communications signed a major contract to provide automatic meter
reading technology to Illinois Power in partnership with Schlumberger.
XL Vision solidified its model for incubating and spinning out new imaging
technology companies, with one company (ChromaVision) completing a Safeguard
rights offering, a second company (eMerge Vision Systems) completing a spin-out
in 1997, and a third company (Who?Vision Systems) completing a spin-out in 1998.
Safeguard sold Pioneer Metal Finishing to Pioneer's management team, and
assisted in completing the sale of two other partnership companies, Premier
Solutions and DLB Systems.
During 1997, Safeguard amended its bank revolving credit facility by
increasing availability from $100 million to $150 million, reducing the
interest rate on LIBOR traunches, and extending the maturity to May 2001.
Safeguard is in the process of further increasing its facility to $200
million in 1998. CompuCom also amended its credit arrangements by extending
the maturity to November 2002 and by a modification to its Securitization
Facility. (See Item 8, Financial Statements and supplementary data, Footnote
3.)
ITEM 1 (b). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
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Information on net sales, operating profit, depreciation and amortization,
capital expenditures and assets employed for each segment of the Company's
business for the three-year period ended December 31, 1997 is contained under
the caption "Financial Information--Industry Segments" on page 33 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which page is filed as part of Exhibit 13 hereto and is incorporated herein by
reference.
ITEM 1 (c). NARRATIVE DESCRIPTION OF BUSINESS
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STRATEGY AND GENERAL BUSINESS
Safeguard seeks to identify companies which are capable of being market leaders
in segments of the information technology industry and which are at a stage of
development that would benefit from Safeguard's business development and
management support, financing, and market knowledge. Safeguard generally invests
in companies in which it can purchase a large enough stake to enable it to have
significant influence over the management and policies of the company and to
realize a large enough return to compensate it for its investment of management
time and effort, as well as capital.
Safeguard gains exposure to emerging companies through its reputation as a
historically successful developer of information technology companies, its
relationship with eight venture capital and private equity funds, Radnor Venture
Partners, Technology Leaders I, Technology Leaders II, TL Ventures III, SCP
Private Equity Partners, Safeguard International Fund, EnerTech Capital
Partners, and Pennsylvania Early Stage Partners, as well as through its
sponsorship of such organizations as the Eastern Technology Council and
entrepreneurial centers at Lehigh University, Temple University and the
University of Pennsylvania, and the participation of its officers and
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employees in various non-profit and charitable organizations. Safeguard
considers its access to potential partnership companies to be good.
Emerging companies traditionally seek financing for growth from two primary
sources: independent private venture capital funds and corporate strategic
investors. Each of these sources has disadvantages for the emerging company.
Venture capital funds generally are established for a limited term and their
primary goal is to maximize their financial return within a short time frame. A
venture capital fund often seeks to liquidate its investment in the emerging
company by encouraging either an early initial public offering or a sale. In
addition, traditional venture capital funds generally have limited resources
available to provide managerial and operational support to an emerging company.
Corporate strategic investors are typically large corporations that invest in
emerging companies to obtain access to a promising product or technology without
incurring the initial cost of development or the diversion of managerial time
and attention necessary to develop new products or technologies. Often these
investments involve both financing support to the emerging company as well as an
arrangement under which the strategic investor obtains access to the products or
technology of the emerging company. While strategic investors are generally able
to provide business development support, the rationale behind the investment of
a strategic investor may be incompatible with the development of the emerging
company. Strategic investors often discourage the emerging company from becoming
a public company.
Safeguard believes that its relationship with its partnership companies offers
the benefits of both the venture capital model and the strategic investor model
without the related drawbacks. Safeguard has both the capital and managerial
resources to provide financing and strategic, managerial, and operational
support as needed by an emerging company. In addition, Safeguard encourages
emerging companies to achieve the superior returns on investment generally
provided by public offerings, but only if and when it is appropriate for the
development of the business of that emerging company. Because of Safeguard's
unique process of taking partnership companies public through "rights offerings"
to Safeguard shareholders, as described below, Safeguard continues its
involvement with its partnership companies after their initial public offerings.
This support is often crucial to help a company adjust to the challenges imposed
by the public financial markets.
Safeguard's corporate staff provides hands-on assistance to the managers of its
partnership companies in the areas of management, financial, marketing, tax,
risk management, human resources, legal and technical services. Safeguard has
assisted partnership companies by providing or locating and structuring
financing, identifying and implementing strategic initiatives, providing
marketing assistance, identifying and recruiting executives and directors,
assisting in the development of equity incentive arrangements for executives and
employees, and providing assistance in structuring, negotiating, documenting,
financing, implementing and integrating mergers and acquisitions.
Safeguard also provides a supportive environment to the managers of its
partnership companies by organizing numerous opportunities for them to interact
with managers of other partnership companies to share strategies, ideas, and
insights and to forge business relationships. Twice a year
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Safeguard gathers the senior managers of all of its partnership companies, both
private and public, for a "Senior Partners" conference. Safeguard also convenes
periodic "CFO Forums" for senior financial managers of the partnership companies
and occasional sessions on more specific topics, such as investor relations and
human resources.
In recent years, Safeguard has tended to acquire substantial minority
ownership interests rather than majority interests in many of its partnership
companies. In many of these cases, Safeguard, either alone or in conjunction
with its associated venture funds, is the largest single shareholder, and
exercises significant influence over the company. Safeguard also generally
obtains significant board representation in these companies. Safeguard
accounts for these companies on an equity basis, recording its share of the
company's net earnings or losses under the caption "Income from equity
investments, net" in the Consolidated Statements of Operations. Safeguard's
equity investee companies have become increasingly important to its
operations and success in recent years relative to its consolidated
subsidiaries. Item 14(d), Schedule I contains the Company's Condensed
Consolidated Financial Statements without the consolidation of its
majority-owned subsidiaries, CompuCom and Tangram.
Safeguard believes that the entrepreneurial energy and creativity of the
managers of its partnership companies is an essential component of its success.
The Company's business strategy of keeping its partnership companies as
independent businesses with the chance to go public, rather than folding them
into the parent company, is designed to maintain the necessary entrepreneurial
environment. The entrepreneurs and their teams retain or are granted equity
ownership and incentives in their own companies in order to keep them focused on
creating value for their shareholders, including Safeguard.
Safeguard's goal is to maximize the value of its partnership companies for
Safeguard's shareholders, often by taking its partnership companies public
through a rights offering at the appropriate time. A rights offering is an
initial public offering of a partnership company, directed to Safeguard's
shareholders. It involves the grant by a partnership company to Safeguard's
shareholders of transferable rights to buy shares of the partnership company's
stock at a price established by the partnership company, Safeguard, and the
underwriter, and supported by two independent valuations. Safeguard shareholders
are able to exercise the rights, thereby participating in initial public
offerings of high-growth technology companies which are usually reserved for
large institutional investors, or they may sell the rights at the prevailing
market price, assuming a market develops. Safeguard generally retains a
significant ownership in its partnership companies after taking them public.
Safeguard generally also retains significant participation on each company's
board of directors. Between Safeguard's direct continuing ownership interest
in its public partnership companies and the strong identification in the
public financial markets of the companies as "Safeguard rights offering"
companies, Safeguard retains a substantial interest in the continuing success
of the companies after their IPOs, and substantial influence over their
management and strategic direction. Growth in the value of the public
partnership companies benefits Safeguard and also directly benefits its
shareholders who continue to hold the shares purchased in the rights
offering. Safeguard's goal is to take three companies public per year through
rights offerings.
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However, the development of emerging companies is subject to many uncertainties,
and there can be no assurance that Safeguard will be successful in completing
three rights offerings in any given year.
OVERVIEW OF BUSINESS SEGMENTS
As of the end of 1997, Safeguard and its majority owned subsidiaries have
operations in a single industry segment: Information Technology. During 1997
the Company sold its Metal Finishing operations. The Information Technology
segment consists of: Microcomputer Systems and Services (the delivery of
personal computer services, including procurement and configuration of
personal computers, application software and related products, network
integration, and technical support); and Information Solutions (the design,
development, sale and implementation of enterprise-wide asset tracking and
software management solutions). In Microcomputer Systems and Services, the
Company operates through its majority-owned subsidiary, CompuCom Systems,
Inc. and its subsidiaries ("CompuCom")(NASDAQ:CMPC). In Information
Solutions, the Company operates through its majority-owned subsidiary,
Tangram Enterprise Solutions, Inc. ("Tangram")(NASDAQ:TESI). The Company sold
its other subsidiary in Information Solutions, Premier Solutions Ltd., in
1997. The Company also actively participates in numerous additional private
and public information technology companies in which it holds significant
minority ownership interests.
INFORMATION TECHNOLOGY SEGMENT
Microcomputer Systems and Services
CompuCom is a leading provider of network integration services to large- and
medium-sized businesses throughout the United States. CompuCom helps Fortune
1000 companies manage information technology to achieve their business goals
by providing a wide range of services in provisioning, support, and
technology management. Products and services are sold by a direct sales force
to over 3,500 business customers through 41 sales and service centers located
in and serving large metropolitan areas nationwide.
CompuCom is an authorized dealer of major distributed desktop computer
products, networking and related peripherals, and software for a number of
manufacturers, including Compaq Computer Corporation ("Compaq"),
International Business Machines Corporation ("IBM"), Hewlett-Packard Company
("HP"), Toshiba America Information Systems, Intel Corporation and Microsoft
Corporation. To further meet the needs of its customers, CompuCom provides a
variety of services including LAN/WAN project services, consulting, asset
tracking, network management, help desk, field engineering,
configuration, software management, distribution, and procurement utilizing
network applications such as Novell Netware, Windows NT, Windows and Windows
95, and IBM OS/2 Warp.
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Net sales for CompuCom have grown at a compounded rate of 22% over the past
five years, while net earnings have grown by 37% compounded annually over the
same period. Excluding after-tax nonrecurring gains of $3.4 million in 1997,
net earnings over that period have grown at a compounded rate of 34%.
CompuCom believes sales and net earnings performance is a result of its
continued focus on customer satisfaction, along with the enhancement and
growth of its services capabilities created by a strategy of growth through
existing operations and strategic acquisitions. The services business is an
integral part of CompuCom's strategy to provide customers with the
value-added service solutions to meet their technology needs. CompuCom's
target customers are becoming increasingly dependent on information
technology to compete effectively in today's markets. As a result, the
decision making process that organizations face when planning, selecting and
implementing technology solutions is becoming more complex and requires many
of these organizations to outsource the management and support of their
technology needs.
CompuCom's product sales accounted for 86% of Safeguard's total net sales in
1997, compared to 88% in 1996 and 1995. CompuCom's services sales accounted for
12% of Safeguard's total net sales in 1997, compared to 8% in 1996 and 7% in
1995. CompuCom's business tends to be subject to seasonal fluctuations, with the
highest revenue levels generally occurring in the fourth quarter.
CompuCom markets its product procurement, configuration, field engineering,
network management, help desk services, and technology management services
primarily through its direct sales force and service personnel, operating
through 41 sales and service centers. CompuCom focuses on meeting the
business objectives of large corporate businesses, which accounted for the
majority of CompuCom's net sales in 1997. However, no one customer accounted
for in excess of 10% of such sales.
CompuCom's customers generally require rapid fulfillment of product orders. To
meet these requirements and to assure itself of a continuous allotment of
products from its vendors, CompuCom maintains adequate levels of inventory
funded through credit facilities and vendor credit.
CompuCom provides support to its customers primarily through inside sales
representatives ("ISRs") mostly based at its customer center, located in Dallas,
Texas. Each ISR works closely with CompuCom's direct sales representatives. The
primary goal of the customer center is to provide greater support to CompuCom's
customers while allowing CompuCom's direct sales force to focus on soliciting
new business and providing the necessary support for the customer's more complex
service needs. As of December 31, 1997, CompuCom employed 335 full-time direct
sales representatives and 423 customer center personnel, of whom 308 worked at
the customer center in Dallas and 115 worked on-site at certain customer
locations.
During 1996, CompuCom helped to create GlobalServe, an international alliance of
computer product and service suppliers.
In order to remain profitable in the face of narrow product gross margins,
CompuCom has continuously worked to improve its operating efficiency by
streamlining its business processes and through the use of integrated
enterprise-wide information systems, automation of operations, a corporate
intranet, and an internet-based commerce system for customers. CompuCom believes
that this focus on technology-enhanced operations gives it one of the lowest
operating cost structures in its industry and provides a demonstration to its
customers of the benefits of its product and service offerings.
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Although product margins improved in 1997 compared to 1996, CompuCom believes
that gross margins will continue to be reactive to industry-wide changes. Future
profitability will depend on the ability to retain and hire quality service
personnel while effectively managing the utilization of such personnel,
increased focus on providing technical service and support to customers, product
demand, competition, manufacturers' product availability and pricing strategies,
effective utilization of vendor programs, successful design and implementation
of the final assembly programs of its major vendors, and control of operating
expenses.
The computer reseller industry is highly competitive, primarily in the areas
of price, product availability, and breadth of product line. Recently, direct
marketers have had a pricing advantage over resellers such as CompuCom. In
order to combat this disadvantage, CompuCom is participating in the design
and implementation of the final assembly programs of its three largest
desktop computer vendors, Compaq, HP and IBM. CompuCom's ability to assemble
systems to customers specifications on a "build to order" basis should
increase product availability and reduce costs to its customers by allowing
more efficient inventory management. The industry has been undergoing a
significant transformation and consolidation, with a number of CompuCom's
competitors being acquired or increasing in size through acquisitions. In
addition, larger companies previously engaged in the retail channel have
begun to enter the corporate reseller market. As a result, CompuCom is
seeking to grow through acquisitions to continue to compete successfully in
the market. In March 1998, CompuCom announced that it signed a nonbinding
letter of intent to acquire Computer Integration Corp. for cash, subject to
CIC stockholder approval. If CompuCom uses its stock for acquisitions or some
other dilutive event were to occur, Safeguard's voting interest in CompuCom
could be diluted below 50%, in which event Safeguard would no longer
consolidate CompuCom's financial results under current generally accepted
accounting principles. See "Management's Discussion and Analysis - General"
beginning on page 27 of the Company's Annual Report to Shareholders filed as
part of Exhibit 13 hereto.
At February 28, 1998, Safeguard owns approximately 51% of CompuCom's outstanding
common stock plus preferred stock which gives the Company up to 60% of the
votes for CompuCom's directors.
Information Solutions
Tangram provides enterprise-wide solutions, including asset tracking and
electronic software distribution for large heterogeneous computing
environments, encompassing mainframe, UNIX-based mini and LAN server
platforms. Asset Insight(TM), an information technology asset tracking
product launched in 1996, allows businesses to track changes in their
information technology asset base (including hardware and software), forward
plan technology requirements, optimize end-user productivity, and calculate
the cost of software and hardware upgrades. AM:PM(R) is Tangram's industry
leading solution for automated software distribution, data distribution and
collection, and remote resource management. AM:PM, along with expert
consulting services, provides businesses with solutions to manage an
enterprise's heterogeneous and remote information technology systems. In
addition, technology offerings from the consulting group include Asset
Compass, a technology integration of Tangram's asset tracking product, Asset
Insight, and Tangram's software distribution product, AM:PM, together with a
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graphic user interface that facilitates task management of distribution,
creation, scheduling, and tracking functions.
Tangram operates through two divisions: Enterprise Solutions, focused on
marketing Asset Insight; and Consulting Solutions, focused on implementing
customized solutions incorporating its AM:PM and other products. The Enterprise
Solutions division markets Asset Insight through value added resellers, systems
integrators and other channel partners. The Consulting Solutions division
markets and sells its products and services directly to its customers in North
America and through a network of independent distributors internationally.
Tangram is expending significant amounts to continue to develop and improve
Asset Insight and to develop its distribution channels in order to establish and
maintain a market leadership position for asset tracking software. Because of
its complexity, Asset Insight has a relatively long sales cycle. Effective
management of the sales process is critical to Tangram's future success. In the
broader market for asset management products and services, competition is
intense, and many of Tangram's actual and potential competitors have
substantially greater resources than Tangram. Tangram's future success will
depend on its ability to enhance its product line over time and adapt to
changing market conditions in order to maintain a leadership position in the
market for asset tracking solutions.
At February 28, 1998, Safeguard owns approximately 67% of Tangram's
outstanding common stock.
In 1997, Premier Solutions was sold to a third party, and Safeguard recorded a
gain of $6.3 million on the sale.
Product Development Expenses
For Information Solutions, the Company spent $5.0 million, or approximately
35% of Information Solutions net sales, for product development in 1997,
compared to $3.4 million, or approximately 30% of Information Solutions net
sales, for product development in 1996 and $3.1 million or approximately 25%
of net sales in 1995.
Other Segment Information
Export sales in the Information Technology segment for the three-year period
ended December 31, 1997 were less than 5% of the segment's total sales in each
of those years. Backlog for this segment, most of which was accounted for at
year-end by CompuCom, is not considered to be a meaningful indication of future
business prospects due to CompuCom's relatively short order fulfillment cycle.
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OTHER INFORMATION
In 1997, Safeguard sold its Pioneer Metal Finishing division to the management
group at Pioneer. Safeguard recorded a pre-tax gain of $3.4 from the sale and
deferred an additional gain pending collection of the purchase notes and other
contingencies.
The operations of the Company and its partnership companies are subject to
environmental laws and regulations. The Company does not believe that
expenditures relating to those laws and regulations will have a material adverse
effect on the business, financial condition or results of operations of the
Company.
OTHER PARTNERSHIP COMPANIES
Public Companies
Safeguard uses the equity method of accounting for companies in which it owns
less than a majority of the outstanding voting securities but exercises
significant influence through representation on those companies' Boards and
other means. Public partnership companies accounted for on the equity method in
1997 included Cambridge, ChromaVision, Coherent, OAO, Sanchez, and USDATA.
Cambridge is an international management consulting and systems integration
firm. Cambridge combines management consulting, IT strategy, process innovation
and implementation, custom and package software deployment, network services,
and training to rapidly deliver end-to-end business solutions for clients.
Cambridge provides the majority of its services on a fixed-time, fixed-price
model with client involvement at all stages of the process. In performing its
services, Cambridge employs a rapid development methodology that features an
iterative approach and conducts facilitated workshops that bring together key
client users, executives and IT professionals to achieve consensus on the
business case, strategic objectives, and functionality of a business solution.
Cambridge believes that this approach permits the delivery of results in
unprecedented time frames -- typically within three to twelve months.
In the fourth quarter of 1997, Cambridge strengthened its management consulting
practice through the acquisition of Peter Chadwick Holdings Limited ("Peter
Chadwick"). Based in the United Kingdom, Peter Chadwick provides change
implementation services for operational strategies and performance improvement.
Peter Chadwick enables Cambridge to enhance its ability to provide end-to-end
business transformation services to clients by identifying opportunities for
business operations change, implementing those changes, and deploying supporting
applications. Peter Chadwick's service offerings will be provided through
Cambridge's "Cambridge Management Consulting" unit.
Cambridge's management consulting and information technology services are
offered at three levels -- the enterprise-wide, specific business process and
application software levels of an organization. Upon completion of initial
consulting engagements, Cambridge typically designs, and develops one or more
strategic software applications, which often include custom and third-party
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package software, and then rolls-out such applications to the organization's
end-users. These software applications are selected and designed to achieve a
competitive advantage, enhance the efficiency and functionality of specific
business processes, and support financial goals. Cambridge also provides
network services and IT strategy services to help clients establish their
internal IT strategies and implement the recommended technology solutions.
While the early stages of a client engagement may result in a relatively
small amount of revenues, a client engagement which involves the design and
development of a strategic software application typically results in fees
ranging from $1 to $6 million. Because of the size of these assignments,
clients may undertake projects on an irregular basis. However, no customer
accounted for more than 5% of net revenues in 1997, 1996, or 1995. Cambridge
had 1997 revenues of $406.7 million.
At February 28, 1998, Safeguard owns approximately 16% of Cambridge's
outstanding common stock.
ChromaVision is a laboratory medicine diagnostics company that develops and
manufactures an automated cellular imaging system for a wide variety of clinical
and research applications. ChromaVision currently markets the products to
research centers and is previewing the system to university medical centers and
commercial laboratories in anticipation of two FDA filings in 1998, which could
result in several commercialized applications. The ChromaVision
Automated Cellular Imaging System ("ACIS") is designed to identify cells with
specific characteristics within a sample of cells on a microscope slide by
detecting color produced by the reaction between common laboratory reagents and
the cells of interest. ChromaVision's ACIS uses proprietary imaging software to
capture digital images of the cell samples to detect the presence, count the
number and measure the intensity of targeted cells. The system offers
substantial flexibility because the software can be configured to identify
different stains and cellular staining characteristics, thereby allowing the
system to be adopted for use with different reagents to identify a broad range
of targeted cellular conditions. ChromaVision seeks to establish the
ChromaVision ACIS as the preferred platform for multiple diagnostic
applications.
ChromaVision believes that the ChromaVision ACIS will be attractive to
healthcare providers and beneficial to their patients because of its ability to
deliver superior diagnostic solutions, thus reducing the need for more invasive
or more costly procedures. Preliminary tests have demonstrated that the
ChromaVision ACIS can locate a single abnormal cell among 120 million normal
cells. This improved detection capability enables the ChromaVision ACIS to be
applied to a variety of diagnostic situations, such as high-value rare event
detection procedures, which include the detection of minute quantities of cancer
cells that have spread to parts of the body away from a tumor's primary
location.
ChromaVision has completed clinical trials and has received 510(k) clearance
from the FDA to market the ChromaVision ACIS with a stain (marker) to screen
blood for malignancy. ChromaVision plans to expand this clearance for a
higher-value use of the ChromaVision ACIS in its intended first commercial
application called Triple Plus(TM), a procedure using a related cytochemical
13
<PAGE>
measurement as a marker in the prenatal screen of maternal blood for
indicating the risk of Down syndrome in fetuses. ChromaVision commenced
clinical trials for its Triple Plus(TM) application in 1997. Assuming the
clinical trials for prenatal screening are successfully completed,
ChromaVision anticipates that it will commercialize this application in the
second half of 1998. ChromaVision has signed an exclusive distribution and
development agreement with Sigma Diagnostics for the Triple Plus(TM).
ChromaVision is also evaluating the use of the ChromaVision ACIS for various
cancer applications, including for prostate, breast, lung and colorectal
cancer.
ChromaVision is currently a development stage company with no commercial
revenues. Commencement of revenue generating activities will be contingent on
successful completion of clinical trials and, in most cases, obtaining FDA or
foreign regulatory approvals. ChromaVision completed its rights offering in
August 1997. At February 28, 1998, Safeguard owns approximately 26% of
ChromaVision's outstanding common stock.
Coherent develops, manufactures and markets voice quality enhancement products
for wireless (including digital cellular and personal communication systems
("PCS")), satellite-based, cable communication systems, and wireline
telecommunications systems throughout the world. Coherent's principal product
lines are transmission products and conference products. Coherent's products
utilize a proprietary high speed reduced instruction set computer ("RISC")
microchip coupled with proprietary software to enhance the quality of voice
communications during a telephone call in several ways, including eliminating
echoes inherent in modern telecommunications systems and hands free telephone
and teleconference usage. Coherent's products are compatible with domestic and
foreign telecommunications systems.
Coherent sells its transmission products to network operators and other
end-users through its direct sales force and third-party distributors, and to
telecommunications equipment manufacturers through its direct sales force.
Coherent's products are used globally by major wireless and wireline
telecommunications companies and network operators, including AT&T Wireless,
British Telecom, Cable & Wireless, Cellular One, Cisco Systems, Deutsche
Telekom, France Telecom, Motorola, Nokia, NORTEL, Telia Mobitel, and Telefonos
de Mexico, among others. Coherent historically has experienced its greatest
success selling its transmission products internationally, where competition is
based principally on technological characteristics. Competition in the U.S. has
been more price sensitive. Coherent's strategy for future growth is to continue
to develop new software products running on its echo canceller platforms to
support new telecommunications technologies, and to continue to develop and
expand strategic relationships with major telecommunications network operators,
telecommunications equipment manufacturers, and telecommunications equipment
distributors.
Coherent's conference products include Consortium(R) Conferencing System(TM), an
automated teleconference bridge; ConferenceMaster(R), a high quality
teleconferencing system; and Voicecrafter(TM), a line of audio systems. In
February 1998, Coherent announced an agreement to merge with Tellabs in a
stock-for-stock deal, subject to various conditions including stockholder and
regulatory approvals. There is no assurance such approvals will be obtained.
Coherent had 1997 revenues of $73.7 million.
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<PAGE>
At February 28, 1998, Safeguard owns approximately 31% of Coherent's outstanding
common stock.
OAO provides a wide range of outsourced information technology ("IT") solutions
and professional services, including the operation of large-scale megacenter
complexes and networks (high volume system of computers and information
networks), distributed systems management ("DSM"), applications software
development and maintenance, staffing services and other IT services. OAO
provides these solutions and services, generally on a long-term, fixed-price
contractual basis, to its Strategic Clients which are global providers of IT
outsourcing services. OAO works with these Strategic Clients as part of the IT
outsourcing team in providing services to a wide range of corporate clients
("Engagement Clients"), accepting delivery responsibility for specific
functional roles within the outsourcing engagements. OAO's primary Strategic
Clients have been IBM's Global Services ("IBM") and Digital Equipment
Corporation ("Digital"), which accounted for 66.2% and 24.1% of OAO's 1997
revenues, respectively. OAO's revenues were $84.7 million in 1997. For the years
ended December 31, 1997, 1996 and 1995, approximately 60.8%, 73.8%, and 92.0% of
OAO's revenues, respectively, were derived from fixed-price contracts. As of
December 31, 1997, OAO had over 1,600 employees in 18 company offices and 96
engagement locations in the United States, Canada, Mexico, Brazil and the United
Kingdom.
OAO's strategy is to build long-term relationships with Strategic Clients by
understanding their business needs and by providing specific services within
large-scale outsourcing engagements more cost-effectively than other
alternatives. By offering fixed-price contracts, OAO reduces the execution and
pricing risk for its Strategic Clients in their large-scale outsourcing
engagements. OAO has developed and is continuing to expand its international
service delivery capabilities in order to leverage its Strategic Clients'
increasingly global IT outsourcing efforts.
Large-scale outsourcing engagements typically involve the acquisition of IT
assets by the outsourcing provider from the Engagement Client. These assets can
range from fixed assets, such as entire data centers and computer networks, to
personnel, such as data center, help desk and programming staff. OAO's role in
outsourcing engagements usually involves the retention of IT personnel from the
Engagement Client. By retaining employees as part of its new outsourcing
engagements, to date, OAO's growth has not been impeded by the availability of
qualified technical personnel and OAO has avoided the significant staffing costs
and expenses normally associated with new engagements within the IT services
industry. OAO's future success is highly dependent on its relationships with a
small number of Strategic Clients and its ability to effectively manage its
fixed-price contracts.
At February 28, 1998, Safeguard owns approximately 30% of OAO's outstanding
common stock.
Sanchez completed its rights offering in December 1996. Sanchez designs,
develops, markets, implements, and supports a comprehensive banking software
system called PROFILE(R) for financial services organizations worldwide.
Sanchez's highly flexible PROFILE family of products is comprised of three
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<PAGE>
integrated modules which operate on open client-server platforms. The primary
module, called PROFILE, is a multi-currency core processing system which
supports deposit, loan, customer, transaction processing and bank management
requirements through multiple distribution channels, including the Internet.
Historically, Sanchez has focused its marketing efforts in Central Europe and
North America. Currently, Sanchez is targeting three market segments: the
emerging banking market (banks with little installed enterprise-wide automation)
in which Sanchez seeks to expand its current market share, the direct banking
market (large financial services institutions throughout the world engaging in
on-line retail banking business conducted via alternate distribution channels
such as the Internet) in which Sanchez is seeking to expand on recent successes,
and the top-tier bank market (the 1,000 largest global and regional banks in the
world) in which Sanchez is seeking to build on its current client base and
establish itself as a significant participant. Sanchez believes that the growth
of electronic commerce will result in a large increase in the volume of
financial transactions which occur on-line as well as a greater demand for
customized direct banking products and services. Sanchez also believes that the
systems architecture in most top-tier banks is significantly outdated, and that
many of these institutions are actively evaluating replacements for their
traditional legacy software environments. Sanchez believes that significant
opportunities exist for its PROFILE product in both of those markets. The
direct banking market is a relatively new market, and the top-tier banking
market is characterized by customers who tend to rely on long standing
relationships with established vendors. There is no assurance that Sanchez will
be able to successfully establish itself in either of these markets.
Sanchez markets PROFILE products through alliances with Digital Equipment
Corporation, Hewlett-Packard, Oracle, Price Waterhouse, and IBM, as well as its
own enhanced direct sales force.
Sanchez had total revenues of $28.3 million for 1997, approximately one-half of
which were from software license fees, with the balance primarily from
implementation, consulting services, and maintenance fees. In March 1998 Sanchez
announced the acquisition of Greystone Technology Corporation, the developer of
certain high performance database systems used in conjunction with PROFILE.
At February 28, 1998, Safeguard owns approximately 25% of Sanchez's outstanding
common stock, and warrants which could increase its ownership to 27%.
USDATA is a global supplier of real-time manufacturing application software and
development tools, and related consulting services. USDATA's products and
services help automate manufacturing and process control applications. Its
real-time data management capabilities enable customers to reduce operating
costs, shorten cycle times, improve product quality and increase productivity.
USDATA produces automation software tools that enable an organization's
information systems to supervise, monitor and control manufacturing and other
automated processes and to interface with management information systems.
USDATA's family of software products, marketed under the name FactoryLink(R),
provides a powerful set of software tools designed for users who are
16
<PAGE>
technically competent but who may not be experienced software programmers.
USDATA's software business generated $22.4 million of net revenues during 1997.
In February 1998, USDATA announced its intention to dispose of its system
integration and hardware servicing business. This business has historically been
engaged in the design and turnkey implementation of integrated third-party data
collection systems that allow remote, real-time data collection using a variety
of automatic identification techniques.
At February 28, 1998, Safeguard owns approximately 25% of USDATA's outstanding
common stock, and warrants which could increase its ownership to 30%.
Private Companies
The following are Safeguard's significant private partnership companies.
Diablo Research Corporation is a contract engineering company with expertise in
radio frequency technology and applications, CEBUS technology for home
automation, and fixed wireless applications for the telecommunications industry.
Safeguard is working with Diablo to refine its business model as a technology
incubator which can spin out a series of independent companies to commercialize
its various technologies. Diablo has previously spun out Whisper Communications
to commercialize its two-way wireless automatic meter reading technology. Diablo
had 1997 revenues of $24.1 million. At February 28, 1998, Safeguard owns units
representing 18% of Diablo's outstanding ownership units.
Diablo is a limited liability company.
Educational Marketing Concepts, Inc. is in the process of producing two
large-format films with the International Olympic Committee; and provides
various services to non-profit and other corporations. In February 1998, EMC
entered into an agreement with two other corporations pursuant to which, and
subject to the satisfaction of various conditions, the three corporations
will be reorganized into a single entity under a parent corporation, MegaMax
Systems, Inc. The combined entity intends to provide a full range of
projection equipment, content and service to the giant screen film and
theater industry. At February 28, 1998, Safeguard owns 12% of EMC's
outstanding commmon stock and warrants which could increase its ownership to
22%. Finalization of certain other transactions could further increase
ownership to 37%.
eMerge Vision Systems, Inc. provides rapid response development of application
specific thermal imaging solutions. Thermal imaging systems detect minute
differences in infrared radiation (heat) emitted by all living and inanimate
objects to create an electronic image of the objects and background. EVS is
developing systems for the transportation and security markets that can provide
pictures of surrounding environments through darkness and fog, and systems for
the equine, animal sciences, and medical markets that can detect certain
physical conditions such as inflammations and tissue damage. EVS is a
development stage company which was formed in 1997 as a spin out from XL Vision,
Inc. At February 28, 1998, Safeguard owns non-voting convertible preferred stock
which, if converted, would give it ownership of up to 62% of EVS' outstanding
common stock.
The Intellisource Group, Inc. provides integrated outsourcing services,
called "Intellisourcing," for all of its customers' non-core activities, such
as facilities management, communications, accounting, human resources,
document management, etc. Intellisource has established a joint venture with
Shell Services which received a long term outsourcing contract for Shell Oil,
and has obtained additional long term contracts from Oglethorpe Power, Avon,
and others. Intellisource's future success depend on its ability to
effectively manage its fixed-price contracts and to leverage the resources in
its existing engagements to generate and support additional business. At
February 28, 1998, Safeguard owns convertible preferred stock which represents
45% of the outstanding capital stock of Intellisource, and warrants which
could increase its ownership to up to 69%.
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<PAGE>
Internet Capital Group, LLC was established by Safeguard in 1996 to identify,
invest in, and develop early to mid-stage Internet- related companies in the
target areas of enabling tools and technology businesses, software application
developers, content providers, and ongoing enterprises whose business model is
enhanced by the Internet. Internet Capital Group has $40 million of capital, of
which Safeguard has funded 33%.
MultiGen, Inc. develops and markets the leading real-time 3D authoring software
that is used to create, edit, and view interactive scenes for visual simulation,
entertainment, CAD visualization, and virtual reality applications. MultiGen has
also created the Solutions Center to provide customers with customized services,
including integration and content development. MultiGen's 1997 revenues were
$11.2 million. At February 28, 1998, Safeguard owns common and convertible
preferred stock representing 31% of MultiGen's outstanding capital stock.
Nextron Communications, Inc. provides competitively priced quality web site
hosting and technical support services that enable businesses of every size to
maintain a presence on the World Wide Web. Nextron has strategic relationships
with GTE, Southern New England Telephone, and others to provide fast web site
development and hosting for their telephone book advertisers. At February 28,
1998, Safeguard has the right to acquire up to 67% of Nextron's outstanding
capital stock.
Pacific Title/Mirage, Inc. was formed in October 1997 by Safeguard and Mirage
Technologies. The company acquired certain divisions of Pacific Title and
Arts Studio, one of Hollywood's most established post-production facilities,
providing optical and digital effects and titles for motion pictures. Mirage
Technologies also contributed to the company its proprietary LifeF/x(TM)
technology, which generates 3-D digital characters with a level of subtlety
and details beyond that of other commercially available technologies. Pacific
Title/Mirage is continuing to develop LifeF/x, and is negotiating with a
major Hollywood studio to feature a LifeF/x generated character in an
upcoming motion picture. At February 28, 1998, Safeguard owns common stock
and convertible preferred stock representing 48% of Pacific Title/Mirage's
outstanding capital stock.
RMS Information Systems provides design, development, integration, and operation
of telecommunications and network systems, principally to governmental agencies.
RMS' strategy is to continue to grow its government business and establish a
strong commercial business. RMS had 1997 revenues of $90.5 million. At February
28, 1998, Safeguard owns 19% of RMS' outstanding common stock, and convertible
preferred stock and warrants which could increase its ownership to 34%.
The Sentry Group resulted from a 1996 merger between Value Sourcing Group and
Sentry Technology Group. The company provides information technology market
research and management consulting services for IT buyers and sellers. Sentry
had 1997 revenues of $17.9 million. At February 28, 1998, Safeguard owns 48% of
Sentry's outstanding common stock, and warrants which could increase its
ownership to 49%.
Technology Systems Corporation became a Safeguard partnership company in 1997.
TSC is an engineering consulting services and software development company
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<PAGE>
which provides enterprise decision support capabilities using advanced
methodologies for modeling and evaluating enterprise costs, resource
capacity, and organizational restraints. Areas of application include product
development, product management, and capital investments. To date TSC's
client base consists primarily of Fortune 500 companies. At February 28,
1998, Safeguard owns 30% of TSC's outstanding capital stock, and has a
contingent obligation to acquire additional shares which would give it up to
35% of the oustanding capital stock.
Whisper Communications, Inc. was formed as a spin-out from Diablo Research
Company. Whisper has developed a two-way, fixed-base automatic meter reading
technology which will allow utilities to remotely read meters (gas, water, or
electric) via the use of radio frequency technology and a wireless
communications backbone. Whisper has signed a large supply contract as a
subcontractor to Schlumberger to provide automatic meter readers to Illinois
Power. Whisper is continuing to develop and improve its product. At February
28, 1998, Safeguard owns convertible preferred stock representing 16% of
Whisper's outstanding capital stock, and warrants which could increase its
ownership to 22%.
Who?Vision Systems, Inc. is a developer of highly reliable fingerprint
authentication products at breakthrough cost levels which should permit their
introduction and adoption for mass market use in computers and other consumer
and retail devices. Who?Vision has entered into manufacturing and distribution
agreements with a major Taiwanese manufacturer, and is negotiating other similar
agreements. The ability to efficiently mass produce the product and the
development of a mass market and infrastructure for fingerprint authentication
devices will be critical to the future success of Who?Vision. At February 28,
1998, Safeguard owns non-voting convertible preferred stock which, if converted,
would give it ownership of up to 62% of Who?Vision's outstanding common stock.
XL Vision, Inc. specializes in developing application-specific electronic
imaging solutions to meet specific customer needs and identifiable market needs.
XL Vision has refined its business model as an incubator which can spin out a
series of independent companies to commercialize XL Vision's various
technologies. XL Vision's first spin out company, ChromaVision Medical Systems,
completed its initial public offering as a Safeguard rights offering in 1997. XL
Vision has also spun out eMerge Vision Systems, to develop customized thermal
imaging systems for a variety of specialized applications, and Who?Vision
Systems, to develop highly reliable, cost effective fingerprint authentication
products. XL Vision provides engineering services, product and market
development, business development, management services, and financing to its
spin out companies in their early stages as they build their own stand-alone
capabilities. XL Vision is continuing to develop promising businesses based on
its imaging technology expertise. At February 28, 1998, Safeguard owns 33% of XL
Vision's outstanding common stock and non-voting convertible preferred stock
which could increase its ownership to up to 74%.
Safeguard's ownership percentages in certain of the partnership companies
described above include shares which Safeguard has granted to certain of its
executives under its long term incentive plan. These grants are subject to
certain restrictions, and Safeguard continues to control the voting of these
shares until the restrictions lapse.
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<PAGE>
In addition to the above companies, Safeguard has less significant ownership
interests in the following public partnership companies.
Diamond completed its rights offering in March 1997. Diamond is a management
consulting firm that devises business strategies enabled by information
technology and manages the implementation of those strategies. The
distinguishing qualities of Diamond's consulting process are its ability to
synthesize strategy with technology and deliver solutions with measurable
results, which generally include the design, deployment, and integration of
information technology solutions together with modification of business
processes and organizational structures. Diamond delivers its strategic
consulting and information technology solutions through a single, integrated
multi-disciplinary team. At February 28, 1998, Safeguard owns approximately 7%
of Diamond's outstanding common stock and warrants which could increase its
ownership to 9%.
DocuCorp was created by a merger in May 1997 between FormMaker Software, a
previous Safeguard partnership company, and Image Sciences, Inc. DocuCorp
develops, markets and supports a portfolio of open-architecture, enterprise-wide
document automation software products that enable its customers to produce
complex, high volume, customized documents. In addition, DocuCorp provides
document automation consulting and applications integration services, and
document processing and printing services. DocuCorp currently has an installed
base of more than 700 customers in the insurance industry, the utility industry,
and other industries. A majority of DocuCorp's revenues are for professional
services, including consulting, implementation, outsourcing, and contract
programming. The balance of its revenues are for software license fees and
maintenance fees. DocuCorp commenced a rights offering on February 24, 1998.
Prior to completion of the rights offering, Safeguard accounted for DocuCorp on
the equity method. Assuming that the rights offering is completed (assuming the
underwriters' overallotment option is exercised), Safeguard will own 7% of
DocuCorp's outstanding common stock and warrants which could increase its
ownership to 12%, and Safeguard and will discontinue the equity method of
accounting for its investment.
ISCG provides consulting services that address its clients' information
processing needs through technologically advanced solutions, including
client-server architecture, graphical user interface based applications,
relational and object-oriented databases and cross-platform applications
integration. ISCG delivers consulting services principally in software
applications development, but also in systems and network management. ISCG
focuses its marketing efforts on the pharmaceutical industry. ISCG has extensive
experience in the development, implementation, integration and management of
information systems used in the drug development process. It uses this
experience and expertise to help pharmaceutical companies shorten the time
required for developing, clinical testing, and submission of FDA applications
for new drugs. At February 28, 1998, Safeguard owns approximately 7% of ISCG's
outstanding common stock and warrants which could increase its ownership to 9%.
Safeguard also participates in managing eight venture capital and private equity
funds. These funds invest in early stage, rapidly growing and/or established
businesses, and have co-invested in certain of the Company's partnership
companies. The following table lists these funds. While
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Safeguard's focus is on the information technology industry, the funds also
invest in health care, life sciences, service-related companies, technology
companies in the energy utilities markets, basic process industries, and later
stage companies in various industries. Radnor Venture Partners, Technology
Leaders I, and Technology Leaders II are fully invested (including reserves set
aside for follow-on investments).
Venture Capital and Private Equity Funds
<TABLE>
<CAPTION>
Capital % Owned by Year
Name of Fund Commitments Safeguard(1) Established
<S> <C> <C> <C>
Radnor Venture Partners $ 33,000,000 14% 1988
Technology Leaders I 61,000,000 3% 1992
Technology Leaders II 113,000,000 4% 1994
TL Ventures III 285,000,000 4% 1996
EnerTech Capital Partners 50,000,000 6% 1996
Safeguard International Fund 203,000,000 12%(2) 1996
SCP Private Equity Partners 265,000,000 8% 1996
Pennsylvania Early Stage 50,000,000 20% 1998
Partners
</TABLE>
- ------------------------
(1) Represents the percentage of the outstanding limited partnership
interests in each fund owned by Safeguard. In addition, Safeguard owns
interests in the general partners of these funds which have carried
interests in the funds' profits.
(2) Estimated pending final fund closing.
EMPLOYEES
At December 31, 1997, Safeguard and its consolidated subsidiaries have
approximately 4,400 employees, of which approximately 94% are employed by
CompuCom. The Company believes relations with employees are good.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report describing the plans, goals, strategies,
intentions, and expectations of the Company or its partnership companies or
anticipated events, constitute what are sometimes termed forward-looking
statements. The following important factors could cause actual results to
differ materially from those in such forward-looking statements.
Competition among investors to invest in or acquire successful emerging
information technology companies is substantial, particularly in the larger
companies that the Company is currently targeting. The information technology
industry is highly competitive, characterized by rapid product development
cycles, frequent price reductions, and early product obsolescence, and is
generally dominated by companies with greater resources than the Company and its
partnership companies. In addition, there is an overall scarcity of available
employees with information technology skills, which could lead to increased
costs of operations and restrict internal growth.
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<PAGE>
Certain of the Company's partnership companies offer complex products or
services which have lengthy sales cycles, which makes sales forecasts
difficult to make, and can lead to substantial fluctuations in quarterly
operating results.
Emerging technology companies often encounter obstacles and delays in
developing products, service offerings, and markets. If the Company's private
partnership companies encounter more delays and obstacles than anticipated,
the Company's ability to complete rights offerings when planned could be
delayed.
The Company is dependent on the market for information technology companies
in general and for initial public offerings of those companies in particular.
If such markets were to become weak for an extended period of time, the
Company's ability to complete rights offerings when planned, and the
Company's ability to generate gains from sales of securities, could be
materially adversely affected.
The impact that the Year 2000 issue will have on the information technology
industry over the next few years is a material uncertainty. Businesses and
government agencies which are clients of the Company's partnership companies
could reallocate part or all of their information systems budgets to address
the Year 2000 issue, which could materially reduce the demand for the
products and services of the Company's partnership companies. In addition,
the Company's and its partnership companies' business operations could be
materially adversely affected if they do not timely complete any required
remediation efforts or if their vendors, business partners, or customers do
not timely complete remediation of any systems on which the Company or its
partnership companies rely. See also Item 8--"Management's Discussion and
Analysis of Financial Condition and Results of Operations." In general,
there is likely to be an extraordinary amount of litigation regarding the
Year 2000 issue over the next several years, which could have a material
adverse impact on the Company's and its partnership companies' operations and
financial conditions.
ITEM 1(d). FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Company does not believe that foreign or geographic area sales are material
or significant to an understanding of its business and operations during the
three-year period ended December 31, 1997. Where appropriate, information
concerning the Company's export sales is discussed in Item 1(c) "Narrative
Description of Business."
ITEM 1(e). EXECUTIVE OFFICERS
Information about the Company's executive officers can be found in Part III of
this report under "Item 10. Directors and Executive Officers of Registrant."
None of the officers have fixed term employment agreements.
ITEM 2. PROPERTIES
The Company owns its corporate headquarters and administrative offices located
in Wayne, Pennsylvania. The headquarters building is subject to a $3.6 million
mortgage bearing interest at 9.75%, which amortizes over a 30 year term and is
callable by the lender at any time beginning in 2002. In 1998,
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<PAGE>
the Company purchased the office park in which its headquarters is located. The
principal properties of the Company consisted of the following as of March 10,
1998:
<TABLE>
<CAPTION>
INDUSTRY SEGMENT/LOCATION TYPE OF FACILITY LEASE EXPIRES
INFORMATION TECHNOLOGY
MICROCOMPUTER SYSTEMS AND SERVICES (COMPUCOM)
<S> <C> <C> <C>
Dallas, TX Corporate/Operations *
Paulsboro, NJ Distribution Center 2001(1)
Stockton, CA Distribution Center 1999(2)
INFORMATION SOLUTIONS (Tangram)
Cary, NC Office/Distribution 2004
</TABLE>
---------
(*) Owned facility.
(1) CompuCom has a cancellation option exercisable at any time after August
1999.
(2) CompuCom has a cancellation option exercisable in May of each year.
CompuCom's new corporate and operations campus has been funded on an interim
basis through its bank credit facility pending permanent mortgage financing.
In the opinion of management, the properties are in good condition and repair
and are adequate for the particular operations for which they are used.
CompuCom's new Dallas property contains 250,000 square feet of office space in
two buildings on 20 acres. CompuCom has completed renovations and has moved into
this space as its new corporate and operations campus. The other existing
facilities of the Company generally are capable of supporting increased activity
without any significant capital expenditures.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
23
<PAGE>
The Company incorporates by reference the information contained under the
caption "Common Stock Data" on page 46 of its Annual Report to Shareholders for
the year ended December 31, 1997 which page is filed as part of Exhibit 13
hereto.
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information contained under this
caption on page 27 of its Annual Report to Shareholders for the year ended
December 31, 1997 which page is filed as part of Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company incorporates by reference the information contained under this
caption on pages 27 through 32 of its Annual Report to Shareholders for the year
ended December 31, 1997 which pages are filed as part of Exhibit 13 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company incorporates by reference the information on pages 33 through 46 of
its Annual Report to Shareholders for the year ended December 31, 1997 which
pages are filed as part of Exhibit 13 hereto.
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
EXECUTIVE OFFICERS:
The following persons were executive officers of the Registrant at March 20,
1998:
<TABLE>
<CAPTION>
HAS BEEN AN
OFFICER
NAME AGE SINCE POSITION
<S> <C> <C> <C>
Warren V. Musser 71 1953 Chairman of the Board and
Chief Executive Officer
Donald R. Caldwell (1) 51 1993 President and Chief
Operating Officer
Edward R. Anderson (2) 51 1994 President and Chief Executive
Officer, CompuCom Systems, Inc.
24
<PAGE>
Jerry L. Johnson (3) 50 1995 Senior Vice President--
Operations
Thomas C. Lynch (4) 55 1995 Senior Vice President
Michael W. Miles (5) 40 1992 Senior Vice President and Chief
Financial Officer
James A. Ounsworth(6) 55 1991 Senior Vice President, General
Counsel and Secretary
Glenn T. Rieger (7) 39 1994 Senior Vice President
</TABLE>
(1) Mr. Caldwell has served as President of the Company since
February 1996 and as Executive Vice President from November
1993 to February 1996. Prior to joining the Company, from
1991 through 1993, Mr. Caldwell was President of Valley
Forge Capital Group, Ltd., a business mergers and
acquisition advisory firm that he founded.
(2) Mr. Anderson has served as President and Chief Executive Officer of
CompuCom Systems, Inc., a subsidiary of the Company, since January
1994 and served as Chief Operating Officer from August 1993 through
December 1993. Prior to joining CompuCom, Mr. Anderson served from
May 1988 to July 1993 as President and Chief Operating Officer of
Computerland Corporation (now known as Vanstar), a computer
reseller.
(3) Mr. Johnson served at US West, a Regional Bell Operating Company,
from 1985 through 1995, most recently as Vice President of Network
Technology Services.
(4) In 1995 Mr. Lynch retired from the U.S. Navy as an Admiral after 31
years, including serving as Superintendent of the U.S. Naval Academy
from 1991 through 1994 and the Director, Navy Roles and Missions
from 1994 through 1995.
(5) Mr. Miles was promoted to Senior Vice President in January 1998. He
has served as Vice President and Chief Financial Officer since
January 1997 and has been with the Company since 1984 in various
financial positions, most recently as Vice President and Corporate
Controller.
(6) Mr. Ounsworth was promoted to Senior Vice President in November
1995. He has served as Vice President, Secretary and General
Counsel since December 1991. Prior to joining the Company,
Mr. Ounsworth was a partner in the Philadelphia law firm of
Pepper, Hamilton & Scheetz, and before that he was a nuclear
engineer in the U.S. Navy.
(7) Mr. Rieger was promoted to Senior Vice President in January 1998. He
has served as a Vice President of the Company since January 1994.
Prior to joining the Company, from 1991 through 1993, Mr. Rieger was
a Managing Director of Valley Forge Capital Group, Ltd., a business
mergers and acquisition advisory firm.
DIRECTORS:
The Company incorporates by reference the information contained under the
caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement relative to
its May 7, 1998 annual meeting of shareholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of l934, as amended.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K:
25
<PAGE>
The Company incorporates by reference the information contained under the
caption "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in its
definitive Proxy Statement relative to its May 7, 1998 annual meeting of
shareholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of l934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained under the
captions "Directors' Compensation" and "EXECUTIVE COMPENSATION" in its
definitive Proxy Statement relative to its May 7, 1998 annual meeting of
shareholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of l934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under the
caption "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in
its definitive Proxy Statement relative to its May 7, 1998 annual meeting of
shareholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of l934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained under the
captions "Compensation Committee Interlocks and Insider Participation" and
"CERTAIN TRANSACTIONS" in its definitive Proxy Statement relative to its May 7,
1998 annual meeting of shareholders, to be filed within 120 days after the end
of the year covered by this Form 10-K Report pursuant to Regulation 14A under
the Securities Exchange Act of l934, as amended.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
CONSOLIDATED FINANCIAL STATEMENTS
INDUSTRY SEGMENTS
BALANCE SHEETS - December 31, 1997 and 1996
OPERATIONS - years ended December 31, 1997, 1996, and 1995
CASH FLOWS - years ended December 31, 1997, 1996, and 1995
SHAREHOLDERS' EQUITY - years ended December 31, 1997, 1996,
and 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
QUARTERLY FINANCIAL DATA
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
Schedule I - Condensed Consolidated Financial Information of Registrant
Schedule II- Valuation and Qualifying Accounts
27
<PAGE>
(b) Reports on Form 8-K
During the fourth quarter of 1997, the Company filed a report on Form 8-K dated
October 1, 1997 disclosing under Item 5 the sale of its Pioneer Metal Finishing
Division to the management group at Pioneer.
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K filed
as part of this Report. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.
EXHIBIT NO. EXHIBIT
3.1 Amended and Restated Articles of Incorporation of the Company
(20)(Exhibit 3.1)
3.2 By-laws of the Company, as amended (6)(Exhibit 3.2)
4.1** 1979 Stock Option Plan (1)(Exhibit 10)
4.2** 1980 Stock Option Plan (1)(Exhibit 10)(5)(Exhibit 10.5)
4.3** 1990 Stock Option Plan, as amended (20)(Exhibit 4.3)
4.4** Stock Option Plan for Non-Employee Directors (11) (Exhibit 4.8)
4.5** Safeguard Scientifics, Inc. Amended and Restated Stock Savings
Plan (14) (Exhibit 4.9)
4.6** First Amendment to Safeguard Scientifics, Inc. Stock Savings
Plan (20)(Exhibit 4.6)
4.7** Safeguard Scientifics, Inc. Stock Savings Plan Trust Agreement
(5)(Exhibit 4.2)
4.8 Trust Indenture Agreement dated February 1, 1996 (17) (Exhibit
10.34)
4.9 Purchase Agreement dated February 1, 1996 between Safeguard
Scientifics, Inc. and JP Morgan Securities, Inc. (17) (Exhibit
10.35)
10.1** Safeguard Scientifics Money Purchase Pension Plan (6)(Exhibit
10.3)
10.2** First Amendment to Safeguard Scientifics Money Purchase Pension
Plan (11) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics Money Purchase
Pension Plan (14) (Exhibit 10.3)
10.4** Third Amendment to Safeguard Scientifics Money Pension Plan
(17) (Exhibit 10.4)
28
<PAGE>
10.5** Safeguard Scientifics Money Purchase Pension Plan Trust
Agreement (6)(Exhibit 10.4)
10.6** Safeguard Management Incentive Compensation Plan (7)(Exhibit
10.3)
10.7** Safeguard Scientifics, Inc. Long Term Incentive Plan, as
amended and restated effective June 15, 1994 (14) (Exhibit 10.6)
10.8 Omitted
10.9 Omitted
10.10 Omitted
10.11** Form of Promissory Notes dated February 12, 1997 given by
certain executives for advances by the Company of income tax
withholdings on restricted stock grants (20) (Exhibit 10.11)
10.12** Safeguard Scientifics, Inc. Deferred Compensation Plan
(2)(Exhibit 10.12)
10.13 Credit Agreement, dated as of September 13, 1996, between
Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware),
Inc. and PNC Bank, N.A. (exhibits omitted) (19) (Exhibit 10.1)
10.14 First amendment to Credit Agreement, dated June 19, 1997,
between Safeguard Scientifics, Inc., Safeguard Scientifics
(Delaware), Inc. and PNC Bank, N.A. (exhibits omitted)
(22)(Exhibit 10.4)
10.15 Asset Acquisition Agreement dated April 15, 1997 for the sale of
certain assets of Premier Solutions Ltd. to a subsidiary of
Sungard Data Systems Inc. (exhibits omitted) (21)(Exhibit 10.1)
10.16 Credit Agreement, dated as of September 26, 1996, between
NationsBank of Texas, N.A. and CompuCom Systems, Inc. (exhibits
and schedules omitted) (19) (Exhibit 10.2)
10.17 Amended and Restated Master Security and Administration
Agreement, dated as of September 25, 1996, among CompuCom
Systems, Inc., NationsBank of Texas, N.A., CSI Funding, Inc. and
Enterprise Funding Corporation (exhibits omitted) (19) (Exhibit
10.3)
10.18 Amendment No. 1 dated December 5, 1996 to Amended and Restated
Master Security Agreement among CompuCom Systems, Inc.,
NationsBank of Texas, CSI Funding, Inc. and Enterprise Funding
Corporation*
10.19 Receivables Purchase Agreement dated April 1, 1996 between
CompuCom Systems, Inc. and CSI Funding, Inc. (exhibits omitted)
(18) (Exhibit 10.6)
29
<PAGE>
10.20 First Amendment to Receivables Purchase Agreement, dated as of
September 25, 1996, between CompuCom Systems, Inc. and CSI
Funding, Inc. (exhibits omitted) (19) (Exhibit 10.4)
10.21 Amendment No. 2 to Receivables Purchase Agreement, dated as of
April 1, 1997, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits
omitted) (22)(Exhibit 10.6)
10.22 Transfer and Administration Agreement, dated as of April 1,
1996, among CSI Funding, Inc., CompuCom Systems, Inc., Enterprise
Funding Corporation and NationsBank, N.A. (exhibits omitted) (18)
(Exhibit 10.7)
10.23 First Amendment to Transfer and Administration Agreement, dated
as of September 25, 1996, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (exhibits omitted) (19) (Exhibit 10.5)
10.24 Amendment No. 2 dated December 5, 1996 to Transfer and
Administration Agreement among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (20)(Exhibit 10.21)
10.25 Amendment No. 3 to Transfer and Administration Agreement, dated
as of February 1, 1997, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank
N.A. (21)(Exhibit 10.3)
10.26 Amendment No. 4 to Transfer and Administration Agreement, dated
as of April 1, 1997, among CSI Funding, Inc., CompuCom Systems,
Inc., Enterprise Funding Corporation and NationsBank, N.A.
(exhibits omitted) (22)(Exhibit 10.5)
10.27 Amended and Restated Credit Agreement, dated as of November 3,
1997, among CompuCom Systems, Inc., certain lenders party hereto,
and NationsBank of Texas, N.A., as administrative lender
(exhibits and schedules omitted) *
10.28 Amended and Restated Receivables Purchase Agreement, dated as of
November 3, 1997, between CompuCom Systems, Inc. and CSI Funding,
Inc. (exhibits omitted) *
10.29 Amended and Restated Transfer and Administration Agreement,
dated as of November 3, 1997, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (exhibits omitted) *
10.30** Promissory Note dated February 12, 1997 from Edward Anderson
to CompuCom Systems, Inc. (20)(Exhibit 10.22)
10.31** Pledge Agreement dated August 31, 1994 between Edward Anderson
and CompuCom Systems, Inc. (14) (Exhibit 10.27)
30
<PAGE>
10.32** Executive Employment Agreement dated October 24, 1997 between
Edward Anderson and CompuCom Systems, Inc. *
11 Computation of Per Share Earnings * (included in Note 7 to the
Consolidated Financial Statements on page 42 of the Company's
Annual Report to Shareholders for year ended December 31, 1997,
which page is filed as part of Exhibit 13 hereto)
13 Pages 27 to 46 of Annual Report to Shareholders for year ended
December 31, 1997 *
21 List of Subsidiaries*
23.1 Consent of KPMG Peat Marwick LLP, independent auditors*
23.2 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.3 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.4 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.5 Consent and Report of Price Waterhouse LLP, independent
auditors*
23.6 Consent and Report of Price Waterhouse LLP, independent
auditors*
23.7 Consent and Report of Deloitte & Touche LLP, independent
auditors*
27.1 Financial Data Schedule for the year ended December 31, 1997*
27.2 Financial Data Schedule for the years ended December 31, 1996 and
December 31, 1995*
27.3 Financial Data Schedule for the three, six and nine month
periods ended March 31, 1997, June 30, 1997, and September 30,
1997*
27.4 Financial Data Schedule for the three, six and nine month
periods ended March 31, 1996, June 30, 1996, and September 30,
1996*
- --------------------------------
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or arrangements in
which directors and/or executive officers of the registrant may
participate.
(1) Filed on March 30, 1981 as an exhibit to the Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(2) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K (No.
1-5620) and incorporated herein by reference.
(5) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1- 5620) and
incorporated herein by reference.
(6) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1993 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(11) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(14) Filed on March 30, 1995 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(17) Filed on April 1, 1996 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(18) Filed on May 15, 1996 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(19) Filed on November 12, 1996 as an exhibit to Form 10-Q (No. 1- 5620) and
incorporated herein by reference.
31
<PAGE>
(20) Filed on March 31, 1997 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(21) Filed May 15, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(22) Filed August 14, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(23) Filed November 14, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
32
<PAGE>
(d) Financial Statement Schedules
Independent Auditors' Report
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.:
Under date of February 7, 1998, we reported on the consolidated balance sheets
of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to shareholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules as listed in the
accompanying index. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, based on our audits and the reports of other auditors, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 7, 1998
33
<PAGE>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
ASSETS
1997 1996
--------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents ............. $ 680 $ 8,019
Receivables less allowances ($0 - 1997;
$25 - 1996).......................... 4,140
Notes and other receivables ........... 6,157 9,403
Other current assets .................. 4,873 9,119
--------- ---------
Total current assets ............... 11,710 30,681
Property, Plant and Equipment, Net ...... 13,142 20,707
Other Assets
Investments in unconsolidated
subsidiaries and affiliates ......... 310,877 241,490
Notes and other receivables ........... 21,669 14,989
Other ................................. 2,756 9,846
--------- ---------
Total other assets ................. 335,302 266,325
--------- ---------
Total Assets.................... $ 360,154 $ 317,713
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
--------- ---------
Current Liabilities
Current debt obligations .............. $ 333 $ 3,560
Accounts payable ...................... 888 1,730
Accrued expenses ...................... 17,304 16,702
--------- ---------
Total current liabilities .......... 18,525 21,992
Long-Term Debt .......................... 29,689 12,591
Deferred Taxes .......................... 12,846 10,860
Other Liabilities ....................... 1,143 1,128
Convertible Subordinated Notes .......... 90,881 102,131
Shareholders' Equity
Common stock .......................... 3,280 3,280
Additional paid-in capital ............ 49,952 35,566
Retained earnings ..................... 151,471 129,970
Treasury stock, at cost ............... (13,339) (7,165)
Net unrealized appreciation on
investments .......................... 15,706 7,360
--------- ---------
Total shareholders' equity.......... 207,070 169,011
--------- ---------
Total Liabilities and
Shareholders' Equity........... $ 360,154 $ 317,713
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
34
<PAGE>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net sales........................ $ 15,982 $ 30,286 $ 35,628
Securities and other gains, net.. 24,025 26,011 17,464
Other income..................... 14,223 10,273 9,210
-------- -------- --------
Total revenues.................. 54,230 66,570 62,302
COSTS AND EXPENSES
Cost of sales.................... 10,908 19,223 23,899
Selling, general, and
administrative.................. 25,162 22,712 19,061
Depreciation and amortization.... 2,169 3,818 4,536
Interest......................... 7,150 8,623 6,643
Equity in income of
unconsolidated subsidiaries
and affiliates, net of taxes.... (14,873) (12,345) (12,655)
-------- -------- --------
Total costs and expenses........ 30,516 42,031 41,484
-------- -------- --------
EARNINGS BEFORE TAXES ON INCOME 23,714 24,539 20,818
Provision for taxes on income.... 2,213 4,612 2,555
-------- -------- --------
NET EARNINGS....................... $ 21,501 $ 19,927 $ 18,263
-------- -------- --------
-------- -------- --------
EARNINGS PER SHARE
Basic............................ $ .69 $ .67 $ .63
Diluted.......................... $ .66 $ .61 $ .53
AVERAGE COMMON SHARES OUTSTANDING
Basic............................ 31,249 29,900 29,052
Diluted.......................... 31,996 31,348 30,734
</TABLE>
See notes to condensed consolidated financial statements.
35
<PAGE>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings...................... $ 21,501 $ 19,927 $ 18,263
Adjustments to reconcile net
earnings to cash provided
(used) by operating activities
Depreciation and amortization... 2,169 3,818 4,536
Deferred income taxes........... (2,313) 109 1,891
Equity in income of
unconsolidated subsidiaries
and affiliates, net of taxes... (14,873) (12,345) (12,655)
Securities and other gains,
net........................... (24,025) (26,011) (17,464)
Cash provided (used) by changes in
working capital items
Receivables..................... 3,349 (5,746) 422
Accounts payable, accrued
expenses and other............. 2,638 5,624 (7,558)
--------- --------- ---------
Cash (used) by operating
activities....................... (11,554) (14,624) (12,565)
Proceeds from securities and other
gains, net....................... 67,294 41,982 24,952
--------- --------- ---------
Cash provided by operating
activities and securities and
other gains, net................. 55,740 27,358 12,387
OTHER INVESTING ACTIVITIES
Investments and notes acquired,
net.............................. (80,518) (64,110) (28,638)
Capital expenditures.............. (7,871) (5,985) (3,068)
Other, net........................ 3,408 (5,592)
--------- --------- ---------
Cash (used) by other investing
activities....................... (84,981) (75,687) (31,706)
FINANCING ACTIVITIES
Net borrowings (repayments) on
revolving credit facilities...... 22,200 (63,425) 16,351
Net borrowings (repayments) on
term debt........................ 3,371 455 (1,035)
Issuance of convertible
subordinated notes, net.......... 112,109
Repurchase of common stock........ (9,488) (33)
Issuance of common stock.......... 5,819 5,210 3,771
--------- --------- ---------
Cash provided by financing
activities....................... 21,902 54,349 19,054
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (7,339) 6,020 (265)
Cash and cash equivalents -
beginning of year................ 8,019 1,999 2,264
--------- --------- ---------
CASH AND CASH EQUIVALENTS -
END OF YEAR...................... $ 680 $ 8,019 $ 1,999
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
36
<PAGE>
Notes to Condensed Consolidated Financial Statements
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The Condensed Consolidated (also referred to as "Parent Company") Financial
Statements include the accounts of Safeguard Scientifics, Inc. (the Company)
and its wholly-owned subsidiaries. These statements differ from the
Consolidated Financial Statements presented in the Company's Annual Report to
Shareholders by not consolidating the Company's less than wholly-owned
subsidiaries (primarily CompuCom and Tangram) and instead treating these
companies as if they were accounted for on the equity method.
The Company sold its Pioneer Metal Finishing division (Pioneer) in mid-1997. The
Condensed Consolidated Statements of Operations include net sales and costs and
expenses of $16.0 million and $14.6 million, respectively, in 1997, and $28.6
million and $26.3 million, respectively, in 1996, related to Pioneer.
Subsequent to the sale of Pioneer, the Company's revenues consist of
securities and other gains and other income, which consists primarily of
administrative service fees charged to partnership companies and associated
venture funds and interest income generally derived from loans to partnership
companies.
NOTE 2 - DEBT
<TABLE>
<CAPTION>
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Revolving credit facilities.................. $ 22,200
Mortgage note, 9.75%, payable
monthly through 2002........................ 3,456 $ 3,487
Mortgage notes, 6.1% to 7.6%,
payable monthly through 2017................ 4,045
Pioneer Metal Finishing...................... 11,870
Other........................................ 321 794
-------- --------
Total debt................................... 30,022 16,151
Current debt obligations..................... (333) (3,560)
-------- --------
Long-term debt............................... $ 29,689 $ 12,591
-------- --------
-------- --------
</TABLE>
Aggregate maturities of long-term debt during future years are as
follows (in millions): $.3 - 1998; $.4 - 1999; $.3 - 2000; $22.5 -
2001; $.5 - 2002 and $6.0 - thereafter.
Interest paid in 1997, 1996, and 1995 was $6.9 million, $6.3 million and $6.6
million, respectively, of which $5.8 million and $3.4 million in 1997 and 1996,
respectively, related to the Company's Convertible Subordinated Notes and $1.1
million and $2.0 million in 1996 and 1995, respectively, related to commercial
real estate debt.
NOTE 3 - RECLASSIFICATIONS
Certain amounts previously reported in the Condensed Consolidated Financial
Statements have been reclassified to conform to the current year presentation.
37
<PAGE>
Safeguard Scientifics, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance Additions
Beginning Charged to Balance
DESCRIPTION of Year Operations Deductions Other End of Year
(1)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1995 $ 6,466 $ 1,277 $ 968 $(4,131)(2) $ 2,644
Year ended December 31, 1996 $ 2,644 $ 1,472 $ 995 $ (33)(3) $ 3,088
Year ended December 31, 1997 $ 3,088 $ 2,183 $ 1,829 $ (570)(4) $ 2,872
Inventory reserves
Year ended December 31, 1995 $ 10,674 $ 13,333 $ 13,581 $ (902)(2) $ 9,524
Year ended December 31, 1996 $ 9,524 $ 15,529 $ 16,119 $ 8,934
Year ended December 31, 1997 $ 8,934 $ 14,844 $ 13,854 $ 9,924
</TABLE>
(1) Net write-offs.
(2) Deconsolidation of Center Core.
(3) Sale of the Phoenix location of Pioneer Metal Finishing and the Commercial
Real Estate operations.
(4) Sale of Pioneer Metal Finishing and Premier Solutions Ltd.
38
<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.
Dated: March 19, 1998 SAFEGUARD SCIENTIFICS, INC.
By: /s/ Warren V. Musser
---------------------------
Warren V. Musser, Chairman 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.
Dated: March 19, 1998 /s/ Warren V. Musser
-- ---------------------
Warren V. Musser, Chairman and Chief
Executive Officer (Principal Executive
Officer)
Dated: March 19, 1998 /s/ Michael W. Miles
-- ---------------------
Michael W. Miles, Senior Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: March 19, 1998 /s/ Judith Areen
-- -----------------
Judith Areen, Director
Dated: March 19, 1998 /s/ Donald R. Caldwell
-- -----------------------
Donald R. Caldwell, Director
Dated: March 19, 1998 /s/ Robert A. Fox
-- ------------------
Robert A. Fox, Director
Dated: March 19, 1998 /s/ Delbert W. Johnson
-- -----------------------
Delbert W. Johnson, Director
Dated: March 27, 1998 /s/ Robert E. Keith, Jr.
-- -------------------------
Robert E. Keith, Jr., Director
Dated: March 19, 1998 /s/ Peter Likins
-- -----------------
Peter Likins, Director
39
<PAGE>
Dated: March 19, 1998 /s/ Jack L. Messman
-- --------------------
Jack L. Messman, Director
Dated: March 19_, 1998 /s/ Russell E. Palmer
-- ----------------------
Russell E. Palmer, Director
Dated: March 19, 1998 /s/ John W. Poduska, Sr.
-- -------------------------
John W. Poduska Sr., Director
Dated: March 19, 1998 /s/ Heinz Schimmelbusch
-- ------------------------
Heinz Schimmelbusch, Director
Dated: March 19, 1998 /s/ Hubert J.P. Schoemaker
-- ---------------------------
Hubert J. P. Schoemaker, Director
40
<PAGE>
The following is a list of exhibits required by Item 601 of Regulation S-K filed
as part of this Report. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.
EXHIBIT NO. EXHIBIT
3.1 Amended and Restated Articles of Incorporation of the Company
(20)(Exhibit 3.1)
3.2 By-laws of the Company, as amended (6)(Exhibit 3.2)
4.1** 1979 Stock Option Plan (1)(Exhibit 10)
4.2** 1980 Stock Option Plan (1)(Exhibit 10)(5)(Exhibit 10.5)
4.3** 1990 Stock Option Plan, as amended (20)(Exhibit 4.3)
4.4** Stock Option Plan for Non-Employee Directors (11) (Exhibit 4.8)
4.5** Safeguard Scientifics, Inc. Amended and Restated Stock Savings
Plan (14) (Exhibit 4.9)
4.6** First Amendment to Safeguard Scientifics, Inc. Stock Savings
Plan (20)(Exhibit 4.6)
4.7** Safeguard Scientifics, Inc. Stock Savings Plan Trust Agreement
(5)(Exhibit 4.2)
4.8 Trust Indenture Agreement dated February 1, 1996 (17) (Exhibit
10.34)
4.9 Purchase Agreement dated February 1, 1996 between Safeguard
Scientifics, Inc. and JP Morgan Securities, Inc. (17)(Exhibit
10.35)
10.1** Safeguard Scientifics Money Purchase Pension Plan (6)(Exhibit
10.3)
10.2** First Amendment to Safeguard Scientifics Money Purchase Pension
Plan (11) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics Money Purchase
Pension Plan (14) (Exhibit 10.3)
10.4** Third Amendment to Safeguard Scientifics Money Pension Plan
(17) (Exhibit 10.4)
41
<PAGE>
10.5** Safeguard Scientifics Money Purchase Pension Plan Trust
Agreement (6)(Exhibit 10.4)
10.6** Safeguard Management Incentive Compensation Plan (7)(Exhibit
10.3)
10.7** Safeguard Scientifics, Inc. Long Term Incentive Plan, as
amended and restated effective June 15, 1994 (14) (Exhibit 10.6)
10.8 Omitted
10.9 Omitted
10.10 Omitted
10.11** Form of Promissory Notes dated February 12, 1997 given by
certain executives for advances by the Company of income tax
withholdings on restricted stock grants (20) (Exhibit 10.11)
10.12** Safeguard Scientifics, Inc. Deferred Compensation Plan
(2)(Exhibit 10.12)
10.13 Credit Agreement, dated as of September 13, 1996, between
Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware),
Inc. and PNC Bank, N.A. (exhibits omitted) (19) (Exhibit 10.1)
10.14 First amendment to Credit Agreement, dated June 19, 1997,
between Safeguard Scientifics, Inc., Safeguard Scientifics
(Delaware), Inc. and PNC Bank, N.A. (exhibits omitted)
(22)(Exhibit 10.4)
10.15 Asset Acquisition Agreement dated April 15, 1997 for the sale of
certain assets of Premier Solutions Ltd. to a subsidiary of
Sungard Data Systems Inc. (exhibits omitted) (21)(Exhibit 10.1)
10.16 Credit Agreement, dated as of September 26, 1996, between
NationsBank of Texas, N.A. and CompuCom Systems, Inc. (exhibits
and schedules omitted) (19) (Exhibit 10.2)
10.17 Amended and Restated Master Security and Administration
Agreement, dated as of September 25, 1996, among CompuCom
Systems, Inc., NationsBank of Texas, N.A., CSI Funding, Inc. and
Enterprise Funding Corporation (exhibits omitted) (19) (Exhibit
10.3)
10.18 Amendment No. 1 dated December 5, 1996 to Amended and Restated
Master Security Agreement among CompuCom Systems, Inc.,
NationsBank of Texas, CSI Funding, Inc. and Enterprise Funding
Corporation*
10.19 Receivables Purchase Agreement dated April 1, 1996 between
CompuCom Systems, Inc. and CSI Funding, Inc. (exhibits omitted)
(18) (Exhibit 10.6)
42
<PAGE>
10.20 First Amendment to Receivables Purchase Agreement, dated as of
September 25, 1996, between CompuCom Systems, Inc. and CSI
Funding, Inc. (exhibits omitted) (19) (Exhibit 10.4)
10.21 Amendment No. 2 to Receivables Purchase Agreement, dated as of
April 1, 1997, among CSI Funding, Inc., CompuCom Systems, Inc.,
Enterprise Funding Corporation and NationsBank, N.A. (exhibits
omitted) (22)(Exhibit 10.6)
10.22 Transfer and Administration Agreement, dated as of April 1,
1996, among CSI Funding, Inc., CompuCom Systems, Inc., Enterprise
Funding Corporation and NationsBank, N.A. (exhibits omitted) (18)
(Exhibit 10.7)
10.23 First Amendment to Transfer and Administration Agreement, dated
as of September 25, 1996, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (exhibits omitted) (19) (Exhibit 10.5)
10.24 Amendment No. 2 dated December 5, 1996 to Transfer and
Administration Agreement among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (20)(Exhibit 10.21)
10.25 Amendment No. 3 to Transfer and Administration Agreement, dated
as of February 1, 1997, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank
N.A. (21)(Exhibit 10.3)
10.26 Amendment No. 4 to Transfer and Administration Agreement, dated
as of April 1, 1997, among CSI Funding, Inc., CompuCom Systems,
Inc., Enterprise Funding Corporation and NationsBank, N.A.
(exhibits omitted) (22)(Exhibit 10.5)
10.27 Amended and Restated Credit Agreement, dated as of November 3,
1997, among CompuCom Systems, Inc., certain lenders party hereto,
and NationsBank of Texas, N.A., as administrative lender
(exhibits and schedules omitted) *
10.28 Amended and Restated Receivables Purchase Agreement, dated as of
November 3, 1997, between CompuCom Systems, Inc. and CSI Funding,
Inc. (exhibits omitted) *
10.29 Amended and Restated Transfer and Administration Agreement,
dated as of November 3, 1997, among CSI Funding, Inc., CompuCom
Systems, Inc., Enterprise Funding Corporation and NationsBank,
N.A. (exhibits omitted) *
10.30** Promissory Note dated February 12, 1997 from Edward Anderson
to CompuCom Systems, Inc. (20)(Exhibit 10.22)
10.31** Pledge Agreement dated August 31, 1994 between Edward Anderson
and CompuCom Systems, Inc. (14) (Exhibit 10.27)
43
<PAGE>
10.32** Executive Employment Agreement dated October 24, 1997 between
Edward Anderson and CompuCom Systems, Inc. *
11 Computation of Per Share Earnings * (included in Note 7 to the
Consolidated Financial Statements on page 42 of the Company's
Annual Report to Shareholders for year ended December 31, 1997,
which page is filed as part of Exhibit 13 hereto)
13 Pages 27 to 46 of Annual Report to Shareholders for year ended
December 31, 1997 *
21 List of Subsidiaries*
23.1 Consent of KPMG Peat Marwick LLP, independent auditors*
23.2 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.3 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.4 Consent and Report of Coopers & Lybrands LLP, independent
auditors*
23.5 Consent and Report of Price Waterhouse LLP, independent
auditors*
23.6 Consent and Report of Price Waterhouse LLP, independent
auditors*
23.7 Consent and Report of Deloitte & Touche LLP, independent
auditors*
27.1 Financial Data Schedule for the year ended December 31, 1997*
27.2 Financial Data Schedule for the years ended December 31, 1996 and
December 31, 1995*
27.3 Financial Data Schedule for the three, six and nine months
period ended March 31, 1997, June 30, 1997, and September 30,
1997*
27.4 Financial Data Schedule for the three, six and nine months
periods ended March 31, 1996, June 30, 1996, and September 30,
1996*
- --------------------------------
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or arrangements in
which directors and/or executive officers of the registrant may
participate.
(1) Filed on March 30, 1981 as an exhibit to the Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(2) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K (No.
1-5620) and incorporated herein by reference.
(5) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1- 5620) and
incorporated herein by reference.
(6) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1993 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(11) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(14) Filed on March 30, 1995 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(17) Filed on April 1, 1996 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(18) Filed on May 15, 1996 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(19) Filed on November 12, 1996 as an exhibit to Form 10-Q (No. 1- 5620) and
incorporated herein by reference.
44
<PAGE>
(20) Filed on March 31, 1997 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(21) Filed May 15, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(22) Filed August 14, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(23) Filed November 14, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
45
<PAGE>
EXHIBIT 10.27
================================================================================
$150,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
COMPUCOM SYSTEMS, INC.
CERTAIN LENDERS PARTY HERETO
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
NOVEMBER 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms....................................... 1
-------------
Section 1.2 Amendments and Renewals............................. 22
-----------------------
Section 1.3 Construction........................................ 22
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances........................................ 23
------------
Section 2.2 Manner of Borrowing and Disbursement................ 24
------------------------------------
Section 2.3 Interest............................................ 26
--------
Section 2.4 Fees................................................ 28
----
Section 2.5 Prepayments......................................... 29
-----------
Section 2.6 Reduction of Commitments............................ 30
------------------------
Section 2.7 Non-Receipt of Funds by the Administrative Lender... 30
-------------------------------------------------
Section 2.8 Payment of Principal of Advances.................... 31
--------------------------------
Section 2.9 Reimbursement....................................... 32
-------------
Section 2.10 Manner of Payment................................... 33
-----------------
Section 2.11 LIBOR Lending Offices............................... 34
---------------------
Section 2.12 Sharing of Payments................................. 34
-------------------
Section 2.13 Calculation of LIBOR Rate........................... 35
-------------------------
Section 2.14 Taxes............................................... 35
-----
Section 2.15 Letters of Credit................................... 38
-----------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advance and the
---------------------------------------------------
Initial Issuance of Letters of Credit.............. 44
-------------------------------------
Section 3.2 Conditions Precedent to All Advances and Letters of
---------------------------------------------------
Credit............................................. 45
------
Section 3.3 Conditions Precedent to Conversions and
---------------------------------------
Continuations...................................... 47
-------------
ARTICLE 4
Representations and Warranties
------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.1 Representations and Warranties...................... 47
------------------------------
Section 4.2 Survival of Representations and Warranties, etc..... 54
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters....... 54
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law............ 55
----------------------------------------
Section 5.3 Maintenance of Properties........................... 55
-------------------------
Section 5.4 Accounting Methods and Financial Records............ 55
----------------------------------------
Section 5.5 Insurance........................................... 55
---------
Section 5.6 Payment of Taxes and Claims......................... 55
---------------------------
Section 5.7 Visits and Inspections.............................. 56
----------------------
Section 5.8 Use of Proceeds..................................... 56
---------------
SECTION 5.9 INDEMNITY........................................... 56
---------
Section 5.10 Environmental Law Compliance........................ 58
----------------------------
Section 5.11 Further Assurances.................................. 58
------------------
Section 5.12 Subsidiaries........................................ 59
------------
Section 5.13 Real Property....................................... 59
-------------
Section 5.14 Agreements in Respect of RPA and TAA................ 59
------------------------------------
ARTICLE 6
Information Covenants
---------------------
Section 6.2 Annual Financial Statements and Information;
--------------------------------------------
Certificate of No Default.......................... 60
-------------------------
Section 6.3 Compliance Certificate.............................. 60
----------------------
Section 6.4 Copies of Other Reports and Notices................. 61
-----------------------------------
Section 6.5 Notice of Litigation, Default and Other Matters..... 62
-----------------------------------------------
Section 6.6 ERISA Reporting Requirements........................ 62
----------------------------
Section 6.7 RPA and TAA Reporting Requirements.................. 63
----------------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness........................................ 64
------------
Section 7.2 Liens............................................... 65
-----
Section 7.3 Investments......................................... 65
-----------
Section 7.4 Liquidation, Merger................................. 66
-------------------
Section 7.5 Sales of Assets..................................... 66
---------------
Section 7.6 Acquisitions........................................ 66
------------
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Section 7.7 Capital Expenditures................................ 67
--------------------
Section 7.8 Restricted Payments................................. 67
-------------------
Section 7.9 Affiliate Transactions.............................. 67
----------------------
Section 7.10 Compliance with ERISA............................... 68
---------------------
Section 7.11 Maximum Leverage Ratio.............................. 68
----------------------
Section 7.12 Minimum Fixed Charge Coverage Ratio................. 68
-----------------------------------
Section 7.13 Minimum Tangible Net Worth.......................... 68
--------------------------
Section 7.14 Minimum Asset Coverage Ratio........................ 69
----------------------------
Section 7.15 Maximum Funded Debt to Capital...................... 69
------------------------------
Section 7.16 Sale and Leaseback.................................. 69
------------------
Section 7.17 Sale or Discount of Accounts........................ 69
----------------------------
Section 7.18 Capital Stock....................................... 69
-------------
Section 7.19 Business............................................ 69
--------
Section 7.20 Fiscal Year......................................... 69
-----------
Section 7.21 Amendment of Organizational Documents............... 69
-------------------------------------
Section 7.22 Amendments and Waivers of Subordinated Debt......... 70
-------------------------------------------
Section 7.23 Operating Leases.................................... 70
----------------
ARTICLE 8
Default
-------
Section 8.1 Events of Default................................... 70
-----------------
Section 8.2 Remedies............................................ 73
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate................ 74
------------------------------------
Section 9.2 Illegality.......................................... 74
----------
Section 9.3 Increased Costs..................................... 75
---------------
Section 9.4 Effect On Base Rate Advances........................ 76
----------------------------
Section 9.5 Capital Adequacy.................................... 76
----------------
Section 9.6 Replacement Lender.................................. 77
------------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders............................. 77
-----------------------
Section 10.2 Lender Credit Decision.............................. 80
----------------------
Section 10.3 Benefits of Article................................. 80
-------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices............................................. 81
-------
Section 11.2 Expenses............................................ 81
--------
Section 11.3 Waivers............................................. 82
-------
Section 11.4 Calculation by the Lenders Conclusive and Binding... 82
-------------------------------------------------
Section 11.5 Set-Off............................................. 82
-------
Section 11.6 Assignment.......................................... 83
----------
Section 11.7 Counterparts........................................ 85
------------
Section 11.8 Severability........................................ 85
------------
Section 11.9 Interest and Charges................................ 85
--------------------
Section 11.10 Headings............................................ 86
--------
Section 11.11 Amendment and Waiver................................ 86
--------------------
Section 11.12 Exception to Covenants.............................. 86
----------------------
Section 11.13 No Liability of Issuing Bank........................ 87
----------------------------
Section 11.14 Confidentiality..................................... 87
---------------
Section 11.15 Amendment, Restatement, Extension, Renewal and
----------------------------------------------
Increase........................................... 87
--------
SECTION 11.16 GOVERNING LAW....................................... 88
-------------
SECTION 11.17 WAIVER OF JURY TRIAL................................ 88
--------------------
SECTION 11.18 ENTIRE AGREEMENT.................................... 89
----------------
Section 11.19 Release of Certain Collateral....................... 89
-----------------------------
</TABLE>
-4-
<PAGE>
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Labor Relations
Exhibit A: Facility A Note
Exhibit B: Facility B Note
Exhibit C: Swing Line Note
Exhibit D: Security Agreement
Exhibit E: INTENTIONALLY OMITTED
Exhibit F: Pledge Agreement
Exhibit G: Compliance Certificate
Exhibit H: Assignment Agreement
Exhibit I: Subsidiary Guaranty
Exhibit J: Notice of Borrowing
-5-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of November 3, 1997,
among COMPUCOM SYSTEMS, INC., a Delaware corporation (the "Borrower"), the
--------
Lenders from time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a
national banking association, as administrative agent for the Lenders.
BACKGROUND
----------
The Lenders have been requested to provide the Borrower the funds required to
(i) refinance existing debt of the Borrower, including, inter alia, certain
existing purchase money debt in connection with certain real estate purchased by
the Borrower, outstanding to the Administrative Lender, the Lenders and certain
other lenders pursuant to the terms of that certain Credit Agreement, dated as
of September 26, 1996, as amended, modified, supplemented and restated from time
to time (the "Existing Credit Agreement"), (ii) finance acquisitions permitted
-------------------------
hereunder, and (iii) finance the ongoing working capital and general corporate
requirements of the Borrower and its Subsidiaries (as hereinafter defined). The
Lenders have agreed to provide such financing, subject to the terms and
conditions set forth below.
In consideration of the mutual covenants and agreements contained herein, and
other good and valuable consideration hereby acknowledged, the parties hereto
agree that the Existing Credit Agreement shall be amended, restated and
superseded as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms. For purposes of this Agreement:
-------------
"Account" has the meaning assigned to such term in the UCC.
-------
"Acquisition" means any transaction pursuant to which the Borrower or any of
-----------
its Subsidiaries, (i) whether by means of a capital contribution or purchase or
other acquisition of stock or other securities or other equity participation or
interest, (A) acquires more than 50% of the equity interest in any Person
pursuant to a solicitation by the Borrower or such Subsidiary of tenders of
equity securities of such Person, or through one or more negotiated block,
market, private or other transactions, or a combination of any of the foregoing,
or (B) makes any corporation a Subsidiary of the Borrower or such Subsidiary, or
causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to be
merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or such Subsidiary), or
(ii) purchases all or substantially all of the business or assets of any Person
or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas, N.A., a national banking
---------------------
<PAGE>
association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
---------------
"Administrative Lender Fee Letter" has the meaning specified in Section 2.4(c)
-------------------------------- --------------
hereof.
"Advance" means a Facility A Advance, a Facility B Advance or a Swing Line
-------
Advance and "Advances" means Facility A Advances, Facility B Advances and Swing
--------
Line Advances.
"Affiliate" means, as applied to any Person, any other Person that, directly
---------
or indirectly, through one or more Persons, Controls or is Controlled By or
Under Common Control with, that Person.
"Agreement" means this Amended and Restated Credit Agreement, as amended,
---------
modified, supplemented or restated from time to time.
"Agreement Date" means the date of this Agreement.
--------------
"Applicable Environmental Laws" means applicable laws pertaining to health or
-----------------------------
the environment, including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (as amended from time to time,
"CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the
- -------
Used Oil Recycling Act of 1980, the Solid Waste Disposal Act amendments of 1980,
and the Hazardous and Solid Waste Amendments of 1984 (as amended from time to
time, "RCRA").
----
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
--------------
the laws of the United States of America, including without limitation 12 USC ''
85 and 86, as amended from time to time, and any other statute of the United
States of America now or at any time hereafter prescribing the maximum rates of
interest on loans and extensions of credit, and the laws of the State of Texas,
including, without limitation, Article 5069-1.04, Title 79, Revised Civil
Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute of the
---------
State of Texas; provided that the parties hereto agree that the provisions of
Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as amended, shall
not apply to Advances, this Agreement, the Notes or any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum percentages,
----------------------------
applicable in the following situations:
-2-
<PAGE>
Applicability
-------------
(a) Initial Pricing Period 0.750%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Fixed Charge Coverage Ratio is greater 0.625%
than or equal to 2.50 to 1
(2) The Fixed Charge Coverage Ratio is less than 0.750%
2.50 to 1 but greater than or equal to 2.00 to 1
(3) The Fixed Charge Coverage Ratio is less than 0.875%
2.00 to 1 but greater than or equal to 1.50 to 1
(4) The Fixed Charge Coverage Ratio is less than 1.125%
1.50 to 1
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis shall be effective
--------
with respect to LIBOR Advances (i) made following receipt by the Administrative
Lender of the financial statements required to be delivered pursuant to Section
-------
6.1 or 6.2 hereof, as applicable, for each such fiscal quarter, and the
- --- ---
corresponding Compliance Certificate required pursuant to Section 6.3 hereof, on
-----------
the date of making such LIBOR Advance and (ii) outstanding on the date of
receipt of such financial statements and Compliance Certificate referred to in
clause (i) immediately preceding, on the date which is two Business Days
following the date of receipt of such financial statements and Compliance
Certificate. If such financial statements and Compliance Certificate are not
received by the Administrative Lender by the date required, effective as of the
first Business Day following notification thereof from the Administrative Lender
to the Borrower, the Applicable LIBOR Rate Margin shall be determined as if the
Fixed Charge Coverage Ratio is less than 1.50 to 1 until such time as such
financial statements and Compliance Certificate are received.
"Asset Coverage Ratio" means, for the Borrower and its Subsidiaries determined
--------------------
in accordance with GAAP on a consolidated basis, at the time in question, the
ratio of (a) the sum of (i) Cash and Cash Equivalents, plus (ii) Accounts, plus
(iii) Inventory to (b) the sum of (i) outstanding obligations in respect of
Facility A and Swing Line Advances, Reimbursement Obligations and other
Indebtedness, plus (ii) the Net Exposure Under Securitization, plus (iii)
accounts payable and accrued liabilities in the ordinary course of business.
"Assignees" means any assignee of a Lender pursuant to an Assignment Agreement
---------
and shall have the meaning ascribed thereto in Section 11.6 hereof.
------------
"Assignment Agreement" has the meaning specified in Section 11.6 hereof.
-------------------- ------------
-3-
<PAGE>
"Authorized Signatory" means such senior personnel of the Borrower as may be
--------------------
duly authorized and designated in writing by the Borrower to execute documents,
agreements and instruments on behalf of the Borrower, and to request Advances
and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base Rate Basis.
-----------------
"Base Rate Basis" means, for any day, a per annum interest rate equal to the
---------------
higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such day
or (b) the Prime Rate on such day. The Base Rate Basis shall be adjusted
automatically without notice as of the opening of business on the effective date
of each change in the Prime Rate to account for such change.
"Borrower" has the meaning specified in the introductory provision hereof.
--------
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Dallas, Texas, and, (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and its
-------
Subsidiaries, on a consolidated basis determined in accordance with GAAP, the
sum of (a) Funded Debt plus (b) Net Worth.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost of the item, but excluding capital expenditures made
with insurance proceeds to the extent used to replace or repair damaged fixed
assets, plant and equipment) computed in accordance with GAAP, consistently
applied.
"Capital Stock" means, as to any Person, the equity interests in such Person,
-------------
including, without limitation, the shares of each class of capital stock in any
Person that is a corporation, and each class of partnership interest (including,
without limitation, general, limited and preference units) in any Person that is
a partnership.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (i) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (ii) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
-4-
<PAGE>
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper issued by any Lender or the parent corporation of any Lender,
and commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equivalent thereof by Moody's Investors Service, Inc., and in each case
maturing within six months after the date of acquisition, and (vi) a readily
redeemable "money market mutual fund" advised by a bank described in clause
(iii) hereof, or an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (i) through (v) hereof and having on the date of such Investment total
assets of at least One Hundred Million Dollars ($100,000,000.00).
"CFI" means CSI Funding, Inc., a Delaware corporation and wholly-owned
---
Subsidiary of the Borrower, as purchaser under the RPA.
"CFI Note" means the "Subordinated Note" as defined by the RPA, and any and
--------
all renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Change of Control" means the occurrence of any of the following events after
-----------------
the Agreement Date: (a) any Person or any Persons acting together which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities
-----
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
------------
provision thereto, other than the Group whose nominees constituted a majority of
the board of directors of the Borrower as of the close of business on the
Agreement Date, together with any Affiliates or Related Persons thereof, shall
beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; or (b) any Person or Group, other than any Person or Group whose
nominees constituted a majority of the board of directors of the Borrower as of
the close of business on the Agreement Date, together with any Affiliates or
Related Persons thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of the Borrower, such that such
nominees, when added to any existing director remaining on the Board of
Directors of the Borrower after such election who is an Affiliate or Related
Person of such Group, shall constitute a majority of the Board of Directors of
the Borrower.
"ClientLink IPO" means the sale or issuance by the Borrower or by ClientLink,
--------------
Inc. to any Person other than the Borrower or any of the Borrower's Subsidiaries
of any Equity in ClientLink, Inc. as a part of the initial public offering of
such Equity in ClientLink, Inc. pursuant to the registration requirements of the
Securities Act of 1933, as amended.
-5-
<PAGE>
"ClientLink Note" means that certain promissory note, dated September 5, 1996,
---------------
in the original principal amount of $2,500,000 executed and delivered by
ClientLink, Inc. and payable to the order of the Borrower, and any and all
renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral subject to a Lien granted at any time by any
----------
Person to the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is granted and
-------------------
any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
-------------- --------------
"Commitments" means, collectively, the Facility A Commitment and the Facility
-----------
B Commitment, as reduced from time to time pursuant to Section 2.6 hereof.
-----------
"Compliance Certificate" means a certificate, signed by an Authorized
----------------------
Signatory, in substantially the form of Exhibit G, appropriately completed.
---------
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Creditor" means a creditor of the Borrower or any Subsidiary of the Borrower
--------
and shall not include any Affiliate of any such creditor.
"Current Maturities" means, with respect to any Person, the principal portion
------------------
payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the
-6-
<PAGE>
rights of creditors generally from time to time in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable, relating
-------------
to the real property of the Borrower purchased with the proceeds of the Facility
B Advances, in a form acceptable to the Administrative Lender, as amended,
modified, renewed, supplemented or restated from time to time.
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1, regardless of whether there shall have occurred any passage of time
- -----------
or giving of notice that would be necessary in order to constitute such event an
Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the lesser of
(i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess of the
Applicable Rate Margin then in effect.
"Determining Lenders" means, on any date of determination, any combination of
-------------------
the Lenders having in excess of 50.0% of the aggregate amount of the Advances
(which for purposes of the calculation shall include for each Lender an amount
equal to the product of such Lender's Specified Percentage multiplied by the
aggregate principal amount of Swing Line Advances outstanding) then outstanding;
provided, however, that if there are no Advances outstanding hereunder,
"Determining Lenders" shall mean any combination of Lenders whose Specified
-------------------
Percentages aggregate in excess of 50.0%.
"Dividend" means, as to any Person, (a) any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any shares of Capital Stock of, or other similar interest in, such
Person and (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of, or similar interest in, such Person.
"Dollar" or "$" means the lawful currency of the United States of America.
------ -
"Domestic Subsidiary" means any Subsidiary of the Borrower other than a
-------------------
Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense.
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated
-7-
<PAGE>
basis for the Borrower and its Subsidiaries, the sum of (a) EBIT plus (b)
depreciation, amortization and other non-cash charges (to the extent included in
determining EBIT).
"EFC" means Enterprise Funding Corporation, a Delaware corporation, as
---
purchaser of an undivided interest in a portion of the Receivables, as provided
by the TAA.
"Equipment" has the meaning assigned to such term in the UCC.
---------
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a) a
-----------
Reportable Event (other than a Reportable Event not subject to the provision for
30-day notice to the PBGC pursuant to regulations issued under Section 4043 of
ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1, provided
---------------- -----------
that any requirement for notice or lapse of time has been satisfied.
"Existing Credit Agreement" has the meaning specified in the Background
-------------------------
provision hereof.
"Facility A Advance" means an Advance made pursuant to Section 2.1(a) hereof.
------------------ --------------
"Facility A Commitment" means $125,000,000.00, as reduced pursuant to Section
--------------------- -------
2.6 hereof.
- ---
"Facility A Maturity Date" means November 2, 2002, or the earlier date of
------------------------
termination in whole of the Facility A Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof.
"Facility A Notes" means the promissory notes of Borrower evidencing Facility
----------------
A Advances hereunder, substantially in the form of Exhibit A hereto, together
---------
with any extension, renewal, or amendment thereof, or substitution therefor.
-8-
<PAGE>
"Facility B Advance" means an Advance made pursuant to Section 2.1(b) hereof
------------------ --------------
in order to refinance the outstanding Facility B Advances under the Existing
Credit Agreement as of the Agreement Date.
"Facility B Commitment" means $25,000,000.00, as reduced from time to time
---------------------
pursuant to Section 2.6 hereof.
-----------
"Facility B Maturity Date" means November 2, 2002, or the earlier date of
------------------------
termination in whole of the Facility B Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof.
"Facility B Notes" means the promissory notes of Borrower evidencing Facility
----------------
B Advances hereunder, substantially in the form of Exhibit B hereto, together
---------
with any extension, renewal, or amendment thereof, or substitution therefor.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
------------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Lender from three
Federal funds brokers of recognized standing selected by it.
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) the greater of (i) Current Maturities and (ii) 10% of Funded Debt, plus (b)
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges,
---------------------------
calculated for the four consecutive fiscal quarters immediately preceding the
date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America or the
District of Columbia.
"Funded Debt" means, as of any date of determination, determined for the
-----------
Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services other than trade payables incurred in the ordinary course
of business, (iv) Capitalized Lease Obligations and (v) Net Exposure Under
Securitization.
"GAAP" means generally accepted accounting principles applied on a consistent
----
basis, set forth in the Opinions of the Accounting Principles Board of the
American Institute of Certified
-9-
<PAGE>
Public Accountants, or their successors which are applicable in the
circumstances as of the date in question. The requirement that such principles
be applied on a consistent basis shall mean that the accounting principles
applied in a current period are comparable in all material respects to those
applied in a preceding period.
"Guaranties" means, collectively, the Parent Guaranty and the Subsidiary
----------
Guaranty.
"Guarantor" means each direct and indirect Subsidiary of the Borrower that
---------
executes and delivers a Subsidiary Guaranty hereunder.
"Guaranty" or "Guaranteed", as applied to an obligation of another Person,
-------- ----------
means (a) a guaranty, direct or indirect, in any manner, of any part or all of
such obligation, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit; provided, however, Guaranty does
not mean (i) the endorsement of instruments for collection or deposit in the
ordinary course of business and (ii) customary indemnities given in connection
with asset sales in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or arrangements
----------------
designed to protect at least one of the parties thereto from the fluctuations of
interest rates, exchange rates or forward rates applicable to such party's
assets, liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap, swap or collar protection
agreements, and forward rate currency or interest rate options, as the same may
be amended or modified and in effect from time to time, and any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
"Indebtedness" means, with respect to any Person, without duplication, (a) all
------------
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition the amount of such
-10-
<PAGE>
Indebtedness at any time shall be deemed to equal the fair market value of such
property or asset at such time), (f) to the extent not otherwise included, all
Capitalized Lease Obligations of such Person, all obligations in respect of
letters of credit, bankers' acceptances and similar instruments, and all
obligations under Hedge Agreements, (g) any Guaranty of such Person of any
obligation of another Person constituting obligations of a type set forth above
and (h) the Net Exposure Under Securitization.
"Indemnified Matters" has the meaning specified in Section 5.9(a) hereof.
------------------- --------------
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
----------- --------------
"Initial Pricing Period" means the period from and including the Agreement
----------------------
Date to and including the Rate Adjustment Date.
"Intangible Assets" means those assets which are treated as intangible
-----------------
pursuant to GAAP, and in any event including, without limitation: (i)
obligations, if any, owing by Affiliates to the Borrower or any Subsidiary of
the Borrower, (ii) the amount, if any, by which inventory exceeds the lower of
cost or market value thereof, (iii) the value of any inventory which is obsolete
or damaged or is otherwise deemed by the Administrative Lender not to be of a
marketable quality commensurate with the inventory of the Borrower and its
Subsidiaries as a whole; (iv) accounts receivable which are deemed by the
Borrower, any of its Subsidiaries or the Administrative Lender to be
uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or setoffs; (v) leases and
leasehold improvements; (vi) any asset which is intangible or lacks intrinsic
and marketable value or collectibility, including without limitation goodwill,
noncompetition agreements, patents, copyrights, trademarks, franchises or
organization or research and development costs; (vii) organizational and
experimental expense; and (viii) unamortized debt discount and expense.
"Intercreditor Agreements" collectively means the following certain
------------------------
agreements: (i) Amended and Restated Intercreditor Agreement dated effective as
of April 1, 1996 among NationsBank of Texas, N.A., in its capacity as a lender,
the Borrower, IBM Credit Corporation and NationsBank of Texas, N.A., (ii)
Subordination Agreement dated August 22, 1994 among NationsBank of Texas, N.A.,
in its capacity as a lender, the Borrower, IBM Credit Corporation and Hewlett-
Packard Company, (iii) Intercreditor Agreement dated December 27, 1993 among
NationsBank of Texas, N.A., in its capacity as a lender, the Borrower and Compaq
Computer Corporation, and (iv) any other intercreditor agreement hereafter
entered into among NationsBank of Texas, N.A., in its capacity as the
Administrative Lender, the Borrower and any Person that is a vendor to the
Borrower of Inventory, as any of the foregoing may be renewed, extended,
modified, amended, supplemented or restated from time to time.
"Interest Period" means the period beginning on the day any LIBOR Advance is
---------------
made and ending one, two, three or six months thereafter (as the Borrower shall
select); provided, however, that all of the foregoing provisions are subject to
-------- -------
the following:
-11-
<PAGE>
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless, with respect to a LIBOR Advance, the
result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of a calendar
month; and
(iii) the Borrower may not select any Interest Period which ends
after the date of a scheduled principal payment on the Advances unless,
after giving effect to such selection, the aggregate unpaid principal
amount of the LIBOR Advances for which Interest Periods end after such
scheduled principal payment shall be equal to or less than the principal
amount to which the Advances or Facility B Commitment are required to be
reduced after such scheduled principal payment is made.
"Inventory" has the meaning assigned to such term in the UCC.
---------
"Inventory Release Event" means the the occurrence of all of the following
-----------------------
events: (i) the release in writing (in form and substance acceptable to the
Administrative Lender) by all holders (other than the Administrative Lender) of
all Liens covering the Inventory, or any of same, of the Borower and/or any of
its Subsidiaries, (ii) the release or termination, as applicable, of any and all
UCC financing statements with respect to such Liens on such Inventory, (iii) the
delivery to the Administrative Lender of UCC searches, or other evidence
acceptable to the Administrative Lender, evidencing such releases, and (iv) the
delivery to the Administrative Lender of such other documents, agreements and
papers as the Administrative Lender shall reasonably request in order to
evidence that such Inventory is not subject to any Lien(s) in favor of any
Person (other than the Administrative Lender).
"Investment" means any acquisition of all or substantially all assets of
----------
any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
------------
association, in its capacity as issuer of the Letters of Credit.
"Landlord's Waiver" means an agreement in form and substance satisfactory
-----------------
to the Administrative Lender pursuant to which the landlord of any leased
location where any Collateral is
-12-
<PAGE>
located shall waive its rights, if any, to the Collateral and shall grant to the
Administrative Lender rights to enter upon the premises to inspect, remove or
dispose of the Collateral.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
------
hereof so long as such financial institution maintains a portion of the
Commitments or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
------------
forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
--------------------- ---------------
hereof.
"Letter of Credit" has the meaning specified in Section 2.15(a) hereof.
---------------- ---------------
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b)
-------------------------- ---------------
hereof.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a)
------------------------- ---------------
hereof.
"Leverage Ratio" means, for any date of calculation, the ratio of Funded
--------------
Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation.
"LIBOR Advance" means an Advance which the Borrower requests to be made as
-------------
a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with
the provisions of Section 2.2 hereof.
-----------
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
--------------------
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
----------
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
----------
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the
-13-
<PAGE>
term "LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period
----------
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is
-------- -------
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement or
other instrument.
"Loan Documents" means this Agreement, the Notes, the Security Agreement,
--------------
the Pledge Agreement, the Subsidiary Guaranty, any other Collateral Document,
the Administrative Lender Fee Letter, any Hedge Agreements entered into with any
Lender, and any other document or agreement executed or delivered from time to
time by the Borrower, any Subsidiary of the Borrower or any other Person in
connection herewith or as security for the Obligations.
"Long Term Debt" means any obligation which is due one year or more from
--------------
the date of creation thereof which under GAAP is shown as a liability, plus
(without duplication) amounts equal to the aggregate net rentals (after making
allowances for any interest, taxes or other expenses included therein) payable
more than one year from the date of creation thereof under Capitalized Lease
Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Subsidiaries taken as a whole, or (b) in any manner whatsoever
does or could reasonably be expected to materially and adversely affect the
validity or enforceability of any Loan Document.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender hereunder.
-14-
<PAGE>
"NCGI Note" means that certain subordinated convertible note, dated October
---------
31, 1995, in the original principal amount of $3,000,000, executed and delivered
by the Borrower and payable to the order of Network Compatibility Group, Inc.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties,
including the sale of any Inventory.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
-----------------
other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction or
to the asset that is the subject thereof: (i) reasonable brokerage commissions,
legal fees, finder's fees, financial advisory fees, accounting fees,
underwriting fees, investment banking fees and other similar commissions and
fees, in each case, to the extent paid or payable by such Person; (ii) filing,
recording or registration fees or charges or similar fees or charges paid by
such Person; (iii) taxes paid or payable by such Person or any shareholder,
partner or member of such Person to governmental taxing authorities as a result
of such sale or other disposition; and (iv) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness that is
secured by a Lien on the asset in question and that is required to be repaid
under the terms thereof as a result of such asset sale.
"Net Exposure Under Securitization" means, for any date of calculation, the
---------------------------------
sum of the following (without duplication): (i) the "Net Investment" (as such
term is defined in the TAA) as of such date of calculation and (ii) any and all
obligations and liabilities of the Borrower, CFI or any other Subsidiary of
Borrower under, or in connection with, the Securitization, as of such date of
calculation, to the extent that same constitute liabilities of the Borrower or
of any Subsidiary of the Borrower under GAAP or would, under GAAP, constitute
liabilities of the Borrower or of any Subsidiary of the Borrower if the
Securitization was treated as an on balance sheet transaction.
"Net Income" means, with respect to any Person for any period, the net
----------
income (loss) of such Person, after provisions for taxes and extraordinary
items, determined in accordance with GAAP.
"Net Worth" means, as of any date of calculation, for the Borrower and its
---------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, the
consolidated total stockholders' equity of the Borrower and its Subsidiaries.
"Notes" means, collectively, the Facility A Notes, the Facility B Notes and
-----
the Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a) hereof.
------------------- --------------
-15-
<PAGE>
"Notice of Issuance" has the meaning specified in Section 2.15(b) hereof.
------------------ ---------------
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any other Obligor to any Lender or the Administrative Lender under
any of the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Borrower or any other Obligor of any obligation, covenant or
undertaking with respect to any Loan Document payable by the Borrower or any
other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
-------
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) hereof.
----------- ---------------
"Participation" has the meaning specified in Section 11.6(c) hereof.
------------- ---------------
"Payment Date" means the last day of the Interest Period for any LIBOR
------------
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, and
(ii) Liens for taxes, assessments, governmental charges, levies or claims that
are not yet delinquent or that are being diligently contested in good faith by
appropriate proceedings in accordance with Section 5.6 hereof and for which
-----------
adequate reserves shall have been set aside on such Person's books, but only so
long as no foreclosure, restraint, sale or similar proceedings have been
commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
incurred in the ordinary course of business for sums not yet due or being
contested in good faith, if such reserve or appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
-16-
<PAGE>
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired (or
existing on property at the time such property is acquired) by such Person or
created to secure Indebtedness permitted by Section 7.1(c) or 7.1(d) hereof,
-------------- ------
which is incurred solely for the purpose of financing the acquisition of such
assets and incurred at the time of acquisition or which exists against such
assets at the time of acquisition thereof, so long as each such Lien shall at
all times be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains solely on
the asset or assets acquired and the amount of Indebtedness related thereto is
not increased; provided, however, that from and after the occurrence of the
Inventory Release Event, Liens covering Inventory of the Borrower or any of its
Subsidiaries shall not constitute Permitted Liens hereunder;
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured
(subject to customary deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Determining Lenders;
(h) Any Liens which are described on Schedule 2 hereto, and Liens resulting
----------
from the refinancing of the related Indebtedness, provided that the Indebtedness
secured thereby shall not be increased and the Liens shall not cover additional
assets of the Borrower; provided, however, that from and after the occurrence of
the Inventory Release Event, Liens covering Inventory of the Borrower or any of
its Subsidiaries shall not constitute Permitted Liens hereunder;
(i) Liens arising from filing Uniform Commercial Code financing statements
for precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;
(j) Any zoning or similar law or right reserved to or vested in any
Tribunal to control or regulate the use of any real property;
(k) Any other title exception with respect to real property assets
disclosed by any preliminary title report, title commitment report or other
search of title provided to the Administrative Lender in accordance with this
Agreement unless disapproved by the Administrative Lender prior to the Agreement
Date;
(l) Any Lien in favor of any Lender to secure any obligations owed to such
Lender in respect of any Hedge Agreement;
-17-
<PAGE>
(m) Liens incurred or deposits made to secure the performance of bids,
trade contracts (other than for Indebtedness), statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(n) Liens securing Indebtedness or other obligations of the Borrower or a
Subsidiary of the Borrower owing to the Borrower or a Subsidiary;
(o) Liens to the extent allowed under the Intercreditor Agreements;
provided, however, that from and after the occurrence of the Inventory Release
Event, Liens covering Inventory of the Borrower or any of its Subsidiaries shall
not constitute Permitted Liens hereunder;
(p) Liens in favor of EFC under, or in connection with, the TAA and/or the
RPA;
(q) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (h), (i), (j), (m), (o)
and (p) hereof; and
(r) Liens securing Indebtedness permitted by Section 7.1(k) hereof, to the
--------------
extent only that such Liens cover Inventory manufactured by, purchased from or
acquired from the holder of such Indebtedness and any renewals thereof;
provided, however, that from and after the occurrence of the Inventory Release
Event, Liens covering Inventory of the Borrower or any of its Subsidiaries shall
not constitute Permitted Liens hereunder.
"Person" means an individual, corporation, partnership, trust or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledge Agreement" means the pledge agreement, substantially in the form of
----------------
Exhibit F hereto, as amended, modified, renewed, supplemented or restated from
- ---------
time to time, executed by the Borrower.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
--------------
December,
-18-
<PAGE>
beginning December 31, 1997.
"Rate Adjustment Date" means the date which is two Business Days following
--------------------
the date that the Lenders receive the financial statements for the fiscal
quarter ending September 30, 1997, required to be delivered pursuant to Section
-------
6.1 hereof.
- ---
"Receivables" means all of the Obligors' present and future accounts,
-----------
contract rights and accounts receivable, whether now or hereafter owned, held,
or acquired by any Obligor and includes, without limitation, all of the
following insofar as same constitute, result from or are attributable to any of
the foregoing: all of the Obligors' chattel paper, documents, instruments,
deposit accounts, general intangibles and accounts receivable, including all
rights to payment for goods sold or leased or for services rendered, whether or
not earned by performance (and in any case where an account arises from the sale
of goods, the interest of the Obligor(s) in such goods); lease receivables;
license receivables; notes receivable; all other rights to receive payments of
money from any Person; the Obligors' right, title and interest under equipment
leases; the Obligors' rights under any service, lease rental, consulting or
similar agreements; rights or claims under contracts; books of account, customer
lists and other records relating in any way to any of the foregoing.
"Reference Lender" means NationsBank; provided that if the NationsBank
----------------
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank shall cease to be the Reference Lender, and
Administrative Lender (after consultation with Borrower) shall, with notice to
Borrower and Lenders, designate another Lender as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any
--------------
individual or entity who directly or indirectly holds 10% or more of any class
of Capital Stock of the Borrower, (c) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and (d) any officer or
director of the Borrower.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of ERISA.
----------------
"Restricted Payments" means, collectively, (i) Dividends and (ii) any (A)
-------------------
payment or prepayment of principal, premium or penalty on any Subordinated Debt
of the Borrower or any Subsidiary of the Borrower or any defeasance, redemption,
purchase, repurchase or other acquisition or retirement for value, in whole or
in part, of any Subordinated Debt (including,
-19-
<PAGE>
without limitation, the setting aside of assets or the deposit of funds
therefor) and (B) prepayment of interest on any Subordinated Debt.
"Rights" means rights, remedies, powers and privileges.
------
"RPA" means that certain Amended and Restated Receivables Purchase
---
Agreement, dated as of November 3, 1997, between the Borrower and CFI providing
for the sale by the Borrower to CFI and the purchase by CFI from the Borrower of
certain Receivables now owned and hereafter acquired and arising from time to
time prior to termination of the RPA, on the terms provided therein, as the same
may be renewed, extended, modified, amended or restated from time to time.
"Securitization" means, collectively, the transactions evidenced and
--------------
governed by the Securitization Documents.
"Securitization Documents" means, collectively, the RPA and the TAA and any
------------------------
other agreements or documents executed or delivered by any Person in connection
therewith.
"Security Agreement" means the security agreement relating to all Inventory
------------------
and Equipment (and all computer programs, applications, disks, plans, manuals,
specifications, files and other records pertaining thereto) of the Borrower and
its Subsidiaries, substantially in the form of Exhibit D hereto, as amended,
---------
modified, renewed, supplemented or restated from time to time.
"Solvent" means, with respect to any Person, that the fair value of the
-------
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
---------------
or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
--------------------
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subordinated Debt" means (i) the NCGI Note and (ii) any other Indebtedness
-----------------
of the Borrower or any Subsidiary of the Borrower having maturities and terms,
and which is subordinated to payment of the Obligations in a manner, approved in
writing by the Administrative Lender and the Determining Lenders, with only such
changes or amendments as are not prohibited by Section 7.22 hereof.
------------
-20-
<PAGE>
"Subsequent Pricing Period" means the period from and including the date
-------------------------
which is the first day following the end of the Initial Pricing Period to and
including the Facility A Maturity Date or Facility B Maturity Date, whichever is
later.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),
(b) the interest in the capital or profits of such partnership or
joint venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person
and one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries; provided, however, that no Person shall be deemed to be a
Subsidiary of the Borrower solely by virtue of the fact that certain shares
of the stock of such Person have been pledged to the Borrower.
"Subsidiary Guaranty" means a guaranty, substantially in the form of
-------------------
Exhibit I hereto, executed and delivered by each Guarantor, as such
- ---------
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Swing Line Advance" means an Advance made pursuant to Section 2.1(c)
------------------ --------------
hereof.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successor
---------------
thereto appointed in accordance with Section 10.1(b) hereof.
---------------
"Swing Line Facility" has the meaning specified in Section 2.1(c) hereof.
------------------- --------------
"Swing Line Note" means the Swing Line Note of the Borrower payable to the
---------------
order of the Swing Line Bank, substantially in the form of Exhibit C hereto,
---------
together with any extension, renewal, or amendment thereof, or substitution
therefor.
"TAA" means that certain Amended and Restated Transfer and Administration
---
Agreement, dated as of November 3, 1997, among the Borrower, CFI, EFC and
NationsBank, N.A. in its capacity as Agent and a Bank Investor thereunder,
providing for the transfer by CFI to EFC and the acceptance by EFC from CFI of
an undivided interest in certain Receivables acquired by CFI from the Borrower
pursuant to the RPA, from time to time, on the terms provided therein, as the
same may be renewed, extended, modified, amended or restated from time to time.
-21-
<PAGE>
"Tangible Net Worth" means the sum of the following for the Borrower and
------------------
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP,
(a) Net Worth minus (b) the sum of the following (without duplication in respect
of items already deducted in arriving at Net Worth): Intangible Assets, and any
write-up in the book value of assets resulting from revaluation thereof
subsequent to December 31, 1995.
"Taxes" has the meaning specified in Section 2.14 hereof.
----- ------------
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
--------
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory or
public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unused Portion" means an amount equal to the result of (a) the sum of (i)
--------------
the Facility A Commitment plus (ii) the Facility B Commitment minus (b) the sum
of (i) the outstanding Facility A Advances plus (ii) the outstanding Facility B
Advances plus (iii) the outstanding Reimbursement Obligations in respect of the
Letters of Credit.
Section 1.2 Amendments and Renewals. Each definition of an agreement in
-----------------------
this Article 1 shall include such agreement as amended to date, and as amended
---------
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders or all the Lenders as required
pursuant to Section 11.11 hereof.
-------------
Section 1.3 Construction. The terms defined in this Article 1 (except as
------------
otherwise expressly provided in this Agreement) for all purposes shall have the
meanings set forth in Section 1.1 hereof, and the singular shall include the
-----------
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
ARTICLE 2
Advances
--------
Section 2.1 The Advances.
------------
-22-
<PAGE>
(a) Facility A Advances. Each Lender severally agrees, upon the terms and
-------------------
subject to the conditions of this Agreement, to make Facility A Advances to the
Borrower from time to time until the Facility A Maturity Date in an aggregate
amount not to exceed its Specified Percentage of the Facility A Commitment less
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing), for the purposes set forth in Section 5.8(a) hereof. Subject to
--------------
Section 2.9 hereof, Facility A Advances may be repaid and then reborrowed.
- -----------
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall the principal amount of all outstanding Facility A Advances exceed the
result of (A) Facility A Commitment, minus (B) the aggregate outstanding
Reimbursement Obligations and Swing Line Advances.
(b) Facility B Advances. Each Lender severally agrees, upon the terms and
-------------------
subject to the conditions of this Agreement, to purchase on the Agreement Date a
portion, equal to its Specified Percentage of the Facility B Commitment, of the
then-outstanding balance of the Facility B Advances under the Existing Credit
Agreement. Notwithstanding any provision in any Loan Document to the contrary,
in no event shall the principal amount of all outstanding Facility B Advances
exceed the Facility B Commitment. Facility B Advances may not be repaid and
then reborrowed. The Borrower hereby acknowledges and agrees that the "Facility
B Commitment Termination" (as such term is defined in the Existing Credit
Agreement) has heretofore occurred and that, except as provided herein with
respect to the purchase by the Lenders of the outstanding Facility B Advances
under the Existing Credit Agreement as of the Agreement Date, none of the
Lenders under the Existing Credit Agreement or hereunder have any obligation to
make any further or additional Facility B Advance(s) thereunder or hereunder.
(c) The Swing Line Loans. The Borrower may request Swing Line Bank to make,
--------------------
and Swing Line Bank agrees to make, on the terms and conditions hereinafter set
forth, advances ("Swing Line Advances") to the Borrower from time to time on any
-------------------
Business Day during the period from the date hereof until the Facility A
Maturity Date in an aggregate amount not to exceed at any time outstanding the
lesser of (i) $5,000,000, and (ii) the Facility A Commitment, less the sum of
(A) the aggregate principal amount of Facility A Advances then outstanding plus
----
(B) the aggregate principal amount of all Reimbursement Obligations then
outstanding (assuming compliance with all conditions to drawing) (the "Swing
-----
Line Facility"). Each Swing Line Advance shall be in an amount not less than
- -------------
$100,000 and in multiples thereof. Each Swing Line Advance shall be a Base Rate
Advance. Within the limits of the Swing Line Facility, Swing Line Advances may
be repaid and then reborrowed.
(d) Any Advance shall, at the option of the Borrower as provided in Section
-------
2.2 hereof (and, in the case of LIBOR Advances, subject to the provisions of
- ---
Article 9 hereof), be made as a Base Rate Advance or a LIBOR Advance; provided
- ---------
that there shall not be outstanding, at any one time, more than ten LIBOR
Advances.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
-23-
<PAGE>
(a) In the case of Base Rate Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, on the date of any proposed Base Rate Advance irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice,
in substantially the form of Exhibit J hereto (a "Notice of Borrowing")
--------- -------------------
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
a Base Rate Advance hereunder. Such notice of borrowing shall specify the
requested funding date, which shall be a Business Day, and the amount of the
proposed aggregate Base Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least two Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given) pursuant to a Notice of Borrowing, of its intention to borrow a LIBOR
Advance hereunder. Notice shall be given to the Administrative Lender prior to
11:00 a.m., Dallas, Texas time, in order for such Business Day to count toward
the minimum number of Business Days required. LIBOR Advances shall in all cases
be subject to Article 9 hereof. For LIBOR Advances, the notice of borrowing
---------
shall specify the requested funding date, which shall be a Business Day, the
amount of the proposed aggregate LIBOR Advances to be made by Lenders and the
Interest Period selected by the Borrower, provided that no such Interest Period
shall extend past the Facility A Maturity Date or the Facility B Maturity Date,
as appropriate, or prohibit or impair the Borrower's ability to comply with
Section 2.5 or 2.8 hereof.
- ----------- ---
(c) In the case of Swing Line Advances, the Borrower, through an Authorized
Signatory, shall give the Swing Line Bank and the Administrative Lender prior to
12:00 noon, Dallas, Texas time, on the date of any proposed Swing Line Advance
irrevocable written notice or irrevocable telephonic notice followed immediately
by written notice (provided, however, that the Borrower's failure to confirm any
telephonic notice in writing shall not invalidate any notice so given), of its
intention to borrow or reborrow a Swing Line Advance. Such notice of borrowing
shall specify the requested funding date, which shall be a Business Day, and the
amount of the proposed Swing Line Advance.
(d) Subject to Sections 2.1 and 2.9 hereof, the Borrower shall have the
------------ ---
option (i) to convert at any time all or any part (subject to the requirements
contained herein as to the minimum amounts of LIBOR Advances) of the outstanding
Base Rate Advances to LIBOR Advances and all or any part of the outstanding
LIBOR Advances to Base Rate Advances or (ii) upon expiration of any Interest
Period applicable to a LIBOR Advance, to continue all or any portion of such
LIBOR Advance equal to $5,000,000 and integral multiples of $1,000,000 in excess
of that amount as a LIBOR Advance and the succeeding Interest Period(s) of such
continued LIBOR Advance shall commence on the last day of the Interest Period of
the LIBOR Advance to be continued; provided, however, (a) LIBOR Advances may
only be converted into Base Rate Advances on the expiration date of the Interest
Period applicable thereto and (b) notwithstanding anything in this Agreement to
the contrary, no outstanding Advance may be continued as, or converted into, a
LIBOR Advance
-24-
<PAGE>
when any Default or Event of Default has occurred and is continuing. At least
two Business Days prior to a proposed conversion/continuation date, the
Borrower, through an Authorized Signatory, shall give the Administrative Lender
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), stating (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount of the Advance to be converted/continued, (iii)
in the case of a conversion to, or a continuation of, a LIBOR Advance, the
requested Interest Period, and (iv) in the case of a conversion of a Base Rate
Advance to a LIBOR Advance or continuation of a LIBOR Advance, stating that no
Default or Event of Default has occurred and is continuing. If the Borrower
shall fail to give any notice in accordance with this Section 2.2(d), the
--------------
Borrower shall be deemed irrevocably to have requested that such LIBOR Advance
be converted to a Base Rate Advance in the same principal amount. Notice shall
be given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time,
in order for such Business Day to count toward the minimum number of Business
Days required.
(e) The aggregate amount of Base Rate Advances to be made by the Lenders on
any day shall be in a principal amount which is at least $3,000,000 and which is
an integral multiple of $500,000; provided, however, that such amount may equal
the unused amount of the applicable Commitment. The aggregate amount of LIBOR
Advances having the same Interest Period and to be made by the Lenders on any
day shall be in a principal amount which is at least $5,000,000 and which is an
integral multiple of $1,000,000.
(f) The Administrative Lender shall promptly notify the Lenders of each
notice (other than with respect to a Swing Line Advance) received from the
Borrower pursuant to this Section. Each Lender shall, not later than 2:00 p.m.,
Dallas, Texas time, on the date of any Advance, deliver to the Administrative
Lender, at its address set forth herein, such Lender's Specified Percentage of
such Advance in immediately available funds in accordance with the
Administrative Lender's instructions. Prior to 2:30 p.m., Dallas, Texas time, on
the date of any Advance hereunder, the Administrative Lender shall, subject to
satisfaction of the conditions set forth in Article 3, disburse the amounts made
---------
available to the Administrative Lender by the Lenders by (i) transferring such
amounts by wire transfer pursuant to the Borrower's instructions, or (ii) in the
absence of such instructions, crediting such amounts to the account of the
Borrower maintained with the Administrative Lender. All Advances shall be made
by each Lender according to its Specified Percentage.
-25-
<PAGE>
(g) The Swing Line Bank shall, not later than 1:30 p.m., Dallas, Texas
time, on the date of any Swing Line Advance, deliver to the Administrative
Lender at its address set forth herein, the amount of such Swing Line Advance in
immediately available funds in accordance with the Administrative Lender's
instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of any Swing
Line Advance, the Administrative Lender shall, subject to the conditions set
forth in Article 3, disburse the amount made available to the Administrative
---------
Lender by the Swing Line Bank by (i) transferring such amounts by wire transfer
pursuant to the Borrower's instruction or (ii) in the absence of such
instructions, crediting such amounts to the account of the Borrower maintained
with the Administrative Lender. Forthwith upon demand by the Swing Line Bank and
in any event upon the making of the request or the granting of the consent
specified by Section 8.2 to authorize the Administrative Lender to declare the
-----------
Advances due and payable pursuant to the provisions of Section 8.2, each Lender,
-----------
including the Swing Line Bank, notwithstanding the failure of the Borrower at
such time to satisfy each condition specified in Article 3, shall make by 12:00
noon (Dallas, Texas time) on the first Business Day following receipt by such
Lender of notice from the Swing Line Bank, a Facility A Advance which is a Base
Rate Advance in an amount equal to the product of (i) the Specified Percentage
of such Lender times (ii) the aggregate outstanding principal amount of the
Swing Line Advances. The proceeds of such Facility A Advances shall be applied
by the Administrative Lender to repay the outstanding Swing Line Advance.
Section 2.3 Interest.
--------
(a) On Base Rate Advances.
---------------------
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Base Rate Advances outstanding from time to time,
until such Base Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) or repaid at a simple
interest rate per annum equal to the Base Rate Basis for the Base Rate
Advances as in effect from time to time. If at any time the Base Rate Basis
would exceed the Highest Lawful Rate, interest payable on the Base Rate
Advances shall be limited to the Highest Lawful Rate, but the Base Rate
Basis shall not thereafter be reduced below the Highest Lawful Rate until
the total amount of interest accrued on the Base Rate Advances equals the
amount of interest that would have accrued if the Base Rate Basis had been
in effect at all times.
(ii) Interest on the Base Rate Advances shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for the actual number of days
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Facility A Maturity Date or the Facility B Maturity Date, as appropriate.
-26-
<PAGE>
(b) On LIBOR Advances.
-----------------
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
LIBOR Advance. The Administrative Lender, whose determination shall be
controlling in the absence of manifest error, shall determine the LIBOR
Basis on the second Business Day prior to the applicable funding date and
shall notify the Borrower and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each LIBOR Advance
------------
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Facility A Maturity Date and the Facility B Maturity Date,
as appropriate; provided, however, that if the Interest Period for such
LIBOR Advance exceeds three months, interest shall also be due and payable
in arrears on each three-month anniversary of the commencement of such
Interest Period during such Interest Period.
(c) On Swing Line Advances.
----------------------
(i) The Borrower shall pay interest on the outstanding principal
amount of each Swing Line Advance, from the date each Swing Line Advance is
made until it is due (whether at maturity, by acceleration or otherwise) or
repaid, at a rate per annum equal to the Base Rate Basis in effect from
time to time. If at any time the Base Rate Basis would exceed the Highest
Lawful Rate, interest payable on the Swing Line Advances shall be limited
to the Highest Lawful Rate, but the Base Rate Basis shall not thereafter be
reduced below the Highest Lawful Rate until the total amount of interest
accrued on the Swing Line Advances equals the amount of interest that would
have accrued if the Base Rate Basis had been in effect at all times.
(ii) Interest on each Swing Line Advance shall be computed on the
basis of a year of 365 or 366 days, as applicable, for the number of days
elapsed, and shall be payable quarterly in arrears on each Quarterly Date
and on the Facility A Maturity Date.
(d) Interest After an Event of Default. (i) After an Event of Default
----------------------------------
(other than an Event of Default specified in Section 8.1(f) or (g) hereof) and
-------------- ---
during any continuance thereof, at the option of Determining Lenders and
provided that the Administrative Lender has given notice of the decision to
charge interest at the Default Rate, and (ii) after an Event of Default
specified in Section 8.1(f) or (g) hereof and during any continuance thereof,
-------------- ---
automatically and without any action or notice by the Administrative Lender or
any Lender, the Obligations shall bear interest at a rate per annum equal to the
Default Rate. Such interest shall be payable on the earlier of demand or the
Facility A Maturity Date or the Facility B Maturity Date, as appropriate, and
shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the
Determining Lenders) of the applicable Event of Default, (ii) agreement by the
Lenders to rescind the charging of interest at the Default
-27-
<PAGE>
Rate, or (iii) payment in full of the Obligations. The Lenders shall not be
required to accelerate the maturity of the Advances, to exercise any other
rights or remedies under the Loan Documents, or to give notice to the Borrower
of the decision to charge interest at the Default Rate.
Section 2.4 Fees.
----
(a) Commitment Fee. Subject to Section 11.9 hereof, the Borrower agrees to
-------------- ------------
pay to the Administrative Lender, for the ratable account of the Lenders, a
commitment fee (the "Commitment Fee") on the daily average Unused Portion during
--------------
the period commencing on the Agreement Date and ending on the Facility A
Maturity Date, at the following per annum percentages, applicable in the
following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) Initial Pricing Period 0.250%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Fixed Charge Coverage Ratio is greater than or equal to 0.225%
2.50 to 1
(2) The Fixed Charge Coverage Ratio is less than 2.50 to 1 but 0.250%
greater than or equal to 2.00 to 1
(3) The Fixed Charge Coverage Ratio is less than 2.00 to 1 but 0.300%
greater than or equal to 1.50 to 1
(4) The Fixed Charge Coverage Ratio is less than 1.50 to 1 0.375%
</TABLE>
The Commitment Fee shall be subject to reduction or increase, as applicable and
as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the Commitment Fee shall be effective
--------
on the date which is two Business Days following the date of receipt of the
financial statements required to be furnished pursuant to Section 6.1 or 6.2
----------- ---
hereof, as applicable, and the corresponding Compliance Certificate required
pursuant to Section 6.3 hereof. If such financial statements are not received
-----------
by the Administrative Lender by the date required, effective as of the first
Business Day following notification thereof from the Administrative Lender to
the Borrower the Commitment Fee shall be determined as if the Fixed Charge
Coverage Ratio is less than 1.50 to 1 until such time as such financial
statements and Compliance Certificate are received. The fee shall be (i)
payable in arrears on each Quarterly Date and on the Facility A Maturity Date,
(ii) fully earned when due and, subject to Section 11.9 hereof, nonrefundable
------------
when paid and (iii) subject to Section 11.9 hereof, computed on the basis of a
------------
year of 365 or 366 days, as appropriate, for the actual number of days elapsed.
-28-
<PAGE>
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower agrees to pay to
---------- ------------
the Administrative Lender, for the account of the Administrative Lender or its
affiliates, as applicable, the fees on the dates and in the amounts specified in
the letter agreement (the "Administrative Lender Fee Letter"), dated August 21,
--------------------------------
1997, among the Borrower, the Administrative Lender and NationsBanc Capital
Markets, Inc..
Section 2.5 Prepayments.
-----------
(a) Voluntary LIBOR Advance Prepayments. Upon three Business Days' prior
-----------------------------------
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Lender, LIBOR Advances may be voluntarily
prepaid but only so long as the Borrower concurrently reimburses the Lenders in
accordance with Section 2.9 hereof. Any notice of prepayment shall be
-----------
irrevocable. Subject to the other terms and provisions hereof, Base Rate
Advances may be voluntarily prepaid at any time.
(b) Mandatory Prepayment. On or before the date of any reduction of the
--------------------
Facility A Commitment, the Borrower shall prepay applicable outstanding Facility
A Advances in an amount necessary to reduce the sum of outstanding Facility A
Advances, Swing Line Advances and Reimbursement Obligations to an amount less
than or equal to the Facility A Commitment as so reduced. On any date that the
aggregate principal amount of outstanding Facility A Advances, Swing Line
Advances and Reimbursement Obligations (other than such Reimbursement
Obligations which are fully secured by funds in the L/C Cash Collateral Account
pursuant to Section 2.15(g) hereof) exceed the Facility A Commitment, the
---------------
Borrower shall immediately prepay Facility A Advances in an amount equal to such
excess amount and all interest attributable to such excess amount. To the
extent required by the immediately preceding two sentences, the Borrower shall
first prepay all Base Rate Advances, second prepay all Swing Line Advances and
shall thereafter prepay LIBOR Advances. To the extent that any prepayment
requires that a LIBOR Advance be repaid on a date other than the last day of its
Interest Period, the Borrower shall reimburse each Lender in accordance with
Section 2.9 hereof. To the extent that outstanding Facility A and Swing Line
- -----------
Advances exceed the Facility A Commitment after any reduction thereof, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Facility A Advances on the date of such reduction.
(c) Prepayment from Sales of Equity/Issuance of Indebtedness. Concurrently
--------------------------------------------------------
with receipt of Net Cash Proceeds from (i) the issuance of any Indebtedness the
proceeds of which are used to purchase or refinance Indebtedness with respect to
real property or (ii) the sale or disposition by the Borrower of any Equity
(other than a sale or disposition of Equity permitted by clauses (v) or (vi) of
Section 7.18 hereof), the Borrower shall prepay Facility B Advances in an
- ------------
aggregate principal amount equal to 100% of the aggregate Net Cash Proceeds
received by the Borrower from such issuance, sale or disposition of Equity or
Indebtedness. Any such prepayments shall be applied in the inverse order of
maturity to the scheduled payments of the Facility B Advances required pursuant
to Section 2.6(c).
--------------
(d) Payments, Generally. Any prepayment of any LIBOR Advance shall be
-------------------
-29-
<PAGE>
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial payment of a Base Rate Advance shall be in a principal amount
which is at least $3,000,000 and which is an integral multiple of $500,000. Any
voluntary partial payment of a LIBOR Advance shall be in a principal amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000,
and to the extent that any prepayment of a LIBOR Advance is made on a date other
than the last day of its Interest Period, the Borrower shall reimburse each
Lender in accordance with Section 2.9 hereof. Any voluntary partial payment of
-----------
a Swing Line Advance shall be in a principal amount which is at least $100,000
or an integral multiple thereof.
Section 2.6 Reduction of Commitments.
------------------------
(a) Voluntary Reduction. The Borrower shall have the right, upon not less
-------------------
than ten Business Days' notice by an Authorized Signatory to the Administrative
Lender (if telephonic, to be confirmed by telex or in writing on or before the
date of reduction or termination), which shall promptly notify the Lenders, to
terminate or reduce either the Facility A Commitment or the Facility B
Commitment, in whole or in part, without premium or penalty except as provided
in the next sentence. Each partial termination shall be in an aggregate amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000,
and no voluntary reduction of the Facility A Commitment shall cause any LIBOR
Advance to be repaid prior to the last day of its Interest Period unless the
Borrower shall reimburse each Lender in accordance with Section 2.9 hereof.
-----------
(b) Mandatory Reduction. The Facility A Commitment shall be automatically
-------------------
reduced to zero on the Facility A Maturity Date. Contemporaneously with any
voluntary or other prepayment of any Facility B Advances, the Facility B
Commitment shall be automatically reduced by the amount of such prepayment(s).
(c) General Requirements. Upon any reduction of a Commitment pursuant to this
--------------------
Section, the Borrower shall immediately make a repayment of applicable Advances
in accordance with Section 2.5(b) hereof. The Borrower shall reimburse each
--------------
Lender in connection with any such payment in accordance with Section 2.9 hereof
-----------
to the extent applicable. The Borrower shall not have any right to rescind any
termination or reduction. Once reduced, the Commitments may not be increased or
reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender. Unless the
-------------------------------------------------
Administrative Lender shall have been notified by a Lender prior to the date of
any proposed Advance (other than a Swing Line Advance) that such Lender does not
intend to make the proceeds of such Advance available to the Administrative
Lender, the Administrative Lender may assume that such Lender has made such
proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Administrative Lender shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
-30-
<PAGE>
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Lender receives such amount from (a) the Lender, at a per annum
rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal
Funds Rate or (b) the Borrower, at the per annum rate applicable at the time to
such Advance. No Lender shall be liable for any other Lender's failure to fund
an Advance hereunder.
Section 2.8 Payment of Principal of Advances.
--------------------------------
(a) Facility A Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of the Facility A Advances, all
accrued interest and fees thereon, and all other Obligations related thereto,
shall be due and payable in full on the Facility A Maturity Date.
-31-
<PAGE>
(b) Facility B Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of the Facility B Advances
shall be repaid on each of the following dates in such amounts as set forth next
to each such date below:
<TABLE>
<CAPTION>
Amount of Reduction of
Payment Date Facility B Advances as of each Date
------------ -----------------------------------
<S> <C>
April 1, 1999 $ 500,000
July 1, 1999 $ 500,000
October 1, 1999 $ 500,000
January 1, 2000 $1,000,000
April 1, 2000 $1,000,000
July 1, 2000 $1,000,000
October 1, 2000 $1,000,000
January 1, 2001 $2,000,000
April 1, 2001 $2,000,000
July 1, 2001 $2,000,000
October 1, 2001 $2,000,000
January 1, 2002 $2,000,000
April 1, 2002 $2,000,000
July 1, 2002 $2,000,000
April 30, 2002 $2,000,000
Facility B Maturity Date $3,500,000
or such other amount of Facility B
Advances then outstanding
</TABLE>
To the extent not otherwise required to be paid earlier as provided herein, the
principal amount of the Facility B Advances, all accrued interest and fees
thereon, and all other Obligations related thereto, shall be due and payable in
full on the Facility B Maturity Date.
(c) Swing Line Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the principal amount of each Swing Line Advance, all
accrued interest and fees thereon, and all other Obligations related thereto,
shall be due and payable in full on the seventh Business Day following the
making of such Swing Line Advance.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur (other
-------------
than through a default by that Lender) any losses (inclusive of any such losses
attributable to change(s)
-32-
<PAGE>
in the LIBOR Rate during the applicable period(s), but exclusive of any losses
of any other anticipated profits on the part of such Lender) or reasonable out-
of-pocket expenses actually incurred in connection with (a) failure by the
Borrower to borrow any LIBOR Advance after having given notice of its intention
to borrow in accordance with Section 2.2 hereof (whether by reason of the
-----------
Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3 hereof) or (b) any prepayment for any reason
of any LIBOR Advance in whole or in part (including a prepayment pursuant to
Section 9.3(b) hereof) on other than the last day of an Interest Period
- --------------
applicable to such LIBOR Advance, the Borrower agrees to pay to any such Lender,
within 30 days after demand by such Lender, an amount sufficient to compensate
such Lender for all such losses (inclusive of any such losses attributable to
change(s) in the LIBOR Rate during the applicable period(s), but exclusive of
any losses of any other anticipated profits on the part of such Lender) and out-
of-pocket expenses, subject to Section 11.9 hereof. Such losses shall include,
------------
without limiting the generality of the foregoing, reasonable expenses incurred
by such Lender in connection with the re-employment of funds prepaid, repaid,
converted or not borrowed, converted or paid, as the case may be. A certificate
as to any amounts payable to any Lender under this Section 2.9 submitted to the
-----------
Borrower by such Lender shall certify that such amounts were actually incurred
by such Lender and shall show in reasonable detail an accounting of the amount
payable and the calculations used to determine in good faith such amount and
shall be conclusive absent manifest or demonstrable error. Nothing in this
Section 2.9 shall provide the Borrower or any Subsidiary of the Borrower the
- -----------
right to inspect the records, files or books of any Lender.
Section 2.10 Manner of Payment.
-----------------
(a) Each payment (including prepayments) by the Borrower of the principal of
or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless, with respect to a
payment due in respect of a LIBOR Advance, such Business Day falls in another
calendar month, in which case payment shall be made on the preceding Business
Day. Any extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.
(c) Without waiving any other rights or recourse that the Borrower may
otherwise have against any Lender for such Lender's breach of its obligations
hereunder, the Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are received by
the Administrative Lender, the Administrative Lender shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the
-33-
<PAGE>
Lenders then due and payable, if any; (ii) to the payment of all other fees then
due and payable; (iii) to the payment of interest then due and payable on the
Advances; (iv) to the payment of all other amounts not otherwise referred to in
this clause (d) then due and payable under the Loan Documents; and (v) to the
payment of principal then due and payable on the Advances.
(e) Each payment by the Borrower in respect of obligations relating to the
Facility A Advances, Facility B Advances and the Letters of Credit (whether for
principal, interest, fees or otherwise) shall be made to the Administrative
Lender for the account of the Lenders pro rata in accordance with their
respective Specified Percentages. Each payment by the Borrower in respect of
obligations relating to Swing Line Advances (whether for principal, interest,
fees or otherwise) shall be made to the Administrative Lender for the account of
the Swing Line Bank. Notwithstanding anything in this Section 2.10(e) or any
---------------
other provision of this Agreement or any other Loan Document to the contrary,
any payment by the Borrower in respect of any Advances after acceleration of the
Advances pursuant to Section 8.2 or any monies received by the Administrative
-----------
Lender as a result of the exercise of remedies under any Loan Documents after
acceleration of the Advances pursuant to Section 8.2 shall be distributed pro
-----------
rata to each Lender based on the percentage that the outstanding Advances and
Reimbursement Obligations owed to such Lender bears to the aggregate Advances
and Reimbursement Obligations owed to all Lenders.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending
---------------------
Office is set forth opposite its name in Schedule 1 attached hereto. Each
----------
Lender shall have the right at any time and from time to time to designate a
different office of itself or of any Affiliate of such Lender as such Lender's
LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to such
LIBOR Lending Office. No such designation or transfer shall result in any
liability on the part of the Borrower for increased costs or expenses resulting
solely from such designation or transfer (except any such transfer which is made
by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose
----------- ---
of complying with Applicable Law, to the extent that Applicable Law, or any
relevant construction or interpretation thereof, changes after the Agreement
Date). Increased costs for expenses resulting from a change in law occurring
subsequent to any such designation or transfer shall be deemed not to result
solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment (whether
-------------------
voluntary or involuntary, due to the exercise of any right of set-off, or
otherwise) on account of its Facility A Advances, Facility B Advances or its
participation in the Letters of Credit (other than pursuant to Sections 2.4(b),
---------------
2.14, 2.15(d), 9.3 or 9.5) in excess of its Specified Percentage of all payments
- ---- ------- --- ---
made by the Borrower with respect to Facility A Advances, Facility B Advances
and the Letters of Credit shall purchase from each other Lender such
participation in the Facility A Advances and Facility B Advances made by such
other Lender or its participation in the Letters of Credit as shall be necessary
to cause such purchasing Lender to share the excess payment pro rata according
to Specified Percentages with each other Lender; provided, however, that if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section, to the fullest extent permitted by law, may exercise
all its rights of payment (including the
-34-
<PAGE>
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
Section 2.13 Calculation of LIBOR Rate. The provisions of this Agreement
-------------------------
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
Section 2.14 Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
------------
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
---------
of each Lender and the Administrative Lender, (i) taxes imposed on, based upon
or measured by its overall net income, net worth or capital, and franchise
taxes, doing business taxes or minimum taxes imposed on it, (A) by the
jurisdiction under the laws of which such Lender or the Administrative Lender
(as the case may be) is organized or in which it has its applicable lending
office or any political subdivision thereof; or (B) by any other jurisdiction,
or any political subdivision thereof, other than those imposed by reason of (1)
an asserted relation of such jurisdiction to the transactions contemplated by
this Agreement, (2) the activities of the Borrower in such jurisdiction or (3)
the activities in connection with the transactions contemplated by this
Agreement of a Lender or the Administrative Lender; (ii) taxes imposed by reason
of failure by the Lender or the Administrative Lender to comply with the
requirements of paragraph (e) of this Section 2.14; and (iii) in the case of any
------------
Lender, any Taxes in the nature of transfer, stamp, recording or documentary
taxes resulting from a transfer (other than as a result of foreclosure) by such
Lender of all or any portion of its interest in this Agreement, the Notes or any
other Loan Documents; (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
-----
If the Borrower shall be required by Law to deduct or withhold any Taxes from or
in respect of any sum payable hereunder to any Lender or the Administrative
Lender, (x) the sum payable shall be increased as may be necessary so that after
making all required deductions for Taxes (including deductions applicable to
additional sums payable under this Section 2.14) such Lender or the
------------
Administrative Lender (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (y) the Borrower shall
make such deductions and (z) the Borrower shall pay the full amount of Taxes
deducted to the relevant taxation authority or other authority in accordance
with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and documentary
taxes and any and all other excise and property taxes, charges and similar
levies (other than Taxes described in clause (iii) of the first sentence of
Section 2.14(a)) that arise from any payment made hereunder or from the
- ---------------
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
-----------
-35-
<PAGE>
(c) The Borrower will indemnify each Lender and the Administrative Lender for
the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) paid by such Lender or the Administrative Lender (as the case may
- ------------
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence or wilful misconduct on the part of such Lender or the Administrative
Lender, provided, however, that the Borrower shall have no obligation to
-------- -------
indemnify such Lender or the Administrative Lender unless and until such Lender
or the Administrative Lender shall have delivered to the Borrower a certificate
certifying that such Taxes or Other Taxes (and/or penalties, additions to tax,
interest and reasonable expenses) were actually incurred by such Lender or the
Administrative Lender and showing in reasonable detail an accounting of the
amount payable and the calculations used to determine in good faith such amount,
which certificate shall be conclusive absent manifest or demonstrable error.
Nothing in this Section 2.14 shall provide the Borrower or any Subsidiary of the
------------
Borrower the right to inspect the records, files or books of any Lender or the
Administrative Lender. This indemnification shall be made within 30 days from
the date such Lender or the Administrative Lender (as the case may be) makes
written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Lender the original or a certified
copy of a receipt evidencing payment thereof. For purposes of this Section 2.14
------------
the terms "United States" and "United States Person" shall have the meanings set
------------- --------------------
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 11.6 after the
------------
Agreement Date, the date upon which such Lender becomes a party hereto) and at
such times as necessary in the reasonable determination of the Borrower,
deliver to the Borrower through the Administrative Lender, with a copy to the
Administrative Lender:
(A) if any lending office is located in the United States of America, two
(2) accurate and complete signed originals of Internal Revenue Service
Form 4224 or any successor thereto ("Form 4224"),
-----------
(B) if any lending office is located outside the United States of America,
two (2) accurate and complete signed originals of Internal Revenue
Service Form 1001 or any successor thereto ("Form 1001"),
-----------
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the account
of such lending office or lending offices under this Agreement free from
withholding of United States Federal income tax;
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<PAGE>
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of Form
1001,
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such changed or additional lending office under this Agreement
free from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and
(v) it shall notify the Borrower after any event (including an
amendment to, or a change in any applicable law or regulation or in the
written interpretation thereof by any regulatory authority or any judicial
authority, or by ruling applicable to such Lender of any governmental
authority charged with the interpretation or administration of any law)
shall occur that results in such Lender no longer being capable of
receiving payments under this Agreement without any deduction or
withholding of United States federal income tax.
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of principal and interest
------------
hereunder.
(g) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver or by virtue of the location of any
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<PAGE>
Lender's lending office), (ii) it will use reasonable best efforts (consistent
with its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
materially disadvantageous to such Lender, and (iii) otherwise cooperate with
the Borrower to minimize amounts payable by the Borrower under this Section
-------
2.14; provided, however, the Lenders and the Administrative Lender shall not be
- ---- -------- -------
obligated by reason of this Section 2.14(g) to contest the payment of any Taxes
---------------
or Other Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
Section 2.14 and the Lender or the Administrative Lender receives a refund of
- ------------
any or all of such sums, such refund shall be applied to reduce any amounts then
due and owing under this Agreement or, to the extent that no amounts are due and
owing under this Agreement at the time such refunds are received, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower, provided that (i) no Event of Default is in existence at such time or
(ii) all of the Obligations have been fully and finally paid or satisfied. At
such time, if any, that such Default or Event of Default is cured or waived, the
party receiving such refund shall promptly pay over all such refunded sums to
the Borrower.
(h) If the Borrower becomes obligated to pay additional amounts described
in this Section 2.14 to any Lender, the Borrower may designate a financial
------------
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitments and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expense to, such Lender, for a
purchase price equal to the outstanding amounts owed to such Lender (including
such additional amounts owing to such Lender pursuant to this Section 2.14).
------------
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in Section 11.6 hereof.
------------
Section 2.15 Letters of Credit.
-----------------
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<PAGE>
(a) The Letter of Credit Facility. The Borrower may request the Issuing
-----------------------------
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
----------
Credit") for the account of the Borrower from time to time on any Business Day
- ------
from the date of the initial Advance until the Facility A Maturity Date in an
aggregate maximum amount (assuming compliance with all conditions to drawing)
not to exceed, at any time outstanding, the lesser of (i) $5,000,000 (the
"Letter of Credit Facility") and (ii) the Facility A Commitment, less the sum of
- --------------------------
(A) the aggregate principal amount of Facility A Advances then outstanding plus
(B) the aggregate principal amount of Swing Line Advances outstanding. No
Letter of Credit shall have an expiration date (including all rights of renewal)
later than the earlier of (i) the Facility A Maturity Date or (ii) one year
after the date of issuance thereof. Immediately upon the issuance of each
Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred
to each Lender, and each Lender shall be deemed to have purchased and received
from the Issuing Bank, in each case irrevocably and without any further action
by any party, an undivided interest and participation in such Letter of Credit,
each drawing thereunder and the obligations of the Borrower under this Agreement
in respect thereof in an amount equal to the product of (x) such Lender's
Specified Percentage times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing).
Within the limits of the Letter of Credit Facility, and subject to the limits
referred to above, the Borrower may request the issuance of Letters of Credit
under this Section 2.15(a), repay any Facility A Advances resulting from
---------------
drawings thereunder pursuant to Section 2.15(c) and request the issuance of
---------------
additional Letters of Credit under this Section 2.15(a).
---------------
(b) Request for Issuance. Each Letter of Credit shall be issued upon
--------------------
notice, given not later than 11:00 a.m. (Dallas, Texas time) on the fourth
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance of
Letters of Credit pursuant to this Agreement and containing terms and conditions
not inconsistent with this Agreement (a "Letter of Credit Agreement"), provided
-------------------------- --------
that if any such terms and conditions inconsistent with this Agreement, this
Agreement shall control. Each such notice of issuance of a Letter of Credit by
the Borrower (a "Notice of Issuance") shall be by telecopier, specifying
------------------
therein, in the case of a Letter of Credit, the requested (A) date of such
issuance (which shall be a Business Day), (B) maximum amount of such Letter of
Credit, (C) expiration date of such Letter of Credit, (D) name and address of
the beneficiary of such Letter of Credit, and (E) form of such Letter of Credit
and specifying such other information as shall be required pursuant to the
relevant Letter of Credit Agreement. If the requested terms of such Letter of
Credit are acceptable to the Issuing Bank in its reasonable discretion, the
Issuing Bank will, upon fulfillment of the applicable conditions set forth in
Article 3 hereof, make such Letter of Credit available to the Borrower at its
- ---------
office referred to in Section 11.1 or as otherwise agreed with the Borrower in
------------
connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
-------------------------
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Facility A Advance, which shall
bear interest at the Base Rate Basis, in the
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<PAGE>
amount of such draft (but without any requirement for compliance with the
conditions set forth in Article 3 hereof). In the event that a drawing under any
---------
Letter of Credit is not reimbursed by the Borrower by 11:00 a.m. (Dallas, Texas
time) on the first Business Day after such drawing, the Issuing Bank shall
promptly notify Administrative Lender and each other Lender. Each such Lender
shall, on the first Business Day following such notification, make a Facility A
Advance, which shall bear interest at the Base Rate Basis, and shall be used to
repay the applicable portion of the Issuing Bank's Advance with respect to such
Letter of Credit, in an amount equal to the amount of its participation in such
drawing for application to reimburse the Issuing Bank (but without any
requirement for compliance with the applicable conditions set forth in Article 3
---------
hereof) and shall make available to the Administrative Lender for the account of
the Issuing Bank, by deposit at the Administrative Lender's office, in same day
funds, the amount of such Advance. In the event that any Lender fails to make
available to the Administrative Lender for the account of the Issuing Bank the
amount of such Advance, the Issuing Bank shall be entitled to recover such
amount on demand from such Lender together with interest thereon at a rate per
annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal
Funds Rate.
(d) Increased Costs. If after the Agreement Date any change in any Law or in
---------------
the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit or guarantees issued by, or assets held by, or
deposits in or for the account of, the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender or (ii) impose on the
Issuing Bank or any Lender or any corporation controlling the Issuing Bank or
any Lender any other condition regarding this Agreement or any Letter of Credit,
and the result of any event referred to in the preceding clause (i) or (ii)
shall be to increase the cost to the Issuing Bank or any corporation controlling
the Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender
or any corporation controlling such Lender of purchasing any participation
therein or making any Advance pursuant to Section 2.15(c), then, within 30 days
---------------
after demand by the Issuing Bank or such Lender (which demand shall be made not
later than one year after the Issuing Bank or applicable Lender receives notice
of the relevant change), the Borrower shall, subject to Section 11.9 hereof, pay
------------
to the Issuing Bank or such Lender, from time to time as specified by the
Issuing Bank or such Lender, additional amounts that shall be sufficient to
compensate the Issuing Bank or such Lender or any corporation controlling such
Lender for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower by the Issuing Bank or such Lender,
shall certify that such increased costs were actually incurred by the Issuing
Bank or such Lender and shall show in reasonable detail an accounting of the
amount payable and the calculation used to determine in good faith such amount
and shall be conclusive absent manifest or demonstrable error. In determining
such amount, the Issuing Bank or such Lender may use any reasonable averaging or
attribution method. Nothing in this Section 2.15(d) shall provide the Borrower
---------------
or any Subsidiary of the Borrower the right to inspect the records, files or
books of the Issuing Bank or any Lender. If the Borrower becomes obligated to
pay additional amounts described in this Section 2.15(d) to any Lender, the
---------------
Borrower may designate a financial institution reasonably acceptable to the
Administrative Lender to replace such Lender by purchasing for cash and
receiving an assignment of such Lender's pro rata share of the Commitments and
the Rights of such Lender under the Loan Documents without recourse to or
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<PAGE>
warranty by or expenses to, such Lender, for a purchase price equal to the
outstanding amounts owing to such Lender (including such additional amounts
owing to such Lender pursuant to this Section 2.15(d). Upon execution of an
---------------
Assignment Agreement, such other financial institution shall be deemed to be a
"Lender" for all purposes of this Agreement as set forth in Section 11.6 hereof.
------------
The obligations of the Borrower under this Section 2.15(d) shall survive
---------------
termination of this Agreement. The Issuing Bank or any Lender claiming any
additional compensation under this Section 2.15(d) shall use reasonable efforts
---------------
(consistent with legal and regulatory restrictions) to reduce or eliminate any
such additional compensation which may thereafter accrue and which efforts would
not, in the reasonable judgment of the Issuing Bank or such Lender, be otherwise
disadvantageous.
(e) Obligations Absolute. Except in the case of gross negligence or wilful
--------------------
misconduct on the part of the Issuing Bank, the obligations of the Borrower
under this Agreement with respect to any Letter of Credit, any Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of Credit
or any Facility A Advance pursuant to Section 2.15(c) shall be unconditional and
---------------
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement, any other
Loan Document, any Letter of Credit Agreement, any Letter of Credit or any
other agreement or instrument relating thereto (collectively, the "L/C Related
-----------
Documents");
---------
(ii) (A) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Facility A Advance pursuant to Section 2.15(c) or
---------------
(B) any other amendment or waiver of or any consent to departure from all or
any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee of
a Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank, any Lender or any other Person,
whether in connection with this Agreement, the transactions contemplated
hereby or by the L/C Related Documents or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms of
the Letter of Credit;
(vi) any exchange, release or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to departure from any guarantee,
for all or any of the
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<PAGE>
Obligations of the Borrower in respect of the Letters of Credit or any
Revolving Credit Advance pursuant to Section 2.15(c); or
---------------
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
(f) Compensation for Letters of Credit.
----------------------------------
(i) Credit Fee. Subject to Section 11.9 hereof, the Borrower shall pay
---------- ------------
to the Administrative Lender for the ratable account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date and on the
Facility A Maturity Date) equal to a rate per annum equal to the product of
the Applicable LIBOR Rate Margin in effect from time to time multiplied by the
average dai ly amount available for drawing under all outstanding Letters of
Credit. Subject to Section 11.9 hereof, such fee shall be computed on the
------------
basis of a 360-day year for the actual number of days elapsed.
(ii) Issuance Fee. Subject to Section 11.9 hereof, the Borrower shall
------------ ------------
pay to the Administrative Lender for the account of the Issuing Bank an
issuance fee (which shall be payable on the date of issuance of each Letter of
Credit) in an amount equal to the greater of (a) $250 or (b) the product of
(x) 0.125% times (y) the face amount of the Letter of Credit being issued.
(iii) Other Fees. Subject to Section 11.9 hereof, the Borrower shall pay,
---------- ------------
with respect to each amendment, renewal or transfer of each Letter of Credit
and each drawing made thereunder, reasonable documentary and processing
charges in accordance with the Issuing Bank's standard schedule for such
charges in effect at the time of such amendment, renewal, transfer or drawing,
as the case may be.
(g) L/C Cash Collateral Account.
---------------------------
(i) Upon the Facility A Maturity Date or the occurrence, and during the
continuance, of an Event of Default and demand by the Administrative Lender
pursuant to Section 8.2(c), the Borrower will promptly pay to the
--------------
Administrative Lender in immediately available funds an amount equal to the
maximum amount then available to be drawn under the Letters of Credit then
outstanding. Any amounts so received by the Administrative Lender shall be
deposited by the Administrative Lender in a deposit account maintained by the
Issuing Bank (the "L/C Cash Collateral Account").
---------------------------
(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Lender (for the benefit
of the Issuing Bank and Lenders), and creates in the Administrative Lender's
favor (for the benefit of the Issuing Bank and Lenders) a Lien in, all money,
instruments and securities at any time held in or acquired in
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<PAGE>
connection with the L/C Cash Collateral Account, together with all proceeds
thereof. The L/C Cash Collateral Account shall be under the sole dominion and
control of the Administrative Lender and the Borrower shall have no right to
withdraw or to cause the Administrative Lender to withdraw any funds deposited
in the L/C Cash Collateral Account. At any time and from time to time, upon the
Administrative Lender's request, the Borrower promptly shall execute and deliver
any and all such further instruments and documents, including UCC financing
statements, as may be necessary, appropriate or desirable in the Administrative
Lender's judgment to obtain the full benefits (including perfection and
priority) of the security interest created or intended to be created by this
paragraph (ii) and of the rights and powers herein granted. The Borrower shall
not create or suffer to exist any Lien on any amounts or investments held in the
L/C Cash Collateral Account other than the Lien granted under this paragraph
(ii).
(iii) The Administrative Lender shall (A) apply any funds in the L/C Cash
Collateral Account on account of Reimbursement Obligations when the same become
due and payable, (B) after the Facility A Maturity Date, apply any proceeds
remaining in the L/C Cash Collateral Account first to pay any unpaid Obligations
-----
then outstanding hereunder and then to refund any remaining amount to the
----
Borrower.
(iv) The Borrower, no more than once in any calendar month, may direct the
Administrative Lender to invest the funds held in the L/C Cash Collateral
Account (so long as the aggregate amount of such funds exceeds any relevant
minimum investment requirement) in (A) Cash and Cash Equivalents or direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof and (B) one or more other
types of investments permitted by the Determining Lenders, in each case with
such maturities as the Borrower, with the consent of the Determining Lenders,
may specify, pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. In the
absence of any such direction from the Borrower, the Administrative Lender shall
invest the funds held in the L/C Cash Collateral Account (so long as the
aggregate amount of such funds exceeds any relevant minimum investment
requirement) in one or more types of investments with the consent of the
Determining Lenders with such maturities as the Borrower, with the consent of
the Determining Lenders, may specify, pending application of such funds on
account of Reimbursement Obligations or on account of other Obligations, as the
case may be. All such investments shall be made in the Administrative Lender's
name for the account of the Lenders, subject to the ownership interest therein
of the Borrower. The Borrower recognizes that any losses or taxes with respect
to such investments shall be borne solely by the Borrower, and the Borrower
agrees to hold the Administrative Lender and the Lenders harmless from any and
all such losses and taxes, except to the extent that such losses or taxes are
finally judicially determined by a court of competent jurisdiction to be the
result of gross negligence or wilful misconduct of the Administrative Lender.
Administrative Lender may liquidate any investment held in the L/C Cash
Collateral Account in order to apply the proceeds of such investment on account
of the Reimbursement Obligations as provided in Section 2.15(g)(iii) hereof (or
--------------------
on account of any other Obligation then due and payable, as
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<PAGE>
the case may be) without regard to whether such investment has matured and
without liability for any penalty or other fee incurred (with respect to which
the Borrower hereby agrees to reimburse the Administrative Lender) as a result
of such application.
(v) After the establishment of the L/C Cash Collateral Account pursuant to
Section 2.15(g)(i) hereof, the Borrower shall pay to the Administrative Lender
------------------
the fees customarily charged by the Issuing Bank with respect to the
maintenance of accounts similar to the L/C Cash Collateral Account.
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advance and the Initial
-----------------------------------------------------------
Issuance of Letters of Credit. The obligation of each Lender to make any
- -----------------------------
Advance and the obligation of the Issuing Bank to issue Letters of Credit is
subject to (i) receipt by the Administrative Lender of the following items which
are to be delivered, in form and substance satisfactory to each Lender, with a
copy (except for the Notes and this Agreement) for each Lender, and (ii)
satisfaction of the following conditions which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the accuracy of its
representations and warranties in the Loan Documents, certifying that no Default
has occurred, and including a certificate of incumbency with respect to each
Authorized Signatory, and including (i) a copy of the articles or certificate of
incorporation of such Obligor, certified to be true, complete and correct by the
secretary of state of its state of organization, and (ii) a copy of a
certificate of good standing and a certificate of existence for its state of
organization and, with respect to the Borrower, the States of Texas, California
and New Jersey;
(b) a duly executed Facility A Note and Facility B Note payable to the
order of each Lender and in an amount for each Lender equal to its Specified
Percentage of each Commitment, respectively;
(c) UCC searches in appropriate jurisdictions where Collateral is located;
(d) opinions of counsel to each Obligor addressed to the Lenders and in
form and substance satisfactory to the Lenders, dated the Agreement Date, and
covering certain of the matters set forth in Sections 4.1(a), (b), (c), (e),
--------------- --- --- ---
(f), (h), (m), (n), (o) and (p) and such other matters incident to the
- --- --- --- --- --- ---
transactions contemplated hereby as the Administrative Lender or Special Counsel
may reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof, to the extent invoiced;
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<PAGE>
(f) evidence that all proceedings of each Obligor taken in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be reasonably satisfactory in form and substance to the Lenders and Special
Counsel; and the Lenders shall have received copies of all documents or other
evidence which the Administrative Lender, Special Counsel or any Lender may
reasonably request in connection with such transactions;
(g) evidence of payment of any and all fees or expenses required to be paid on
or before the Agreement Date pursuant to the Administrative Lender Fee Letter;
(h) duly executed and completed Security Agreements, dated as of the Agreement
Date, granting a Lien, in all Collateral covered thereby, together with related
financing statements, the CFI Note duly endorsed, and insurance certificates
listing Administrative Lender as loss payee and additional insured and otherwise
in a form required by the Collateral Documents;
(i) the duly executed Swing Line Note payable to the order of the Swing Line
Bank in the aggregate principal amount of $5,000,000;
(j) a duly executed completed Pledge Agreement, dated as of the Agreement
Date, granting a Lien in all Collateral covered thereby, together with related
financing statements, stock powers and stock certificates evidencing ownership
of CFI;
(k) simultaneously with the making of the initial Advance, executed UCC-3
Termination Statements to be filed in appropriate jurisdictions to terminate all
Liens against assets of the Borrower and its Subsidiaries other than Permitted
Liens;
(l) all Securitization Documents, which shall be on terms and conditions
acceptable to the Administrative Lender, including any amendments and
modifications thereto as the Administrative Lender determines are necessary as a
result of the transactions contemplated by this Agreement and the other Loan
Documents;
(m) there shall have occurred no material adverse change in the business,
assets or financial condition of the Borrower and its Subsidiaries, taken as a
whole, since the date of the financial statements referred to in Section
-------
4.1(j)(i) hereof;
- ---------
(n) each of the Guaranties, duly executed by the Guarantor party thereto;
(o) all Indebtedness of the Borrower under the Existing Credit Agreement shall
have been (or shall simultaneously therewith be) refinanced in full pursuant to
the terms hereof;
(p) in form and substance reasonably satisfactory to the Lenders and Special
Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or authority of the Borrower or any Subsidiary of the
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<PAGE>
Borrower, and the enforceability of the Obligations; and
Section 3.2 Conditions Precedent to All Advances and Letters of Credit. The
----------------------------------------------------------
obligation of each Lender to make each Advance hereunder (including the initial
Advance) and the obligation of the Issuing Bank to issue each Letter of Credit
(including the initial Letter of Credit) is subject to fulfillment of the
following conditions immediately prior to or contemporaneously with each such
Advance or issuance:
(a) With respect to each Advance and each issuance of a Letter of Credit, all
of the representations and warranties of each Obligor under the Loan Documents,
which, pursuant to Section 4.2 hereof, are made at and as of the time of each
-----------
such Advance or issuance, shall be true and correct at such time in all material
respects, both before and after giving effect to the application of the proceeds
of the Advance or Letter of Credit.
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
--------------
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance or Letter of Credit, is received by the
Administrative Lender from the Borrower prior to the making of such Advance or
issuance of such Letter of Credit;
(c) There shall not exist a Default or Event of Default hereunder that has not
been waived;
(d) The aggregate Advances and Letters of Credit, after giving effect to such
proposed Advance or Letter of Credit, shall not exceed the maximum principal
amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall purport to
enjoin or restrain any Lender or the Issuing Bank from making any Advance or
issuing any Letter of Credit;
(f) There shall not be pending, or to the knowledge of the Borrower,
threatened any Litigation against or affecting the Borrower or any Subsidiary of
the Borrower or any property of the Borrower or any Subsidiary of the Borrower
that has not been disclosed in writing by the Borrower pursuant to Section
-------
4.1(h) or 6.5(a) prior to the making of the last preceding Advance or the
- ------ ------
issuance of the last preceding Letter of Credit (or in the case of the initial
Advances and Letters of Credit, prior to the Agreement Date) and there shall
have occurred no development not so disclosed in any such Litigation that, in
either event, could reasonably be expected to have a Material Adverse Effect;
and
(g) There shall have occurred no material adverse change in the business,
financial condition, results of operations or business prospects of the Borrower
and its Subsidiaries, taken as a whole, since December 31, 1995.
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<PAGE>
Notwithstanding anything herein to the contrary, the obligation of each Lender
to make a Facility A Advance, pursuant to Section 2.2(g) and 2.15(c) shall be
-------------- -------
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, (i) the occurrence of any Default or Event of
Default, (ii) the failure of the Borrower to satisfy any condition set forth in
this Section 3.2 or (iii) any other circumstance, happening or event whatsoever.
-----------
Section 3.3 Conditions Precedent to Conversions and Continuations. The
-----------------------------------------------------
obligation of the Lenders to convert any existing Base Rate Advance into a LIBOR
Advance or to continue any existing LIBOR Advance is subject to the condition
precedent that on the date of such conversion or continuation no Default or
Event of Default shall have occurred and be continuing or would result from the
making of such conversion or continuation. The acceptance of the benefits of
each such conversion and continuation shall constitute a representation and
warranty by the Borrower to each of the Lenders that no Default or Event of
Default shall have occurred and be continuing or would result from the making of
such conversion or continuation.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby represents
------------------------------
and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective jurisdiction of
----------------------------------
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on Schedule 4 are true and correct as of the Agreement Date.
----------
Schedule 4 is a complete and accurate listing as of the Agreement Date, showing
- ----------
with respect to the Borrower and each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number and amount of its Capital Stock authorized and
outstanding, (c) each record and beneficial owner of 5% or more of its
outstanding Capital Stock, and (d) all outstanding options, rights, rights of
conversion, redemption, purchase or repurchase, rights of first refusal and
similar rights relating to the Capital Stock. All of the outstanding Capital
Stock of the Borrower and each Subsidiary of the Borrower is validly issued,
fully paid and non-assessable. Each of the Borrower and its Subsidiaries is a
corporation or other legal Person duly organized, validly existing and in good
standing under the laws of its state of incorporation or organization. Each of
the Borrower and its Subsidiaries has the legal power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted. Each of the Borrower and its Subsidiaries is authorized to do
business, duly qualified and in good standing as set forth in Schedule 7 and no
----------
qualification or authorization is necessary in any other jurisdictions in which
the character of its properties or the nature of its business requires such
qualification or authorization, except where the failure to be so qualified or
authorized could not reasonably be expected to have a Material Adverse Effect.
-47-
<PAGE>
(b) Authorization. The Borrower has legal power and has taken all necessary
-------------
legal action to authorize it to borrow and request Letters of Credit hereunder.
Each of the Borrower and its Subsidiaries has legal power and has taken all
necessary legal action to execute, deliver and perform the Loan Documents to
which it is party in accordance with the terms thereof, and to consummate the
transactions contemplated thereby. Each Loan Document has been duly executed and
delivered by the Borrower or the Subsidiary of the Borrower executing it. Each
of the Loan Documents to which the Borrower or any of its Subsidiaries is a
party is a legal, valid and binding obligation of the Borrower or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject, to
enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) Debtor Relief Laws (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any
Subsidiary of the Borrower).
(c) Compliance with Other Loan Documents and Contemplated Transactions. The
------------------------------------------------------------------
execution, delivery and performance by the Borrower and its Subsidiaries of the
Loan Documents to which they are respectively a party, and the consummation of
the transactions contemplated thereby, do not and will not (i) require any
consent or approval necessary on or prior to the Agreement Date not already
obtained, except to the extent that the failure to obtain any such consent or
approval could not reasonably be expected to have a Material Adverse Effect,
(ii) violate any Applicable Law, (iii) conflict with, result in a breach of, or
constitute a default under the certificate of incorporation or by-laws of the
Borrower or any Subsidiary of the Borrower, (iv) conflict with, result in a
breach of, or constitute a default under any Necessary Authorization, indenture,
agreement or other instrument, to which the Borrower or any Subsidiary of the
Borrower is a party or by which they or their respective properties may be
bound, the result of which could reasonably be expected to have a Material
Adverse Effect, or (v) result in or require the creation or imposition of any
Lien (other than Liens in favor of the Lenders to secure the Obligations
hereunder) upon or with respect to any property now owned or hereafter acquired
by the Borrower or any Subsidiary of the Borrower.
(d) Business. The Borrower and its Subsidiaries are engaged primarily in the
--------
business of providing distributed desktop computer-related products and network
integration services for large corporate customers worldwide and providing
related services, including LAN/WAN projects and consulting, network management,
help desk, field engineering configuration, distribution and procurement and
activities directly related thereto.
(e) Licenses, etc. All Necessary Authorizations have been duly obtained, and
--------------
are in full force and effect without any known conflict with the rights of
others and free from any unduly burdensome restrictions, unless the failure to
obtain or have in effect such Necessary Authorizations could not reasonably be
expected to result in a Material Adverse Effect. The Borrower and its
Subsidiaries are and will continue to be in compliance in all material respects
with all provisions thereof. No circumstance exists which could reasonably be
expected to impair the utility of the Necessary Authorization or the right to
renew such Necessary Authorization the effect of which could reasonably be
expected to have a Material Adverse Effect. No Necessary Authorization is the
subject of any pending or, to the best of the Borrower's knowledge, threatened
challenge, suspension, cancellation or revocation, the effect of which could
reasonably be expected to have a
-48-
<PAGE>
Material Adverse Effect.
(f) Compliance with Law. The Borrower and its Subsidiaries are in compliance
-------------------
in all respects with all Applicable Laws, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.
(g) Title to Properties. The Borrower and its Subsidiaries have good and
-------------------
indefeasible title to, or a valid leasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
No financing statement or other Lien filing (except relating to Permitted Liens)
is on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries as debtor or covers (or purports to cover) any assets of the
Borrower or any of its Subsidiaries. The Borrower and its Subsidiaries have not
signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing (except
relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of the Agreement
---------- ----------
Date there is no Litigation pending against, or, to the Borrower's current
actual knowledge, threatened against the Borrower, or in any other manner
relating directly and adversely to the Borrower or any of its Subsidiaries, or
any of their respective properties, in any court or before any arbitrator of any
kind or before or by any governmental body in which the amount claimed (in
excess of applicable insurance) exceeds $100,000.
(i) Taxes. All material federal, state and other tax returns of the Borrower
-----
and its Subsidiaries required by law to be filed have been duly filed or
extensions have been timely filed, and all material federal, state and other
Taxes upon the Borrower, its Subsidiaries or any of their properties, income,
profits and assets, which are due and payable, have been paid, unless the same
are being diligently contested in accordance with Section 5.6 hereof. The
-----------
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of their Taxes are, in the reasonable judgment of the Borrower,
adequate.
(j) Financial Statements; Material Liabilities.
------------------------------------------
(i) The Borrower has heretofore delivered to Lenders (a) the audited
consolidated balance sheets of the Borrower and its Subsidiaries as at
December 31, 1996, and the related statements of earnings and changes in
investment and statement of cash flows for the twelve-month period then ended,
and (b) unaudited consolidated balance sheets of the Borrower and its
Subsidiaries as at June 30, 1997, and the related statements of earnings and
changes in investment and statement of cash flows for the six-month period
then ended. Such financial statements were prepared in conformity with GAAP
(except for the absence of footnotes) and fairly present, in all material
respects, the financial position of the Borrower and its Subsidiaries as at
the date thereof and the combined results of operations and cash flows for the
period covered thereby.
(ii) The projected financial statements of the Borrower and its
Subsidiaries delivered to the Lenders prior to or on the Agreement Date were
prepared in good faith and management of the Borrower believes them to be
based on reasonable assumptions (which assumptions have been included in the
most recent projections furnished to the Lenders prior to the Agreement Date)
and to fairly present in all material respects the projected financial
condition of the Borrower and its Subsidiaries and the projected results of
operations as of the dates and for the periods shown for the Borrower and its
Subsidiaries, it being recognized by the Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the
projected results.
(iii) The financial statements of the Borrower and its Subsidiaries
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<PAGE>
delivered to the Lenders pursuant to Section 6.1, and 6.2 hereof fairly
----------- ---
present in all material respects their respective financial condition and
their respective results of operations as of the dates and for the periods
shown, all in accordance with GAAP, subject to normal year-end adjustments.
The latest of such financial statements reflects all material liabilities,
direct and contingent, of the Borrower and each Subsidiary of the Borrower
that are required to be disclosed in accordance with GAAP. As of the date of
the latest of such financial statements, there were no Guaranties, liabilities
for Taxes, forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are substantial in amount that
are required to be reflected but that are not reflected on such financial
statements.
(k) No Adverse Change. Since December 31, 1996, no event or circumstance
-----------------
has occurred or arisen which is reasonably likely to have a Material Adverse
Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains or
-----
contributes to any Plan subject to Title IV of ERISA other than those disclosed
to the Administrative Lender in writing. Each such Plan (other than any
Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to have
a Material Adverse Effect. With respect to each Plan (other than any
Multiemployer Plan) of the Borrower and each member of its Controlled Group, all
reports required under ERISA or any other Applicable Law to be filed with any
Tribunal, the failure of which to file could reasonably be expected to result in
liability of the Borrower or any member of its Controlled Group in excess of
$100,000, have been duly filed. All such reports are true and correct in all
material respects as of the date given. No Plan of the Borrower or any member of
its Controlled Group has been terminated under Section 4041(c) of ERISA nor has
any accumulated funding deficiency (as defined in Section 412(a) of the Code)
been incurred (without regard to any waiver granted under Section 412 of the
Code), nor has any funding waiver from the Internal Revenue Service been
received or requested the result of which could reasonably be expected to have a
Material Adverse Effect. None of the Borrower or any member of its Controlled
Group has failed to make any contribution or pay any amount due or owing as
required under the terms of any such Plan, or by Section 412 of the Code or
Section 302 of ERISA by the due date under Section 412 of the Code and Section
302 of ERISA, the result of which could reasonably be expected to have a
Material Adverse Effect. There has been no ERISA
-50-
<PAGE>
Event or any event requiring disclosure under Section 4041(c)(3)(C) or 4063(a)
of ERISA with respect to any Plan or its related trust of the Borrower or any
member of its Controlled Group since the effective date of ERISA. The present
value of the benefit liabilities, as defined in Title IV of ERISA, of each Plan
subject to Title IV of ERISA (other than a Multiemployer Plan) of the Borrower
and each member of its Controlled Group does not exceed by more than $500,000
the present value of the assets of each such Plan as of the most recent
valuation date using each such Plan's actuarial assumptions at such date. There
are no pending, or to the Borrower's knowledge threatened, claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Borrower nor any member of its Controlled
Group has knowledge of any threatened litigation or claims against, the assets
of any Plan or its related trust or against any fiduciary of a Plan with respect
to the operation of such Plan, the result of which could reasonably be expected
to have a Material Adverse Effect. None of the Borrower or, to the Borrower's
knowledge, any member of its Controlled Group has engaged in any prohibited
transactions, within the meaning of Section 406 of ERISA or Section 4975 of the
Code, in connection with any Plan the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has withdrawn from any Multiemployer Plan, nor has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any
withdrawal liability (and no event has occurred which with the giving of notice
under Section 4219 of ERISA would result in such liability) under Section 4201
of ERISA as a result of a complete or partial withdrawal (within the meaning of
Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability
under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section
4042 of ERISA. None of the Borrower, any member of its Controlled Group, or any
organization to which the Borrower or any member of its Controlled Group is a
successor or parent corporation within the meaning of ERISA Section 4069(b), has
engaged in a transaction within the meaning of ERISA Section 4069, the result of
which could reasonably be expected to have a Material Adverse Effect. None of
the Borrower or any member of its Controlled Group maintains or has established
any Plan, which is a welfare benefit plan within the meaning of Section 3(1) of
ERISA and which provides for continuing benefits or coverage for any participant
or any beneficiary of any participant after such participant's termination of
employment, except as may be required by any Applicable Law, the result of which
could reasonably be expected to have a Material Adverse Effect. Each of Borrower
and its Controlled Group which maintains a Plan which is a welfare benefit plan
within the meaning of Section 3(1) of ERISA has complied in all material
respects with any applicable notice and continuation requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations thereunder. None of the Borrower or any member of its Controlled
Group maintains, has established, or has ever participated in a multiemployer
welfare benefit arrangement within the meaning of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is not engaged
-----------------------------------------
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock within the
meaning of Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, and no part of the proceeds of the Advances or Letters of Credit
will be used to purchase or carry any margin stock or to extend credit to others
for
-51-
<PAGE>
the purpose of purchasing or carrying any margin stock. No more than 25% of the
assets of the Borrower and its Subsidiaries are margin stock. None of the
Borrower and its Subsidiaries nor any agent acting on their behalf, have taken
or will knowingly take any action which would cause this Agreement or any other
Loan Documents to violate any regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.
(n) Authorization. The Borrower and its Subsidiaries are not required to
-------------
obtain any Necessary Authorization on or prior to the Agreement Date that has
not already been obtained from, or effect any material filing or registration
that has not already been effected with, any Tribunal in connection with the
execution and delivery of this Agreement or any other Loan Document, or the
performance thereof, in accordance with their respective terms, including any
borrowings hereunder, except for the filing of financing statements (and other
similar notices) containing a description of the Collateral with certain
Tribunals, including the United States Trademark and Copyright Offices.
(o) Absence of Default. The Borrower and its Subsidiaries are in compliance
------------------
all material respects with all of the provisions of their certificate of
incorporation and by-laws, and no event has occurred or failed to occur, which
has not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a default by the Borrower or any of
its Subsidiaries under any material indenture, agreement or other instrument, or
any judgment, decree or order to which the Borrower or any of its Subsidiaries
or by which they or any of their respective properties is bound, except to the
extent that such default could not reasonably be expected to have a Material
Adverse Effect.
(p) Governmental Regulation. Neither the Borrower nor any of its Subsidiaries
-----------------------
is subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act or the Investment Company Act
of 1940. Neither the entering into or performance by the Borrower of this
Agreement nor the issuance of the Notes violates any provision of such act or
requires any consent, approval, or authorization of, or registration with, the
Securities and Exchange Commission or any other Tribunal pursuant to any
provisions of such act.
(q) Environmental Matters. Neither the Borrower nor any Subsidiary has any
---------------------
current actual knowledge that any substance deemed hazardous by any Applicable
Environmental Law, has been installed (i) on any real property fee title to
which is now owned by the Borrower or any of its Subsidiaries or (ii) by
Borrower or any of its Subsidiaries on any real property leased by the Borrower
or any of its Subsidiaries, in either case in a manner which does not comply
with Applicable Environmental Laws, except to the extent that the failure to so
comply could not reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries are not in violation of or subject to any
existing, pending or, to the best of the Borrower's knowledge, threatened
investigation or inquiry by any Tribunal or to any remedial obligations under
any Applicable Environmental Laws, the effect of which could reasonably be
expected to have a Material Adverse Effect. The Borrower and its Subsidiaries
have not obtained and are not required
-52-
<PAGE>
to obtain any permits, licenses or similar authorizations other than
certificates of occupancy and building permits and other authorizations that
have been obtained to construct, occupy, operate or use any buildings,
improvements, fixtures, and equipment forming a part of any real property owned
or leased by the Borrower or any Subsidiary of the Borrower by reason of any
Applicable Environmental Laws, except to the extent that the failure to so
obtain could not reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries undertook, at the time of acquisition of fee title
to any real property, reasonable inquiry into the previous ownership and uses of
such real property consistent with good commercial or customary practice. The
Borrower and its Subsidiaries have taken reasonable steps to determine, and the
Borrower and its Subsidiaries have no current actual knowledge, that any
hazardous substances or solid wastes have been disposed of or otherwise released
(i) on or to the real property fee title to which is owned by the Borrower or
any of its Subsidiaries or (ii) by Borrower or any of its Subsidiaries on or to
any real property leased by Borrower or any of its Subsidiaries, all within the
meaning of the Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries have disposed of all hazardous substances and solid wastes (if
any), all within the meaning of the Applicable Environmental Laws, generated in
their respective businesses in compliance with all Applicable Environmental
Laws, except to the extent that the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
(r) Certain Fees. No broker's, finder's or other fee or commission will be
------------
payable by the Borrower (other than to the Lenders hereunder) with respect to
the making of the Commitments or the Advances hereunder. The Borrower agrees to
indemnify and hold harmless the Administrative Lender and each Lender from and
against any claims, demand, liability, proceedings, costs or expenses asserted
with respect to or arising in connection with any such fees or commissions.
(s) Patents, Etc. The Borrower and its Subsidiaries have collectively
------------
obtained or applied for all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their business as presently conducted and as
proposed to be conducted, except to the extent that the failure to so obtain or
apply could not reasonably be expected to have a Material Adverse Effect.
Nothing has come to the current actual knowledge of the Borrower or any of its
Subsidiaries to the effect that (i) any process, method, part or other material
presently contemplated to be employed by the Borrower or any Subsidiary of the
Borrower may infringe any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person, or (ii) there is
pending or overtly threatened any claim or litigation against or affecting the
Borrower or any Subsidiary of the Borrower contesting its right to sell or use
any such process, method, part or other material, which could reasonably be
expected to have a Material Adverse Effect.
(t) Disclosure. All factual information furnished by the Borrower or any
----------
of its Subsidiaries in writing to the Administrative Lender or any Lender in
connection with this Agreement, the other Loan Documents or any transaction
contemplated herein or therein is, and all other factual information hereafter
furnished by or on behalf of the Borrower or any of its Subsidiaries in writing
to the Administrative Lender or any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete
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<PAGE>
by omitting to state any fact necessary to make such information (taken as a
whole) not misleading at such time in light of the circumstances under which
such information was provided. There is no fact known to the Borrower and not
known to the public generally that could reasonably be expected to have a
Material Adverse Effect, which has not been set forth in this Agreement or in
the documents, certificates and statements furnished to the Lenders by or on
behalf of the Borrower prior to the date hereof in connection with the
transaction contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries on a
--------
consolidated basis are, Solvent.
(v) Labor Relations. Except as provided on Schedule 8, neither the Borrower
--------------- ----------
nor any Subsidiary is a party to a collective bargaining agreement or similar
agreement, and the Borrower and each Subsidiary is in compliance in all material
respects with all Laws respecting employment and employment practices, terms and
conditions of employment, wages and hours and other laws related to the
employment of its employees, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect, and there are no
arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of the Borrower or
any Subsidiary or for which the Borrower or any Subsidiary may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute with
any union or group of employees pending or overtly threatened involving Borrower
or any Subsidiary that could reasonably be expected to have a Material Adverse
Effect.
(w) Consolidated Business Entity. The Borrower and its Material Subsidiaries
----------------------------
are operated as a part of one consolidated business entity and are directly or
indirectly dependent upon each other for and in connection with their respective
business activities.
Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof or (b) previously waived in writing by the Determining Lenders with
respect to any particular factual circumstance or permitted by the terms of this
Agreement. All such representations and warranties shall survive, and not be
waived by, the execution hereof by any Lender, any investigation or inquiry by
any Lender, or by the making of any Advance or the issuance of any Letter of
Credit under this Agreement.
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<PAGE>
ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof, preserve
-----------
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, rights, franchises, licenses, authorizations, consents, privileges
and all other Necessary Authorizations from any Tribunal, the loss of which
could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof, qualify and
-----------
remain qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization, unless the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and its
----------------------------------------
Subsidiaries shall (a) engage primarily in the businesses set forth in Section
-------
4.1(d) hereof, and (b) comply in all respects with the requirements of all
- ------
Applicable Law, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. The Borrower shall, and shall cause
-------------------------
each Subsidiary of the Borrower to, maintain or cause to be maintained all its
properties (whether owned or held under lease) in reasonably good repair,
working order and condition, taken as a whole, and from time to time make or
cause to be made all appropriate (in the reasonable judgment of the Borrower)
repairs, renewals, replacements, additions, betterments and improvements
thereto, except where the failure to so maintain, repair, renew, replace or
improve could not reasonably be expected to have a Material Adverse Effect.
Section 5.4 Accounting Methods and Financial Records. The Borrower shall,
----------------------------------------
and shall cause each Subsidiary of the Borrower to, maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP, and keep accurate and complete
records of its respective assets. Except with respect to a change in the fiscal
year of any Subsidiary to conform to the fiscal year of the Borrower, the
Borrower and each of its Subsidiaries shall maintain its fiscal year in the
manner in existence on the Agreement Date.
Section 5.5 Insurance. The Borrower shall, and shall cause each Subsidiary
---------
of the Borrower to, maintain insurance from responsible companies in such
amounts and against such risks as shall be customary and usual in the industry
for companies of similar size and capability.
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<PAGE>
Each insurance policy shall (a) provide for at least 30 days' prior notice to
the Administrative Lender of any proposed termination or cancellation of such
policy, whether on account of default or otherwise and (b) otherwise contain the
requirements for insurance set forth in the Security Agreements.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and shall cause
---------------------------
each Subsidiary of the Borrower to, pay and discharge all material Taxes to
which they are subject prior to the date on which penalties attach thereto, and
all lawful material claims for labor, materials and supplies which, if unpaid,
might become a Lien upon any of its properties; except that no such Tax or claim
need be paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as no Lien shall attach with respect thereto
and no foreclosure, distraint, sale or similar proceedings shall have been
commenced. The Borrower shall, and shall cause each Subsidiary of the Borrower
to, timely file all information returns (or extensions of such filing deadlines)
required by federal, state or local tax authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and shall cause each
----------------------
Subsidiary of the Borrower to, promptly permit representatives of the
Administrative Lender or any Lender from time to time after reasonable notice by
the Administrative Lender or any Lender to (a) visit and inspect the properties
of the Borrower and its Subsidiaries as often as the Administrative Lender or
any Lender shall reasonably deem advisable, (b) audit, inspect and make extracts
from and copies of the Borrower's and each such Subsidiary's books and records,
and (c) discuss with the Borrower's and each such Subsidiary's appropriate
directors, officers, employees and auditors its business, assets, liabilities,
financial positions, results of operations and business prospects, provided that
--------
such representatives of the Administrative Lender or any Lender shall keep
confidential all information obtained pursuant to this Section 5.7 to the extent
-----------
required by Section 11.14. The Borrower shall pay the reasonable expenses
-------------
related to inspections and audits performed by the Administrative Lender. Prior
to the occurrence of an Event of Default, all such visits and inspections shall
be conducted during normal business hours. Following the occurrence and during
the continuance of an Event of Default, such visits and inspections shall be
conducted at any time requested by the Administrative Lender or any Lender
without any requirement for reasonable notice.
Section 5.8 Use of Proceeds. The proceeds of (a) the Facility A Advances and
---------------
the Letters of Credit shall be used by the Borrower for refinancing of
Indebtedness of the Borrower, Capital Expenditures, Acquisitions permitted under
Section 7.6 hereof and for working capital and for other general corporate
- -----------
purposes and (b) the Facility B Advances shall be used solely to refinance the
outstanding balance, as of the Agreement Date, of the "Facility B Advances" (as
such term is defined in the Existing Credit Agreement", which original Facility
B Advances were used by the Borrower solely to purchase real property to be
utilized as the corporate headquarters for the Borrower.
SECTION 5.9 INDEMNITY.
---------
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(A) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION,
THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF
ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
"INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
-----------
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS,
REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE
DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH
INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY
FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE
CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE
PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWER, ITS SUBSIDIARIES OR THEIR
RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER OR ITS SUBSIDIARIES),
RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY
ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR
ATTENDANT THERETO, THE MANAGEMENT OF THE ADVANCES OR LETTERS OF CREDIT,
INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY
ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER (OTHER THAN
THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE ADMINISTRATIVE
LENDER OR ANY LENDER AND NOT THE BORROWER OR ANY OF ITS SUBSIDIARIES), OR THE
USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES OR LETTERS OF CREDIT
HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER
COVERED HEREBY, BUT EXCLUDING (I) ANY CLAIM OR LIABILITY THAT ARISES AS THE
RESULT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF ANY INDEMNITEE, AS
FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, AND (II)
MATTERS RAISED BY ONE LENDER AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS OF A
LENDER AGAINST A LENDER OR ITS MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS").
-------------------
TO THE EXTENT THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH
INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS
REASONABLE DISCRETION DETERMINES THAT
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CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(B) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE
EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND PREPARATION)
INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. THE REIMBURSEMENT,
INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION
TO ANY LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE
SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF THE BORROWER, THE ADMINISTRATIVE LENDER, THE LENDERS AND ALL
OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT
AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the Borrower or any
----------------------------
Subsidiary of the Borrower intends to make of any real property which is owned
or leased by it will not result in the disposal or other release of any
hazardous substance or solid waste on or to such real property which is in
violation of Applicable Environmental Laws, the effect of which could reasonably
be expected to have a Material Adverse Effect. As used herein, the terms
"hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their properties establishes a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
or lesser than that specified in either CERCLA or RCRA, such broader or lesser
meaning shall apply. The Borrower agrees to indemnify and hold the
Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, reasonable costs and reasonable expenses (including
reasonable attorneys' fees and courts costs) of any kind or character, known or
unknown, fixed or contingent, asserted against or incurred by any of them at any
time and from time to time by reason of or arising out of (a) the failure of the
Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real property, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental
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Law at the time of its existence or occurrence; provided that, the Borrower
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the gross
negligence or wilful misconduct of such Person, as finally judicially determined
by a court of competent jurisdiction. The provisions of this paragraph shall
survive the Release Date and shall continue thereafter in full force and effect.
Section 5.11 Further Assurances. At any time or from time to time upon
------------------
request by the Administrative Lender, the Borrower or any Subsidiary of the
Borrower shall execute and deliver such further documents and do such other acts
and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender Schedules 3 and 4 hereto at the time of delivery of the financial
-----------------
statements set forth in Sections 6.1 and 6.2 hereof if the information provided
------------ ---
therein is not complete and correct, and (b) update and deliver to the
Administrative Lender Schedule 1 to the Security Agreements promptly upon
----------
discovery if the information provided therein is not complete and correct.
Section 5.12 Subsidiaries. At any time that any Person becomes a Subsidiary
------------
other than pursuant to Section 7.3(f) hereof, (a) such Subsidiary shall execute
--------------
a Subsidiary Guaranty of the Obligations and a security agreement (in
substantially the form of Exhibit D hereto, appropriately completed) granting a
---------
first priority Lien in all its assets of the types or classes included in the
Collateral, except, to the extent applicable, for Liens permitted in clause (f)
of the definition of Permitted Liens, to secure the Obligations and (b) the
Lenders shall receive such board resolutions, officer's certificates and
opinions of counsel as the Administrative Lender shall reasonably request in
connection with the actions described in clause (a) above.
Section 5.13 Real Property. At any time that the Borrower acquires any real
-------------
property with the proceeds of a Facility B Advance, the Borrower shall (a)
execute a Deed of Trust granting a first priority Lien in the real property
acquired with such proceeds, (b) deliver to the Administrative Lender a title
insurance policy with respect to such real property, in form and substance
acceptable to the Administrative Lender, (c) deliver to the Administrative
Lender an environmental site assessment with respect to such real property, in
form and substance acceptable to the Administrative Lender, prepared by a Person
acceptable to the Administrative Lender, (d) deliver to the Administrative
Lender surveys with respect to such real property, in form and substance
acceptable to the Administrative Lender, and (e) the Lenders shall receive such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request with respect thereto.
Section 5.14 Agreements in Respect of RPA and TAA. With respect to the RPA
------------------------------------
and the TAA, respectively, (a) unless otherwise agreed by the Administrative
Lender, the Borrower at all times shall have and maintain the sole and exclusive
right to service, administer and collect the Receivables, subject at all times,
---------------------
however, to the Loan Documents, (b) at all times after the occurrence and during
- -------
the continuance of any Default or Event of Default, the Borrower shall cause
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all proceeds of any increase in the Net Investment (as defined by the TAA)
received by CFI and paid to the Borrower in payment of any Receivable(s) under
the RPA to be paid directly to the Administrative Lender for application to the
Obligations, (c) the Borrower will not effect any increase in the Maximum Net
Investment (as defined by the TAA) without the prior written consent of the
Administrative Lender and (f) the Borrower will not enter into any agreement to
amend the RPA, the TAA or any of the other Securitization Documents without the
prior written consent of the Determining Lenders if such agreement, or the
amendment to the applicable Securitizations Document(s) contemplated thereby,
would have a material adverse effect upon any of the Lenders or the
Administrative Lender.
ARTICLE 6
Information Covenants
---------------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled), the Borrower shall furnish or cause to be furnished to each Lender
or shall notify each Lender of the following events:
Section 6.1 Quarterly Financial Statements and Information. Within 45 days
----------------------------------------------
after the end of each fiscal quarter of each fiscal year, the consolidated
balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal
quarter and the related consolidated statements of income for such fiscal
quarter and for the elapsed portion of the year ended with the last day of such
fiscal quarter, and consolidated statements of cash flow for the elapsed portion
of the year ended with the last day of such fiscal quarter, all of which shall
be certified by the president, chief financial officer, treasurer or controller
of the Borrower, to, in his or her opinion acting solely in his or her capacity
as an officer of the Borrower, present fairly in all material respects, in
accordance with GAAP (except for the absence of footnotes), the financial
position and results of operations of the Borrower and its Subsidiaries as at
the end of and for such fiscal quarter, and for the elapsed portion of the year
ended with the last day of such fiscal quarter, subject only to normal year-end
adjustments.
Section 6.2 Annual Financial Statements and Information; Certificate of No
--------------------------------------------------------------
Default.
- -------
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as of
and through the end of such Fiscal Year, all of which are prepared in accordance
with GAAP, and certified by independent certified public accountants reasonably
acceptable to the Lenders (provided, however, any big six public accounting firm
shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified as to scope of audit and going concern.
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(b) As soon as available, but in any event within 30 days after December 31,
1997 and within 30 days after the end of each fiscal year thereafter, a copy of
the annual consolidated financial projections (including proforma income
statements, balance sheets and statements of cash flow) of the Borrower and its
Subsidiaries for the succeeding three fiscal years.
Section 6.3 Compliance Certificate. At the time financial statements are
----------------------
furnished pursuant to Sections 6.1 and 6.2 hereof, the Compliance Certificate,
------------ ---
completed as provided therein, executed by the Chief Financial Officer,
Treasurer or Vice President of Finance of the Borrower.
Section 6.4 Copies of Other Reports and Notices.
-----------------------------------
(a) Promptly upon their becoming available, a copy of (i) all material final
reports or letters submitted to the Borrower or any Subsidiary of the Borrower
by accountants in connection with any annual, interim or special audit,
including without limitation any final report prepared in connection with the
annual audit referred to in Section 6.2 hereof, and, if requested by the
-----------
Administrative Lender, any other comment letter submitted to management in
connection with any such audit, (ii) each financial statement, report, notice or
proxy statement sent by the Borrower to stockholders generally, (iii) each
regular, periodic or other report and any registration statement (other than
statements on Form S-8) or prospectus (or material written communication in
respect of any thereof) filed by the Borrower or any Subsidiary of the Borrower
with any securities exchange, with the Securities and Exchange Commission or any
successor agency, and (iv) all press releases concerning material financial
aspects of the Borrower or any Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $500,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (ii) any occurrence or non-occurrence of
any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Borrower or any
Subsidiary of the Borrower under any material agreement or instrument other than
this Agreement to which the Borrower or any Subsidiary of the Borrower is a
party or by which any of their properties may be bound, or (iii) any event,
circumstance or condition which could reasonably be expected to be classified as
a Material Adverse Effect, a written notice specifying the details thereof (or
the nature of any claimed default or event of default) and what action is being
taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations or Operating Lease, in each case, in excess of $500,000, has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and copies of
any notices received from any Tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with any Law,
or could reasonably be expected to result in the payment
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of money by the Borrower or any Subsidiary of the Borrower in an amount of
$500,000 or more in the aggregate, or otherwise have a Material Adverse Effect,
or result in the loss or suspension of any Necessary Authorization where such
loss could reasonably be expected to have a Material Adverse Effect; and
(e) From time to time and promptly upon each request, such data, certificates,
reports, statements, documents or further information regarding the assets,
business, liabilities, financial position, projections, results of operations or
business prospects of the Borrower and its Subsidiaries, as the Administrative
Lender or any Lender may reasonably request.
Section 6.5 Notice of Litigation, Default and Other Matters. Prompt notice
-----------------------------------------------
of the following events after the Borrower has knowledge or notice thereof:
(a) The commencement of all Litigation and investigations by or before any
Tribunal, and all actions and proceedings in any court or before any arbitrator
involving claims for damages (including punitive damages) in excess of $500,000
(after deducting the amount with respect to the Borrower or any Subsidiary of
the Borrower is insured), against or in any other way relating directly to the
Borrower, any Subsidiary of the Borrower, or any of their respective properties
or businesses; and
(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action is
being taken or is proposed to be taken with respect thereto.
Section 6.6 ERISA Reporting Requirements.
----------------------------
(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a request for a minimum funding waiver
under Section 412 of the Code has been made with respect to any Plan of the
Borrower or any member of its Controlled Group, a written notice describing such
event and describing what action is being taken or is proposed to be taken with
respect thereto, together with a copy of any notice of such event that is given
to the PBGC;
(b) Promptly and in any event within three Business Days after receipt thereof
by the Borrower or any member of its Controlled Group from the PBGC, copies of
each notice received by the Borrower or any member of its Controlled Group of
the PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
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(c) Promptly and in any event within 30 days after the filing thereof by the
Borrower or any member of its Controlled Group with the United States Department
of Labor or the Internal Revenue Service, copies of each annual report
(including Schedule B thereto, if applicable) with respect to each Plan subject
to Title IV of ERISA of which Borrower or any member of its Controlled Group is
the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after receipt thereof,
a copy of any correspondence the Borrower or any member of its Controlled Group
receives from the Plan Sponsor (as defined by Section 4001(a)(10) of ERISA) of
any Plan concerning potential withdrawal liability pursuant to Section 4219 or
4202 of ERISA, and a statement from the chief financial officer of the Borrower
or such member of its Controlled Group setting forth details as to the events
giving rise to such potential withdrawal liability and the action which the
Borrower or such member of its Controlled Group is taking or proposes to take
with respect thereto;
(e) Notification within 30 days of any material increases in the benefits
provided under any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which the Borrower or any member of its Controlled Group was not previously
contributing, which could reasonably be expected in any such case to result in
an additional material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or any member
of its Controlled Group knows that the Borrower or any such member of its
Controlled Group has filed or intends to file a notice of intent to terminate
any Plan under a distress termination within the meaning of Section 4041(c) of
ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of commencement
thereof, notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Borrower or any member of its Controlled
Group with respect to any Plan, except those which, in the aggregate, if
adversely determined could not reasonably be expected to have a Material Adverse
Effect.
Section 6.7 RPA and TAA Reporting Requirements.
----------------------------------
(a) (i) At such times as the Administrative Lender may request, the amount of
the Maximum Net Investment (as defined by the TAA), (ii) promptly upon any
termination of the RPA or the TAA, or upon receiving or sending any notice of
intended or pending or potential termination of the RPA or the TAA, (iii)
promptly at any time when the "Percentage Factor" exceeds the "Maximum
Percentage Factor" (as those terms are defined by the TAA); (iv) promptly upon
becoming aware of any assignment by EFC, or any request by CFI for an assignment
by EFC, of EFC's interest under the TAA to any "Bank Investor" (as defined in
the TAA) pursuant to Section 9.7 of the TAA and (vi) promptly upon becoming
aware of any "Termination Event" or "Potential Termination Event" (as those
terms are defined in the TAA) under the TAA.
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(b) A true and correct copy of (i) at Administrative Lender's request, each
report delivered by the Borrower to CFI and/or EFC under the RPA, the TAA and/or
any of the other Securitization Documents; (ii) each notice, if any, at any time
given by CFI pursuant to Section 5.1(b)(i) of the TAA (notifications in respect
of any "Termination Event" or "Potential Termination Event", as those terms are
defined by the TAA) and (iii) any notice (or copy of any such notice) of
termination, or of intended, pending or potential termination of the RPA or the
TAA sent or received by the Borrower or CFI.
ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations are outstanding and unpaid or any Commitment
is outstanding (whether or not the conditions to borrowing have been or can be
fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not permit any
------------
Subsidiary of the Borrower to, create, assume, incur or otherwise become or
remain obligated in respect of, or permit to be outstanding, or suffer to exist
any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the ordinary course
of business;
(c) Indebtedness, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which constitute
property, plant and equipment, in an aggregate principal amount not in excess of
$10,000,000 outstanding at any time;
(d) Indebtedness incurred or assumed in respect of Acquisitions permitted
pursuant to Section 7.6 hereof in an aggregate principal amount not in excess of
-----------
$20,000,000 per calendar year;
(e) Hedging obligations under Agreements entered into with any Lender;
(f) Indebtedness existing on the Agreement Date which is described on Schedule
--------
6 hereto, including renewals, replacements and refinancings (but no increases)
- -
thereof;
(g) Indebtedness in respect of endorsement of negotiable instruments in the
ordinary course of business;
(h) Indebtedness owing to the Borrower or any Guarantor by any Subsidiary or
the Borrower, which Indebtedness is evidenced by an entry on the financial
records of the Borrower and any such Subsidiary of the Borrower;
(i) Indebtedness of ClientLink, Inc. not to exceed $3,000,000 for working
capital;
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(j) Guaranties by the Borrower or by Subsidiaries of the Borrower of
Indebtedness of the Borrower or Subsidiaries of the Borrower, to the extent such
underlying Indebtedness is permitted hereunder;
(k) Trade accounts payable owing by the Borrower or any of its Subsidiaries to
any of (i) IBM Credit Corporation, (ii) Compaq Computer Corporation, (iii)
Hewlett-Packard Company or (iv) Apple Computer, Inc. for goods furnished by any
of such Persons to any of the Obligors;
(l) Unsecured trade accounts payable, incurred in the ordinary course of the
business of Borrower or any of its Subsidiaries; and
(m) Indebtedness of CFI to the Borrower evidenced by the CFI Note if, and to
the extent that, the Administrative Lender has a valid, perfected first priority
Lien in, and physical possession of, the CFI Note, together with any and all
necessary or appropriate endorsements to such CFI Note.
(n) Unsecured Indebtedness not otherwise permitted pursuant to clauses (a)
through (m) above not to exceed $50,000,000 (less any and all Indebtedness under
Subsections (c), (d) and/or (i) of this Section 7.1) in the aggregate principal
--- --- -----------
amount outstanding at any time.
Section 7.2 Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary of Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens. The Borrower shall not, and shall
not permit any Subsidiary to, agree with any other Person that it shall not
create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets other than in respect of Indebtedness permitted by Sections 7.1(c), (d),
--------------- ---
(f) and (k), provided that such agreement relates only to the assets purchased
- --- ---
or acquired.
Section 7.3 Investments. The Borrower shall not, and shall not permit any
-----------
Subsidiary of Borrower to, make any Investment, except that the Borrower and any
Subsidiary of the Borrower may purchase or otherwise acquire and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of business and are
payable on standard terms;
(c) Investments in existence on the Agreement Date which are described on
Schedule 5 hereto;
- ----------
(d) Investments which are Acquisitions permitted pursuant to Section 7.6
-----------
hereof;
(e) Investments in the form of Hedge Agreements permitted by Section 7.1(e)
--------------
hereof;
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(f) Investments (excluding accounts receivable from Subsidiaries of the
Borrower created in the ordinary course of business) in, and expenditures in
respect of Acquisitions of, Subsidiaries which are not Guarantors by the
Borrower in an aggregate amount not to exceed (calculated immediately prior to
the date of each such Investment or Acquisition) 5% of Net Worth at any time
outstanding;
(g) Investments in Subsidiaries of the Borrower (i) which have executed a
Subsidiary Guaranty and a Security Agreement granting a first priority Lien in
all its assets of the types or classes included in the Collateral to secure the
Obligations and (ii) which have delivered to the Lenders such board resolutions,
officer's certificates and opinions of counsel as the Administrative Lender
shall reasonably request;
(h) Guaranties permitted under Section 7.1(j) hereof;
--------------
(i) Investments arising from transactions by the Borrower or any of its
Subsidiaries with customers or suppliers in the ordinary course of business,
including endorsements of negotiable instruments, debt obligations and other
investments received in connection with the bankruptcy or reorganization of
customers and suppliers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers; and
(j) Other Investments not to exceed $5,000,000 in aggregate amount outstanding
at any time.
Section 7.4 Liquidation, Merger. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or dissolution) or
otherwise wind up, except that a Subsidiary of the Borrower may liquidate or
dissolve into the Borrower or a Subsidiary of the Borrower; or
(b) enter into any merger or consolidation unless (i) with respect to a merger
or consolidation involving the Borrower, the Borrower shall be the surviving
corporation, or if the merger or consolidation involves a Subsidiary of the
Borrower and not the Borrower, such Subsidiary shall be the surviving
corporation, (ii) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (iii) no Default or Event of
Default shall then be in existence or occur as a result of such transaction.
Section 7.5 Sales of Assets. The Borrower shall not, and shall not permit
---------------
any Subsidiary of the Borrower to, sell, lease, transfer or otherwise dispose
of, any of its assets except (a) inventory in the ordinary course of business,
(b) obsolete or worn-out assets, (c) asset sales in which the Net Cash Proceeds
from the disposition thereof are reinvested, within 90 days before or after such
disposition, in productive tangible assets of a similar nature of the Borrower
and its Subsidiaries, (d) asset sales between Obligors, (e) sales of interests
in Accounts pursuant to the Securitization and (f) other asset sales not to
exceed $100,000 in the aggregate amount during any one fiscal year.
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Section 7.6 Acquisitions. The Borrower shall not, and shall not permit any
------------
Subsidiary of Borrower to, make any Acquisitions; provided, however, if
immediately prior to and after giving effect to the proposed Acquisition there
shall not exist a Default or Event of Default, the Borrower or any Subsidiary of
the Borrower may make Acquisitions so long as (i) such Acquisition shall not be
opposed by the board of the directors of the Person being acquired, (ii) Lenders
shall have received written notice at least 15 Business Days prior to the date
of such Acquisition, (iii) the Administrative Lender shall have received at
least 10 Business Days prior to the date of such Acquisition a Compliance
Certificate setting forth the covenant calculations both immediately prior to
and after giving effect to the proposed Acquisition, (iv) the assets, property
or business acquired shall be in the business described in Section 4.1(d) hereof
--------------
and the Administrative Lender for the benefit of the Lenders shall have a first
priority Lien in such assets except for Liens permitted in clause (f) of the
definition of Permitted Liens, (v) the aggregate consideration (exclusive of
Equity in the Borrower or any Subsidiary of the Borrower, but inclusive of any
Indebtedness incurred or assumed by the Borrower or any Subsidiary of the
Borrower) paid or given by the Borrower and/or Borrower's Subsidiaries during
any calendar year in connection with Acquisitions shall not exceed $20,000,000
and (vi) at the Borrower's option, (A) such Subsidiary shall execute a
Subsidiary Guaranty of the Obligations and a Security Agreement granting a first
priority Lien in all its assets of the types or classes included in the
Collateral, except for Liens permitted in clause (f) of the definition of
Permitted Liens, to secure the Obligations and (B) the Lenders receive such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with the actions
described in clause (A) above. Notwithstanding anything in this Section 7.6 or
-----------
any other provision of this Agreement to the contrary, the aggregate amount of
expenditures in respect of Acquisitions of, and Investments in, Subsidiaries of
the Borrower that are not Obligors shall not exceed (calculated immediately
prior to the date of each such Investment or Acquisition) 5% of Net Worth at any
time outstanding.
Section 7.7 Capital Expenditures. The Borrower shall not, and shall not
--------------------
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures (a) during the fiscal year ending December 31, 1997 in an aggregate
amount in excess of $25,000,000 and (b) during any fiscal year thereafter in an
aggregate amount in excess of $15,000,000.
Section 7.8 Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of the Borrower to, directly or indirectly declare, pay or
make any Restricted Payments except (a) Dividends payable by a Subsidiary to the
Borrower or to a Guarantor, (b) scheduled payments of principal and interest on
the Subordinated Debt, (c) Dividends payable on "Series B Cumulative Preferred
Stock" of the Borrower to Safeguard Scientifics, Inc. in an aggregate amount for
any fiscal year not to exceed $2,000,000, (d) purchases by the Borrower of
treasury stock of the Borrower in an aggregate amount per fiscal year not to
exceed 25% of the Net Income of the Borrower and its Subsidiaries for the
immediately preceding fiscal year and (e) payments to the Borrower under the CFI
Note; provided, however, the Borrower shall not, and shall not permit any
Subsidiary of the Borrower to, declare, pay or make any Restricted Payments
permitted by this Section 7.8 unless there shall exist no Default or Event of
-----------
Default prior to or after giving effect to any such proposed Restricted Payment.
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Section 7.9 Affiliate Transactions. The Borrower shall not, and shall not
----------------------
permit any Subsidiary of the Borrower to, at any time engage in any transaction
with an Affiliate (other than as evidenced by the RPA or the TAA) other than in
the ordinary course of business and on terms not materially less advantageous to
the Borrower or such Subsidiary than would be the case if such transaction had
been effected with a non-Affiliate. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, incur or suffer to exist any
Indebtedness or Guaranty in favor of any Affiliate, unless such Affiliate shall
(i) subordinate the payment and performance thereof to the Obligations on terms,
conditions and documentation satisfactory to the Determining Lenders or (ii)
pledge the applicable Indebtedness to the Administrative Lender pursuant to
documentation acceptable to the Administrative Lender.
Section 7.10 Compliance with ERISA. The Borrower shall not, and shall not
---------------------
permit any Subsidiary to, directly or indirectly, or permit any member of its
Controlled Group to directly or indirectly, (a) terminate any Plan so as likely
to result in any material (in the reasonable opinion of the Determining Lenders)
liability to the Borrower or any member of its Controlled Group taken as a
whole, (b) permit to exist any ERISA Event, or any other event or condition with
respect to a Plan which could reasonably be expected to have a Material Adverse
Effect, (c) make a complete or partial withdrawal (within the meaning of Section
4201 of ERISA) from any Multiemployer Plan so as likely to result in any
material (in the reasonable opinion of the Determining Lenders) liability to the
Borrower or any member of its Controlled Group taken as a whole, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder which could reasonably be expected to have a Material Adverse Effect,
or (e) permit the present value of all benefit liabilities, as defined in Title
IV of ERISA, under any Plan (other than a Multiemployer Plan) of the Borrower or
any member of its Controlled Group that is subject to Title IV of ERISA (using
the actuarial assumptions utilized by each such Plan) to exceed the fair market
value of Plan assets allocable to such benefits by more than $500,000, all
determined as of the most recent valuation date for such Plan.
Section 7.11 Maximum Leverage Ratio. The Borrower shall not permit the
----------------------
Leverage Ratio to be greater than (a) 4.25 to 1 at the end of any fiscal quarter
ending prior to and including December 31, 2000 and (b) 3.75 to 1 at the end of
any fiscal quarter thereafter.
Section 7.12 Minimum Fixed Charge Coverage Ratio. The Borrower shall not
-----------------------------------
permit the Fixed Charge Coverage Ratio to be less than 1.25 to 1 at the end of
any fiscal quarter.
Section 7.13 Minimum Tangible Net Worth. The Borrower shall not permit the
--------------------------
Tangible Net Worth to be less than an amount equal to the sum of (a)
$130,000,000, plus (b) 75% of cumulative Net Income for the period from, but not
including, March 31, 1997 through the date of calculation (but excluding from
the calculation of such cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended) of the Borrower for
which Net Income was a negative number), plus (c) 75% of the Net Cash Proceeds
received by the Borrower as a result of any offering of Equity or pursuant to
any conversion or exchange of convertible Indebtedness or preferred Capital
Stock into common Capital Stock of the Borrower, plus (d) an
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amount equal to the net worth of any Person that becomes a Subsidiary of the
Borrower or is merged into or consolidated with the Borrower or any Subsidiary
of the Borrower or substantially all of the assets of which are acquired by the
Borrower or any Subsidiary of the Borrower to the extent the purchase price paid
therefor is paid in equity securities of the Borrower or any Subsidiary of the
Borrower.
Section 7.14 Minimum Asset Coverage Ratio. The Borrower shall not permit the
----------------------------
Asset Coverage Ratio to be less than 1.10 to 1 at the end of any fiscal quarter.
Section 7.15 Maximum Funded Debt to Capital. The Borrower shall not permit
------------------------------
the ratio of Funded Debt to Capital to exceed 0.65 to 1 at the end of any fiscal
quarter.
Section 7.16 Sale and Leaseback. The Borrower shall not, and shall not
------------------
permit any Subsidiary of the Borrower to, enter into any arrangement whereby it
sells or transfers any of its assets, and thereafter rents or leases such
assets; provided, however, that the Borrower and its Subsidiaries may enter into
such arrangements if the fair market value of the property covered thereby does
not, in the aggregate, exceed $25,000,000.
Section 7.17 Sale or Discount of Accounts. The Borrower shall not, and shall
----------------------------
not permit any Subsidiary of the Borrower to, directly or indirectly, sell, with
or without recourse, for discount or otherwise, any notes or Accounts other than
pursuant to the Securitization.
Section 7.18 Capital Stock. The Borrower shall not, and shall not permit any
-------------
Subsidiary of the Borrower to, issue, sell or otherwise dispose of any Capital
Stock in the Borrower or any Subsidiary of the Borrower or any options or any
rights to acquire such Capital Stock, except (i) to the extent that the Net Cash
Proceeds thereof during any fiscal year do not exceed $3,000,000 and the Net
Cash Proceeds thereof are, within 90 days after receipt by the Borrower or the
applicable Subsidiary of the Borrower, reinvested in productive tangible assets
of the Borrower and its Subsidiaries, (ii) to the extent that the Net Cash
Proceeds thereof are applied as provided in Section 2.5(c) hereof, (iii) any
--------------
Subsidiary of the Borrower may issue Capital Stock to the Borrower or to any
Guarantor which is the parent of such Subsidiary (iv) the issuance or
disposition of Capital Stock in the Borrower attributable to the conversion of
the NCGI Note into Equity in the Borrower in accordance with the terms of the
NCGI Note, (v) the disposition of Capital Stock of ClientLink as part of the
ClientLink IPO and (vi) the issuance of Capital Stock of the Borrower to
officers and other employees of the Borrower as the result of the exercise by
such officers and other employees of stock options granted to them by the
Borrower pursuant to stock option or similar incentive compensation plans of the
Borrower.
Section 7.19 Business. Neither the Borrower nor any Subsidiary of the
--------
Borrower shall conduct any business other than the business described in Section
-------
4.1(d) hereof.
- ------
Section 7.20 Fiscal Year. Except with respect to a change in the fiscal year
-----------
of any Subsidiary to conform to the fiscal year of the Borrower, neither the
Borrower nor any Subsidiary of the Borrower shall change its fiscal year.
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Section 7.21 Amendment of Organizational Documents. The Borrower shall not,
-------------------------------------
and shall not permit any Subsidiary of the Borrower to, amend its articles of
incorporation or bylaws in any manner that could reasonably be expected to (a)
result in a Material Adverse Effect or (b) impair or affect the Rights of the
Administrative Lender or any Lender under any Loan Documents or in respect of
any Collateral.
Section 7.22 Amendments and Waivers of Subordinated Debt. The Borrower shall
-------------------------------------------
not, and shall not permit any Subsidiary to, change or amend (or take any action
or fail to take any action the result of which is an effective amendment or
change) or accept any waiver or consent with respect to, any document,
instrument or agreement relating to any Subordinated Debt that would result in
(a) an increase in the principal, interest, overdue interest, fees or other
amounts payable under the Subordinated Debt, (b) an acceleration in any date
fixed for payment or prepayment of principal, interest, fees or other amounts
payable under the Subordinated Debt (including, without limitation, as a result
of any redemption), (c) a reduction in any percentage of holders of the
Subordinated Debt required under the terms of the Subordinated Debt to take (or
refrain from taking) any action under the Subordinated Debt, (d) a change in any
financial covenant under the Subordinated Debt making such financial covenant
more restrictive, (e) a change in any default or event of default (however
designated) under the Subordinated Debt which makes such default or event of
default more restrictive, (f) a change in the definition of "Change of Control"
as provided in the Subordinated Debt which would result in such definition being
more restrictive than such definition in this Agreement, (g) a change in any of
the subordination provisions of the Subordinated Debt, (h) a change in any
covenant, term or provision in the Subordinated Debt which would result in such
term or provision being more restrictive than the terms of this Agreement and
the other Loan Documents or (i) a change in any term or provision of the
Subordinated Debt that could have, in any material respect, an adverse effect on
the interest of the Lenders.
Section 7.23 Operating Leases. The Borrower shall not, and shall not permit
----------------
any Subsidiary of the Borrower to, enter into any Operating Leases except for
Operating Leases entered into in the ordinary course of business in a manner and
to an extent consistent with past practice; provided, however, that the total
rent per annum for all Operating Leases of the Borrower and its Subsidiaries
shall not exceed $12,000,000 in aggregate amount for any fiscal year.
ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute an
-----------------
Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:
(a) Any representation or warranty made under any Loan Document shall prove to
have
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<PAGE>
been incorrect or misleading in any material respect when made;
(b) The Borrower shall fail to pay any (i) principal under any Note when due
or (ii) interest under any Note or any fees payable hereunder or any other
costs, fees, expenses or other amounts payable hereunder or under any other Loan
Document within two Business Days after the date due;
(c) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any agreement or covenant contained in Section 5.1
-----------
or Article 7;
---------
(d) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any other agreement or covenant contained in this
Agreement not specifically referred to elsewhere in this Section 8.1, and such
-----------
default shall not be cured within a period of fifteen days after the earlier of
notice from the Administrative Lender thereof or actual notice thereof by the
Borrower or such Subsidiary;
(e) There shall occur any default or breach in the performance or observance
of any agreement or covenant in any of the Loan Documents (other than this
Agreement) and such default shall not be cured within a period of thirty days
after the earlier of notice from the Administrative Lender thereof or actual
notice thereof by an officer of any Obligor;
(f) There shall be entered a decree or order by a court having jurisdiction in
the premises constituting an order for relief in respect of any Obligor under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal, state or foreign bankruptcy law or other similar
law, or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official of any Obligor, or of any substantial part of
their respective properties, or ordering the winding-up or liquidation of the
affairs of any Obligor, and any such decree or order shall continue unstayed and
in effect for a period of thirty consecutive days;
(g) Any Obligor shall file a petition, answer or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal, state or foreign bankruptcy law or other similar
law, or any Obligor shall consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment or taking of
possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of any Obligor or of substantially all of its
properties, or any Obligor shall take any corporate action in furtherance of any
such action;
(h) A final judgment or judgments shall be entered by any court against any
Obligor for the payment of money which exceeds $500,000 in the aggregate, or a
warrant of attachment or execution or similar process shall be issued or levied
against property of any Obligor which, together with all other such property of
the Borrower and its Subsidiaries subject to other such process, exceeds in
value $500,000 in the aggregate, and if such judgment or award is not insured
or, within 30 days after the entry, issue or levy thereof, such judgment,
warrant or process shall not
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<PAGE>
have been paid or discharged or stayed pending appeal, or if, after the
expiration of any such stay, such judgment, warrant or process shall not have
been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its Controlled
Group: (i) the Borrower, any such member, or any other party-in-interest or
disqualified person (other than any Lender) shall engage in transactions which
in the aggregate would reasonably be expected to result in a direct or indirect
liability to the Borrower or any member of its Controlled Group under Section
409 or 502 of ERISA or Section 4975 of the Code; (ii) the Borrower or any member
of its Controlled Group shall incur any accumulated funding deficiency, as
defined in Section 412 of the Code, or request a funding waiver from the
Internal Revenue Service for contributions; (iii) the Borrower or any member of
its Controlled Group shall incur any withdrawal liability as a result of a
complete or partial withdrawal within the meaning of Section 4203 or 4205 of
ERISA, or any other liability with respect to a Plan, unless the amount of such
liability has been funded within the Plan or pursuant to one or more insurance
contracts; (iv) the Borrower or any member of its Controlled Group shall fail to
make a required contribution by the due date under Section 412 of the Code or
Section 302 of ERISA which would result in the imposition of a lien under
Section 412 of the Code or Section 302 of ERISA; (v) the Borrower, any member of
its Controlled Group or any Plan sponsor shall notify the PBGC of an intent to
terminate, or the PBGC shall institute proceedings to terminate, or the PBGC
shall institute proceedings to terminate, any Plan subject to Title IV of ERISA;
(vi) a Reportable Event shall occur with respect to a Plan subject to Title IV
of ERISA, and within 15 days after the reporting of such Reportable Event to the
Administrative Lender, the Administrative Lender shall have notified the
Borrower in writing that the Determining Lenders have made a determination that,
on the basis of such Reportable Event, there are reasonable grounds for the
termination of such Plan by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan and as a
result thereof an Event of Default shall have occurred hereunder; (vii) a
trustee shall be appointed by a court of competent jurisdiction to administer
any Plan or the assets thereof; or (viii) any ERISA Event with respect to a Plan
subject to Title IV of ERISA shall have occurred, and 30 days thereafter (A)
such ERISA Event, other than such event described in clause (f) of the
definition of ERISA Event herein, (if correctable) shall not have been corrected
and (B) the then present value of such Plan's benefit liabilities, as defined in
Title IV of ERISA, shall exceed the then current value of assets accumulated in
such Plan; provided, however, that the events listed in subsections (i) - (viii)
-------- -------
above shall constitute Events of Default only if the maximum aggregate liability
which the Borrower or any member of its Controlled Group has a reasonable
likelihood of incurring under the applicable provisions of ERISA resulting from
an event or events exceeds $100,000.
(j) The Borrower or any Subsidiary of the Borrower shall default in the
payment of any Indebtedness or any lease obligations in an aggregate amount of
$1,000,000 or more beyond any grace period provided with respect thereto, or any
other event or condition shall exist under any agreement or instrument under
which such Indebtedness is created or evidenced beyond any applicable grace
period, if the effect of such event or condition is to permit or cause the
holder of such Indebtedness (or a trustee on behalf of any such holder) to (i)
cause such Indebtedness to be prepaid or to become due prior to its date of
maturity or (ii) require the Borrower or any Subsidiary of the Borrower to
purchase such Indebtedness;
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<PAGE>
(k) Any lease where the Borrower or any Subsidiary of the Borrower is the
lessee shall terminate or cease to be effective, and termination or cessation
thereof, together with all other leases, if any, which have been terminated or
cease to be effective, could reasonably be expected to have a Material Adverse
Effect; provided, however, that termination or cessation of a lease shall not
constitute an Event of Default if another lease reasonably satisfactory to the
Determining Lenders is contemporaneously substituted therefor;
(l) Any material provision of any Loan Document shall for any reason cease to
be valid and binding on or enforceable against any party to it (other than the
Administrative Lender or any Lender) other than in accordance with its terms, or
any such party (other than the Administrative Lender or any Lender) shall so
assert in writing and any such event or circumstance shall continue for seven
days following notification of the occurrence or existence thereof from the
Administrative Lender to the Borrower; provided, however, that such notice,
grace and cure period shall not apply to any event or circumstance evidenced or
represented by any assertion in writing by the Borrower or any Affiliate of the
Borrower;
(m) Any Collateral Document shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority Lien in
Collateral having a value in an aggregate amount in excess of $100,000;
(n) A Change of Control shall occur; or
(o) The Borrower, CFI or EFC shall breach or be in default of any obligations
under the RPA and such breach or default continues beyond any applicable grace
and/or cure period contained therein; or there shall occur any "Termination
Event" or "Potential Termination Event" as those terms are defined by the TAA.
Section 8.2 Remedies. If an Event of Default shall have occurred and shall
--------
be continuing:
(a) With the exception of an Event of Default specified in Section 8.1(f) or
--------------
(g) hereof, the Administrative Lender shall, upon the direction of the
- ---
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Section 8.1(f) or
--------------
(g) hereof, such principal, interest and other amounts shall thereupon and
- ---
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Lender, any
Lender or any holders of the Notes and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
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<PAGE>
(c) If any Letter of Credit shall be then outstanding, the Administrative
Lender may, and upon the direction of the Determining Lenders shall, demand upon
the Borrower to, and forthwith upon such demand, the Borrower shall, pay to the
Administrative Lender in same day funds at the office of the Administrative
Lender for deposit in the L/C Cash Collateral Account, an amount equal to the
maximum amount available to be drawn under the Letters of Credit then
outstanding.
(d) The Administrative Lender and the Lenders may exercise all of the Rights
granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Lender and the Lenders hereunder shall be
cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any
------------------------------------
proposed LIBOR Advance for any Interest Period, (i) any Lender determines that
deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the Determining
Lenders determine that the LIBOR Rate for such proposed LIBOR Advance does not
adequately cover the cost to such Lender of making and maintaining such proposed
LIBOR Advance for such Interest Period, such Lender or Determining Lenders, as
the case may be, shall forthwith give notice thereof to the Borrower, whereupon
until such Lender or Determining Lenders, as the case may be, notify the
Borrower that the circumstances giving rise to such situation no longer exist,
the obligation of such Lender to make LIBOR Advances shall be suspended;
provided, however, such Lender or the Determining Lenders, as the case may be,
- -------- -------
shall promptly notify the Borrower if the circumstances giving rise to such
situation no longer exist.
Section 9.2 Illegality. If any change in applicable law, rule or regulation,
----------
or adoption thereof, or any change in any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its LIBOR Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for such Lender (or its LIBOR
Lending Office) to make, maintain or fund its LIBOR Advances, such Lender shall
so notify the Borrower and the Administrative Lender. Before giving any notice
to the Borrower pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice, notwithstanding anything contained in Article 2 hereof, the Borrower
---------
shall repay in full the then outstanding principal amount of each LIBOR Advance
owing to the notifying Lender, together with accrued interest thereon and any
reimbursement required under Section 2.9 hereof, on either (a) the last day
-----------
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of the Interest Period applicable to such Advance, if the Lender may lawfully
continue to maintain and fund such Advance to such day, or (b) immediately, if
the Lender may not lawfully continue to fund and maintain such Advance to such
day or if the Borrower so elects. Concurrently with repaying each affected
LIBOR Advance owing to such Lender if the Borrower does not terminate this
Agreement, notwithstanding anything contained in Article 2 hereof, the Borrower
---------
may, without any requirement to satisfy the conditions precedent set forth in
Section 3.1, 3.2 or 3.3, borrow a Base Rate Advance from such Lender, and such
- ----------- --- ---
Lender shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
repayment.
Section 9.3 Increased Costs.
---------------
(a) If after the Agreement Date any change in or adoption of any law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax (net
of any tax benefit engendered thereby) with respect to its LIBOR Advances or
its obligation to make such Advances, or shall change the basis of taxation of
payments to a Lender (or to its LIBOR Lending Office) of the principal of or
interest on its LIBOR Advances or in respect of any other amounts due under
this Agreement, as the case may be, or its obligation to make such Advances
(except for changes in the rate of tax on the overall net income, net worth or
capital of the Lender and franchise taxes, doing business taxes or minimum
taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's LIBOR
Lending Office or shall impose on the Lender (or its LIBOR Lending Office) or
on the London interbank market any other condition affecting its LIBOR
Advances or its obligation to make such Advances (but excluding any reserves
or deposits that are included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
------------
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section and will
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<PAGE>
designate a different LIBOR Lending Office or other lending office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable judgment of the affected Lender made in good
faith, be disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder shall
certify that such amounts or costs were actually incurred by such Lender and
shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be conclusive
absent manifest or demonstrable error. In determining such amount, a Lender may
use any reasonable averaging and attribution methods. Nothing in this Section
-------
9.3 shall provide the Borrower or any Subsidiary of the Borrower the right to
- ---
inspect the records, files or books of any Lender. If a Lender demands
compensation under this Section, the Borrower may at any time, upon at least
five Business Days' prior notice to the Lender, after reimbursement to the
Lender by the Borrower in accordance with this Section of all costs incurred,
prepay in full the then outstanding LIBOR Advances of the Lender, together with
accrued interest thereon to the date of prepayment, along with any reimbursement
required under Section 2.9 hereof. Concurrently with prepaying such LIBOR
-----------
Advances, the Borrower may borrow a Base Rate Advance from the Lender, and the
Lender shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
prepayment.
Section 9.4 Effect On Base Rate Advances. If notice has been given pursuant
----------------------------
to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender to make
----------- --- ---
LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or prepaid,
then, unless and until the Lender notifies the Borrower that the circumstances
giving rise to such repayment no longer apply, all Advances which would
otherwise be made by such Lender as LIBOR Advances shall be made instead as Base
Rate Advances.
Section 9.5 Capital Adequacy. If after the Agreement Date, (a) the
----------------
introduction of or any change in or in the interpretation of any law, rule or
regulation or (b) compliance by a Lender with any law, rule or regulation or any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) adopted or promulgated after the
Agreement Date affects or would affect the amount of capital required or
expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, within 30
days after demand by such Lender, subject to Section 11.9, the Borrower shall
------------
immediately pay to such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender with respect to such
circumstances, to the extent that such Lender reasonably determines in good
faith such increase in capital to be allocable to the existence of such Lender's
Commitments hereunder. A certificate as to any additional amounts payable to
any Lender under this Section 9.5 submitted to the Borrower by such Lender shall
-----------
certify that such amounts were actually incurred by such Lender or corporation
controlling such Lender and shall show in reasonable detail an accounting of the
amount payable and the calculations used to determine in
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good faith such amount and shall be conclusive absent manifest or demonstrable
error. In determining such amount, such Lender or a corporation controlling such
Lender may use any reasonable averaging and attribution methods. Notwithstanding
the foregoing, nothing in this Section 9.5 shall provide the Borrower or any
-----------
Subsidiary of the Borrower the right to inspect the records, files or books of
any Lender or any corporation controlling such Lender.
Section 9.6 Replacement Lender. If (i) any Lender is unable or unwilling
------------------
to make, maintain or fund any LIBOR Advance pursuant to Section 9.1 or 9.2 or
----------- ---
(ii) the Borrower becomes obligated to pay additional amounts to any Lender
described in Section 9.3 or 9.5, the Borrower may designate a financial
----------- ---
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of such Lender's Commitment and the Rights of such Lender under the
Loan Documents without recourse to or warranty by, or expense to, such Lender,
for a purchase price equal to the outstanding amounts owing to such Lender
(including such additional amounts owing to such Lender pursuant to Section 9.2,
------------
9.3 or 9.5). Upon execution of an Assignment Agreement, such other financial
- --- ---
institution shall be deemed to be a "Lender" for all purposes of this Agreement
as set forth in Section 11.6 hereof.
------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders. The Lenders agree among themselves
-----------------------
that:
(a) Administrative Lender. Each Lender hereby appoints the Administrative
---------------------
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, (i) unless and until the Administrative Lender shall have
received such requests, the Administrative Lender may take such administrative
action, or refrain from taking such administrative action, as it may deem
advisable and in the best interests of the Lenders, and (ii) the Administrative
Lender shall not be required to take any action that exposes the Administrative
Lender to personal liability or that is contrary to any Loan Document or
Applicable Law; to arrange the means whereby the proceeds of the Advances of the
Lenders are to be made available to the Borrower; to distribute promptly to each
Lender information, requests and documents received from the Borrower hereunder
and not otherwise provided to such Lender by the Borrower or any other Person,
and each payment (in like funds received) with respect to any of such Lender's
Advances, or the ratable amount of fees or other amounts; and to deliver to the
Borrower requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower and not otherwise provided to such Lender by the
Borrower or any other Person. The Administrative Lender shall have no fiduciary
relationship in respect of any Lender by reason of this Agreement or any other
Loan Document.
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The Administrative Lender shall have no duties or responsibilities except those
expressly set forth in this Agreement. The duties of the Administrative Lender
are mechanical and administrative in nature.
(b) Replacement of Administrative Lender. Should the Administrative Lender or
------------------------------------
any successor Administrative Lender ever cease to be a Lender hereunder, or
should the Administrative Lender or any successor Administrative Lender ever
resign as Administrative Lender, or should the Administrative Lender or any
successor Administrative Lender ever be removed with cause or without cause by
the action of all Lenders (other than the Administrative Lender), then the
Lender appointed by the other Lenders (with the consent of the Borrower, which
consent shall not be unreasonably withheld) shall forthwith become the
Administrative Lender, and the Borrower and the Lenders shall execute such
documents as any Lender may reasonably request to reflect such change. If the
Administrative Lender also then serves in the capacity of the Swing Line Bank or
the Issuing Bank, such resignation or removal shall constitute resignation or
removal of the Swing Line Bank and the Issuing Bank. Any resignation or removal
of the Administrative Lender or any successor Administrative Lender shall become
effective upon the appointment by the Lenders of a successor Administrative
Lender; provided, however, if no successor Administrative Lender shall have been
so appointed and shall have accepted such appointment within 30 days after the
retiring Administrative Lender's giving of notice of resignation or the Lenders'
removal of the retiring Administrative Lender, then the retiring Administrative
Lender may, on behalf of the Lenders, appoint a successor Administrative Lender,
which shall be a commercial bank organized under the Laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as the
Administrative Lender hereunder by a successor Administrative Lender, such
successor Administrative Lender shall thereupon succeed to and become vested
with all the rights and duties of the retiring Administrative Lender, and the
retiring Administrative Lender shall be discharged from its duties and
obligations under the Loan Documents, provided that if the retiring or removed
Administrative Lender is unable to appoint a successor Administrative Lender,
the Administrative Lender shall, after the expiration of a 60 day period from
the date of notice, be relieved of all obligations as Administrative Lender
hereunder. Notwithstanding any Administrative Lender's resignation or removal
hereunder, the provisions of this Article shall continue to inure to its benefit
as to any actions taken or omitted to be taken by it while it was the
Administrative Lender under this Agreement.
(c) Expenses. Each Lender shall pay its pro rata share, based on its
--------
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents and/or the
Securitization Documents if Administrative Lender does not receive reimbursement
therefor from other sources within 60 days after the date incurred. Any amount
so paid by the Lenders to the Administrative Lender shall be returned by the
Administrative Lender pro rata to each paying Lender to the extent later paid by
the Borrower or any other Person on the Borrower's behalf to the Administrative
Lender.
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(d) Delegation of Duties. The Administrative Lender may execute any of its
--------------------
duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender and its
---------------------------------
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected by the Administrative Lender. The Administrative Lender may,
in its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
-----------------------------------------------
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or defend
any suit in respect hereof, unless indemnified to its reasonable satisfaction
against loss, cost, liability and expense unless expressly provided to the
contrary herein. The Administrative Lender shall not be responsible in any
manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE LENDER, PRO RATA
ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE ADMINISTRATIVE LENDER (IN SUCH
CAPACITY) IN ANY WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THE ADMINISTRATIVE LENDER UNDER THE LOAN DOCUMENTS (INCLUDING ANY
NEGLIGENT ACTION OF THE ADMINISTRATIVE LENDER), EXCEPT TO THE EXTENT THE SAME
ARE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION TO RESULT FROM GROSS
NEGLIGENCE OR WILFUL MISCONDUCT BY THE ADMINISTRATIVE LENDER. THE INDEMNITY
PROVIDED IN THIS SECTION 10.1(f) SHALL SURVIVE TERMINATION OF THIS AGREEMENT.
---------------
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(g) Liability Among Lenders. No Lender shall incur any liability (other than
-----------------------
the sharing of expenses and other matters specifically set forth herein and in
the other Loan Documents) to any other Lender, except for acts or omissions in
bad faith.
(h) Rights as Lender. With respect to its commitment hereunder, the Advances
----------------
made by it and the Notes issued to it, the Administrative Lender shall have the
same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Administrative Lender or any other
Lender and based upon the financial statements referred to in Sections 4.1(j),
---------------
6.1, and 6.2 hereof, and such other documents and information as it has deemed
- --- ---
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Lender or any other Lender and based
upon such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents. Each Lender also acknowledges that
its decision to fund the initial Advances shall constitute evidence to the
Administrative Lender that such Lender has deemed all of the conditions set
forth in Section 3.1 to have been satisfied.
Section 10.3 Benefits of Article. None of the provisions of this Article
-------------------
shall inure to the benefit of any Person other than Lenders and, with respect to
Section 10.1(b), the Borrower; consequently, no such other Person shall be
- ---------------
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of the Administrative Lender or any Lender to comply with such
provisions.
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.
-------
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<PAGE>
(a) All notices and other communications under this Agreement shall be in
writing (except in those cases where giving notice by telephone is expressly
permitted) and shall be deemed to have been given on the date personally
delivered or sent by telecopy (answerback received), or three days after deposit
in the mail, designated as certified mail, return receipt requested, postage-
prepaid, or one day after being entrusted to a reputable commercial overnight
delivery service, addressed to the party to which such notice is directed at its
address determined as provided in this Section. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, at:
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attn: Daniel L. Celoni
Vice President - Finance
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
--------
(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances hereunder, including without
limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable attorneys' fees of
the Administrative Lender in connection with the administration of the
transactions contemplated in this Agreement and the other Loan Documents and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Administrative Lender relating to this
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Agreement or the other Loan Documents; and
(c) all reasonable costs, out-of-pocket expenses and reasonable attorneys'
fees of the Administrative Lender and each Lender incurred for enforcement,
collection, restructuring, refinancing and "work-out", or otherwise incurred in
obtaining performance under the Loan Documents, which in each case shall include
without limitation fees and expenses of consultants, counsel for the
Administrative Lender and any Lender, and administrative fees for the
Administrative Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders under this
-------
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Administrative Lender or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any
funding of a request for an Advance or issuance of a Letter of Credit. In the
event that any Lender decides to fund an Advance at a time when the Borrower is
not in strict compliance with the terms of this Agreement, such decision by such
Lender shall not be deemed to constitute an undertaking by the Lender to fund
any further requests for Advances or preclude the Lenders from exercising any
rights available under the Loan Documents or at law or equity. Any waiver or
indulgence granted by the Lenders shall not constitute a modification of this
Agreement, except to the extent expressly provided in such waiver or indulgence,
or constitute a course of dealing by the Lenders at variance with the terms of
the Agreement such as to require further notice by the Lenders of the Lenders'
intent to require strict adherence to the terms of the Agreement in the future.
Any such actions shall not in any way affect the ability of the Administrative
Lender or the Lenders, in their discretion, to exercise any rights available to
them under this Agreement or under any other agreement, whether or not the
Administrative Lender or any of the Lenders are a party thereto, relating to the
Borrower.
Section 11.4 Calculation by the Lenders Conclusive and Binding. Any
-------------------------------------------------
mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
Section 11.5 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuation of an Event of Default, each Lender and
any subsequent holder of any Note, and any assignee of any Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower or any other Person, any such notice being hereby expressly waived,
to set-off, appropriate and apply any deposits (general or special (except trust
and escrow accounts), time or demand, including without limitation Indebtedness
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other Indebtedness at any time held or owing by such Lender or holder to
or for the credit or the account of the Borrower, against and on account of the
Obligations and other liabilities of the Borrower to such Lender or holder,
irrespective of whether or not (a) the Lender or holder shall have made any
demand hereunder, or (b) the Lender or holder shall have declared the principal
of and interest on the Advances and other amounts due hereunder
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to be due and payable as permitted by Section 8.2. Any sums obtained by any
-----------
Lender or by any assignee or subsequent holder of any Note shall be subject to
pro rata treatment of all Obligations and other liabilities hereunder. Any
Lender exercising any Rights under this Section 11.5 shall give the Borrower
------------
prompt notice thereof after such exercise.
Section 11.6 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or obligations
hereunder or under the other Loan Documents without the prior written consent of
the Lenders.
(b) No Lender shall be entitled to assign or grant a participation in its
interest in this Agreement, its Notes or its Advances, except as hereinafter set
forth.
(c) Without the consent of the Borrower, any Lender may at any time sell
participations in all or any part of its Advances and Reimbursement Obligations
(collectively, "Participations") to any banks or other financial institutions
--------------
("Participants") provided that neither such Participation nor any agreement
------------
relating thereto shall confer on any Person (other than the parties hereto) any
right to vote on, approve or sign amendments or waivers, or any other
independent benefit or any legal or equitable right, remedy or other claim under
this Agreement or any other Loan Documents, other than the right to vote on,
approve, or sign amendments or waivers or consents with respect to items that
would result in (i) any increase in the commitment of any Participant; or
(ii)(A) the extension of the date of maturity of, or (B) the extension of the
due date for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Advances, the Letters of Credit, or
the Reimbursement Obligations to which such Participant is entitled; or (iii)
the release of security for the Obligations, including without limitation any
guarantee, except pursuant to this Agreement or the other Loan Documents; or
(iv) the reduction of any fees payable hereunder to which such Participant is
entitled. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 hereof as though
---------
they were Lenders and the Lenders may, subject to Section 11.14 hereof, provide
-------------
copies of all financial information received from the Borrower to such
Participants.
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<PAGE>
(d) Each Lender may assign to one or more financial institutions organized
under the laws of the United States, or any state thereof, or under the laws of
any other country that is a member of the Organization for Economic Cooperation
and Development, or a political subdivision of any such country, which is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business (each, an "Assignee") its rights and obligations
--------
under this Agreement and the other Loan Documents; provided, however, that (i)
-------- -------
each such assignment shall be subject to the prior written consent of the
Administrative Lender and Borrower, which consent shall not be unreasonably
withheld (provided, however, notwithstanding anything herein to the contrary, no
-------- -------
consent of the Borrower is required for any assignment during any time that an
Event of Default has occurred and is continuing), (ii) no such assignment shall
be in an amount of Commitments less than $10,000,000 unless such lesser amount
represents the entirety of the Commitments of the applicable Lender, (iii) the
applicable Lender, Administrative Lender and applicable Assignee shall execute
and deliver to the Administrative Lender an Assignment and Acceptance Agreement
(an "Assignment Agreement") in substantially the form of Exhibit H hereto,
-------------------- ---------
together with the Notes subject to such assignment, (iv) the Assignee executing
the Assignment, shall deliver to the Administrative Lender a processing fee of
$3,000 and (v) each such assignment shall be a constant, not a varying,
percentage of the assigning Lender's Rights and obligations in respect of the
Facility A Advances and the Facility B Advances. Upon such execution, delivery
and acceptance from and after the effective date specified in each Assignment,
which effective date shall be at least three Business Days after the execution
thereof, (A) the Assignee thereunder shall be party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment, have the rights and obligations of a Lender hereunder and (B) the
applicable Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment, relinquish such rights and
be released from such obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any Lender
may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and an
Assignee, and any Note or Notes subject to such assignment, the Borrower shall,
within five Business Days after its receipt of such Assignment Agreement, at no
expense to the Borrower, execute and deliver to the Administrative Lender in
exchange for the surrendered Notes new Notes to the order of such Assignee in an
amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A or B hereto, as applicable.
--------- -
(g) Any Lender may, in connection with any assignment or participation or
proposed
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assignment or participation pursuant to this Section 11.6, disclose to the
------------
assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower, provided such Person agrees in writing to handle such information in
accordance with the standards set forth in Section 11.14 hereof.
-------------
(h) Except as specifically set forth in this Section 11.6, nothing in this
------------
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no Assignee
------------
or Participant (nor the assigning or participating Lender) shall be entitled to
receive (whether individually or collectively) any greater payment under Section
-------
2.14 or Section 9.3 or Section 9.5 than such assigning or participating Lender
- ---- ----------- -----------
would have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement which is for any
------------
reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any parties to
--------------------
this Agreement to make an agreement in violation of the laws of any applicable
jurisdiction relating to usury. Regardless of any provision in any Loan
Documents, no Lender shall ever be entitled to receive, collect or apply, as
interest on the Obligations, any amount in excess of the Highest Lawful Amount.
If any Lender or participant ever receives, collects or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the end
of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Highest Lawful Rate, the Lenders
shall refund to the Borrower the amount of such excess or credit the amount of
such excess against
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the total principal amount of the Obligations owing, and, in
such event, the Lenders shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
Highest Lawful Rate. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for convenience
--------
only and shall not be used in connection with the interpretation of any
provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement may not
--------------------
be amended, modified or waived except by the written agreement of the Borrower
and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend or postpone the date of maturity of, extend the due date for any
payment of principal or interest on, reduce the amount of any installment of
principal or interest on, or reduce the rate of interest on, any Advance, the
Reimbursement Obligations or other amount owing under any Loan Documents to
which such Lender is entitled, or (iii) release any security for or guaranty of
the Obligations (except pursuant to this Agreement or the other Loan Documents),
or (iv) reduce the fees payable hereunder to which such Lender is entitled, or
(v) revise this Section 11.11, or (vi) waive the date for payment of any
-------------
principal, interest or fees hereunder or (vii) amend the definition of
Determining Lenders; (b) without the consent of the Swing Line Bank, if it would
alter the rights, duties or obligations of the Swing Line Bank; (c) without the
consent of the Administrative Lender, if it would alter the rights, duties or
obligations of the Administrative Lender; or (d) without the consent of the
Issuing Bank, if it would alter the rights, duties or obligations of the Issuing
Bank. Neither this Agreement nor any term hereof may be amended orally, nor may
any provision hereof be waived orally but only by an instrument in writing
signed by the Administrative Lender and, in the case of an amendment, by the
Borrower. Notwithstanding the foregoing, each Lender (in its capacity as a
Lender hereunder and, if applicable, in its capacity as a "Participant" under
the Existing Credit Agreement) hereby consents to, and authorizes, the release
by the Administrative Lender of any and all Liens insofar as same (i) arose
under the Existing Credit Agreement or any prior financing arrangement and (ii)
cover property other than the Borrower's Inventory (provided, however, that the
Administrative Lender may release any and all Liens insofar as same cover
Inventory upon the occurrence of the Inventory Release Event), the CFI Note, the
Equity interest of the Borrower in CFI, the rights of CompuCom Properties, Inc.
under that certain Trademark License Agreement, dated as of October 25, 1991,
between CompuCom Properties, Inc., as licensor, and the Borrower, as licensee,
and/or any proceeds, products, amendments, modifications and/or restatements of
or to any of the foregoing property. Furthermore, each Lender which is a
"Lender" (as such term is defined in the Existing Credit Agreement) hereby
consents to, and authorizes, the sale and transfer of the Existing Credit
Agreement and the indebtedness, Liens and other rights thereunder or in
connection therewith to the Administrative Lender, for the ratable benefit of
the Lenders hereunder.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
----------------------
Subsidiary of the Borrower shall be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the
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<PAGE>
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes all risks
----------------------------
of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit, except for any payment made upon the
Issuing Bank's gross negligence or wilful misconduct; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Borrower shall have a claim against the Issuing Bank,
------
and the Issuing Bank shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the Borrower that a court of
competent jurisdiction determines were caused by (i) the Issuing Bank's wilful
misconduct or gross negligence or (ii) the Issuing Bank's wilful failure to make
lawful payment under a Letter of Credit after the presentation to it of a draft
and certificates strictly complying with the terms and conditions of the Letter
of Credit. In furtherance and not in limitation of the foregoing, the Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative Lender
---------------
agrees (on behalf of itself and each of its Affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any Litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify Borrower of any request for disclosure of any such non-public information
(i) by any Tribunal or representative thereof (other than any such request in
connection with an examination of such Lender's financial condition by such
governmental agency) or (ii) pursuant to legal process, or (f) to any Assignee
or Participant (or prospective Assignee or Participant) so long as such Assignee
or Participant (or prospective Assignee or Participant) agrees in writing to
handle such information in accordance with the provisions of this Section 11.14.
-------------
Section 11.15 Amendment, Restatement, Extension, Renewal and Increase. This
-------------------------------------------------------
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<PAGE>
Agreement is a renewal, extension, amendment, increase and restatement of the
Existing Credit Agreement, and is not a novation of the "Obligations" (as
defined in the Existing Credit Agreement) thereunder. On the Agreement Date,
the "Facility A Notes" and the "Facility B Notes" (as such terms are defined in
the Existing Credit Agreement), all of the outstanding indebtedness of the
Borrower under the Existing Credit Agreement and all of the liens, security
interests and other rights and interests of each of the lenders under the
Existing Credit Agreement and of NationsBank of Texas, N.A., as administrative
lender thereunder, and under the other Loan Documents (as defined in the
Existing Credit Agreement) shall be acquired by the Administrative Lender
hereunder for the ratable benefit of the Lenders hereunder in their respective
Specified Percentages. On the Agreement Date, the outstanding indebtedness of
the Borrower under the Facility A Notes (as such term is defined in the Existing
Credit Agreement) shall be renewed, extended, modified and restated by the
Facility A Notes hereunder. On the Agreement Date, the outstanding indebtedness
of the Borrower under the Facility B Notes (as such term is defined in the
Existing Credit Agreement) shall be renewed, extended, modified and restated by
the Facility B Notes hereunder. The Borrower hereby consents to the acquisition
by the Administrative Lender of the indebtedness, rights and interests described
above. All terms and provisions of this Agreement supersede in their entirety
the Existing Credit Agreement. Except insofar as any of same may have
heretofore been, or may contemporaneoualy herewith or hereafter be, released
pursuant to written release documentation executed and delivered by the
Administrative Lender, all Liens covering the Collateral, or any part thereof,
under the collateral documents executed in connection with the Existing Credit
Agreement shall remain valid, binding and enforceable Liens against the Persons
which granted such Liens, as security for the Obligations hereunder.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
-------------
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE UNITED
STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, TEXAS, AND
BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER LIABLE
FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS, JOINTLY AND
SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER EACH
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS,
SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT TO ITSELF AND ITS
PROPERTY TO THE JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE OF ANY SUIT,
ACTION, PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE
--------------------
LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND
INTENTIONALLY WAIVE, TO THE
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<PAGE>
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
TO EACH LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
----------------
OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 11.19 Release of Certain Collateral. On the Agreement Date or as
-----------------------------
soon as practical thereafter the Administrative Lender shall release any Liens
held by the Administrative Lender insofar as such Liens cover the Receivables of
the Borrower other than such portion of such Receivables as constitute property
of the type(s) covered by (i) the Security Agreement to be executed by the
Borrower in favor of the Administrative Lender on the Agreement Date and/or (ii)
the Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Financing Statement, executed by the Borrower for the benefit of the
Administrative Lender and the other Lenders as of September 27, 1996, as amended
by a certain First Amendment thereto, dated as of the Agreement Date. Upon the
occurrence of the Inventory Release Event, the Administrative Lender shall
release any Liens held by the Administrative Lender insofar as such Liens cover
the Inventory of the Borrower or any of its Subsidiaries.
================================================================================
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================================================================================
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Credit Agreement is executed as
of the date first set forth above.
BORROWER: COMPUCOM SYSTEMS, INC.
By: /s/ DANIEL L. CELONI
----------------------------------------
Name: Daniel L. Celoni
Title: Vice President - Finance
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<PAGE>
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as Administrative
Lender
By: /s/ TIMOTHY M. O'CONNOR
-----------------------------------------
Name: Timothy M. O'Connor
Title: Vice President
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<PAGE>
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender, Swing
Line Bank and Issuing Bank
Specified Percentage:
16.666666667%
By: TIMOTHY M. O'CONNOR
-----------------------------------------
Name: Timothy M. O'Connor
Title: Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
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<PAGE>
Specified Percentage: SANWA BUSINESS CREDIT CORPORATION
9.066666667%
By: /s/ STANLEY KAMINSKI
--------------------------------------
Name: Stanley Kaminski
Title: Vice President
1 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
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<PAGE>
Specified Percentage: CORESTATES BANK, N.A.
10.666666667%
By: /s/ SCOTT HUFFMAN
-----------------------------------------
Name: Scott Huffman
Title: Vice President
1339 Chestnut Street, FC 1-8-3-14
Philadelphia, Pennsylvania 19107
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<PAGE>
Specified Percentage: NATIONAL CITY BANK OF KENTUCKY
9.066666667%
By: John Z. Barr
--------------------------------------------
Name: John Z. Barr
Title: Senior Vice President
101 South Fifth Street, 8th Floor
Louisville, Kentucky 40202
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<PAGE>
Specified Percentage: PNC BANK, NATIONAL ASSOCIATION, successor-by-merger
to Midlantic Bank, N.A.
10.666666667%
By: /s/ JOSEPH G. METERCHICK
Name: Joseph G. Meterchick
Title: Vice President
1535 Locust Street
Philadelphia, Pennsylvania 19102
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<PAGE>
Specified Percentage: CREDIT LYONNAIS NEW YORK BRANCH
10.000000000%
By: /s/ ROBERT IVOSEVICH
Name: Robert Ivosevich
Title: Senior Vice President
1301 Avenue of the Americas
New York, New York 10019
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<PAGE>
Specified Percentage: UNION BANK OF CALIFORNIA, N.A.
9.066666667%
By: /s/ STEPHEN SWEENEY
-----------------------------------------
Name: Stephen Sweeney
Title: Vice President
By: /s/ STEVEN BIERMAN
------------------------------------
Name: Steven Bierman
Title: Vice President
70 South Lake Avenue, Suite 900
Pasadena, California 91109
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<PAGE>
Specified Percentage: NATIONAL BANK OF CANADA
9.066666667%
By: /s/ BILL HANDLEY
-----------------------------------------
Name: Bill Handley
Title: Vice President
By: /s/ LARRY L. SEARS
-----------------------------------------
Name: Larry L. Sears
Title: Group Vice President
2121 San Jacinto
Dallas, Texas 75201
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<PAGE>
Specified Percentage: COMERICA BANK
6.666666667%
By: /s/ KIM A. UHLEMANN
----------------------------------------
Name: Kim A. Uhlemann
Title: Vice President
500 Woodward Avenue
9th Floor
Mail Code 3281
Detroit, Michigan 48226
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<PAGE>
Specified Percentage: FLEET NATIONAL BANK
9.066666667%
By: /s/ Frank Beresh
-----------------------------------------
Name: Frank Beresh
Title: Vice President
One Federal Street, MA-OF-0323
Boston, Massachusetts 02110
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<PAGE>
EXHIBIT 10.28
================================================================================
RECEIVABLES PURCHASE AGREEMENT
between
-------
COMPUCOM SYSTEMS, INC.,
as Seller
and
---
CSI FUNDING INC.,
as Purchaser
Dated as of April 1, 1996
as
Amended and Restated as of November 3, 1997
================================================================================
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
------------------------------
This RECEIVABLES PURCHASE AGREEMENT, dated as of April 1, 1996, as AMENDED
and RESTATED as of November 3, 1997, between COMPUCOM SYSTEMS, INC., a Delaware
corporation, as seller (the "Seller") and CSI FUNDING INC., a Delaware
------
corporation, as purchaser (the "Purchaser").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Purchaser and the Seller wish to amend and restate the
Receivable Purchase Agreement, dated as of April 1, 1996, as amended to the date
hereof, pursuant to which the Seller agreed to sell, and the Purchaser agreed to
acquire, an undivided interest in certain accounts receivable originated by the
Seller;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed by and between the Purchaser and the Seller as
follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Definitions. All capitalized terms used herein shall have
-----------
the meanings specified herein or, if not so specified, the meaning specified in,
or incorporated by reference into, the Transfer Agreement, and shall include in
the singular number the plural and in the plural number the singular:
"Advance" shall have the meaning specified in Section 3.2(b).
-------
"Advance Limit" shall have the meaning specified in Section 3.2(b).
-------------
"Agent" shall mean NationsBank, N.A., as agent
-----
<PAGE>
on behalf of Enterprise and the Bank Investors pursuant to the Transfer
Agreement.
"Closing Date" shall mean November 3, 1997.
------------
"Contributed Receivables" shall have the meaning specified in Section
-----------------------
3.2(b).
"Conveyance Papers" shall have the meaning set forth in Section 4.1(b)
-----------------
hereof.
"Enterprise" shall mean Enterprise Funding Corporation, a Delaware
----------
corporation, and its successors and assigns.
"Permitted Assignee" shall have the meaning set forth in Section 9.5
------------------
hereof.
"Purchase Discount" shall mean for any day, an amount, calculated in good
-----------------
faith by the Purchaser, equal to the decimal equivalent of the sum of (i) the
product of (A) the sum of (x) the "AA" rated commercial paper index rate for a
maturity most closely corresponding to the Estimated Maturity Period and (y)
0.50% (servicing fee) and (z) 1.50% and (B) a fraction the numerator of which is
the Estimated Maturity Period of the Receivables and the denominator of which is
360, and (ii) the decimal equivalent of the average Loss to Liquidation Ratio
---
with respect to the prior three calendar months.
"Purchase Price" shall have the meaning set forth in Section 3.1 hereof.
--------------
"Purchased Receivables" shall have the meaning specified in Section 3.2(b).
---------------------
"Purchaser" shall mean CSI Funding Inc., a Delaware corporation, and its
---------
successors and assigns.
"Receivable" shall mean, for purposes of this Agreement, the indebtedness
----------
owed to the Seller by any Obligor under a Contract, whether constituting an
account, chattel paper, instrument or general intangible, arising in connection
with the sale of merchandise or services by the Seller, and includes the right
to payment
2
<PAGE>
of any Finance Charges and other obligations of such Obligor with respect
thereto. Notwithstanding the foregoing, once a Receivable has been deemed
collected pursuant to Section 6.2 hereof, it shall no longer constitute a
Receivable hereunder.
"Release" means the Partial Release of Liens and Security Interests,
-------
executed on November 3, 1997 by NationsBank of Texas, N.A., whereby NationsBank
of Texas, N.A. released certain liens and security interests which cover the
property of CompuCom.
"Secured Obligations" shall have the meaning set forth in Section 2.1(d)
-------------------
hereof.
"Subordinated Note" shall have the meaning specified in Section 3.2(b).
-----------------
"Transfer Agreement" shall mean the Transfer and Administration Agreement,
------------------
dated as of April 1, 1996, as amended and restated as of November 3, 1997, by
and among the Purchaser, the Seller, Enterprise and NationsBank N.A., as Agent
thereunder, as such agreement may be amended, modified or supplemented from time
to time.
"Transferred Receivables" shall have the meaning specified in Section
-----------------------
3.2(b).
SECTION I.2. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC, and not specifically
defined herein, are used herein as defined in such Article 9.
SECTION I.3. Computation of Time Periods. Unless otherwise stated in this
---------------------------
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" shall mean "from and including" and the
words "to" and "until" each shall mean "to but excluding."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
SECTION II.1. Sale. (a) Upon the terms and subject to the
----
conditions set forth herein, the Seller hereby sells, assigns, transfers and
conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on
the terms and subject to the conditions specifically set forth herein, all of
the Seller's right, title and interest, whether now owned or hereafter acquired,
in, to and under the Receivables outstanding on the Closing Date and thereafter
originated by the Seller through any Termination Date (but not thereafter),
together with all Related Security and Collections with respect thereto and all
proceeds of the foregoing. The foregoing sale, assignment, transfer and
conveyance does not constitute an assumption by the Purchaser of any obligations
of the Seller or any other Person to Obligors or to any other Person in
connection with the Receivables or under any Related Security or other agreement
and instrument relating to the Receivables.
(b) In connection with the foregoing sale, the Seller agrees to record and file
on or prior to the Closing Date, at its own expense, a financing statement or
statements with respect to the Receivables and the other property described in
Section 2.1(a) sold by the Seller hereunder meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect and protect the interests of the Purchaser created hereby under the
UCC (subject, in the case of Related Security constituting returned inventory,
to the applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements) against all creditors of and purchasers from the Seller,
and to deliver either the originals of such financing statements or file-stamped
copies of such financing statements or other evidence of such filings to the
Purchaser on the Closing Date.
(c) The Seller agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents and take all actions as may be
necessary or as the Purchaser may reasonably request in order to perfect or
protect the interest of the Purchaser in
4
<PAGE>
the Receivables and other property purchased hereunder or to enable the
Purchaser to exercise or enforce any of its rights hereunder. Without limiting
the foregoing, the Seller will, in order to accurately reflect this purchase and
sale transaction, execute and file such financing or continuation statements or
amendments thereto or assignments thereof (as permitted pursuant hereto) as may
be requested by the Purchaser and mark its master data processing records and
other documents with a legend describing the purchase of the Receivables by the
Purchaser. The Seller shall, upon request of the Purchaser, obtain such
additional search reports as the Purchaser shall request. To the fullest extent
permitted by applicable law, the Purchaser shall be permitted to sign and file
continuation statements and amendments thereto and assignments thereof without
the Seller's signature. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a financing
statement.
(d) It is the express intent of the Seller and the Purchaser that the
conveyance of the Receivables and all Related Security and Collections with
respect thereto by the Seller to the Purchaser pursuant to this Agreement be
construed as a sale of such property by the Seller to the Purchaser. Further, it
is not the intention of the Seller and the Purchaser that such conveyance be
deemed a grant of a security interest in such property by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. However, in the
event that, notwithstanding the intent of the parties, the Receivables and all
Related Security and Collections with respect thereto are construed to
constitute property of the Seller, then (i) this Agreement also shall be deemed
to be, and hereby is, a security agreement within the meaning of the UCC; and
(ii) the conveyance by the Seller provided for in this Agreement shall be deemed
to be, and the Seller hereby grants to the Purchaser, a security interest in, to
and under all of the Seller's right, title and interest in, to and under the
Receivables outstanding on the Closing Date and thereafter originated by the
Seller, together with all Related Security and Collections with respect thereto
and all proceeds of the foregoing, to secure the rights of the Purchaser set
forth in this Agreement or as may be determined in connection therewith
5
<PAGE>
by applicable law (collectively, the "Secured Obligations"). The Seller and the
-------------------
Purchaser shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the Receivables and the Related Security and Collections
with respect thereto, such security interest would be deemed to be a perfected
security interest in favor of the Purchaser under applicable law and will be
maintained as such throughout the term of this Agreement.
SECTION II.2. Servicing of Receivables. The servicing, administering
------------------------
and collection of the Receivables shall be conducted by the Seller, who hereby
agrees to perform, take or cause to be taken all such action as may be necessary
or advisable to collect each Receivable from time to time, all in accordance
with applicable laws, rules and regulations and with the care and diligence
which the Seller employs in servicing similar receivables for its own account,
in accordance with the Credit and Collection Policy. The Purchaser hereby
appoints the Seller as its agent to enforce the Purchaser's rights and interests
in, to and under the Receivables, the Related Security and the Collections with
respect thereto. The Seller shall hold in trust for the Purchaser, in accordance
with its interests, all Records which evidence or relate to the Receivables or
Related Security, Collections and proceeds with respect thereto. Notwithstanding
anything to the contrary contained herein, from and after the occurrence of a
Termination Event or a Potential Termination Event (each as defined in the
Transfer Agreement), NationsBank, N.A., as Agent, shall have the absolute and
unlimited right to terminate the Seller's servicing activities described in this
Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay the
Seller a servicing fee of 0.50% per annum on the aggregate Outstanding Balance
of Receivables, payable monthly, for its performance of the duties and
obligations described in this Section 2.2.
6
<PAGE>
ARTICLE III
CONSIDERATION AND PAYMENT
SECTION 3.1. Purchase Price. The Purchase Price for the Receivables
--------------
and related property conveyed to the Purchaser by the Seller under this
Agreement shall be a dollar amount equal to (a) for the Receivables sold by
Seller on the Closing Date, the product of (i) the aggregate Outstanding Balance
of the Receivables as of the Closing Date and (ii) one minus the then applicable
-----
Purchase Discount, and (b) for any Receivables sold by the Seller on any date
thereafter, the product of (i) the aggregate Outstanding Balance of the
Receivables sold on such date and (ii) one minus the Purchase Discount
-----
applicable on such date.
SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for
-------------------------
the Receivables and related property shall be paid or provided for on the
Closing Date with respect to the Receivables existing on the Closing Date and on
the last Business Day of each calendar month thereafter during which Receivables
are originated by the Seller, as the case may be, by payment in immediately
available funds of $___________. The balance of such Purchase Price shall be
paid by capital contributed by the Seller to Purchaser in the form of a
contribution of the Receivables.
(b) The Purchase Price for any Receivables sold by the Seller on any
date after the date hereof shall be paid either (i) in cash or (ii) if Purchaser
does not have sufficient cash to pay the Purchase Price, by means of (A) an
advance under the Subordinated Note (each, an "Advance") or (B) with the consent
-------
of the Seller, capital contributed by the Seller to Purchaser in the form of a
contribution of the additional Receivables or (iii) with the consent of the
Seller, any combination of the foregoing. In the event Purchaser does not have
sufficient cash to pay the Purchase Price due on any Purchase Date and the
Seller is not willing to consent to the payment of such insufficiency by means
of a capital contribution, such insufficiency shall be evidenced by the making
of an Advance on such Purchase Date in an
7
<PAGE>
original principal amount equal to such cash shortfall owed to the Seller;
provided, however, that the Seller shall not make an Advance to Purchaser to the
- -------- -------
extent that the aggregate amount of outstanding Advances would be an amount such
that the net worth of the Purchaser would be less than 7.0% of the Outstanding
Balance of the Receivables (the "Advance Limit"). All Advances made by the
-------------
Seller to Purchaser shall be evidenced by a single subordinated note, duly
executed on behalf of Purchaser, in substantially the form of Exhibit B annexed
hereto, delivered and payable to the Seller in a principal amount equal to the
Advance Limit thereunder (the "Subordinated Note"). The Seller is hereby
-----------------
authorized by Purchaser to endorse on the schedule attached to the Subordinated
Note (or a continuation of such schedule attached thereto and made a part
thereof) an appropriate notation evidencing the date and amount of each Advance,
as well as the date and amount of each payment with respect thereto; provided,
--------
however, that the failure of any Person to make such a notation shall not affect
- -------
any obligations of Purchaser thereunder. Any such notation shall be conclusive
and binding as to the date and amount of such Advance, or payment of principal
or interest thereon, absent manifest error. The Receivables with respect to
which the Purchase Price therefor is paid pursuant to either clause (i) or
clause (ii)(A) above is referred to herein as the "Purchased Receivables", and
---------------------
the Receivables with respect to which the Purchase Price therefor is paid
pursuant to clause (ii)(B) above is referred to herein as the "Contributed
-----------
Receivables". The Purchased Receivables and the Contributed Receivables are
- -----------
collectively referred to herein as the "Transferred Receivables".
-----------------------
(c) The terms and conditions of the Subordinated Note and all
Advances thereunder shall be as follows:
(i) Repayment of Advances. All amounts paid by the Purchaser
---------------------
with respect to the Advances shall be allocated first to the repayment of
accrued interest until all such interest is paid, and then to the outstanding
principal amount of the Advances. Subject to the provisions of this Agreement,
the Purchaser may borrow, repay and reborrow Advances on and after the date
hereof and prior to the termination of this Agreement,
8
<PAGE>
subject to the terms, provisions and limitations set forth herein, including,
without limitation, the requirement that no Advance be made to the extent that
after giving effect thereto the aggregate outstanding principal amount of all
Advances would exceed the Advance Limit.
(ii) Interest. The Subordinated Note shall bear interest from its
--------
date on the outstanding principal balance thereof at a rate per annum equal to
5.00%. Interest on each Advance shall be computed based on the number of days
elapsed in a year of 360 days.
(iii) Sole and Exclusive Remedy/Subordination. The Purchaser shall be
---------------------------------------
obligated to repay Advances to the Seller only to the extent of funds available
to the Purchaser from Collections on the Receivables and the Related Security
and Collections with respect thereto and, to the extent that such payments are
insufficient to pay all amounts owing to the Seller under the Subordinated Note,
the Seller shall not have any claim against the Purchaser for such amounts and
no further or additional recourse shall be available against Purchaser. The
Subordinated Note shall be fully subordinated to any rights of Enterprise and
its permitted assigns pursuant to the Transfer Agreement, and shall not evidence
any rights in the Receivables or related property.
(iv) Offsets, etc. The Purchaser may offset any amount due and owing
-------------
by the Seller against any amount due and owing by Purchaser to the Seller under
the terms of the Subordinated Note.
SECTION 3.3. Monthly Report. On the last Business Day of each
--------------
calendar month, the Seller shall deliver to the Purchaser a monthly report,
substantially in the form of Exhibit A attached hereto, showing (i) the
aggregate Purchase Price of the Receivables acquired or generated by the Seller
in the preceding month and (ii) the aggregate Outstanding Balance of such
Receivables that are Eligible Receivables.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Seller's Representations and Warranties. The Seller
---------------------------------------
represents and warrants to the Purchaser as of the Closing Date and shall be
deemed to represent and warrant as of the date of the creation of any sale of
any interest in Receivables to the Purchaser pursuant to this Agreement that:
(a) Corporate Existence and Power. The Seller is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
(b) Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by the Seller of this Agreement, and each
other document or instrument to be delivered by the Seller hereunder
(collectively, "Conveyance Papers"), are within its corporate powers, have been
-----------------
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except as
contemplated by Section 2.1(c)), and do not contravene, or constitute a material
default under, any provision of applicable law or regulation or of the
Certificate of Incorporation or By Laws of the Seller, or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the Seller
or result in the creation or imposition of any lien on assets of the Seller or
any of its respective Subsidiaries (except as contemplated by Section 2.1(c)).
(c) Binding Effect. Each of the Conveyance Papers constitutes the
--------------
legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally (whether considered in a proceeding at law or in equity).
10
<PAGE>
(d) Perfection. Immediately preceding each sale hereunder, the
----------
Seller shall be the owner of all of the Receivables, free and clear of any
Adverse Claims. On or prior to the date of each sale hereunder, all financing
statements and other documents required to be recorded or filed in order to
protect the Purchaser's interest in the Receivables against all creditors of and
purchasers from Seller (other than any financing statements or assignments of
financing statements required to perfect the Purchaser's interest hereunder),
will have been duly filed in each filing office necessary for such purpose and
all filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
the Seller to the Purchaser for purposes of or in connection with this
Agreement, the Conveyance Papers or any transaction contemplated in connection
therewith is, and all such information hereafter furnished by the Seller to the
Purchaser will be, true and accurate in every material respect, on the date such
information is stated or certified.
(f) Tax Returns. The Seller has filed all tax returns (federal,
-----------
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other government charges due and
payable.
(g) Action, Suits. There are no actions, suits or proceedings
-------------
pending, or to the knowledge of the Seller threatened, against or affecting the
Seller or any Affiliate of the Seller or their respective properties, in or
before any court, arbitrator or other body, which individually or in the
aggregate, could be reasonably expected to materially adversely affect the
financial condition of the Seller and its subsidiaries taken as a whole or
materially adversely affect the ability of Seller to perform its obligations
under this Agreement.
(h) Use of Proceeds. No proceeds of any sale hereunder will be used
---------------
by the Seller to acquire any security in any transaction which is subject to
Section
11
<PAGE>
13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
-----------------
executive office of the Seller is Dallas, Texas and the offices where the Seller
keeps all its Records, are located at the address(es) described on Exhibit G to
the Transfer Agreement or such other locations notified to the Purchaser in
accordance with Sections 2.1(b) in jurisdictions where all action required by
Section 2.1(b) has been taken and completed.
(j) Good Title. Prior to any sale hereunder, the Seller shall have
----------
all right, title and interest in, to and under each Receivable, free and clear
of any Adverse Claim. Upon the consummation of each sale hereunder, the Seller
shall have transferred to the Purchaser all right, title and interest of the
Seller in, to and under each Receivable that exists on the date of such sale and
in the Related Security and Collections with respect thereto free and clear of
any Adverse Claim. No Person to which the Seller has granted a security
interest in inventory shall have a security interest in any Receivable, except
as shall otherwise be consented to in writing by the Purchaser and, for so long
as the Transfer Agreement shall be in effect, the Agent.
(k) Tradenames, Etc. The Seller has not used any corporate names,
----------------
tradenames or assumed names other than its name set forth on the signature pages
of this Agreement and, within the last five (5) years, has not changed its name,
merged with or into or consolidated with any other corporation or been the
subject of any proceeding under Title 11, United States Code (Bankruptcy).
(l) Nature of Receivables. Each Receivable an interest in which is
---------------------
reported by the Seller as being an Eligible Receivable shall satisfy the
definition of "Eligible Receivable".
(m) Amount of Receivables. As of the close of business on the
---------------------
second Business Day prior to the Closing Date, the aggregate Outstanding Balance
of the Receivables in existence shall be as set forth in the
12
<PAGE>
certification of the Seller required to be delivered pursuant to Section 7.1(f).
(n) Credit and Collection Policy. Since November 21, 1995, there
----------------------------
have been no material changes in the Credit and Collection Policy; since such
date, no material adverse change has occurred in the overall rate of collection
of the Receivables or in the ability of the Seller to service and collect the
Receivables.
(o) Binding Effect of Receivables and Contract. Each Receivable and
------------------------------------------
related Contract constitutes a legal, valid and binding obligation of the
Obligor enforceable against the Obligor, subject to the effect of bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
(whether considered in a proceeding at law or in equity).
(p) No Restriction on Transfer. No Contract requires the prior
--------------------------
written consent of an Obligor or contains any other restriction relating to the
transfer or assignment of rights of payment under such Contract (other than a
consent or waiver of such restriction that has been obtained prior to the
related Purchase Date).
(q) Not an Investment Company. The Seller is not an "investment
-------------------------
company" within the meaning of the Investment Company Act of 1940, as amended,
or is exempt from all provisions of such Act.
(r) ERISA. The Seller is in compliance in all material respects with
-----
ERISA and no ERISA lien on any of the Receivables shall exist.
(s) Lockboxes. The names and addresses of all the Lockbox Banks,
---------
together with the account numbers of the Lockboxes at such Lockbox Banks, are
specified in Exhibit L to the Transfer Agreement (or at such other Lockbox Banks
and/or with such other Lockboxes as have been notified to the Purchaser and the
Agent and for which Lockbox Agreements have been executed and delivered to the
Collateral Agent). All Obligors have been instructed to make payment to a
Lockbox Account and only Collections are deposited into the Lockbox Accounts.
13
<PAGE>
(t) No Termination Event. No Termination Event, and no condition
--------------------
that, with the giving of notice and/or the passage of time would constitute a
Termination Event, has occurred and is continuing.
SECTION 4.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Seller; Notice of Breach. On each sale date, the Seller, by accepting the
- ------------------------
proceeds of such sale, shall be deemed to have certified that all
representations and warranties described in Section 4.1 are true and correct on
and as of such day as though made on and as of such day. The representations
and warranties set forth in Section 4.1 shall survive the conveyance of the
Receivables and related property to the Purchaser, and termination of the rights
and obligations of the Purchaser and the Seller under this Agreement. Upon
discovery by the Purchaser or the Seller of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other within three Business Days of such discovery.
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14
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ARTICLE V
COVENANTS OF THE SELLER
SECTION 5.1. Covenants of the Seller. The Seller hereby covenants
-----------------------
and agrees with the Purchaser that, for so long as this Agreement is in effect,
and until all Receivables which have been sold to the Purchaser pursuant hereto
shall have been paid in full or written-off as uncollectible, and all amounts
owed by the Seller pursuant to this Agreement have been paid in full, unless the
Purchaser otherwise consents in writing, the Seller covenants and agrees as
follows:
(a) Conduct of Business. The Seller will, and will cause each of its
-------------------
Subsidiaries to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and will maintain all requisite authority to conduct its business
in each jurisdiction in which its business is conducted.
(b) Compliance with Laws. The Seller will, and will cause each of
--------------------
its Subsidiaries to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject.
(c) Furnishing of Information and Inspection of Records. The Seller
---------------------------------------------------
will furnish to the Purchaser from time to time such information with respect to
the Receivables as the Purchaser may reasonably request, including, without
limitation, listings identifying the Obligor and the Outstanding Balance for
each Receivable. The Seller will at any time and from time to time during
regular business hours permit the Purchaser, or its agents or representatives,
(i) to examine and make copies of and abstracts from all Records and (ii) to
visit the offices and properties of the Seller for the purpose of examining such
Records, and to discuss matters relating to Receivables or the Seller's
performance hereunder with
15
<PAGE>
any of the officers, directors, employees or independent public accountants of
the Seller having knowledge of such matters.
(d) Keeping of Records and Books of Account. The Seller will
---------------------------------------
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles, consistently applied, and will
maintain for each of its Subsidiaries, a system of accounting established and
administered in accordance with accounting practices currently used by its
Subsidiaries, consistently applied, and will maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Receivables in the event of the
destruction of the originals thereof), and keep and maintain, or obtain, as and
when required, all documents, books, records and other information reasonably
necessary or advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the daily identification of each new
Receivable and all Collections of and adjustments to each existing Receivable).
The Seller will give the Purchaser prompt notice of any change in the
administrative and operating procedures referred to in the previous sentence to
the extent such change may have a material adverse effect.
(e) Performance and Compliance with Receivables and Contracts. The
---------------------------------------------------------
Seller at its expense will, and will cause each of its Subsidiaries to, timely
and fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Contracts related to the
Receivables.
(f) Credit and Collection Policy. The Seller will comply in all
----------------------------
material respects with the Credit and Collection Policy in regard to each
Receivable and the related Contract.
(g) Collections. The Seller shall instruct all Obligors to cause all
-----------
Collections to be deposited directly to a Lockbox.
(h) Collections Received. Any and all Collections at any time coming
--------------------
into the Seller's possession
16
<PAGE>
shall be delivered to a Lockbox. All proceeds of Collections in
respect of the Receivables at any time coming into the Seller's possession shall
be held in trust for the Purchaser and applied as required by the Transfer
Agreement.
(i) Sale Treatment. The Seller agrees to treat this conveyance for
--------------
all purposes (including, without limitation, tax and financial accounting
purposes) as a sale and, to the extent any such reporting is required, shall
report the transactions contemplated by this Agreement on all relevant books,
records, tax returns, financial statements and other applicable documents as a
sale of the Receivables and related property to the Purchaser.
(j) No Sales, Liens, Etc. Except as otherwise provided herein, the
--------------------
Seller will not, and will not permit any of its Subsidiaries to, sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Adverse Claim upon (or the filing of any financing statement) or
with respect to, any Receivable, Related Security or Collections (subject, in
each case with respect to Related Security constituting returned inventory, to
the applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements) or upon or with respect to any Lockbox to which any
Collections of any Receivable are sent, or, in each case, assign any right to
receive income in respect thereof. The Seller will not, and will not permit any
of its Subsidiaries to, grant or suffer to exist any security interest in any
inventory unless such security interest (and related UCC financing statement,
other than the financing statements in favor of NationsBank of Texas, N.A.
relating to interests in Receivables which have been released pursuant to the
Release, or other related filing) expressly excludes Receivables, Related
Security (other than returned inventory) and Collections. The Seller will
provide the Purchaser and the Agent with a copy of any inventory financing
agreement at least three Business Days prior to the effectiveness thereof.
(k) No Extension or Amendment of Receivables. The Seller will not
----------------------------------------
extend, amend or otherwise modify the terms of any Receivable, or amend, modify
or waive any term or condition of any Contract related thereto,
17
<PAGE>
except as provided in the Transfer Agreement, without the prior written consent
of the Purchaser.
(l) No Change in Business or Credit and Collection Policy; Certain
--------------------------------------------------------------
Contracts. Except as provided in the Transfer Agreement, the Seller will not
- ---------
make any change in the Credit and Collection Policy, which change might impair
the collectibility of any Receivable.
(m) No Mergers, Etc. The Seller will not (i) consolidate or merge
---------------
with or into any other Person, or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person; provided, that the Seller
--------
may merge with another Person if the Seller is the surviving corporation and
such merger or consolidation does not cause a Termination Event or Potential
Termination Event under the Transfer Agreement.
(n) Change in Payment Instructions to Obligors. The Seller will not
------------------------------------------
add or terminate, or make any change to, any Lockbox. The Seller will not
direct Obligors to make payments on the Receivables to any location or account
other than a Lockbox.
(o) Deposits to Lockboxes. The Seller will not deposit or otherwise
---------------------
credit, or cause or permit to be so deposited or credited, to any Lockbox cash
or cash proceeds other than Collections of Receivables.
(p) Change of Name, Etc. The Seller shall not change its name,
--------------------
identity or structure or its chief executive office, unless at least ten (10)
days prior to the effective date of any such change the Seller delivers to the
Purchaser (i) UCC financing statements, executed by the Seller, necessary to
reflect such change and to continue the perfection of the Purchaser's interest
in the Receivables, and the Related Security and Collections with respect
thereto and (ii) new or revised Lockbox Agreements which reflect such change.
(q) Indemnification. The Seller agrees to indemnify, defend and hold
---------------
the Purchaser harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency, or expense (including interest, penalties,
reasonable attorneys' fees and amounts paid in
18
<PAGE>
settlement) to which the Purchaser may become subject insofar as such loss,
liability, damage, judgment, claim, deficiency, or expense arises out of or is
based upon a breach by the Seller of its representations, warranties and
covenants contained herein, or any information certified in any schedule or
certificate delivered by the Seller hereunder or in connection with the
Conveyance Papers, being untrue in any material respect at any time. The
obligations of the Seller under this Section 5.1(q) shall be considered to have
been relied upon by the Purchaser and shall survive the execution, delivery,
performance and termination of this Agreement for a period of three (3) years
following the Termination Date, regardless of any investigation made by the
Purchaser.
(r) ERISA. The Seller shall promptly give the Purchaser written
-----
notice upon becoming aware that the Seller is not in compliance in all material
respects with ERISA or that any ERISA lien on any of the Receivables exists.
(s) The Seller shall, no later than January 1, 1998, obtain written
confirmation, in form and substance acceptable to the Purchaser and the Agent,
from Apple Computer, Inc. that any security interest in inventory granted to
such Person by the Seller does not extend to accounts receivable created upon
the sale of inventory in which such Person has a security interest.
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19
<PAGE>
ARTICLE VI
REPURCHASE OBLIGATION
SECTION 6.1. Mandatory Repurchase.
--------------------
(a) Breach of Warranty. If on any day a Receivable which has been
------------------
sold by the Seller hereunder and which has been reported by the Seller as an
Eligible Receivable, shall fail to meet the conditions set forth in the
definition of Eligible Receivable or for which any representation or warranty
made herein in respect of such Receivable shall no longer be true, the Seller
shall be deemed to have received on such day a Collection of such Receivable in
full and shall on such day pay to the Purchaser an amount equal to the
Outstanding Balance of such Receivable.
(b) Reconveyance Under Certain Circumstances. The Seller agrees
----------------------------------------
that, with respect to any Receivable an interest in which has been sold
hereunder, in the event of a breach of any of the representations and warranties
set forth in Sections 4.1(d), 4.1(e), 4.1(g), 4.1(j), 4.1(l), 4.1(h), 4.1(o),
4.1(p) and 4.1(q), the Seller agrees to accept the reconveyance of such
Receivable created on and after the date of such breach upon receipt by the
Seller of notice given in writing by the Purchaser and the Seller's failure to
cure such breach within thirty (30) days (or, in the case of representations and
warranties found in Sections 4.1(d) and 4.1(j), within three (3) days) of such
notice. In the event of a reconveyance under this Section 6.1(b), the Seller
shall pay to the Purchaser in immediately available funds on such 30th day (or
third day, if applicable) an amount equal to the Outstanding Balance of any such
Receivables.
SECTION 6.2. Dilutions, Etc. The Seller agrees that if on any day
--------------
the Outstanding Balance of a Receivable which has been sold by the Seller
hereunder is either (x) reduced as a result of defective, rejected or returned
goods or other dilution factor, any billing adjustment or other adjustment, or
(y) reduced or canceled as a result of a setoff or offset in respect of any
claim
20
<PAGE>
by any Person (whether such claim arises out of the same or a related
transaction or an unrelated transaction), then the Seller shall be deemed to
have received on such day a collection of such Receivable in the amount of such
reduction, cancellation or payment made by the Obligor and shall on such day pay
to the Purchaser the amount of such reduction or cancellation.
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21
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. Conditions to the Purchaser's Obligations Regarding
---------------------------------------------------
Receivables. The obligations of the Purchaser to purchase any Receivable on any
- -----------
Business Day shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Seller contained in this
Agreement shall be true and correct on the Closing Date and on the day of
creation of any Receivable thereafter with the same effect as though such
representations and warranties had been made on such date;
(b) All information concerning the Receivables provided to the Purchaser
shall be true and correct in all material respects as of the Closing Date, in
the case of any Receivables which are sold to the Purchaser on the Closing Date,
or the date such Receivables are created, in the case of any Receivables which
are created after the Closing Date;
(c) The Seller shall have substantially performed all other obligations
required to be performed by the provisions of this Agreement;
(d) The Seller shall have either filed or caused to be filed the financing
statement(s) required to be filed pursuant to Section 2.1(b);
(e) All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Purchaser, and the Purchaser shall have received from
the Seller copies of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein contemplated as the
Purchaser may reasonably have requested; and
(f) On the Closing Date, the Seller shall
22
<PAGE>
deliver to the Purchaser a certification of the aggregate Outstanding Balance of
the Receivables in existence as of the close of business on the second Business
Day prior to the Closing Date.
(g) The Seller shall obtain written confirmation, in form and substance
acceptable to the Purchaser and the Agent, from Compaq Computer Corporation
that any security interest in inventory granted to such Person by the Seller
does not extend to accounts receivable created upon the sale of inventory in
which such Person has a security interest.
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<PAGE>
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.1. Term. This Agreement shall commence as of the date of
----
execution and delivery hereof and shall continue in full force and effect until
the date following the earlier of (i) the date designated by the Purchaser or
the Seller as the termination date at any time following sixty (60) day's
written notice to the other (with a copy thereof to Enterprise), (ii) the date
on which the Agent declares a Termination Event or Potential Termination Event
pursuant to Section 7.2 of the Transfer Agreement, (iii) the day on which a
Reinvestment Termination Date shall occur under the Transfer Agreement unless
the Transferred Interest shall have been assigned (or concurrently is so
assigned) to the Bank Investors under Section 9.7 of the Transfer Agreement,
(iv) upon the occurrence of an Event of Bankruptcy with respect to either the
Purchaser or the Seller or (v) the date on which either the Purchaser or the
Seller becomes unable for any reason to purchase or re-purchase any Receivable
in accordance with the provisions of this Agreement or defaults on its
obligations hereunder, which default continues unremedied for more than thirty
(30) days after written notice (any such date being a "Termination Date");
----------------
provided, however, that the termination of this Agreement pursuant to this
- -------- -------
Section 8.1 hereof shall not discharge any Person from any obligations incurred
prior to such termination, including, without limitation, any obligations to
make any payments with respect to any Receivable sold prior to such termination.
SECTION 8.2. Effect of Termination. Following the termination of this
---------------------
Agreement pursuant to Section 8.1, the Seller shall not sell, and the Purchaser
shall not purchase any Receivables. No termination or rejection or failure to
assume the executory obligations of this Agreement in any Event of Bankruptcy
with respect to the Seller or the Purchaser shall be deemed to impair or affect
the obligations pertaining to any executed sale or executed obligations,
including, without limitation, pre-termination breaches of representations and
warranties by the Seller or the Purchaser. Without limiting the fore-
24
<PAGE>
going, prior to termination, the failure of the Seller to deliver computer
records of Receivables or any reports regarding the Receivables shall not render
such transfer or obligation executory, nor shall the continued duties of the
parties pursuant to Article V of this Agreement render an executed sale
executory.
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25
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ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Amendment. This Agreement and any other Conveyance Papers
---------
and the rights and obligations of the parties hereunder may not be changed
orally, but only by an instrument in writing signed by the Purchaser and the
Seller. Any reconveyance executed in accordance with the provisions hereof
shall not be considered amendments to this Agreement.
SECTION 9.2. Governing Law; Submission to Jurisdiction.
-----------------------------------------
(A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(b) The parties hereto hereby submit to the nonexclusive jurisdiction of
the United States District Court for the Southern District of New York and of
any New York state court sitting in The City of New York for purposes of all
legal proceedings arising out of or relating to this agreement or the
transactions contemplated hereby. Each party hereto hereby irrevocably waives,
to the fullest extent it may effectively do so, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect
the right of the Purchaser to bring any other action or proceeding against the
Seller or its property in the courts of other jurisdictions.
SECTION 9.3. Notices. All demands, notices and communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to:
26
<PAGE>
(a) in the case of the Purchaser:
CSI Funding Inc.
7171 Forest Lane
Dallas, Texas 75230
Attention: ________
Telecopy: (972) 856-5395
with a copy to:
NationsBank, N.A.
NationsBank Corporate Center, 10th Floor
Charlotte, NC 28255
Attention: Michelle M. Heath
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
(b) in the case of the Seller:
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attention: Mr. Dan Celoni, Treasurer
Telecopy: (214) 265-5449
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
SECTION 9.4. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement or any other
Conveyance Paper shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement or any
other Conveyance Paper and shall in no way affect the validity or enforceability
of the other provisions of this Agreement or of any other Conveyance Paper.
SECTION 9.5. Assignment. This Agreement and all other Conveyance Papers
----------
may not be assigned by the parties hereto, except that the Purchaser may assign
its
27
<PAGE>
rights hereunder pursuant to the Transfer Agreement to the Agent for the benefit
of Enterprise and the Bank Investors and except that the Seller may grant a lien
on the Subordinated Note to pursuant to the NationsBank FSA. The Purchaser
hereby notifies (and the Seller hereby acknowledges that) the Purchaser,
pursuant to the Transfer Agreement, has assigned its rights hereunder to the
Agent. All rights of the Purchaser hereunder may be exercised by the Agent or
its assignees, to the extent of their respective rights pursuant to such
assignments.
SECTION 9.6. Further Assurances. The Purchaser and the Seller agree to do
------------------
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party more
fully to effect the purposes of this Agreement and the other Conveyance Papers,
including, without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of the Purchaser, the Seller or Enterprise,
any right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privilege provided by law.
SECTION 9.8. Counterparts. This Agreement and all other Conveyance Papers
------------
may be executed in two or more counterparts including telecopy transmission
thereof (and by different parties on separate counterparts), each of which shall
be an original, but all of which together shall constitute one and the same
instrument.
SECTION 9.9. Binding Effect; Third-Party Beneficiaries. This Agreement
-----------------------------------------
and the other Conveyance
28
<PAGE>
Papers will inure to the benefit of and be binding upon the parties hereto and
their respective successors and permitted assigns. Any Permitted Assignee,
including Enterprise and any Bank Investor, is intended by the parties hereto to
be a third-party beneficiary of this Agreement.
SECTION 9.10. Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement and the other Conveyance Papers set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement and
the other Conveyance Papers. This Agreement and the other Conveyance Papers may
not be modified, amended, waived or supplemented except as provided herein.
SECTION 9.11. Headings. The headings herein are for purposes of reference
--------
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 9.12. Exhibits. The schedules and exhibits referred to herein
--------
shall constitute a part of this Agreement and are incorporated into this
Agreement for all purposes.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller each have caused this
Receivables Purchase Agreement to be duly executed by their respective officers
as of the day and year first above written.
COMPUCOM SYSTEMS, INC.,
as Seller
By: /s/ M. LAZANE SMITH
---------------------------
Name: M. Lazane Smith
Title: SVP-CFO
CSI FUNDING INC.,
as Purchaser
By: /s/ DANIEL CELONI
---------------------------
Name: Daniel Celoni
Title: Treasurer
Acknowledged and agreed as
of the date first above written:
ENTERPRISE FUNDING CORPORATION
By: /s/ STEWART CUTLER
-----------------------------
Name: Stewart Cutler
Title: Vice President
NATIONSBANK, N.A., as Agent
By: /s/ STAN MEIHAUS
-----------------------------
Name: Stan Meihaus
Title: Vice President
<PAGE>
EXHIBIT 10.29
================================================================================
TRANSFER AND ADMINISTRATION AGREEMENT
by and among
------------
CSI FUNDING INC.,
as Transferor,
COMPUCOM SYSTEMS, INC.,
individually and as Collection Agent,
ENTERPRISE FUNDING CORPORATION,
as Company,
and
---
NATIONSBANK, N.A.,
as Agent
Dated as of April 1, 1996
as
Amended and Restated as of November 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
DEFINITIONS............................................................... 1
SECTION 1.1. Certain Defined Terms...................................... 1
SECTION 1.2. Other Terms................................................ 25
SECTION 1.3. Computation of Time Periods................................ 25
ARTICLE II
TRANSFERS AND SETTLEMENTS................................................. 26
SECTION 2.1. Facility................................................... 26
SECTION 2.2. Transfers; Company Certificate; Eligible Receivables....... 26
SECTION 2.3. Selection of Tranche Periods and Tranche Rates............. 29
SECTION 2.4. Discount, Fees and Other Costs and Expenses................ 30
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures..... 30
SECTION 2.6. Liquidation Settlement Procedures.......................... 31
SECTION 2.7. Fees....................................................... 32
SECTION 2.8. Protection of Ownership Interest of the Company............ 33
SECTION 2.9. Deemed Collections; Application of Payments................ 34
SECTION 2.10. Payments and Computations, Etc............................. 35
SECTION 2.11. Reports.................................................... 35
SECTION 2.12. Collection Account......................................... 36
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................................ 37
SECTION 3.1. Representations and Warranties............................. 37
SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor................................................ 41
ARTICLE IV
CONDITIONS PRECEDENT...................................................... 42
SECTION 4.1. Conditions to Closing....................................... 42
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE V
<S> <C>
COVENANTS................................................................. 45
SECTION 5.1. Affirmative Covenants of each of Transferor and the
Collection Agent......................................... 45
SECTION 5.2. Negative Covenants......................................... 50
ARTICLE VI
ADMINISTRATION AND COLLECTIONS............................................. 53
SECTION 6.1. Appointment of Collection Agent............................. 53
SECTION 6.2. Duties of Collection Agent.................................. 53
SECTION 6.3. Rights After Designation of New Collection Agent............ 55
SECTION 6.4. Responsibilities of each of the Transferor and CompuCom..... 56
ARTICLE VII
TERMINATION EVENTS........................................................ 58
SECTION 7.1 Termination Events......................................... 58
SECTION 7.2. Termination................................................ 61
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS................................ 63
SECTION 8.1. Indemnities................................................ 63
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses................. 65
SECTION 8.3. Other Costs, Expenses and Related Matters.................. 67
SECTION 8.4. Reconveyance Under Certain Circumstances................... 68
ARTICLE IX
THE AGENT AND THE BANK COMMITMENT......................................... 69
SECTION 9.1 Authorization and Action................................... 69
SECTION 9.2. Agent's Reliance, Etc...................................... 70
SECTION 9.3. Credit Decision............................................ 71
SECTION 9.4. Indemnification of the Agent............................... 72
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9.5. Successor Agent............................................ 72
SECTION 9.6. Payments by the Agent...................................... 73
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.............. 73
ARTICLE X
MISCELLANEOUS............................................................. 78
SECTION 10.1. Term of Agreement.......................................... 78
SECTION 10.2. Waivers; Amendments........................................ 78
SECTION 10.3. Notices.................................................... 78
SECTION 10.4. Governing Law; Submission to Jurisdiction; Integration..... 80
SECTION 10.5. Severability; Counterparts................................. 80
SECTION 10.6. Successors and Assigns..................................... 81
SECTION 10.7. [RESERVED]................................................. 81
SECTION 10.8. Confidentiality............................................ 81
SECTION 10.9. No Bankruptcy Petition Against the Company................. 82
SECTION 10.10 Limited Recourse; Waiver of Setoff......................... 82
SECTION 10.11. Grant of Security Interest................................. 83
</TABLE>
3
<PAGE>
EXHIBITS
EXHIBIT A Form of Contract
EXHIBIT B Credit and Collection Policy
EXHIBIT C Form of Investor Report
EXHIBIT D Form of Transfer Certificate
EXHIBIT E Form of Settlement Statement
EXHIBIT F List of Actions and Suits
EXHIBIT G Schedule of Locations of Records
EXHIBIT H List of Subsidiaries, Divisions
and Tradenames
EXHIBIT I [Reserved]
EXHIBIT J Form of Secretary's Certificate
EXHIBIT K Form of Company Certificate
EXHIBIT L Lockbox Banks and Accounts
EXHIBIT M Form of Lockbox Agreement
EXHIBIT N Certain Definitions
EXHIBIT O Inventory Financing Agreement
4
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
This TRANSFER AND ADMINISTRATION AGREEMENT, dated as of April 1, 1996, as
AMENDED AND RESTATED as of November 3, 1997 (from time to time, this
"Agreement"), among CSI FUNDING INC., a Delaware corporation, as transferor (in
---------
such capacity, the "Transferor"), COMPUCOM SYSTEMS, INC., a Delaware
----------
corporation, individually and as collection agent (in such capacity, the
"Collection Agent"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
----------------
"Company") and NATIONSBANK, N.A., as agent for the benefit of the Company and
-------
the Bank Investors (the "Agent").
-----
PRELIMINARY STATEMENT
---------------------
WHEREAS, the parties hereto wish to amend and restate the Transfer and
Administration Agreement dated as of April 1, 1996, as amended to the date
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
-------------
other right or claim in, of or on any Person's assets or properties in favor of
any other Person.
"Advisory Fee" means the fee payable by the Transferor to the Agent
------------
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
<PAGE>
"Affiliate" means, with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if the controlling Person possesses, directly or indirectly, the power to direct
or cause the direction of the management or policies of the controlled Person,
whether through ownership of voting stock, by contract or otherwise.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
------------------
Obligor.
"Agent" means NationsBank, N.A., in its capacity as agent for the Company
-----
and the Bank Investors, and any successor thereto appointed pursuant to Article
IX.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of (i)
-----------------
the aggregate accrued and unpaid Discount with respect to all Tranche Periods at
such time, (ii) the Net Investment at such time, and (iii) all other amounts
owed (whether due or accrued) hereunder by Transferor to the Company at such
time.
"Assignment" shall have the meaning specified in Section 9.7(a).
----------
"Assignment Amount" with respect to a Bank Investor shall mean an amount
-----------------
equal to the lesser of (i) such Bank Investor's Pro Rata Share of the Net
Investment plus any amounts which remain unpaid pursuant to Section 9.7(d)
hereof and (ii) such Bank Investor's unused Commitment.
"Bank Investors" means NationsBank, N.A., and any assignee thereof pursuant
--------------
to Article IX.
"Base Rate" or "BR" means, a rate per annum equal to the greater of (i) the
--------- --
prime rate of interest announced by the Liquidity Provider from time to time,
changing when and as said prime rate changes (such rate not necessarily being
the lowest or best rate charged by the Liquidity Provider) and (ii) the rate
equal to the weighted average of the rates on overnight Federal funds
2
<PAGE>
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day for such transactions received by the
Liquidity Provider from three Federal funds brokers of recognized standing
selected by it plus, in the case of this clause (ii), 1.50%.
"Business Day" means any day excluding Saturday, Sunday and any day on
------------
which banks in New York, New York, Charlotte, North Carolina or Dallas, Texas
are authorized or required by law to close, and, when used with respect to the
determination of any Eurodollar Rate or any notice with respect thereto, any
such day which is also a day for trading by and between banks in United States
dollar deposits in the London interbank market.
"BR Tranche" means a Tranche as to which Discount is calculated at the Base
----------
Rate.
"BR Tranche Period" means, with respect to a BR Tranche, prior to the
-----------------
Termination Date, a period of up to 30 days requested by the Transferor and
agreed to by the Company or the Liquidity Provider, as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider, as the case may be, and after the Termination
Date, a period of one day. If such BR Tranche Period would end on a day which
is not a Business Day, such BR Tranche Period shall end on the next succeeding
Business Day.
"Capitalized Lease" of a Person means any lease of property by such Person
-----------------
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with generally accepted accounting principles.
"CD Rate" shall mean, with respect to any CD Tranche Period, a rate which
-------
is .75% in excess of a rate per annum equal to the sum (rounded upward to the
nearest 1/100 of 1%) of (A) the rate obtained by dividing (x) the Certificate of
Deposit Rate for such CD Tranche Period by (y) a percentage equal to 100% minus
the stated maximum rate for all reserve requirements as specified in Regula-
3
<PAGE>
tion D (including without limitation any marginal, emergency, supplemental,
special or other reserves) that would be applicable during such Tranche Period
to a negotiable certificate of deposit in excess of $100,000, with a maturity
approximately equal to such Tranche Period, of any member bank of the Federal
Reserve System plus (B) the then daily net annual assessment rate (rounded
upward, if necessary, to the nearest 1/100 of 1%) as estimated by the Liquidity
Provider for determining the current annual assessment payable by the Liquidity
Provider to the Federal Deposit Insurance Corporation for insuring such
certificates of deposit.
"CD Tranche" means a Tranche as to which Discount is calculated at the CD
----------
Rate.
"CD Tranche Period" means, with respect to a CD Tranche, prior to the
-----------------
Termination Date, a period of up to one month requested by the Transferor and
agreed to by the Company or the Liquidity Provider, as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider, as the case may be, and after the
Termination Date, a period of one day. If such CD Tranche Period would end on a
day which is not a Business Day, such CD Tranche Period shall end on the next
succeeding Business Day.
"Certificate of Deposit Rate" means, with respect to any CD Tranche Period,
---------------------------
the average of the bid rates determined by the Liquidity Provider to be bid
rates per annum, at approximately 10:00 a.m. (New York City time) on the
Business Day before the first day of the CD Tranche Period for which such CD
Rate is to be applicable, of two or more New York certificate of deposit dealers
of recognized standing selected by the Liquidity Provider for the purchase in
New York from the Liquidity Provider at face value of certificates of deposit of
the Liquidity Provider in an aggregate amount approximately comparable to the
amount of the CD Tranche to which such CD Rate is to be applicable and with a
maturity approximately equal to the applicable CD Tranche Period.
"Closing Date" means November 3, 1997.
------------
4
<PAGE>
"Collateral Agent" has the meaning specified in Section 10.6(b).
----------------
"Collections" means, with respect to any Receivable, all cash collections
-----------
and other cash proceeds of such Receivable, including, without limitation, all
Finance Charges, if any, and cash proceeds of Related Security with respect to
such Receivable, and any Deemed Collections of such Receivable.
"Collection Account" means the account no. 653035022, established by the
------------------
Transferor and maintained at NationsBank, N.A.
"Collection Agent" means at any time the Person then authorized pursuant to
----------------
Section 6.1 to service, administer and collect Receivables.
"Commercial Paper" means the promissory notes of the Company issued by the
----------------
Company in the commercial paper market.
"Commitment" means for each Bank Investor, the commitment of such Bank
----------
Investor to make acquisitions from the Transferor or the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment".
"Commitment Termination Date" means November 2, 1998, or such later date to
---------------------------
which the Commitment Termination Date may be extended by the Transferor, the
Agent and the Bank Investors.
"Company Certificate" means the certificate issued to the Company pursuant
-------------------
to Section 2.2 hereof.
"CompuCom" means CompuCom Systems, Inc., a Delaware corporation, and its
--------
successors and assigns.
"Concentration Amount" means for any Designated Obligor, (a) 2% of the
--------------------
aggregate Outstanding Balance of Eligible Receivables at such time; provided,
--------
however, that with respect to any Designated Obligor and its affiliates whose
- -------
long term unsecured debt obligations are rated at least "A1" by Moody's and at
least "A+" by Stan-
5
<PAGE>
dard & Poor's and with respect to which rating neither Moody's nor Standard &
Poor's shall have made a public announcement anticipating a downgrading of such
Designated Obligor's long term unsecured debt obligations to a rating less than
the aforementioned ratings ("A1/A+ Rated Obligors"), 5% of the aggregate
--------------------
Outstanding Balance of all Eligible Receivables at such time; or (b) such other
amount with respect to a Designated Obligor determined by the Company in the
reasonable exercise of its good faith judgment and disclosed in a written notice
delivered to the Transferor.
"Contract" means an agreement or invoice in substantially the form of one
--------
of the forms set forth in Exhibit A or otherwise approved by the Company, and
any documents related thereto, pursuant to or under which an Obligor shall be
obligated to pay CompuCom for merchandise purchased or services rendered.
"CP Rate" means, with respect to any CP Tranche Period, the rate equivalent
-------
to the rate (or if more than one rate, the weighted average of the rates) at
which Commercial Paper having a term equal to such CP Tranche Period may be sold
by any placement agent or commercial paper dealer entering into a commercial
paper dealer agreement with the Company; provided, however, that if the rate (or
-------- -------
rates) as agreed between any such agent or dealer and the Company is a discount
rate, then the rate (or if more than one rate, the weighted average of the
rates) resulting from the Company's converting such discount rate (or rates) to
an interest-bearing equivalent rate per annum.
"CP Tranche" means a Tranche as to which Discount is calculated at a CP
----------
Rate.
"CP Tranche Period" means, with respect to a CP Tranche, a period of days
-----------------
not to exceed 120 days commencing on a Business Day requested by the Transferor
and agreed to by the Company pursuant to Section 2.3. If such CP Tranche Period
would end on a day which is not a Business Day, such CP Tranche Period shall end
on the next succeeding Business Day.
"Credit and Collection Policy" shall mean CompuCom=s credit and collection
----------------------------
policy or policies and
6
<PAGE>
practices, relating to Contracts and Receivables existing on the date hereof and
referred to in Exhibit B attached hereto, as modified from time to time in
compliance with Section 5.2(c).
"Credit Support Agreement" means the agreement between the Company and the
------------------------
Credit Support Provider evidencing the obligation of the Credit Support Provider
to provide credit support to the Company in connection with the issuance by the
Company of Commercial Paper.
"Credit Support Provider" means the Person or Persons who provide credit
-----------------------
support to the Company in connection with the issuance by the Company of
Commercial Paper.
"Current Maturities of Long-term Debt" means that amount of principal due
------------------------------------
to be repaid within one-year, for debts that were incurred for a time period of
greater than one-year.
"Dealer Fee" means the fee payable by the Transferor to the Agent, pursuant
----------
to Section 2.4 hereof, the terms of which are set forth in the Fee Letter.
"Debt to Tangible Net Worth Ratio" has the meaning specified in the
--------------------------------
NationsBank FSA as in effect on [the date hereof] (without regard to any
amendments, supplements or modifications thereto after [the date hereof]).
"Deemed Collections" means any Collections on any Receivable deemed to have
------------------
been received by the Transferor pursuant to Section 2.9(a) or (b).
"Defaulted Receivable" means a Receivable: (i) as to which any payment, or
--------------------
part thereof, remains unpaid for 91 days or more from the original due date for
such Receivable; (ii) as to which an Event of Bankruptcy has occurred with
respect to the Obligor thereof; (iii) which has been identified by the
Collection Agent as uncollectible; or (iv) which, consistent with the Credit and
Collection Policy, should be written off as uncollectible.
"Delinquency Ratio" means, with respect to any date of determination, the
-----------------
ratio (expressed as a percent-
7
<PAGE>
age) computed by dividing (i) the aggregate Outstanding Balance of all
Delinquent Receivables as of such date by (ii) the aggregate Outstanding Balance
of all Receivables as of such date less Defaulted Receivables as of such date.
"Delinquent Receivable" means a Receivable: (i) as to which any payment,
---------------------
or part thereof, remains unpaid for more than 30 days from the original due date
for such Receivable and (ii) which is not a Defaulted Receivable.
"Designated Obligor" means, at any time, each Obligor; provided, however,
------------------ -------- -------
that any Obligor shall cease to be a Designated Obligor upon notice to the
Transferor from the Company exercising its reasonable discretion, delivered at
any time.
"Dilution Ratio" means, for any period of determination, the ratio
--------------
(expressed as a percentage) computed by dividing (i) the aggregate balance of
Receivables subject to any credits, rebates, discounts, disputes, warranty
claims, repossessed or returned goods, charge back allowances and other dilutive
factors, and any other billing or other adjustment by the Transferor or the
Collection Agent, provided to Obligors in respect of Receivables during the
preceding month by (ii) the aggregate Outstanding Balance of all Receivables
which were originated during the month one month preceding the period of
determination.
"Dilution Reserve" means, at any time, an amount equal to the product of
----------------
(i) 1.5, (ii) the highest Dilution Ratio as of the last day for any of the
preceding twelve (12) calendar months and (iii) the sum of the Net Investment,
the Loss Reserve, the Discount Reserve and the Servicing Fee Reserve at such
time.
"Discount" means, with respect to any Tranche Period:
--------
(TR x TNI x AD)
--
360
Where:
8
<PAGE>
TR = the Tranche Rate applicable to such Tranche Period.
TNI = the portion of the Net Investment allocated to such Tranche Period.
AD = the actual number of days during such Tranche Period.
provided, however, that no provision of this Agreement shall require the payment
- -------- -------
or permit the collection of Discount in excess of the maximum permitted by
applicable law; and provided, further, that Discount shall not be considered
-------- -------
paid by any distribution if at any time such distribution is rescinded or must
be returned for any reason.
"Discount Reserve" means, at any time, an amount equal to:
----------------
TD + LY
Where:
TD = the sum of the unpaid Discount for all Tranche Periods; and
LY = the Liquidation Yield.
"Early Collection Fee" means, for any Tranche Period (such Tranche
--------------------
Period to be determined without regard to the last sentence in Section 2.3(a))
during which the portion of the Net Investment that was allocated to such
Tranche Period is reduced, the excess, if any, of (i) the additional Discount
that would have accrued during such Tranche Period if such reductions had not
occurred, minus (ii) the income received by the Company from investing the
proceeds of such reductions.
"Eligible Investments" shall mean (a) negotiable instruments or
--------------------
securities represented by instruments in bearer or registered or in book-entry
form which evidence (i) obligations fully guaranteed by the United States of
America; (ii) time deposits in, or bankers acceptances issued by, any depositary
institution or trust company incorporated under the laws of the United
9
<PAGE>
States of America or any state thereof and subject to supervision and
examination by Federal or state banking or depositary institution authorities;
provided, however, that at the time of investment or contractual commitment to
- -------- -------
invest therein, the certificates of deposit or short-term deposits, if any, or
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depositary institution or trust company shall have a
credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in
the case of the certificates of deposit or short-term deposits, or a rating not
lower than one of the two highest investment categories granted by Moody's and
by S&P; (iii) certificates of deposit having, at the time of investment or
contractual commitment to invest therein, a rating from Moody's and S&P of at
least "P-1" and "A-1", respectively; (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by the
applicable rating agencies, (b) demand deposits in any depositary institution or
trust company referred to in (a)(ii) above, (c) commercial paper (having
original or remaining maturities of no more than 30 days) having, at the time of
investment or contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively, (d) Eurodollar time
deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-
1", respectively, and (e) repurchase agreements involving any of the Eligible
Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the
other party to the repurchase agreement has at the time of investment therein, a
rating from Moody's and S&P of at least "P-1" and "A-1", respectively.
"Eligible Receivable" means, at any time, any Receivable:
-------------------
(i) which is subject to a valid sale and
assignment from CompuCom to the Transferor pursuant to the
Receivables Purchase Agreement and with respect to which the
Transferor has agreed to transfer, or has transferred to the
Company, a perfected ownership interest or a perfected
security interest pursuant to this Agreement thereto, free
and clear
10
<PAGE>
of all liens;
(ii) the Obligor, which shall be a United States
resident, is not an Affiliate of any of CompuCom, the
Transferor or the Company, is a Designated Obligor, and is
not a government or a governmental subdivision or agency;
(iii) which is required to be paid in full not
more than 30 days of the original billing date therefor and
does not represent a payment obligation by an Obligor to
Client Link Inc.;
(iv) which is not a Defaulted Receivable at the
time of the initial creation of an interest in such
Receivable;
(v) which is an "eligible asset" as defined in
Rule 3a-7 under the Investment Company Act of 1940, as
amended;
(vi) which is not more than 30 days delinquent at
the time of initial creation of an interest in such
Receivable;
(vii) which is an "account" within the meaning of
Section 9-106 of the UCC of all applicable jurisdictions;
(viii) which is denominated and payable only in
United States dollars in the United States;
(ix) which arises under a Contract which,
together with such Receivable, is in full force and effect
and constitutes the legal, valid and binding obligation of
the related Obligor enforceable against such Obligor in
accordance with its terms and is not subject to offset,
counterclaim or other defense;
(x) which, together with the Contract related
thereto, does not contravene
11
<PAGE>
in any material respect any laws, rules or regulations
applicable thereto;
(xi) which (a) satisfies all applicable
requirements of the Credit and Collection Policy and (b)
complies with such other reasonable criteria and
requirements as the Transferor or the Company may from time
to time specify to CompuCom following five (5) days' notice;
(xii) which was generated in the ordinary course
of CompuCom's business and represents amounts payable in
respect of goods delivered or services performed;
(xiii) the Obligor of which has been directed to
make all payments to a Lockbox, with respect to which there
shall be a Lockbox Agreement in effect; and
(xiv) as to which the Company has not notified
the Transferor that the Company has reasonably determined
that such Receivable, or class of Receivables, is not
acceptable for purchase hereunder because of the nature of
the business of the Obligor, or because of a potential
conflict of interest between the interests of CompuCom or
the Transferor and the Company.
"Estimated Maturity Period" shall mean, at any time, the period,
-------------------------
rounded upward to the nearest whole number of days, equal to the weighted
average number of days until due of the Receivables as calculated by the
Collection Agent in good faith and set forth in the most recent Monthly Report,
such calculation to be based on the assumptions that (a) each Receivable within
a particular aging category, (as set forth in the Investor Report) will be paid
on the last day of such aging category and (b) the last day of the last such
aging category coincides with the last date on which any Outstanding Balance of
any Receivables would be written off as uncollectible or charged against any
applicable reserve or similar account in accordance with the objective
requirements of the Credit and Collection Policy and CompuCom's
12
<PAGE>
normal accounting practices applied on a basis consistent with those reflected
in CompuCom's financial statements; provided, however, that if the Company shall
-------- -------
reasonably disagree with any such calculation, the Company may recalculate the
Estimated Maturity Period, and such recalculation, in the absence of manifest
error, shall be conclusive.
"Eurodollar Rate" means, with respect to any Eurodollar Tranche Period, a
---------------
rate which is .625% in excess of a rate per annum equal to the sum (rounded
upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained
by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100%
minus the reserve percentage used for determining the maximum reserve
requirement as specified in Regulation D (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) that is applicable
to the Liquidity Provider during such Eurodollar Tranche Period in respect of
eurocurrency or eurodollar funding, lending or liabilities (or, if more than one
percentage shall be so applicable, the daily average of such percentage for
those days in such Eurodollar Tranche Period during which any such percentage
shall be applicable) plus (B) the then daily net annual assessment rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Liquidity
Provider for determining the current annual assessment payable by the Liquidity
Provider to the Federal Deposit Insurance Corporation in respect of eurocurrency
or eurodollar funding, lending or liabilities.
"Eurodollar Tranche" means a Tranche as to which Discount is calculated at
------------------
the Eurodollar Rate.
"Eurodollar Tranche Period" means, with respect to a Eurodollar Tranche,
-------------------------
prior to the Termination Date, a period of up to one month requested by the
Transferor and agreed to by the Company or the Liquidity Provider , as the case
may be, commencing on a Business Day requested by the Transferor and agreed to
by the Company; provided, however, that if such Eurodollar Tranche Period would
-------- -------
expire on a day which is not a Business Day, such Eurodollar Tranche Period
shall expire on the next succeeding Business Day; provided, further, that if
-------- -------
such Eurodollar Tranche Period would expire on (a) a day which is not a
13
<PAGE>
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Eurodollar Tranche Period shall expire on the next
preceding Business Day or (b) a Business Day for which there is no numerically
corresponding day in the applicable subsequent calendar month, such Eurodollar
Tranche Period shall expire on the last Business Day of such month.
"Event of Bankruptcy", with respect to any Person, shall mean (i) that such
-------------------
Person shall generally not be able to pay its debts as such debts become due or
shall admit in writing its inability to pay its debts generally or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against such Person seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property
or (ii) if such Person is a corporation, such Person or any Subsidiary shall
take any corporate action to authorize any of the actions set forth in the
preceding clause (i).
"Facility Fee" means the fee payable by the Transferor to the Company
------------
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Fee Letter" means the letter agreement dated the date hereof between the
----------
Transferor and the Company, as amended, supplemented or otherwise modified and
in effect from time to time.
"Facility Limit" means $175,000,000.
--------------
"Finance Charges" means, with respect to a Contract, any finance, interest,
---------------
late or similar charges owing by an Obligor pursuant to such Contract.
"Fixed Charge Coverage Ratio" means a fraction, the numerator of which is
---------------------------
the sum of Net Income, Depreciation and Amortization (each as defined in GAAP)
and the denominator of which is Current Maturities of Long-term
14
<PAGE>
Debt.
"Guaranty" of a Person means any agreement by which such Person assumes,
--------
guarantees, endorses, contingently agrees to purchase or provide funds for the
payment of, or otherwise becomes liable upon, the obligation of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise assures any other creditor
of such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such Person in connection with any
application for a letter of credit.
"Incremental Transfer" means a Transfer which is made pursuant to Section
--------------------
2.2(a).
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
------------
money, (ii) obligations representing the deferred purchase price of property
other than accounts payable arising in the ordinary course of such Person's
business on terms customary in the trade, (iii) obligations, whether or not
assumed, secured by liens or payable out of the proceeds or production from
property now or hereafter owned or acquired by such Person, (iv) obligations
which are evidenced by notes, acceptances, or other instruments, (v) Capitalized
Lease obligations and (vi) obligations for which such Person is obligated
pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1.
-------------------
"Indemnified Parties" has the meaning specified in Section 8.1.
-------------------
"Interest Coverage Ratio" means a fraction, the numerator of which is Net
-----------------------
Income before Interest Expense and taxes and the denominator of which is
Interest Expense.
"Interest Expense" means amounts due in the current period to the Company's
----------------
lenders for the use of borrowed funds, exclusive of principal.
15
<PAGE>
"Inventory Financing Agreements" shall mean those certain agreements
------------------------------
between CompuCom and each of IBM Credit Corporation, Compaq Computer
Corporation, Hewlett-Packard Company and Apple Computer, Inc., all of which are
attached hereto as Exhibit O, pursuant to which such parties claim an interest
in inventory the sale of which may give rise to accounts receivable, including
the Receivables.
"Investor Report" means a report, in substantially the form of Exhibit C or
---------------
in such other form as is mutually agreed to by CompuCom and the Company,
furnished by the Collection Agent to the Company and the Agent pursuant to
Section 2.11.
"Law" shall mean any law (including common law), constitution, statute,
---
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIBOR Rate" shall mean, with respect to any Eurodollar Tranche Period, the
----------
rate at which deposits in dollars are offered to the Liquidity Provider in the
London interbank market at approximately 11:00 a.m. (London time) two Business
Days before the first day of such Eurodollar Tranche Period in an amount
approximately equal to the Eurodollar Tranche to which the Eurodollar Rate is to
apply and for a period of time approximately equal to the applicable Eurodollar
Tranche Period.
"Liquidation Yield" means, at any time, an amount equal to:
-----------------
(RVF x LBR x NI) x (EM x 1.5)
----------
360
Where:
RVF = the Rate Variance Factor.
LBR = the Base Rate which is applicable to the liquidation period of the Net
Investment at such time.
NI = the Net Investment.
16
<PAGE>
EM = the Estimated Maturity Period of the Receivables.
"Liquidity Provider Agreement" means the agreement between the Company
----------------------------
and the Liquidity Provider evidencing the obligation of the Liquidity Provider
to provide liquidity support to the Company in connection with the issuance by
the Company of Commercial Paper.
"Liquidity Provider" means the Person or Persons who will provide
------------------
liquidity support to the Company in connection with the issuance by the Company
of Commercial Paper.
"Lockbox" means an account maintained by the Collection Agent at a
-------
Lock-Box Bank for the purpose of receiving Collections from Receivables.
"Lockbox Agreement" means an agreement among the Collection Agent, the
-----------------
Agent and a Lockbox Bank in substantially the form of Exhibit M hereto.
"Lockbox Bank" means each of the banks set forth in Exhibit L hereto
------------
and such banks as may be added thereto or deleted therefrom pursuant to Section
2.8 herein.
"Loss Percentage" means on any day the greatest of (i) 5 times the
---------------
highest Loss-to-Liquidation Ratio as of the last day of the 12 calendar months
preceding the then current month, (ii) 3 times the highest Concentration Amount
of all Designated Obligors (exclusive of A1/A+ Rated Obligors) and (iii) 10
percent.
"Loss Reserve" means, on any day, an amount equal to:
------------
LP x (NI + DR + SFR)
Where:
LP = the Loss Percentage at the close of business of
the Collection Agent on such day.
NI = the Net Investment at the close of business of
the Collection Agent on such day.
17
<PAGE>
DR = the Discount Reserve at the close of business
of the Collection Agent on such day.
SFR = the Servicing Fee Reserve at the close of business
of the Collection Agent on such day.
Notwithstanding the foregoing, the Loss Reserve shall at all times be at least
equal to $17,500,000.
"Loss-to-Liquidation Ratio" means, for any period of determination, the
-------------------------
ratio (expressed as a percentage) computed by dividing (i) the aggregate
Outstanding Balance of all Receivables which became Defaulted Receivables during
such period, by (ii) the aggregate amount of cash Collections (excluding Deemed
Collections) received by the Collection Agent during such period.
"Majority Investors" has the meaning specified in Section 9.1(a).
------------------
"Maximum Net Investment" means $175,000,000.
----------------------
"Maximum Percentage Factor" means 98%.
-------------------------
"Moody's" means Moody's Investors Service, Inc.
-------
"NationsBank FSA" means that certain Amended and Restated Credit
---------------
Agreement dated as of November 3, 1997, among CompuCom Systems, Inc., as
Borrower, the Lenders from time to time party thereto, and NationsBank of Texas,
N.A., as administrative agent for the Lenders, as the same may from time to time
be amended, supplemented or otherwise modified and in effect.
"Net Asset Test" shall mean, in connection with any assignment by the
--------------
Company to the Bank Investors of an interest in the Net Investment pursuant to
Section 9.7 hereof, that on the day immediately prior to the day on which such
assignment is to take effect, the Net Receivables Balance shall be greater than
the Net Investment.
"Net Income" has the meaning specified in the NationsBank FSA as in
----------
effect on the date hereof (without regard to any amendments, supplements or
modifications thereto after the date hereof).
18
<PAGE>
"Net Investment" means the sum of the amounts paid to the Transferor for
--------------
each Incremental Transfer less the aggregate amount of Collections received and
applied by the Company to reduce such Net Investment pursuant to Section 2.6 or
Section 2.9; provided that the Net Investment shall be restored in the amount of
--------
any Collections so received and applied if at any time the distribution of such
Collections is rescinded or must otherwise be returned for any reason provided
--------
further that the Net Investment may be increased by the amount described in
- -------
Section 9.7(g) as described therein.
"Net Receivables Balance" means, at any time, (a) the Outstanding Balance
-----------------------
of the Eligible Receivables at such time reduced by (b) the sum of (i) the
aggregate Outstanding Balance of all Eligible Receivables which are Defaulted
Receivables, (ii) the aggregate Outstanding Balance of all Eligible Receivables
of each Obligor with respect to which 50% or more of such Obligor's Receivables
are more than ninety (90) days past due, (iii) for a particular Obligor on any
date of determination, the amount (if positive) by which either (x) if the
aggregate amount due and owing by CompuCom to such Obligor exceeds the aggregate
amount due and owing by such Obligor to CompuCom, then the amount due and owing
by such Obligor to CompuCom or (y) if the aggregate amount due and owing by an
Obligor to CompuCom exceeds the aggregate amount due and owing by CompuCom to
such Obligor, then the amount due and owing by CompuCom to such Obligor, (iv)
credits which are aged more than ninety (90) days (this clause (iv) calculated
in the aggregate for all Designated Obligors) minus (B) for each Designated
-----
Obligor, the amount by which (x) the aggregate Outstanding Balance of Eligible
Receivables related to such Designated Obligor exceeds (y) the Concentration
Amount with respect to such Designated Obligor.
"Obligor" means a Person obligated to make payments for the provision of
-------
goods and services pursuant to a Contract.
"Official Body" shall mean any government or political subdivision or any
-------------
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitra-
19
<PAGE>
tor, in each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
----------------
entered into a receivables purchase agreement or transfer and administration
agreement with the Company.
"Outstanding Balance" of any Receivable at any time shall mean the then
-------------------
outstanding principal amount thereof including any accrued and outstanding
Finance Charges related thereto.
"Percentage Factor" shall mean the percentage computed at any time of
-----------------
determination as follows:
NI + LR + DLR + DR + SFR
------------------------
NRB
Where:
NI = the Net Investment at the time of such computation.
LR = the Loss Reserve at the time of such computation.
DLR = the Dilution Reserve at the time of such computation.
DR = the Discount Reserve at the time of such computation.
SFR = the Servicing Fee Reserve at the time of such computation.
NRB the Net Receivables Balance at the time of such computation.
Notwithstanding the foregoing computation, the Percentage Factor shall
not exceed one hundred percent (100%). The Percentage Factor shall be calculated
by the Collection Agent on the day of the initial Incremental Transfer
hereunder. Thereafter, until the Termination Date, the Collection Agent shall
daily recompute the Percentage Factor and report such recomputations to the
Company weekly in the Investor Report or as requested by
20
<PAGE>
the Company. The Percentage Factor shall remain constant from the time as of
which any such computation or recomputation is made until the time as of which
the next such recomputation shall be made, notwithstanding any additional
Receivables arising, any Incremental Transfer made pursuant to Section 2.2(a) or
any reinvestment Transfer made pursuant to Section 2.2(b) and 2.5 during any
period between computations of the Percentage Factor. The Percentage Factor, as
calculated at the close of business on the Business Day immediately preceding
the Termination Date, shall remain constant at all times thereafter until such
time as the Company shall have received the Aggregate Unpaids, at which time the
Percentage Factor shall be recomputed in accordance with Section 2.6.
"Person" means any corporation, natural person, firm, joint venture,
------
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"Potential Termination Event" means an event which but for the lapse of
---------------------------
time or the giving of notice, or both, would constitute a Termination Event
which is impossible to cure.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
--------
"Program Fee" means the fee payable by the Transferor to the Company
-----------
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Pro Rata Share" means, for a Bank Investor, the Commitment of such Bank
--------------
Investor divided by the sum of the Commitments of all Bank Investors.
"Purchased Interest" means the Company's interest in the Receivables
------------------
acquired by the Liquidity Provider through purchase pursuant to the terms of the
Liquidity Provider Agreement.
"Rate Variance Factor" means the number, computed from time to time in good
--------------------
faith by the Company, that reflects the largest potential variance (from minimum
to maximum) in selected interest rates over a period
21
<PAGE>
of time selected by the Company from time to time, set forth in a written notice
by the Company to the Transferor and the Collection Agent.
"Receivable" means the indebtedness owed to CompuCom by any Obligor
----------
(without giving effect to the sale thereof under the Receivables Purchase
Agreement or hereunder), which shall have been sold to the Transferor pursuant
to the Receivables Purchase Agreement, under a Contract whether constituting an
account, chattel paper, instrument or general intangible, arising in connection
with the sale of merchandise or services by CompuCom, and includes the right to
payment of any Finance Charges and other obligations of such Obligor with
respect thereto. Notwithstanding the foregoing, once a Receivable has been
deemed collected pursuant to Section 2.9 hereof, it shall no longer constitute a
Receivable hereunder.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement,
------------------------------
dated as of April 1, 1996, as amended and restated as of November 3, 1997,
between CompuCom and the Transferor, as the same may from time to time be
amended, supplemented or otherwise modified and in effect.
"Records" means all Contracts and other documents, books, records and other
-------
information (including, without limitation, computer programs, tapes, discs,
punch cards, data processing software and related property and rights)
maintained by the Collection Agent with respect to Receivables and the related
Obligors.
"Reinvestment Termination Date" means the second Business Day after the
-----------------------------
delivery by the Company to the Transferor of written notice that the Company has
elected to commence the amortization of its interest in the Net Investment.
"Related Security" means with respect to any Receivable:
----------------
(i) the merchandise (including returned merchandise, subject to the
applicable provisions of Section 9-306 of the UCC and/or the Inventory
Financing Agreements), if any, the sale of which by CompuCom gave rise to
such
22
<PAGE>
Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, pursuant to the Contract related to such Receivable, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(iii) all guarantees, insurance or other agreements or arrangements
of any kind from time to time supporting or securing payment of such
Receivable pursuant to the Contract related to such Receivable;
(iv) all Records; and
(v) all proceeds (as defined in Section 9-306 of the UCC) of the
foregoing.
"Release" means the Partial Release of Liens and Security Interests,
-------
executed on November 3, 1997 by NationsBank of Texas, N.A., whereby NationsBank
of Texas, N.A. released certain liens and security interests which cover the
property of CompuCom.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d).
-----------------
"Servicing Fee" shall mean the fee payable monthly by the Company to the
-------------
Collection Agent, with respect to a Tranche, in an amount equal to 0.50% per
annum on the amount of the Net Investment allocated to such Tranche pursuant to
Section 2.3. Such fee shall accrue from the date of the initial purchase of an
ownership interest in the Receivables to the later of the Termination Date or
the date on which the Net Investment is reduced to zero. On or prior to the
Termination Date, such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.5. After the
Termination Date, such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.6.
23
<PAGE>
"Servicing Fee Reserve" means at any time an amount equal to the product of
---------------------
(A) the aggregate Outstanding Balance of Receivables at such time, (B) the
Servicing Fee percentage and (C) a fraction having as the numerator, the sum of
(x) 1.5 times the Estimated Maturity Period plus (y) 30, and as the denominator,
----
360.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services.
----------------- ---
"Subsidiary" of a Person means any corporation more than 50% of the
----------
outstanding voting securities of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Termination Date" means the earliest of (i) that Business Day designated
----------------
by the Transferor to the Company as the Termination Date at any time following
60 days' written notice to the Company, (ii) the date of termination of the
commitment of the Liquidity Provider under the Liquidity Provider Agreement,
(iii) the date of termination of the commitment of the Credit Support Provider
under the Credit Support Agreement, (iv) the day on which the Agent delivers to
the Transferor a notice of termination pursuant to the occurrence of a
Termination Event, (v) November 2, 1998, (vi) two (2) Business Days prior to the
Commitment Termination Date or (vii) unless the Transferred Interest shall have
been assigned (or concurrently is so assigned) to the Bank Investors pursuant to
Section 9.7 hereof, the day on which a Reinvestment Termination Date shall
occur.
"Termination Event" means an event described in Section 7.1.
-----------------
"Tranche" means a portion of the Net Investment allocated to a Tranche
-------
Period pursuant to Section 2.3.
"Tranche Period" means a CP Tranche Period, a BR Tranche Period, a CD
--------------
Tranche Period or a Eurodollar Tranche Period.
"Tranche Rate" means the CP Rate, the Base Rate, the CD Rate or the
------------
Eurodollar Rate.
24
<PAGE>
"Transaction Costs" has the meaning specified in Section 8.3(a).
-----------------
"Transaction Documents" means this Agreement, the Receivables Purchase
---------------------
Agreement, and all documents related thereto.
"Transfer" means a conveyance, transfer and assignment by the Transferor to
--------
the Company of a portion of the Transferred Interest hereunder pursuant to
Section 2.2.
"Transfer Certificate" has the meaning specified in Section 2.2(a).
--------------------
"Transfer Date" means, with respect to each Transfer, the Business Day on
-------------
which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the amount
--------------
paid to the Transferor by the Company as described in the Transfer Certificate.
"Transferred Interest" means, at any time of determination, an undivided
--------------------
percentage ownership interest in (i) each and every then outstanding Receivable,
(ii) all Related Security with respect to each such Receivable, (iii) all
Collections with respect thereto, and (iv) other Proceeds of the foregoing,
equal to the Percentage Factor at such time, and only at such time (without
regard to prior calculations). To the extent that the Transferred Interest
shall decrease as a result of a recalculation of the Percentage Factor, the
Company shall be considered to have reconveyed to the Transferor an undivided
percentage ownership interest in the Receivables, together with Related Security
and Collections, in an amount equal to such decrease.
"UCC" means, with respect to any state, the Uniform Commercial Code as from
---
time to time in effect in such state.
SECTION .1. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with generally accepted accounting
princi-
25
<PAGE>
ples. All terms used in Article 9 of the UCC in the State of New York,
and not specifically defined herein, are used herein as defined in such Article
9.
SECTION .2. Computation of Time Periods. Unless otherwise stated in
---------------------------
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
26
<PAGE>
ARTICLE I
TRANSFERS AND SETTLEMENTS
SECTION I.1. Facility. Upon the terms and subject to the conditions
--------
herein set forth, the Transferor may, at its option, convey, transfer and assign
to the Company, and the Company may accept such conveyance, transfer and
assignment from the Transferor, without recourse except as provided herein,
undivided percentage ownership interests in the Receivables and the Related
Security and Collections with respect thereto from time to time.
SECTION I.2. Transfers; Company Certificate; Eligible Receivables. (a)
----------------------------------------------------
Incremental Transfers. Upon the terms and subject to the conditions herein set
- ---------------------
forth, the Transferor may, at its option, convey, transfer and assign to the
Company, and the Company may accept such conveyance, transfer and assignment
from the Transferor, without recourse except as provided herein, undivided
percentage ownership interests in the Receivables, together with Related
Security and Collections with respect thereto (each, an "Incremental Transfer")
--------------------
from time to time prior to the occurrence of the Termination Date for an
aggregate Transfer Price not to exceed the Maximum Net Investment; provided that
--------
the Company shall not accept any such transfer if it is unable to obtain funds
therefor in the commercial paper market or under the Liquidity Provider
Agreement. The Transferor shall by notice given by telecopy offer to convey,
transfer and assign to the Company undivided percentage ownership interests in
the Receivables and the Related Security and Collections with respect thereto at
least three (3) Business Days prior to the proposed date of transfer.
Each such notice shall specify the desired Transfer Price (which shall be
at least $5,000,000 or integral multiples of $1,000,000 in excess thereof) and
the desired date of such Incremental Transfer, together with the desired Tranche
Period (or range) related thereto as required by Section 2.3. The Company, if
it accepts such offer, shall accept such offer to convey, transfer and assign
interests in the Receivables and related property by notice given to the
Transferor by
27
<PAGE>
telephone or telecopy. Each notice of proposed Transfer shall be irrevocable and
binding on the Transferor and the Transferor shall indemnify the Company against
any loss or expense incurred by the Company, either directly or through the
Liquidity Provider Agreement as a result of any failure by the Transferor to
complete such Incremental Transfer including, without limitation, any loss or
expense incurred by the Company, either directly or pursuant to the Liquidity
Provider Agreement, by reason of the liquidation or reemployment of funds
acquired by the Company or the Liquidity Provider (including, without
limitation, funds obtained by issuing commercial paper or promissory notes or
obtaining deposits as loans from third parties) for the Company to fund such
Incremental Transfer.
On the date of the initial Incremental Transfer, the Company shall deliver
written confirmation to the Transferor of the Transfer Price, the Tranche
Period(s) and the Tranche Rate(s) relating to such Transfer and the Transferor
shall deliver to the Company the Transfer Certificate in the form of Exhibit D
hereto (the "Transfer Certificate"). The Company shall indicate the amount of
--------------------
the initial Incremental Transfer together with the date thereof on the grid
attached to the Transfer Certificate. On the date of each subsequent
Incremental Transfer, the Company shall send written confirmation to the
Transferor of the Transfer Price, the Tranche Period(s), the Transfer Date and
the Tranche Rate(s) applicable to such Incremental Transfer. The Company shall
indicate the amount of the Incremental Transfer together with the date thereof
as well as any decrease in the Net Investment on the grid attached to the
Transfer Certificate. The Transfer Certificate shall evidence the Incremental
Transfers. As soon as is practicable following each Incremental Transfer, the
Company shall deposit to the Transferor's account at the location indicated in
Section 10.3, in immediately available funds, an amount equal to the Transfer
Price for such Incremental Transfer.
(b) Reinvestment Transfers. On each Business Day occurring after the
----------------------
initial Incremental Transfer and prior to the Termination Date, the Transferor
hereby agrees to convey, transfer and assign to the Company, and in
consideration of the Transferor's agree-
28
<PAGE>
ment to maintain at all times prior to the Termination Date a Net Receivables
Balance in an amount at least sufficient to maintain the Percentage Factor at an
amount not greater than the Maximum Percentage Factor, the Company hereby agrees
to purchase from the Transferor undivided percentage ownership interests in the
Receivables and the Related Security and Collections with respect thereto, to
the extent that Collections are available for such Transfer in accordance with
Section 2.5, such that after giving effect to such Transfer, the amount of the
Company's Net Investment at the close of the Company's business on such Business
Day shall be equal to the amount of the Company's Net Investment at the close of
the Company's business on the Business Day immediately preceding such Business
Day plus the Transfer Price of any Incremental Transfer made on such day, if
any. The Company may deliver a Reinvestment Termination Notice to the Transferor
(with a copy thereof to the Collection Agent) at any time.
(c) All Transfers. Each Transfer shall constitute a purchase of an
-------------
undivided percentage ownership interest in the Receivables then existing and
which arises at any time after the date of such Transfer. The Company's
aggregate undivided percentage ownership interest in the Receivables and the
Related Security and Collections with respect thereto shall equal the Percentage
Factor in effect from time to time.
(d) Company Certificate. The Transferor shall issue to the Company
-------------------
the Company Certificate, in the form of Exhibit K, on or prior to the date
hereof.
(e) Percentage Factor. The Percentage Factor shall be initially
-----------------
computed as of the opening of business of the Collection Agent on the date of
the initial Incremental Transfer hereunder. Thereafter, until the Termination
Date, the Percentage Factor shall be automatically recomputed by the Collection
Agent as of the close of business of the Collection Agent on each day (other
than a day after the Termination Date). The Percentage Factor shall remain
constant from the time as of which any such computation or recomputation is made
until the time as of which the next such recomputation, if any, shall be made.
The Percentage Factor, as computed as of the day immediately preceding the
Termination
29
<PAGE>
Date, shall remain constant at all times on and after such Termination Date
until the date on which the Net Investment shall become zero.
SECTION .1. Selection of Tranche Periods and Tranche Rates.
----------------------------------------------
(a) At all times hereafter, but prior to the occurrence of a
Termination Event, the Transferor shall, subject to the Company's approval and
the limitations described below, request Tranche Periods and allocate a portion
of the Net Investment to each selected Tranche Period, so that the aggregate
amounts allocated to outstanding Tranche Periods at all times shall equal the
Net Investment. The Transferor shall give the Company irrevocable notice by
telephone of the new requested Tranche Period(s) at least three (3) Business
Days prior to the expiration of any then existing Tranche Period; provided,
--------
however, that the Company may select, in its sole discretion, any such new
- -------
Tranche Period if (i) the Transferor fails to provide such notice on a timely
basis or (ii) the Company determines, in its sole discretion, that the Tranche
Period requested by the Transferor is unavailable or for any reason commercially
undesirable. The Company confirms that it is its intention to allocate all or
substantially all of the Net Investment to one or more CP Tranche Periods;
provided that the Company may determine, from time to time, in its sole
- --------
discretion, that funding such Net Investment by means of one or more CP Tranche
Periods is not desirable for any reason. If the Liquidity Provider acquires a
Transferred Interest with respect to the Receivables and related property
pursuant to the terms of the Liquidity Provider Agreement, the Liquidity
Provider may exercise the right of selection granted to the Company hereby. The
Tranche Rate applicable to any such Purchased Interest may be the BR Rate, the
CD Rate or the Eurodollar Rate, as determined by the Liquidity Provider. In the
case of any Tranche Period outstanding upon the occurrence of a Termination
Event or on the date of the assignment of the Transferred Interest to the Bank
Investors pursuant to Section 9.7, such Tranche Period shall end on the date of
such occurrence.
(b) At all times on and after the occurrence of a Termination Event,
the Company or the Liquidi-
30
<PAGE>
ty Provider, as applicable, shall select all Tranche Periods and Tranche Rates
applicable thereto; provided, that if the Bank Investors are assigned the
--------
Transferred Interest pursuant to Section 9.7, one Tranche Period, with a Tranche
Rate determined pursuant to the letter agreement referred to in Section 9.7,
with successive periods of one day, shall thereafter exist.
SECTION .2. Discount, Fees and Other Costs and Expenses. Notwithstanding
-------------------------------------------
the limitation on recourse under Section 2.1, the Transferor shall pay, as and
when due in accordance with this Agreement, all fees hereunder, Discount, all
amounts payable pursuant to Article VIII hereof, if any, and the Servicing Fee.
On the last day of each Tranche Period, the Transferor shall pay to the Company
an amount equal to the accrued and unpaid Discount for such Tranche Period
together with an amount equal to the discount accrued on the Company's
Commercial Paper notes to the extent such notes were issued in order to fund the
Transferred Interest in an amount in excess of the Transfer Price of an
Incremental Transfer; provided that any such excess amount will not exceed
--------
$100,000 in connection with any such Incremental Transfer. The Transferor shall
pay to the Company, on each day on which Commercial Paper is issued by the
Company, the Dealer Fee. Discount shall accrue with respect to each Tranche on
each day occurring during the Tranche Period related thereto. Nothing in this
Agreement shall limit in any way the obligations of the Transferor to pay the
amounts set forth in this Section 2.4.
SECTION .3. Non-Liquidation Settlement and Reinvestment Procedures. On
------------------------------------------------------
each day after the date of any Incremental Transfer, but prior to the
Termination Date, and provided that no Potential Termination Event shall have
occurred and be continuing, the Collection Agent shall out of the Percentage
Factor of the Collections received and distributed to the Transferor on or prior
to such day and not previously applied or accounted for: (i) set aside and hold
in trust for the Company (or deposit into the Collection Account if so required
pursuant to Section 2.12) an amount equal to all Discount and the Servicing Fee
accrued through such day and not so previously set aside or paid and (ii) apply
the balance of such Percentage Factor of Collections remaining after application
of the Collections as provided in clause (i)
31
<PAGE>
of this Section 2.5 to the Transferor, for the benefit of the Company to the
purchase of additional undivided percentage interests in the Receivables
pursuant to Section 2.2(b). On the last day of each Tranche Period, from the
amounts set aside as described in clause (i) of the first sentence of this
Section 2.5, the Collection Agent shall deposit to the Company's account, an
amount equal to the accrued and unpaid Discount for such Tranche Period and
shall deposit to its account an amount equal to the accrued and unpaid Servicing
Fee for such Tranche Period. As provided in Section 6.2(b), the Collection Agent
shall remit to the Transferor, as soon as practicable after receipt, such
portion of Collections not allocated to the Company.
SECTION .4. Liquidation Settlement Procedures. If on the Termination
---------------------------------
Date, the Percentage Factor is greater than the Maximum Percentage Factor, then
the Transferor shall immediately pay to the Company from previously received
Collections distributed to the Transferor, an amount equal to the amount such
that, when applied in reduction of the Net Investment, will result in a
Percentage Factor less than or equal to the Maximum Percentage Factor. Such
amount shall be applied by the Company to the reduction of the Net Investment of
Tranche Periods selected by the Company. On the Termination Date and on each
day thereafter, and on and after the date on which the Agent delivers to the
Transferor notice that a Potential Termination Event has occurred, the
Collection Agent shall set aside and hold in trust for the Company (or deposit
into the Collection Account if so required pursuant to Section 2.12) all
Collections received by the Transferor on such day. On the Termination Date or
the day on which the Agent delivers to the Transferor notice that a Potential
Termination Event has occurred, the Collection Agent shall deposit to the
Company's account any remaining amounts set aside pursuant to Section 2.5(i)
above. On the last day of each Tranche Period to occur on or after the
Termination Date or during the continuance of a Potential Termination Event, the
Collection Agent shall deposit to the Company's account, the amounts set aside
pursuant to the preceding sentence, together with any remaining amounts set
aside pursuant to Section 2.5(i) prior to the Termination Date or the day on
which a Potential Termination Event occurs but not to exceed the sum of (i) the
accrued Discount for such Tranche Period, (ii) the portion of the Net Investment
allocated to such Tranche
32
<PAGE>
Period, and (iii) the aggregate of all other Aggregate Unpaids then owed
(whether due or accrued) hereunder by Transferor to the Company. On such day,
the Collection Agent shall deposit to its account, from the amounts set aside
pursuant to the preceding sentence which remain after payment in full of the
aforementioned amounts, the accrued Servicing Fee for such Tranche Period.
If there shall be insufficient funds on deposit for the Collection Agent to
distribute funds in payment in full of the aforementioned amounts, the
Collection Agent shall distribute funds first, in payment of the accrued
-----
Discount, second, in payment of all fees and expenses payable to the Company
------
hereunder, third, if the Transferor is not the Collection Agent, to the
-----
Collection Agent's account, in payment of the Servicing Fee payable to the
Collection Agent, fourth, in reduction of the Net Investment allocated to such
------
Tranche Period, fifth, in payment of all other amounts payable to the Company
-----
and sixth, if the Transferor is the Collection Agent, to its account as
-----
Collection Agent, in payment of the Servicing Fee payable to the Transferor as
Collection Agent. Following the date on which the Net Investment has been
reduced to zero, all accrued Discount and Servicing Fees have been paid in full
and all other Aggregate Unpaids have been paid in full, (i) the Collection Agent
shall recompute the Percentage Factor, (ii) the Company shall be considered to
have reconveyed to the Transferor any interest in the Receivables and related
property (including the Transferred Interest), (iii) the Collection Agent shall
pay to Transferor any remaining Collections set aside and held by the Collection
Agent pursuant to the second sentence of this Section 2.6 and (iv) the Company
shall execute and deliver to the Transferor, at the Transferor's expense, such
documents or instruments as are necessary to terminate the Company's interest in
the Receivables and related property. Any such documents shall be prepared by
or on behalf of the Transferor.
SECTION .5. Fees. Notwithstanding any limitation on recourse contained
----
in this Agreement, the Transferor shall pay the following non-refundable fees:
(a) On the last day of each month, to the
33
<PAGE>
Company, the Program Fee and the Facility Fee as set forth in the Fee Letter.
(b) On the date of execution hereof, to the Agent, the Advisory Fee
as set forth in the Fee Letter.
SECTION .6. Protection of Ownership Interest of the Company. (a) Each
-----------------------------------------------
of the Transferor and the Collection Agent agrees that from time to time, at its
expense, it will promptly execute and deliver all instruments and documents and
take all actions as may be necessary or as the Agent may reasonably request in
order to perfect or protect the Transferred Interest or to enable the Agent to
exercise or enforce any of its rights hereunder. Without limiting the
foregoing, each of the Transferor and CompuCom will, upon the request of the
Agent, in order to accurately reflect this purchase and sale transaction, (1)
execute and file such financing or continuation statements or amendments thereto
or assignments thereof (as permitted pursuant to Section 10.6 hereof) as may be
requested by the Company, the Agent or any of the Bank Investors and (2) mark
its master data processing records and other documents with a legend describing
the purchase hereunder of the Transferred Interest. The Transferor shall, upon
request of the Agent, obtain such additional search reports as the Agent shall
request. To the fullest extent permitted by applicable law, the Agent shall be
permitted to sign and file continuation statements and amendments thereto and
assignments thereof without the Transferor's signature. Carbon, photographic or
other reproduction of this Agreement or any financing statement shall be
sufficient as a financing statement. Neither the Transferor nor CompuCom shall
change its name, identity or corporate structure (within the meaning of Section
9-402(7) of the UCC as in effect in the States of New York and Texas) or
relocate its chief executive office or any office where Records are kept unless
it shall have: (i) given the Agent at least thirty (30) days prior notice
thereof and (ii) prepared at Transferor's expense and delivered to the Agent all
financing statements, instruments and other documents necessary to preserve and
protect the Transferred Interest or requested by the Agent in connection with
such change or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in
34
<PAGE>
name or location shall be made at the expense of Transferor.
(b) The Collection Agent shall instruct all Obligors to cause
all Collections to be deposited directly to a Lockbox. Any Lockbox maintained by
a Lockbox Bank pursuant to the related Lock-Box Agreement shall be under the
exclusive ownership and control of the Agent which is hereby granted to the
Agent by the Transferor. The Collection Agent shall be permitted to give
instructions to the Lockbox Banks for so long as no Termination Event has
occurred hereunder. The Collection Agent shall not add any bank as a Lockbox
Bank to those listed on Exhibit L attached hereto unless such bank has entered
into a Lockbox Agreement. The Collection Agent shall, prior to adding any bank
as a Lockbox Bank, obtain prior written consent of the Agent (such consent not
to be unreasonably withheld). The Collection Agent shall not terminate any bank
as a Lockbox Bank unless the Agent shall have received fifteen (15) days' prior
notice of such termination; provided, however, that at all times hereafter there
-------- -------
must be at least one (1) Lockbox Bank. If the Transferor or the Collection
Agent receives any Collections, the Transferor or the Collection Agent, as
applicable, shall immediately, but in any event within 2 Business Days of
receipt, remit such Collections to a Lockbox.
SECTION .7. Deemed Collections; Application of Payments. (a) If
-------------------------------------------
on any day the Outstanding Balance of a Receivable is either (x) reduced as a
result of any defective, rejected or returned goods or services, any cash
discount, credit, rebate, allowance or other dilution factor, any billing
adjustment or other adjustment, or (y) reduced or canceled as a result of a
setoff or offset in respect of any claim by any Person (whether such claim
arises out of the same or a related transaction or an unrelated transaction),
the Transferor shall be deemed (for the limited purposes of this Agreement) to
have received on such day a collection of such Receivable in the amount of such
reduction or cancellation, and the Transferor shall pay to the Collection Agent
an amount equal to the Percentage Factor of such reduction or cancellation, and
such amount shall be applied by the Collection Agent as a Collection in
accordance with Section 2.5 or 2.6, as applicable. The Net Investment shall be
35
<PAGE>
reduced by the amount of such payment actually received by the Company.
(b) If on any day any of the representations or warranties in
Article III is no longer true with respect to a Receivable, the Transferor shall
be deemed to have received on such day a Collection of such Receivable in full
and the Transferor shall on such day pay to the Collection Agent an amount equal
to the aggregate Percentage Factor of the Outstanding Balance of such Receivable
and such amount shall be allocated to the Company and applied by the Collection
Agent as a Collection allocable to the Transferred Interest in accordance with
Section 2.5 or 2.6, as applicable. The Net Investment shall be reduced by the
amount of such payment actually received by the Company.
(c) Any payment by an Obligor in respect of any indebtedness
owed by it to the Transferor or CompuCom shall, except as otherwise specified by
such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Company, be applied as a Collection of any Receivable of such
Obligor included in the Transferred Interest (starting with the oldest such
Receivable) to the extent of any amounts then due and payable thereunder before
being applied to any other receivable or other indebtedness of such Obligor.
SECTION .1. Payments and Computations, Etc. All amounts to be paid
------------------------------
or deposited by the Transferor or the Collection Agent hereunder shall be paid
or deposited in accordance with the terms hereof no later than 12:00 noon (New
York City time) on the day when due in immediately available funds; if such
amounts are payable to the Company (or any assign thereof) they shall be paid or
deposited in the account of the Agent indicated by the Agent from time to time
in writing. The Transferor shall, to the extent permitted by law, pay to the
Company upon demand, interest on all amounts not paid or deposited when due to
the Company hereunder at a rate equal to 2% per annum plus the Base Rate. All
computations of discount, interest and all per annum fees hereunder shall be
made on the basis of a year of 360 days for the actual number of days (including
the first but excluding the last day) elapsed. Any computations of amounts
payable by the Transferor hereunder to the Company, the Liquidity
36
<PAGE>
Provider or the Credit Support Provider shall be binding absent manifest error.
SECTION .2. Reports. (a) Prior to the 15th day of each month, the
-------
Collection Agent shall prepare and forward to the Agent (i) an Investor Report
as of the end of the last day of the immediately preceding month, (ii) if
requested in writing by the Company or the Agent, a listing by Obligor of all
Receivables together with an aging of such Receivables and (iii) such other
information as the Company or the Agent may reasonably request.
(b) On or prior to the third Business Day of each calendar week,
the Collection Agent shall prepare and forward to the Agent a certification as
to the Net Receivables Balance and the Percentage Factor in the form of Exhibit
E hereto (calculated as of the last Business Day of the prior week).
SECTION .3. Collection Account. There shall be established on the
------------------
day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Company, with the Agent, a segregated account (the "Collection
----------
Account"), bearing a designation clearly indicating that the funds deposited
- -------
therein are held for the benefit of the Company. The Collection Agent shall
remit daily within twenty-four (24) hours of receipt to the Collection Account
all amounts received by the Collection Agent with respect to the Receivables;
provided, however, the Collection Agent shall be permitted to make payments to
- -------- -------
the Company on the last day of each Tranche Period instead of depositing funds
into the Collection Account on a daily basis for so long as, and only for so
long as no default has occurred in the performance by the Collection Agent of
its obligations hereunder and no other Termination Event has occurred hereunder.
Funds on deposit in the Collection Account (other than investment earnings)
shall be invested by the Collection Agent in Eligible Investments that will
mature so that such necessary funds will be available prior to the last day of
each successive Tranche Period following such investment. On the last day of
each calendar month, all interest and earnings (net of losses and investment
expenses) on funds on deposit in the Collection Account shall be retained in the
Collection Account and be available to make any payments required to be made
hereunder (including Discount) to the Company. On the date on which the Net
37
<PAGE>
Investment is zero and all amounts payable hereunder have been paid to the
Company, any funds remaining on deposit in the Collection Account shall be paid
to the Transferor.
38
<PAGE>
ARTICLE I
REPRESENTATIONS AND WARRANTIES
SECTION I.1. Representations and Warranties. Each of the Transferor
------------------------------
and CompuCom, as applicable as to itself and not as to the other, represents and
warrants to the Company that:
(a) Corporate Existence and Power. Each of the Transferor and
-----------------------------
CompuCom is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all corporate power
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business in all jurisdictions in which the failure to
obtain such licenses or approvals would materially and adversely affect its
business as it is now conducted.
(b) Corporate and Governmental Authorization; Contravention.
-------------------------------------------------------
The execution, delivery and performance by each of the Transferor and CompuCom
of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the
Company Certificate and the Transfer Certificate are within each of their
respective corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as contemplated by Section 2.8),
and do not contravene, or constitute a material default under, any provision of
applicable law or regulation or of the Certificate of Incorporation or Bylaws of
the Transferor or CompuCom, as applicable, or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Transferor or
CompuCom or result in the creation or imposition of any lien on assets of the
Transferor or CompuCom, respectively, or any of its respective Subsidiaries
(except as contemplated by Section 2.8).
(c) Binding Effect. Each of this Agreement, the Receivables
--------------
Purchase Agreement, the Fee Letter and the Company Certificate constitutes and
the Transfer Certificate upon payment by the Company of the Transfer Price set
forth therein will constitute the legal, valid
39
<PAGE>
and binding obligation of the Transferor, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors.
(d) Perfection. Immediately preceding each Transfer hereunder,
----------
the Transferor shall be the owner of the Receivables, free and clear of all
liens, encumbrances, security interests, preferences or other security
arrangement of any kind or nature whatsoever. On or prior to the sale of the
Receivables by CompuCom to the Transferor pursuant to the Receivables Purchase
Agreement, and each Transfer hereunder and each recomputation of the Transferred
Interest, all financing statements and other documents required to be recorded
or filed in order to perfect and protect the Transferred Interest against all
creditors of and purchasers from the Transferor or CompuCom, as applicable
(other than any financing statements or assignments of financing statements
contemplated by the Transaction Documents) will have been duly filed in each
filing office necessary for such purpose and all filing fees and taxes, if any,
payable in connection with such filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore
-----------------------
furnished by the Transferor and CompuCom (including without limitation, the
Investor Reports, any reports delivered pursuant to Section 2.11 and the
Transferor's financial statements) to the Company or the Agent for purposes of
or in connection with this Agreement or any transaction contemplated hereby is,
and all such information hereafter furnished by the Transferor and CompuCom to
the Company or the Agent will be, true and accurate in every material respect,
on the date such information is stated or certified.
(f) Tax Returns. The Transferor has filed all tax returns
-----------
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges.
(g) Action, Suits. Except as set forth in Exhibit F, there are
-------------
no actions, suits or proceedings pending, or to the knowledge of the Transferor
threat-
40
<PAGE>
ened, against or affecting the Transferor or CompuCom or any Affiliate thereof
or their respective properties, in or before any court, arbitrator or other
body, which may materially adversely affect the financial condition of the
Transferor, CompuCom or their Subsidiaries taken as a whole or materially
adversely affect the ability of each of the Transferor or CompuCom to perform
its obligations under this Agreement.
(h) Use of Proceeds. No proceeds of any Transfer will be used
---------------
by the Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and
-----------------
chief executive office of the Transferor are located at the address of the
Transferor indicated in Section 10.3 hereof and the offices where the Transferor
keeps all its Records, are located at the address(es) described on Exhibit G or
such other locations notified to the Company in accordance with Section 2.8 in
jurisdictions where all action required by Section 2.8 has been taken and
completed.
(j) Good Title. Upon each Transfer and each recomputation of
----------
the Transferred Interest, the Company shall acquire a valid and perfected first
priority undivided percentage ownership interest to the extent of the
Transferred Interest or a first priority perfected security interest in the
Receivables and the Related Security and Collections with respect thereto free
and clear of any Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the
----------------
Transferor's chief executive office is located at the address for notices set
forth in Section 10.3 hereof; (ii) the Transferor has only the subsidiaries and
divisions listed on Exhibit H hereto; and (iii) the Transferor has, within the
last five (5) years, operated only under the tradenames identified in Exhibit H
hereto, and, within the last five (5) years, has not changed its name, merged
with or into or consolidated with any other corporation or been the subject of
any proceeding under Title 11, United States Code (Bankruptcy), except as
disclosed in Exhibit H hereto.
41
<PAGE>
(l) Nature of Receivables. Each Receivable included as an
---------------------
Eligible Receivable on any report or statement delivered to or for the benefit
of the Company pursuant hereto shall satisfy the definition of "Eligible
Receivable" hereunder.
(m) Coverage Requirement; Amount of Receivables. The Percentage
-------------------------------------------
Factor does not exceed the Maximum Percentage Factor. As of September 30, 1997,
the aggregate Outstanding Balance of the Receivables in existence was
$322,716,000 and the Net Receivables Balance was $287,814,000.
(n) Credit and Collection Policy. Since November 21, 1995,
----------------------------
there have been no material changes in the Credit and Collection Policy; since
such date, no material adverse change has occurred in the overall rate of
collection of the Receivables.
(o) Collections and Servicing. Since November 21, 1995, there
-------------------------
has been no material adverse change in the ability of CompuCom to service and
collect the Receivables.
(p) No Termination Event. No event has occurred and is
--------------------
continuing and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(q) Not an Investment Company. The Transferor is not an
-------------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or is exempt from all provisions of such Act.
(r) ERISA. Each of the Transferor and the CompuCom is in
-----
compliance in all material respects with ERISA and no lien in favor of the
Pension Benefit Guaranty Corporation on any of the Receivables exists.
(s) Lockboxes. The names and addresses of all the Lockbox
---------
Banks, together with the account numbers of the Lockboxes at such Lockbox Banks,
are specified in Exhibit L hereto (or at such other Lockbox Banks and/or with
such other Lockboxes as have been notified to the Purchaser and the Agent and
for which Lockbox Agree-
42
<PAGE>
ments have been executed and delivered to the Collateral Agent). All Obligors
have been instructed to make payment to Lockboxes and only Collections are
deposited into the Lockboxes.
(t) Binding Effect of Receivables and Contract. Each
------------------------------------------
Receivable and related Contract constitutes a legal, valid and binding
obligation of the Obligor enforceable against the Obligor, subject to the effect
of bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally (whether considered in a proceeding at law or in equity).
(u) No Restriction on Transfer. No Contract requires the prior
--------------------------
written consent of an Obligor or contains another restriction relating to the
transfer or assignment of rights of payment under such Contract which is legally
enforceable (other than a consent or waiver of such restriction that has been
obtained prior to the Closing Date).
SECTION I.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Transferor. On each day that a Transfer is made hereunder, the Transferor and
- ----------
CompuCom, as applicable, by accepting the proceeds of such Transfer, whether
delivered to the Transferor pursuant to Section 2.2(a) or Section 2.2(b), shall
be deemed to have certified that all representations and warranties described in
Section 3.1 are correct on and as of such day as though made on and as of such
day. Each Incremental Transfer shall be subject to the further condition
precedent that prior to the date of such Incremental Transfer, the Collection
Agent shall have delivered to the Agent, in form and substance satisfactory to
the Agent, a completed Investor Report dated within three (3) days prior to the
date of such Incremental Transfer, together with a listing by Obligor, if
requested, and such additional information as may be reasonably requested by the
Agent; and each of the Transferor and CompuCom shall be deemed to have
represented and warranted that such conditions precedent have been satisfied.
43
<PAGE>
ARTICLE II
CONDITIONS PRECEDENT
SECTION II.1. Conditions to Closing. On or prior to the date of
---------------------
execution hereof, the Transferor and CompuCom, as applicable, shall deliver to
the Company the following documents, instruments and fees all of which shall be
in a form and substance acceptable to the Company:
(a) A copy of the Resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the Agreement and the other
documents to be delivered by the Transferor hereunder.
(b) The Articles of Incorporation of the Transferor certified by
the Secretary of State or other similar official of the Transferor's
jurisdiction of incorporation.
(c) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement.
(d) A Certificate of the Secretary of the Transferor certifying
(i) the names and signatures of the officers authorized on its behalf to execute
this Agreement, the Company Certificate, the Transfer Certificate, the Fee
Letter and any other documents to be delivered by it hereunder (on which
certificates the Company may conclusively rely until such time as the Company
shall receive from the Transferor a revised certificate meeting the requirements
of this clause (d)(i)) and (ii) that attached thereto is a true, correct and
complete copy of the Transferor's By-Laws.
(e) Copies of proper amendments to financing statements (Form
UCC-3), naming the Transferor as the debtor in favor of the Agent or other
similar instruments or documents as may be necessary or in the reason
44
<PAGE>
able opinion of the Company desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Company's ownership interest
in the Receivables.
(f) Copies of proper termination statements (Form UCC-3), if
any, necessary to terminate all security interests and other rights of any
person in Receivables previously granted by either the Transferor or CompuCom,
it being understood that Form UCC-3 releases need not be provided by NationsBank
of Texas, N.A. in connection with the Release.
(g) Certified copies of request for information or copies (Form
UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably near the date of the initial Incremental Transfer
listing all effective financing statements which name either of Transferor or
CompuCom (under its present name and any previous name) as debtor and which are
filed in jurisdictions in which the filings were made pursuant to item (e) above
together with copies of such financing statements (none of which shall cover any
Receivables or Contracts).
(h) Executed copies of the Lock-Box Agreements and the
Receivables Purchase Agreement, and documents related thereto.
(i) Opinions of Morgan, Lewis & Bockius LLP, special counsel to
the Transferor and CompuCom regarding, among other things, enforceability,
security interest matters and true sale and nonconsolidation matters, in form
and substance satisfactory to the Company and its counsel.
(j) A certificate of the Transferor in substantially the form of
Exhibit J hereto executed by the Secretary or Assistant Secretary of the
Transferor.
(k) A computer tape setting forth all Receivables and the
Outstanding Balances thereon and such other information as the Company may
reasonably request.
(l) An executed copy of the Fee Letter.
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(m) The Transfer Certificate, duly executed by the Transferor.
(n) The Company Certificate, duly executed by the Transferor and
appropriately completed.
(o) The Advisory Fee in accordance with Section 2.7(b).
(p) An Investor Report for September 30, 1997.
(q) Written confirmation, in form and substance acceptable to
the Agent, from Compaq Computer Corporation, that any security interest in
inventory granted to such Person by CompuCom does not extend to accounts
receivable created upon the sale of inventory in which such Person has a
security interest.
(r) The Release, in form and substance acceptable to the Agent,
from NationsBank of Texas, N.A., which provides that any security interest in
inventory granted to such Person by CompuCom does not extend to accounts
receivable created upon the sale of inventory in which such Person has a
security interest.
(s) Such other documents as the Company shall reasonably request.
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ARTICLE III
COVENANTS
SECTION III.1. Affirmative Covenants of each of Transferor and the
---------------------------------------------------
Collection Agent. At all times from the date hereof to the later to occur of
- ----------------
(i) the Termination Date or (ii) the date on which the Net Investment is zero
and all Aggregate Unpaids shall have been paid in full, unless the Company shall
otherwise consent in writing:
(a) Financial Reporting. The Transferor and the Collection Agent
-------------------
will each maintain, for itself and each Subsidiary, a system of accounting
established and administered in accordance with generally accepted accounting
principles, and the Transferor shall furnish to the Agent:
(i) Annual Reporting. Within ninety (90) days after the close
----------------
of each of CompuCom's fiscal years, audited financial statements, prepared in
accordance with generally accepted accounting principles on a consolidated
basis for CompuCom and its Subsidiaries, including balance sheets as of the
end of such period, related statements of operations, shareholder's equity and
cash flows, accompanied by an audit report certified by independent certified
public accountants, acceptable to the Agent, which report shall be unqualified
as to going concern and scope of audit and shall state that such consolidated
financial statements present fairly the financial position of CompuCom and its
Subsidiaries at the dates indicated and the results of their operations and
their cash flow for the periods indicated is in conformity with generally
accepted accounting principles, prepared in accordance with generally accepted
auditing standards and any management letter prepared by said accountants.
(ii) Quarterly Reporting. Within forty-five (45) days after the
-------------------
close of
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the first three quarterly periods of each of CompuCom's fiscal years, for
CompuCom and its Subsidiaries, consolidated unaudited balance sheets as at the
close of each such period and consolidated related statements of operations,
shareholder's equity and cash flows for the period from the beginning of such
fiscal year to the end of such quarter, all certified by its chief financial
officer.
(iii) Compliance Certificate. Together with the financial
----------------------
statements required hereunder, a compliance certificate signed by its chief
financial officer, vice president (finance) or treasurer stating that no
Termination Event or Potential Termination Event exists, or if any Termination
Event or Potential Termination Event exists, stating the nature and status
thereof and showing the computation of, and showing compliance with, each of
the financial ratios and restrictions set forth in Section 5.3.
(iv) Shareholders Statements and Reports. Promptly upon the
-----------------------------------
furnishing thereof to the shareholders of CompuCom, copies of all financial
statements, reports and proxy statements so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof, copies
--------------
of all annual, quarterly, monthly or other regular reports (including all
reports on Form 8-K) which CompuCom or any subsidiary files with the
Securities and Exchange Commission.
(vi) Change in Credit and Collection Policy and Debt Ratings.
-------------------------------------------------------
Within ten (10) days after the date any material change in or amendment to the
Credit and Collection Policy is made, a copy of the Credit and Collection
Policy then in effect indicating such change or amendment. Within five (5)
days after the date of any change in CompuCom's public or private debt
ratings, if any, a written certification of CompuCom's public and private debt
ratings
48
<PAGE>
after giving effect to any such change.
(vii) Credit and Collection Policy. Within ninety (90) days
----------------------------
after the close of each of its fiscal years, a complete copy of the Credit and
Collection Policy then in effect.
(b) The Transferor will notify the Agent in writing of any of the
following immediately upon learning of the occurrence thereof, describing the
same and, if applicable, the steps being taken by the Person(s) affected with
respect thereto:
(i) Notice of Termination Events or Potential Termination
-----------------------------------------------------
Events. As soon as possible, and in any event within two (2) days after the
-------
date on which the Transferor becomes aware of, or should have known of, the
occurrence of each Termination Event or each Potential Termination Event, a
statement of the chief financial officer or chief accounting officer of the
Transferor setting forth details of such Termination Event or Potential
Termination Event and the action which the Transferor proposes to take with
respect thereto.
(ii) Litigation. The institution of any litigation, arbitration
----------
proceeding or governmental proceeding against (x) the Transferor or (y)
CompuCom which in the case of CompuCom may result in a Material Adverse
Effect.
(iii) Judgment. The entry of any judgment or decree against (x)
--------
the Transferor or (y) CompuCom or any of its Subsidiaries if, in the case of
this clause (y), the aggregate amount of all judgments or decrees then
outstanding against CompuCom or any of its Subsidiaries exceeds $5,000,000
after deducting (A) the amount with respect to which CompuCom or any of its
Subsidiaries is insured and (B) the amount for which CompuCom or such
Subsidiary is otherwise indemnified if the terms of such indemnification are
satisfactory to the
49
<PAGE>
Company.
(iv) Other Information. Such other information including non-
-----------------
financial information) as the Agent may from time to time reasonably request.
(c) Conduct of Business. Each of the Transferor and CompuCom will,
-------------------
and will cause each of its Subsidiaries to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted and do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted.
Each of the Transferor and CompuCom, as applicable, will conduct its business
substantially in compliance with the factual assumptions set forth in the
opinion of Morgan, Lewis & Bockius LLP of even date herewith regarding true sale
and nonconsolidation matters.
(d) Compliance with Laws. Each of the Transferor and CompuCom will,
--------------------
and will cause each of its Subsidiaries to, comply in all material respects with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject.
(e) Furnishing of Information and Inspection of Records. Each of the
---------------------------------------------------
Transferor and the Collection Agent will furnish to the Company from time to
time such information with respect to the Receivables as the Company may
reasonably request, including, without limitation, listings identifying the
Obligor and the Outstanding Balance for each Receivable. Each of the Transferor
and the Collection Agent will at any time and from time to time during regular
business hours upon commercially reasonable notice in advance permit the
Company, or its agents or representatives, (i) to examine and make copies of and
abstracts from all Records and (ii) to visit the offices and properties of each
of the Transferor and the Collection Agent for the purpose of examining such
Records, and to discuss matters relating to Receivables or each of the
Transferor's and the Collection
50
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Agent's performance hereunder with the appropriate officers, directors,
employees or independent public accountants of each of the Transferor and the
Collection Agent having knowledge of such matters.
(f) Keeping of Records and Books of Account. Each of the Transferor
---------------------------------------
and the Collection Agent will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain, all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the daily
identification of each new Receivable and all Collections of and adjustments to
each existing Receivable). Each of the Transferor and the Collection Agent will
give the Company notice of any material change in the administrative and
operating procedures referred to in the previous sentence.
(g) Performance and Compliance with Receivables and Contracts. Each
---------------------------------------------------------
of the Transferor and CompuCom, at its expense, will timely and fully perform
and comply with all material provisions, covenants and other promises required
to be observed by it under the Contracts related to the Receivables.
(h) Credit and Collection Policies. Each of the Transferor and
------------------------------
CompuCom will comply in all material respects with the Credit and Collection
Policy in regard to each Receivable and the related Contract.
(i) Collections. Each of the Transferor and CompuCom shall instruct
-----------
all Obligors to remit all Collections directly to a Lockbox.
(j) Separate Business. The Transferor shall at all times (i) to the
-----------------
extent the Transferor's office is located in the offices of CompuCom or any
Affiliate of CompuCom, pay fair market rent for its executive office space
located in the offices of CompuCom or any Affiliate of CompuCom, (ii) maintain
the Transferor's books, financial statements, accounting records and other
corporate documents and records sepa-
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rate from those of CompuCom or any other entity, (iii) not commingle the
Transferor's assets with those of CompuCom or any other entity, (iv) act solely
in its corporate name and through its own authorized officers and agents, (v)
make investments directly or by brokers engaged and paid by the Transferor or
its agents (provided that if any such agent is an Affiliate of CompuCom it shall
--------
be compensated at a fair market rate for its services), (vi) separately manage
the Transferor's liabilities from those of CompuCom or any Affiliates of
CompuCom and pay its own liabilities, including all administrative expenses,
from its own separate assets, and (vii) pay from the Transferor's assets all
obligations and indebtedness of any kind incurred by the Transferor. The
Transferor shall abide by all corporate formalities, including the maintenance
of current minute books, and the Transferor shall cause its financial statements
to be prepared in accordance with generally accepted accounting principles in a
manner that indicates the separate existence of the Transferor and its assets
and liabilities. The Transferor shall (i) not incur indebtedness other than in
connection with the transactions contemplated by this Agreement and incidental
indebtedness not to exceed $9,500 in the aggregate, (ii) not assume the
liabilities of CompuCom or any Affiliate of CompuCom, and (iii) not make loans
to or guarantee the liabilities of CompuCom or any Affiliate of CompuCom. The
officers and directors of the Transferor (as appropriate) shall make decisions
with respect to the business and daily operations of the Transferor independent
of and not dictated by any controlling entity.
(k) Delivery of Documents from Apple Computer, Inc. CompuCom shall
-----------------------------------------------
deliver to the Company, no later than January 1, 1998, written confirmation, in
form and substance acceptable to Agent, from Apple Computer, Inc., that any
security interest in inventory granted to such Person by CompuCom does not
extend to accounts receivable created upon the sale of inventory in which such
Person has a security interest.
SECTION III.2. Negative Covenants. During the term of this Agreement,
------------------
unless the Company shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as
--------------------
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<PAGE>
otherwise provided herein, the Transferor will not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon (or the filing of any financing statement) or with respect
to, the Receivables or upon or with respect to any Lockbox, or assign any right
to receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as otherwise
----------------------------------------
permitted in Section 6.2, each of the Transferor and the Collection Agent will
not extend, amend or otherwise modify the terms of any Receivable, or amend,
modify or waive any term or condition of any Contract related thereto.
(c) No Change in Business or Credit and Collection Policy. Each of
-----------------------------------------------------
the Transferor and the Collection Agent will not make any change in the
character of its business or in the Credit and Collection Policy, which change
would, in either case, materially impair the collectibility of any Receivable.
(d) Use of Proceeds. No proceeds of any Transfer will be used by the
---------------
Transferor to purchase or carry any margin stock (as defined in Regulation U of
the Board of Governors of the Federal Reserve System) in violation of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
(e) No Mergers, Etc. Each of the Transferor and CompuCom will not
---------------
(i) consolidate or merge with or into any other Person, or (ii) sell, lease or
transfer all or substantially all of its assets to any other Person; provided
--------
that with respect to clause (i) above, CompuCom may merge with another Person if
CompuCom is the surviving corporation provided that no Termination Event or
Potential Termination Event shall result directly or indirectly therefrom.
(f) Change in Payment Instructions to Obligors. Each of the
------------------------------------------
Transferor and the Collection Agent will not add or terminate, or make any
change to, any Lockbox except in accordance with Section 2.8(b) herein.
(g) Deposits to Lockboxes. Each of the
---------------------
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<PAGE>
Transferor and the Collection Agent will not deposit or otherwise credit, or
cause or permit to be so deposited or credited, to any Lockbox cash or cash
proceeds other than Collections of Receivables.
(h) Change of Name, Etc. Neither the Transferor nor CompuCom will
--------------------
change its name, identity or corporate structure (within the meaning of Section
9-402(7) of the UCC), nor relocate its chief executive office or any office
where Records are kept, unless it shall have: (i) given the Agent at least
thirty (30) days' prior written notice thereof and (ii) delivered to the Company
all UCC financing statements, instruments and other documents (including, but
not limited to, new or revised Lockbox Agreements) requested by the Agent in
connection with such change or relocation.
(i) Changes to Receivables Purchase Agreement. The Transferor shall
-----------------------------------------
not agree to any amendment of or supplement to, or waiver of any provision of,
the Receivables Purchase Agreement without the prior written consent of the
Company.
(j) Dividend Restriction. The Transferor shall not pay, declare or
--------------------
make any dividends or distributions in respect of its common stock unless, after
giving effect thereto: (i) the Transferor would not become insolvent, (ii) there
would not have been a material adverse effect on the Transferor or its financial
condition or (iii) the payment, declaration or making of any such dividends or
distributions would not cause a Termination Event.
(k) Voluntary Petition. To the extent permitted by law, neither the
------------------
Transferor nor CompuCom will file a petition to commence a voluntary case under
the U.S. Bankruptcy Code (Title 11 USC) in any court of appropriate jurisdiction
within the Tenth Circuit of the United States.
54
<PAGE>
ARTICLE IV
ADMINISTRATION AND COLLECTIONS
SECTION IV.1. Appointment of Collection Agent. The servicing,
-------------------------------
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
----------------
with this Section 6.1. Until the Agent gives notice to CompuCom of the
designation of a new Collection Agent, CompuCom is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Agent may, only upon the occurrence of a
default in the performance of the Collection Agent's obligations hereunder or
any other Termination Event designate as Collection Agent any Person (including
itself) to succeed CompuCom or any successor Collection Agent, on the condition
in each case that any such Person so designated shall agree to perform the
duties and obligations of the Collection Agent pursuant to the terms hereof.
Upon the occurrence of a Potential Termination Event or Termination Event, the
Agent may notify any Obligor of the Transferred Interest.
55
<PAGE>
SECTION IV.2. Duties of Collection Agent.
--------------------------
(a) The Collection Agent shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. Each of the Transferor, the Company and the Bank Investors hereby
appoints as its agent the Collection Agent, from time to time designated
pursuant to Section 6.1, to enforce its respective rights and interests in and
under the Receivables, the Related Security and the Contracts. The Collection
Agent shall set aside for the account of the Transferor and the Company their
respective allocable shares of the Collections received by the Collection Agent
in accordance with Sections 2.5 and 2.6. The Collection Agent shall segregate
and deposit to the Company's account the Company's allocable share of
Collections received by the Collection Agent when required pursuant to Article
II hereof. So long as no Termination Event shall have occurred and be
continuing, the Collection Agent may, in accordance with the Credit and
Collection Policy, extend the maturity of Receivables, but not beyond sixty (60)
days, and extend the maturity or adjust the Outstanding Balance as the
Collection Agent may determine to be appropriate to maximize Collections
thereof; provided, however, that such extension or adjustment shall not alter
-------- -------
the status of such Receivable as a Delinquent Receivable or a Defaulted
Receivable. The Collection Agent shall hold in trust for the Transferor and the
Company in accordance with their respective interests, all Records which
evidence or relate to Receivables or Related Security. Notwithstanding anything
to the contrary contained herein, the Agent shall have the right, acting in its
reasonable discretion, to direct the Collection Agent (whether the Collection
Agent is CompuCom or any other Person) to commence or settle any legal action to
enforce collection of any Receivable or to foreclose upon or repossess any
Related Security.
(b) The Collection Agent shall hold, for the benefit of the
Transferor, Collections received minus the Percentage Factor of such
-----
Collections. On the last day of each Tranche Period, the Collection Agent shall
56
<PAGE>
deduct from such Collections and pay to the Company in reduction of the Net
Investment any amounts due under Section 2.9 hereof and unpaid from the
Transferor and turn the remainder of such Collections over to the Transferor.
In addition, the Collection Agent shall, as soon as practicable following
receipt thereof, turn over to the Transferor any collections of any indebtedness
of any Obligor which is not a Receivable. If CompuCom is not the Collection
Agent, the Collection Agent, by giving three (3) Business Days' prior written
notice to the Agent, may revise the percentage used to calculate the Servicing
Fee so long as the revised percentage will not result in a Servicing Fee that
exceeds 110% of the reasonable and appropriate out-of-pocket costs and expenses
of such Collection Agent incurred in connection with the performance of its
obligations hereunder as documented to the reasonable satisfaction of the
Company. The Collection Agent, if other than CompuCom, shall as soon as
practicable upon demand, deliver to CompuCom all Records in its possession which
evidence or relate to indebtedness of an Obligor which is not a Receivable.
(c) On or before 90 days after the end of each fiscal year of the
Collection Agent, beginning with the fiscal year ending December 31, 1997, the
Collection Agent shall cause either the Business Credit Field Exam Group of
NationsBank of Texas N.A. or such other Person as may be approved by Agent (who
may also render other services to the Collection Agent or the Transferor) to
furnish a report to the Agent to the effect that they have (i) compared the
information contained in the Investor Reports delivered during such fiscal year
with the information contained in the Contracts and the Collection Agent's
records and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the information
contained in the Investor Reports reconciles with the information contained in
the Contracts and the Collection Agent's records and computer system and that
the servicing of the Receivables has been conducted in compliance with this
Agreement, (ii) conducted a confirmation of a sample, based on a sample size
provided by the Agent or otherwise agreed to by the Agent, of the Receivables
and verified that the Collection Agent's records and computer system used in
servicing the Receivables contained correct information with regard to due dates
and outstanding
57
<PAGE>
balances, (iii) verified that the Receivables treated by the Collection Agent as
Eligible Receivables and the calculation of the Net Receivables Balance in fact
satisfied the requirements of the definition thereof contained herein, except,
in each case for (a) such exceptions as such firm shall believe to be immaterial
(which exceptions need not be enumerated) and (b) such other exceptions as shall
be set forth in such statement, and (iv) obtained no knowledge of any
Termination Event or Potential Termination Event, or if, in the opinion of such
accountants, any Termination Event or Potential Termination Event shall exist,
stating the nature and status thereof
SECTION IV.3. Rights After Designation of New Collection Agent. At any
------------------------------------------------
time following the designation of a Collection Agent (other than CompuCom)
pursuant to Section 6.1:
(i) The Agent may direct that payment of all amounts
payable under the Receivables be made directly to the Company or
its designee.
(ii) Each of the Transferor and the Collection Agent shall,
at the Company's request and at the Transferor's expense, give
notice of the Company's ownership of the Receivables to each
Obligor and direct that payments in respect thereof be made
directly to the Agent or its designee.
(iii) Each of the Transferor and the Collection Agent shall (A)
assemble all of the Records, and shall make the same available to
the Agent at a place selected by the Agent or its designee, and
(B) segregate all cash, checks and other instruments received by
it from time to time constituting Collections of Receivables in a
manner acceptable to the Agent and shall, promptly upon receipt,
remit all such cash, checks and instruments, duly endorsed or
with duly executed instruments of transfer, to the Agent or its
designee.
(iv) Each of the Transferor and the Collection Agent hereby
authorizes the
58
<PAGE>
Agent to take any and all steps in each of the Transferor's and
the Collection Agent's name and on behalf of each of the
Transferor and CompuCom necessary or desirable, in the
determination of the Agent, to collect all amounts due under the
Receivables, including, without limitation, endorsing the
Transferor's name on checks and other instruments representing
Collections and enforcing such Receivables and the related
Contracts.
SECTION IV.4. Responsibilities of each of the Transferor and
----------------------------------------------
CompuCom. Anything herein to the contrary notwithstanding, each of the
- --------
Transferor and CompuCom shall (i) perform all of its obligations under the
Contracts related to the Receivables to the same extent as if interests in such
Receivables had not been sold hereunder and the exercise by the Company of its
rights hereunder shall not relieve each of the Transferor and CompuCom from such
obligations and (ii) pay when due any taxes, including without limitation, any
sales taxes payable in connection with the Receivables and their creation and
satisfaction. Neither the Company nor any Bank Investor shall have any
obligation or liability with respect to any Receivable or related Contracts, nor
shall it be obligated to perform any of the obligations of the Transferor or
CompuCom thereunder.
59
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ARTICLE V
TERMINATION EVENTS
SECTION V.1. Termination Events. The occurrence of any one or more of the
------------------
following events shall constitute a Termination Event:
(a) (i) the Transferor, the Collection Agent or CompuCom shall fail
to perform or observe any term, covenant or agreement hereunder (other than as
referred to in clause (ii) of this Section 7.1(a) or the covenant set forth in
Section 5.1(k)) and such failure shall remain unremedied for ten (10) days, or
(ii) the Collection Agent shall fail to make any payment or deposit to be made
by it hereunder or under any other document delivered pursuant hereto when due
or the Collection Agent shall fail to observe or perform any term, covenant or
agreement on the Collection Agent's part to be performed under Section 2.8(b)
hereof; or
(b) any representation, warranty, certification or statement made by
either of the Transferor, the Collection Agent or CompuCom in this Agreement or
in any other document delivered pursuant hereto shall prove to have been
incorrect in any material respect when made or deemed made (provided that any
--------
such breach with respect to a Receivable shall not constitute a Termination
Event hereunder if such breach shall have been cured by the Transferor pursuant
to Section 2.9 or 8.4); or
(c) either of the Transferor or CompuCom shall default in the
performance of any payment or undertaking (other than those covered by clause
(a) above) or to be performed or observed under any other provision hereof or in
the Receivables Purchase Agreement or under any other document delivered
pursuant hereto or thereto; or
(d) failure of either of the Transferor or CompuCom, as initial
Collection Agent, or any of their Subsidiaries to pay when due any amounts due
under any agreement under which any Indebtedness greater than $10,000,000 is
governed; or the default by either of the Transferor or CompuCom or any of their
Subsidiaries in the performance of any term, provision or condition
60
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contained in any agreement under which any Indebtedness greater than $10,000,000
was created or is governed, regardless of whether such event is an "event of
default" or "default" under any such agreement; or any Indebtedness greater than
$10,000,000 shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the date of maturity
thereof; or
(e) any Event of Bankruptcy shall occur with respect to the
Transferor, the Collection Agent, CompuCom or any Subsidiary of either the
Transferor, the Collection Agent or CompuCom; or
(f) the Transferor shall, for any reason, fail to have a valid
ownership interest in the Receivables and the Related Security and Collections
with respect thereto; or
(g) either CompuCom or the Transferor shall enter into any
transaction or merger whereby it is not the surviving entity; or
(h) there shall have occurred and be continuing any event or
condition which materially affects the Transferor's, CompuCom's or the
Collection Agent's ability to either collect the Receivables or to perform under
this Agreement or the Receivables Purchase Agreement; or
(i) the Liquidity Provider or the Credit Support Provider shall have
given notice that an event of default has occurred and is continuing under its
agreements with the Company; or
(j) the Commercial Paper issued by the Company shall not be rated at
least "A-2" by Standard & Poor's and at least "P-2" by Moody's; or
(k) (i) the Percentage Factor exceeds the Maximum Percentage Factor
unless the Transferor reduces the Net Investment on the next day, bringing the
Percentage Factor to less than or equal to 98% or (ii) the Percentage Factor
equals or exceeds 100% at any time or (iii) the Receivables Purchase Agreement
shall have terminated pursuant to Section 8.1 thereof; or
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(l) the Dilution Ratio averaged for any three-month period exceeds
7%; or
(m) the Loss to Liquidation Ratio averaged for any three-month period
exceeds 1.50%; or
(n) the Delinquency Ratio averaged for any three-month period exceeds
15.0%; or
(o) CompuCom's Leverage Ratio (as such term is defined in Exhibit N
herein) exceeds (i) 4.25 to 1 at the end of any fiscal quarter ending prior to
and including December 31, 2000 and (ii) 3.75 to 1 at the end of any fiscal
quarter thereafter; or
(p) CompuCom's Fixed Charge Coverage Ratio (as such term is defined
in Exhibit N herein) falls below 1.25 to 1 at the end of any fiscal quarter; or
(q) CompuCom's Tangible Net Worth (as such term is defined in Exhibit
N herein) falls below an amount equal to the sum of (i) $130,000,000, plus (ii)
75% of cumulative Net Income (as such term is defined in Exhibit N herein) for
the period from, but not including March 31, 1997 through the date of
calculation (but excluding from the calculation of such cumulative Net Income
the effect, if any, of any fiscal quarter (or portion of a fiscal quarter not
then ended) of CompuCom for which Net Income was a negative number), plus (iii)
75% of the Net Cash Proceeds (as such term is defined in Exhibit N herein)
received by CompuCom as a result of any offering of Equity (as such term is
defined in Exhibit N herein) or pursuant to any conversion or exchange of
convertible Indebtedness (as such term is defined in Exhibit N herein) or
preferred Capital Stock (as such term is defined in Exhibit N herein) or into
common Capital Stock of CompuCom, plus (iv) an amount equal to the net worth of
any Person (as such term is defined in Exhibit N herein) that becomes a
Subsidiary (as such term is defined in Exhibit N herein) of CompuCom or is
merged into or consolidated with CompuCom or any Subsidiary of CompuCom or
substantially all of the assets of which are acquired by CompuCom or any
Subsidiary of CompuCom to the extent the purchase price paid therefor is paid in
equity
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securities of CompuCom or any Subsidiary of CompuCom; or
(r) CompuCom's Asset Coverage Ratio (as such term is defined in
Exhibit N herein) falls below 1.10 to 1 at the end of any fiscal quarter; or
(s) CompuCom's ratio of Funded Debt (as such term is defined in
Exhibit N herein) to Capital (as such term is defined in Exhibit N herein)
exceeds 0.65 to 1 at the end of any fiscal quarter; or
(t) if all or any part of the capital stock of the Transferor held
(beneficially or otherwise) by CompuCom or the Subordinated Note (as defined in
the Receivables Purchase Agreement) shall be pledged or otherwise be subject to
a security interest in favor of any Person, and NationsBank of Texas, N.A. or
any such other Person shall commence any action to foreclose on any such pledge
or security interest.
SECTION V.2. Termination. (a) If an event or condition specified in
-----------
Section 7.1 (other than an event or condition specified in Sections 7.1(i) and
(j)) occurs, the Agent may, by notice to the Transferor, declare a Termination
Event to have occurred and declare all outstanding Tranche Periods to be ended
and designate the Base Rate plus 2% to be applicable to the Net Investment. If
an event or condition specified in Section 7.1(i) or (j) occurs, the Agent may,
by notice to the Transferor, declare a Termination Event to have occurred and
declare all outstanding Tranche Periods to be ended and shall designate the Base
Rate to be applicable to the Net Investment. In addition, if a Termination
Event shall be declared, the Transferor hereby requests that the Company assign
the Transferred Interest and all of its rights hereunder (other than its rights
to receive payments in respect of Discount accrued to the date of such
assignment and other fees, costs, expenses and indemnities due the Company
hereunder) to the Bank Investors. If an event or condition shall have occurred
which constitutes a Potential Termination Event, the Agent may, by notice to the
Transferor, declare such event or condition a Potential Termination Event.
(b) In addition, if any Termination Event occurs hereunder (i) the
Agent shall promptly notify the
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Transferor in writing whether it has declared a Termination Event or a Potential
Termination Event and whether it will be exercising the remedies specified in
this Section 7.2, (ii) the Company and the Agent shall have all of the rights
and remedies provided to a secured creditor or a purchaser of accounts under the
UCC by applicable law in respect thereto, (iii) the Maximum Net Investment shall
be reduced as of each calendar date thereafter equal to the Net Investment as of
such date, and (iv) no Commercial Paper will thereafter be issued.
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ARTICLE VI
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION VI.1. Indemnities. Without limiting any other rights which the
-----------
Company or the Bank Investors may have hereunder or under applicable law, the
Transferor and CompuCom hereby agree to indemnify the Company, the Bank
Investors, the Agent, the Liquidity Provider and the Credit Support Provider
and any permitted assigns and their respective officers, directors and employees
(collectively, "Indemnified Parties") from and against any and all damages,
-------------------
losses, claims, liabilities, costs and expenses, including reasonable attorneys'
fees (which such attorneys may be employees of the Bank Investors, the Liquidity
Provider, the Credit Support Provider or the Agent) and disbursements (all of
the foregoing being collectively referred to as "Indemnified Amounts") awarded
-------------------
against or incurred by any of them arising out of or as a result of this
Agreement or the ownership, either directly or indirectly, by the Company or the
Bank Investors of the Transferred Interest excluding, however, (i) Indemnified
Amounts to the extent resulting from gross negligence or willful misconduct on
the part of an Indemnified Party or (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables. Without
limiting the generality of the foregoing, CompuCom and Transferor shall
indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(a) any representation or warranty made by CompuCom, the Collection
Agent or the Transferor (or any of their respective officers) under or in
connection with this Agreement, the Receivables Purchase Agreement, any Investor
Report or any other information or report delivered by either of them pursuant
hereto, which shall have been false or incorrect in any material respect when
made or deemed made;
(b) the failure by CompuCom, the Collection Agent or the Transferor
to comply with any applicable and material law, rule or regulation with respect
to any Receivable or the related Contract, or the nonconformity of any
Receivable or the related Contract with
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any such applicable and material law, rule or regulation;
(c) the failure to vest and maintain in the Transferor an undivided
percentage ownership interest in the Receivables free and clear of any Adverse
Claim or the failure to vest and maintain vested in the Company an undivided
percentage ownership interest, to the extent of the Transferred Interest, or a
first priority perfected security interest, in the Receivables and the Related
Security and Collections with respect thereto, free and clear of any Adverse
Claim;
(d) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivable, any part of which is included in the Transferred
Interest;
(e) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable, any part of which
is included in the Transferred Interest (including, without limitation, a
defense based on such Receivable or the related Contract not being legal, valid
and binding obligation of such Obligor enforceable against it in accordance with
its terms), or any other claim resulting from the sale of merchandise or
services related to such Receivable or the furnishing or failure to furnish such
merchandise or services;
(f) any failure of CompuCom or the Transferor, as Collection Agent or
otherwise, to perform its duties or obligations in accordance with the
provisions of Article VI; or
(g) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort arising
out of or in connection with merchandise or services which are the subject of
any Receivable;
provided, however, that if the Company enters into agreements for the purchase
- -------- -------
of interests in receivables from one or more Other Transferors, the Company
shall allocate such Indemnified Amounts which are in connection with the
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Liquidity Provider Agreement, the Credit Support Agreement or the credit support
furnished by the Credit Support Provider to the Transferor and CompuCom and each
Other Transferor; and provided, further, that if such Indemnified Amounts are
-------- -------
attributable to the Transferor and CompuCom and not attributable to any Other
Transferor, the Transferor and CompuCom shall be solely liable for such
Indemnified Amounts or if such Indemnified Amounts are attributable to Other
Transferors and not attributable to the Transferor and CompuCom, such Other
Transferors shall be solely liable for such Indemnified Amounts.
SECTION VI.2. Indemnity for Taxes, Reserves and Expenses. (a) If after
------------------------------------------
the date hereof, the adoption of any Law or bank regulatory guideline or any
amendment or change in the interpretation of any existing or future Law or bank
regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty
or other charge with respect to this Agreement, the Transferred
Interest, the Receivables or payments of amounts due hereunder,
or shall change the basis of taxation of payments to any
Indemnified Party of amounts payable in respect of this
Agreement, the Transferred Interest, the Receivables or payments
of amounts due hereunder or its obligation to advance funds under
the Liquidity Provider Agreement or the credit support furnished
by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interest or the Receivables (except
for changes in the rate of general corporate, franchise, net
income or other income tax imposed on such Indemnified Party);
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board
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of Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by, any
Indemnified Party or shall impose on any Indemnified Party or on
the United States market for certificates of deposit or the
London interbank market any other condition affecting this
Agreement, the Transferred Interest, the Receivables or payments
of amounts due hereunder or its obligation to advance funds under
the Liquidity Provider Agreement or the credit support provided
by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interest or the Receivables; or
(iii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement,
the Transferred Interest, the Receivables or payments of amounts
due hereunder or its obligation to advance funds under the
Liquidity Provider Agreement or the credit support furnished by
the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the Transferred Interest, the
Receivables, the obligations hereunder, the funding of any purchases hereunder,
the Liquidity Provider Agreement or the Credit Support Agreement, by an amount
deemed by such Indemnified Party to be material, then, within ten (10) days
after demand by the Agent, the Transferor or CompuCom shall pay to the Agent
such additional amount or amounts as will compensate such Indemnified Party for
such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any
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directive regarding capital adequacy (in the case of any bank regulatory
guideline, whether or not having the force of law) of any such Official Body,
has or would have the effect of reducing the rate of return on capital of such
Indemnified Party (or its parent) as a consequence of such Indemnified Party's
obligations hereunder or with respect hereto to a level below that which such
Indemnified Party (or its parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Indemnified Party to be
material, then from time to time, within ten (10) days after demand by the
Agent, the Transferor and CompuCom shall pay to the Agent such additional amount
or amounts as will compensate such Indemnified Party (or its parent) for such
reduction.
(c) The Agent will promptly notify each of the Transferor and
CompuCom of any event of which it has knowledge, occurring after the date
hereof, which will entitle an Indemnified Party to compensation pursuant to this
Section. A notice by the Agent claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it on behalf of an
Indemnified Party hereunder shall be conclusive in the absence of manifest
error. In determining such amount, the Agent and any applicable Indemnified
Party may use any reasonable averaging and attributing methods.
(d) Anything in this Section 8.2 to the contrary notwithstanding, if
the Company enters into agreements for the acquisition of interests in
receivables from one or more Other Transferors, the Company shall allocate the
liability for any amounts under this Section 8.2 incurred by the Company
("Section 8.2 Costs") to the Transferor and CompuCom and each Other Transferor;
- -------------------
and provided, further, that if such Section 8.2 Costs are attributable to the
-------- -------
Transferor and CompuCom and not attributable to any Other Transferor, the
Transferor and CompuCom shall be solely liable for such Section 8.2 Costs or if
such Section 8.2 Costs are attributable to Other Transferors and not
attributable to the Transferor and CompuCom, such Other Transferors shall be
solely liable for such Section 8.2 Costs.
SECTION .1. Other Costs, Expenses and Related
---------------------------------
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Matters. (a) Each of the Transferor and CompuCom agrees, upon receipt of a
- -------
written invoice, to pay or cause to be paid, and to hold the Company, the Agent
and the Bank Investors harmless against liability for the payment of, all
reasonable out-of-pocket expenses (including, without limitation, attorneys',
accountants' and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of the Company, the Agent and any
Bank Investor) incurred by or on behalf of the Company, the Agent and the Bank
Investors (i) in connection with the negotiation, execution, delivery and
preparation of this Agreement and any documents or instruments delivered
pursuant hereto and thereto and the transactions contemplated hereby and thereby
(including, without limitation, the perfection or protection of the Transferred
Interest) and (ii) from time to time (x) relating to any amendments, waivers or
consents under this Agreement, (y) arising in connection with the Company's, any
Bank Investor's, the Agent's or any agent of the Company's enforcement or
preservation of rights (including, without limitation, the perfection and
protection of the Transferred Interest under this Agreement), or (z) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement; (all of such amounts, collectively,
"Transaction Costs"); provided, however, that the parties hereto hereby agree to
----------------- -------- -------
cooperate to minimize such costs and to avoid duplication of efforts.
(b) The Transferor and CompuCom shall pay the Company on demand any
Early Collection Fee due on account of the reduction of a Tranche on a day prior
to the last day of its Tranche Period.
SECTION .2. Reconveyance Under Certain Circumstances. The Transferor
----------------------------------------
agrees to accept the reconveyance from the Company or the Bank Investors of the
Transferred Interest if the Agent notifies the Transferor of a material breach
of any representation or warranty made or deemed made pursuant to Article III of
this Agreement and the Transferor shall fail to cure such breach within 15 days
(or, in the case of the representations and warranties in Sections 3.1(d) and
3.1(j), 3 days) of such notice. The reconveyance price shall be paid by the
Transferor to the Company or the Agent in
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immediately available funds on such 15th day (or 3rd day, if applicable) in an
amount equal to the Aggregate Unpaids.
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ARTICLE I
THE AGENT AND THE BANK COMMITMENT
72
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SECTION I.1. Authorization and Action.
------------------------
(a) The Company and each Bank Investor hereby appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. In furtherance, and
without limiting the generality, of the foregoing, the Company and each Bank
Investor hereby appoints the Agent as its agent to execute and deliver all
further instruments and documents, and take all further action that the Agent
may deem necessary or appropriate or that the Company or a Bank Investor may
reasonably request in order to perfect, protect or more fully evidence the
interests transferred or to be transferred from time to time by the Transferor
hereunder, or to enable any of them to exercise or enforce any of their
respective rights hereunder, including, without limitation, the execution by the
Agent as secured party/assignee of such financing or continuation statements, or
amendments thereto or assignments thereof, relative to all or any of the
Receivables now existing or hereafter arising, and such other instruments or
notices, as may be necessary or appropriate for the purposes stated hereinabove.
The Company and the Bank Investors may direct the Agent to take any such
incidental action hereunder. With respect to other actions which are incidental
to the actions specifically delegated to the Agent hereunder, the Agent shall
not be required to take any such incidental action hereunder, but shall be
required to act or to refrain from acting (and shall be fully protected in
acting or refraining from acting) upon the direction of the Company or a Bank
Investor; provided, however, that Agent shall not be required to take any action
-------- -------
hereunder if the taking of such action, in the reasonable determination of the
Agent, shall be in violation of any applicable law, rule or regulation or
contrary to any provision of this Agreement or shall expose the Agent to
liability hereunder or otherwise. Upon the occurrence and during the continuance
of any Termination Event or Potential Termination Event, the Agent shall take no
action hereunder (other than ministerial actions or such actions as are
specifically provided for herein) without the prior consent of the Majority
Investors. Unless otherwise provided herein, the Agent shall not authorize the
release of any property conveyed to the Agent by the Company or the Transferor
hereunder without
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the prior consent of all Bank Investors. The Agent shall not, without the prior
written consent of all Bank Investors, agree to (i) amend, modify or waive any
provision of this Agreement in any way which would (A) reduce or impair
Collections or the payment of Discount or fees payable under the related fee
letter or delay the scheduled dates for payment of such amounts, (B) increase
the Servicing Fee, (C) modify any provisions of this Agreement relating to the
timing of payments required to be made by the Transferor or the application of
the proceeds of such payments, or (D) the appointment of any Person (other than
the Agent) as successor Collection Agent. The Agent shall not agree to any
amendment of this Agreement which increases the dollar amount of a Bank
Investor's Commitment without the prior consent of such Bank Investor. In
addition, the Agent shall not agree to any amendment of this Agreement not
specifically contemplated by the two preceding sentences without the consent of
the related Majority Investors. "Majority Investors" shall mean, at any time,
------------------
Persons consisting of Bank Investors which hold Commitments aggregating in
excess of 51% of the Maximum Net Investment as of such date. In the event the
Agent requests the Company's or a Bank Investor's consent pursuant to the
foregoing provisions and the Agent does not receive a consent (either positive
or negative) from the Company or such Bank Investor within ten (10) Business
Days of the Company's or Bank Investor's receipt of such request, then the
Company or such Bank Investor (and its percentage interest hereunder) shall be
disregarded in determining whether the Agent shall have obtained sufficient
consent hereunder.
(b) The Agent shall exercise such rights and powers vested in it by
this Agreement, and use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
SECTION I.2. Agent's Reliance, Etc. Neither the Agent nor any of its
----------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them as Agent under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limiting the foregoing, the Agent: (i) may consult with legal counsel
(including counsel for the Transferor or CompuCom), inde-
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pendent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (ii) shall
make no warranty or representation to the Company or any Bank Investor and shall
not be responsible to the Company or any Bank Investor for any statements,
warranties or representations made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of this Agreement on
the part of the Transferor, the Collection Agent or CompuCom or to inspect the
property (including the books and records) of the Transferor, the Collection
Agent or CompuCom; (iv) shall not be responsible to the Company or any Bank
Investor for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, or any other instrument or document
furnished pursuant hereto; and (v) shall incur no liability under or in respect
of this Agreement by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be by telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION I.3. Credit Decision. The Company and each Bank Investor
---------------
acknowledges that it has, independently and without reliance upon the Agent, any
of the Agent's Affiliates' any (other) Bank Investor or the Company (in the case
of any Bank Investors) and based upon such documents and information as it has
deemed appropriate, made its own evaluation and decision to enter into this
Agreement and, if it so determines, to accept the transfer of any undivided
ownership interest in Receivables hereunder. The Company and each Bank Investor
also acknowledges that it will, independently and without reliance upon the
Agent, any of the Agent's Affiliates, any (other) Bank Investor or the Company
(in the case of any Bank Investors) and based on such documents and information
as it shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under this Agreement.
SECTION I.4. Indemnification of the Agent. The Bank Investors agree to
----------------------------
indemnify the Agent (to the
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extent not reimbursed by the Transferor), ratably in accordance with their Pro
Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement;
provided that the Bank Investors shall not be liable for any portion
- --------
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
the Bank Investors agree to reimburse the Agent, ratably in accordance with
their Pro Rata Shares, promptly upon demand for any out-of-pocket expenses
(including counsel fees) incurred by the Agent in connection with the
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such
expenses are incurred in the interests of or otherwise in respect of the Bank
Investors hereunder and to the extent that the Agent is not reimbursed for such
expenses by the Transferor.
SECTION I.5. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to each Bank Investor, the Company and the Transferor and
may be removed at any time with cause by the Majority Investors. Upon any such
resignation or removal, the Bank Investors acting jointly shall appoint a
successor Agent. Each Bank Investor agrees that it shall not unreasonably
withhold or delay its approval of the appointment of a successor Agent. If no
such successor Agent shall have been so appointed by the Bank Investors, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Investors' removal of
the retiring Agent, then the retiring Agent may, on behalf of the Bank
Investors, appoint a successor Agent which successor Agent shall be either (i) a
commercial bank organized under the laws of the United States or of any state
thereof and have a combined capital and surplus of at least $50,000,000 or (ii)
an Affiliate of such a bank. Upon the acceptance of any appointment as Agent
hereunder
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by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
SECTION I.6. Payments by the Agent. Unless specifically allocated to a
---------------------
Bank Investor pursuant to the terms of this Agreement, all amounts received by
the Agent on behalf of the Bank Investors shall be paid by the Agent to the Bank
Investors (at their respective accounts specified in their respective
Assignments) in accordance with their respective related pro rata interests in
--- ----
the Net Investment on the Business Day received by the Agent, unless such
amounts are received after 12:00 noon (New York time) on such Business Day, in
which case the Agent shall use its reasonable efforts to pay such amounts to the
Bank Investors on such Business Day, but, in any event, shall pay such amounts
to the Bank Investors in accordance with their respective related pro rata
--- ----
interests in the Net Investment not later than the following Business Day.
SECTION I.7. Bank Commitment; Assignment to Bank Investors.
---------------------------------------------
(a) Bank Commitment. At any time on or prior to the Commitment
---------------
Termination Date, in the event that the Company does not effect an Incremental
Transfer as requested under Section 2.2, then, at any time thereafter, the
Transferor shall have the right to require the Company to assign its interest in
whole to the Bank Investors pursuant to an assignment and assumption agreement
(an "Assignment") in accordance with this Section 9.7. In addition, at any time
----------
on or prior to the Commitment Termination Date, (i) upon the occurrence of a
Termination Event or (ii) the Company elects to give notice of a Reinvestment
Termination Date, the Transferor hereby requests and directs that the Company
assign its interest in whole to the Bank Investors pursuant to this Section 9.7,
and the Transferor agrees to pay the amounts described in Section 9.7(d) below.
Provided that (i) the Net Asset Test is satisfied and (ii) the Transferor shall
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have paid to the Company all amounts due as described in Section 9.7(d) (which
amount may be deemed paid by the Transferor through an increase in the Net
Investment), upon any such election by the Company or any such request by the
Transferor, the Company shall make such assignment and the Bank Investors shall
accept such assignment and shall assume all of the Company's obligations
hereunder. In connection with any assignment from the Company to the Bank
Investors pursuant to this Section 9.7, each Bank Investor shall, on the date of
such assignment, pay to the Company an amount equal to its Assignment Amount.
In addition, at any time on or prior to the Commitment Termination Date, the
Transferor shall have the right to request funding under this Agreement directly
from the Bank Investors; provided that at such time all conditions precedent set
--------
forth herein for an Incremental Transfer shall be satisfied, and provided
--------
further that, in connection with such funding by the Bank Investors, the Bank
- -------
Investors accept the assignment of all of the Company's interest in the Net
Investment and assume all of the Company's obligations hereunder.
(b) Assignment. Upon any assignment pursuant to Section 9.7(a), the
----------
Company shall deliver to each Bank Investor an Assignment, duly executed,
assigning to each such Bank Investor a pro rata interest in the Net Investment
--- ----
plus amounts unpaid pursuant to Section 9.7(d) (which amounts may be applied to
increase the Net Investment), and the Company shall promptly execute and deliver
all further instruments and documents, and take all further action, that the
assignee may reasonably request, in order to protect, or more fully evidence the
assignee's right, title and interest in and to such interest and to enable the
Agent, on behalf of such assignee, to exercise or enforce any rights hereunder.
Upon any such assignment, (i) the assignee shall have all of the rights and
obligations of the Company hereunder with respect to such interest for all
purposes of this Agreement (it being understood that the Bank Investors, as
assignees, shall (x) be obligated to effect Incremental Transfers under Section
2.2 in accordance with the terms thereof unless a Termination Event has
occurred, notwithstanding that the Company was not so obligated and (y) not have
the right to elect the commencement of the amortization of the Net Investment
pursuant to the definition of "Termination Date", notwithstanding that the
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Company had such right) and (ii) the Company shall relinquish its rights with
respect to such interest for all purposes of this Agreement. No such assignment
shall be effective unless a fully executed copy of the related Assignment shall
be delivered to the Agent and Transferor. All reasonable costs and expenses of
the Company and assignee incurred in connection with any assignment hereunder
shall be borne by the Transferor and not by the Company or any such assignee.
No Bank Investor may assign all or any portion of its interest in the Net
Investment, the Receivables, Collections, Related Security and Proceeds with
respect thereto and its rights and obligations hereunder to any Person unless
approved in writing by the Agent. No Bank Investor shall assign any portion of
its Commitment hereunder without also simultaneously assigning an equal portion
of its interest in the Liquidity Provider Agreement.
(c) Effects of Assignment. By executing and delivering an
---------------------
Assignment, the assignor and assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment, the assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other instrument or document
furnished pursuant hereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any such other instrument
or document; (ii) the assignor makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Transferor or
the performance or observance by the Transferor of any of its obligations under
this Agreement, or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement and
such other instruments, documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment and
to purchase such interest; (iv) such assignee will, independently and without
reliance upon the Agent, or any of its Affiliates, or the assignor and based on
such agreements, documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes
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the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement and any other instrument or document furnished pursuant
hereto or thereto as are delegated to the Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto and to enforce
its respective rights and interests in and under this Agreement, the Receivables
and the Related Security; (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as the assignee of the assignor;
and (vii) such assignee agrees that it will not institute against the Company
any proceeding of the type referred to in Section 10.9 prior to the date which
is one year and one day after the payment in full of all Commercial Paper issued
by the Company.
(d) Transferor's Obligation to Pay Certain Amounts. The Transferor
----------------------------------------------
shall pay to the Company, prior to any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, an aggregate amount equal to all
Discount accrued with respect to each Tranche Period, all Discount to accrue
through the end of each outstanding Tranche Period plus all other Aggregate
Unpaids (other than the Net Investment). To the extent that such Discount
relates to interest or discount on Commercial Paper issued to fund the Net
Investment, if the Transferor fails to make payment of such amounts at or prior
to the time of assignment by the Company to the Bank Investors, such amount
shall be paid by the Bank Investors to the Company as additional consideration
for the interests assigned to the Bank Investors, and the amount of the "Net
Investment" hereunder held by the Bank Investors shall be increased by an amount
equal to the additional amount so paid by the Bank Investors.
(e) Administration of Agreement After Assignment; Discount. After
------------------------------------------------------
any assignment by the Company to the Bank Investors pursuant to this Section
9.7, all rights of the Collateral Agent set forth herein shall be deemed to be
afforded to the Agent on behalf of the Bank Investors instead of either such
party. After any such assignment, Discount hereunder shall be determined in
accordance with the terms of the Fee Letter dated the date hereof (as such
letter may be amended from time to time) between the Transferor and the Agent.
80
<PAGE>
(f) Payments. After any assignment by the Company to the Bank
--------
Investors pursuant to this Section 9.7, all payments to be made hereunder by the
Transferor or the Collection Agent to the Bank Investors shall be made to the
Agent's account as such account shall have been notified to the Transferor and
the Collection Agent.
(g) Downgrade of Bank Investor. If the short-term debt rating of a
--------------------------
Bank Investor shall be A-2 or P-2 from Standard & Poor's or Moody's,
respectively, with negative credit implications, such Bank Investor, upon
request of the Agent, shall, within thirty (30) days of such request, assign its
rights and obligations hereunder to another financial institution (which
institution's short-term debt shall be rated at least A-2 and P-2 from Standard
& Poor's and Moody's, respectively, and which shall not be so rated with
negative credit implications). If the short-term debt rating of a Bank Investor
shall be A-3 or P-3, or lower, from Standard & Poor's or Moody's, respectively,
such Bank Investor, upon request of the Agent, shall, within five (5) Business
Days of such request, assign its rights and obligations hereunder to another
financial institution (which institution's short- term debt shall be rated at
least A-2 and P-2 from Standard & Poor's and Moody's, respectively, and which
shall not be so rated with negative credit implications). In either such case,
if any such Bank Investor shall not have assigned its rights and obligations
under this Agreement within the applicable time period described above, the
Company shall have the right to require such Bank Investor to accept the
assignment of such Bank Investor's Pro Rata Share of the Net Investment, and
such assignment shall occur in accordance with the applicable provisions of this
Section 9.7. Such Bank Investor shall be obligated to pay to the Company, in
connection with such assignment, in addition to the Pro Rata Share of the Net
Investment, an amount equal to a pro rata portion of the interest component of
all outstanding Commercial Paper issued to fund the Net Investment, as
reasonably determined by the Agent.
81
<PAGE>
ARTICLE II
MISCELLANEOUS
SECTION II.1. Term of Agreement. This Agreement shall terminate following
-----------------
the Termination Date when the Net Investment has been reduced to zero, all
accrued Discount has been paid in full and all other Aggregate Unpaids have been
paid in full; provided, however, that (i) the rights and remedies of the Company
-------- -------
with respect to any representation and warranty made or deemed to be made by
each of Transferor, the Collection Agent and CompuCom pursuant to this
Agreement, (ii) the indemnification and payment provisions of Article VIII, and
(iii) the agreement set forth in Section 10.9, shall be continuing and shall
survive any termination of this Agreement for a period of three (3) years
following such date in the case of clauses (i) and (ii) above.
SECTION II.2. Waivers; Amendments. No failure or delay on the part of the
-------------------
Company in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and remedies herein
provided shall be cumulative and nonexclusive of any rights or remedies provided
by law. Any provision of this Agreement may be amended if, but only if, such
amendment is in writing and is signed by the parties hereto.
SECTION II.3. Notices. Except as provided below, all communications and
-------
notices provided for hereunder shall be in writing (including bank wire, telex,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other party at its address or telecopy number set forth below or at
such other address or telecopy number as such party may hereafter specify for
the purposes of notice to such party. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section and confirmation is received,
(ii) if given by mail 3 Business Days following such posting, or (iii) if given
by any other means, when received at the address
82
<PAGE>
specified in this Section. However, anything in this Section to the contrary
notwithstanding, the Transferor hereby authorizes the Company to effect
Transfers, Tranche Period and Tranche Rate selections based on telephonic
notices made by any Person which the Company in good faith believes to be acting
on behalf of the Transferor. The Transferor and the Company agree to deliver
promptly to the other a written confirmation of each telephonic notice signed by
an authorized officer of such party. However, the absence of such confirmation
shall not affect the validity of such notice.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
World Financial Center--South Tower
225 Liberty Street
New York, New York 10218
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Agent)
If to the Transferor:
CSI Funding Inc.
7171 Forest Lane
Dallas, Texas 75230
Telecopy: (972) 856-5395
Payment Information:
NationsBank of Texas, N.A.
ABA: 111000025
Account 1291795475
If to the Agent:
NationsBank, N.A.
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
ABA: 053000196
83
<PAGE>
Attention: Camille Zerbinos
Reference: CompuCom Expenses
SECTION II.4. Governing Law; Submission to Jurisdiction; Integration.
------------------------------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE TRANSFEROR, THE COLLECTION AGENT
AND COMPUCOM HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK
STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. Each of the Transferor, the Collection Agent and CompuCom
hereby irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 10.4 shall affect the right of the Company to bring any action or
proceeding against the Transferor, the Collection Agent and CompuCom or their
property in the courts of other jurisdictions.
(b) This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the parties hereto with
respect to the subject matter hereof superseding all prior oral or written
understandings.
SECTION II.5. Severability; Counterparts. This Agreement may be executed
--------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate
84
<PAGE>
or render unenforceable such provision in any other jurisdiction.
SECTION II.6. Successors and Assigns.
----------------------
(a) This Agreement shall be binding on the parties hereto and their
respective successors and assigns; provided, however, that neither the
-------- -------
Transferor, the Collection Agent nor CompuCom may assign any of its rights or
delegate any of its duties hereunder without the prior written consent of the
Company. No provision of this Agreement shall in any manner restrict the ability
of the Company to assign, participate, grant security interests in, or otherwise
transfer any portion of the Transferred Interest.
(b) Each of the Transferor and CompuCom hereby agrees and consents to
the assignment by the Company from time to time of all or any part of its rights
under, interest in and title to this Agreement and the Transferred interest to
any Liquidity Provider or the Bank Investors. In addition, each of the
Transferor and CompuCom hereby agrees and consents to the complete assignment by
the Company of all of its rights (but not its obligations) under, interest in
and title to this Agreement and the Transferred Interest to NationsBank, N.A.,
in its capacity as collateral agent (in such capacity, the "Collateral Agent")
----------------
for any Liquidity Provider, any Credit Support Provider and the holders of
Commercial Paper from time to time.
SECTION II.7. [RESERVED]
SECTION II.8. Confidentiality. (a) Each of the Transferor, the
---------------
Collection Agent and CompuCom hereby consents to the disclosure of any non-
public information with respect to it to (i) either the Agent or the Company by
the other and (ii) the Liquidity Provider, the Credit Support Provider, any Bank
Investor, or any nationally recognized rating agency providing a rating for the
Company's commercial paper.
(b) Each of the Transferor and the Company shall maintain, and shall
cause each of its officers, employees and agents to maintain, the
confidentiality of this Agreement, all documents related hereto and all other
confidential proprietary information with respect
85
<PAGE>
to, on the one hand, the Company, the Agent, any Bank Investor, the Liquidity
Provider or the Credit Support Provider, and, on the other hand, CompuCom and
the Transferor, and each of their respective businesses obtained by them in
connection with the structuring, negotiation and execution of the transactions
contemplated herein, except for information that has become publicly available
and has been disclosed to (i) legal counsel, accountants and other professional
advisors to the Company and the Transferor by the other, (ii) as required by
law, regulation or legal process and (iii) in connection with any legal or
regulatory proceeding to which the Transferor or the Company, as applicable, is
subject. Both the Company and the Agent, on the one hand, and the Transferor and
CompuCom, on the other hand, hereby consent to the disclosure of information in
the manner and to the Persons set forth in clauses (i) through (iii) above.
SECTION .1. No Bankruptcy Petition Against the Company. Each of the
------------------------------------------
Transferor, the Collection Agent and CompuCom hereby covenants and agrees that,
prior to the date which is one year and one day after the payment in full of all
outstanding Commercial Paper or other indebtedness of the Company, it will not
institute against, or join any other Person in instituting against, the Company
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
SECTION .2. Limited Recourse; Waiver of Setoff.
----------------------------------
(a) Notwithstanding anything to the contrary contained herein, the
obligations of the Company under this Agreement are solely the corporate
obligations of the Company and shall be payable at such time as funds are
received from the Transferor, CompuCom and other transferors or from any party
to any agreement with the Company in accordance with the terms thereof in excess
of funds necessary to pay matured and maturing Commercial Paper and, to the
extent funds are not available to pay such obligations, the claims relating
thereto shall continue to accrue. Each party hereto agrees that the payment of
any claim (as defined in Section 101 of Title 11 of the Bankruptcy Code) of any
such party shall be
86
<PAGE>
subordinated to the payment in full of all Commercial Paper. No recourse shall
be had for the payment of any amount owing in respect of any obligation of, or
claim against, the Company arising out of or based upon this Agreement against
any stockholder, employee, officer, director or incorporator of the Company or
any Affiliate thereof or against any stockholder, employee, officer, director,
incorporator or Affiliate of the Agent; provided, however, that the foregoing
-------- -------
shall not relieve any such person or entity from any liability they might
otherwise have as a result of fraudulent actions or omissions taken by them.
(b) Each of the Transferor and CompuCom hereby agrees to waive any
right of setoff which it may have or to which it may be entitled against the
Company and its assets.
SECTION .3. Grant of Security Interest. The Transferor does hereby grant
--------------------------
to the Agent, on behalf of the Company and the Bank Investors, a security
interest in all of the Transferor's right, title and interest in, to and under
the Receivables, together with Related Security and Collections with respect
thereto, and in all of the Transferor's rights under the Receivables Purchase
Agreement and that this Agreement shall constitute a security agreement under
applicable law.
87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amended and Restated Transfer and Administration Agreement as of the date
first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /S/ STEWART CUTLER
----------------------------
Name: Stewart Cutler
Title: Vice President
CSI FUNDING INC.,
as Transferor
By: /s/ DANIEL CELONI
----------------------------
Name: Daniel Celoni
Title: Treasurer
COMPUCOM SYSTEMS, INC.,
individually and
as Collection Agent
By: /s/ M. LAZANA SMITH
----------------------------
Name: M. Lazana Smith
Title: SVP-CFO
NATIONSBANK, N.A., as Agent
and as Bank Investor
Commitment:
$97,500,000.00 By: /s/ STAN MEIHAUS
---------------------------
Name: Stan Meihaus
Title: Vice President
<PAGE>
BANK HAPOALIM, B.M.,
as Bank Investor
Commitment:
$30,000,000.00 By: /s/ JONATHAN KULKA
----------------------------
Name: Jonathan Kulka
Title: FVP
By: /s/ PETER DOVAS
----------------------------
Name: Peter Dovas
Title: VP
CREDIT LYONNAIS NEW YORK BRANCH,
as Bank Investor
Commitment:
$30,000,000.00 By: /s/ DAVID C. FINK
----------------------------
Name: David C. Fink
Title: First Vice President
CORESTATES BANK, N.A.,
as Bank Investor
Commitment:
$17,500,000.00 By: /s/ SCOTT HUFFMAN
----------------------------
Name: Scott Huffman
Title: Vice President
<PAGE>
EXHIBIT N
---------
CERTAIN DEFINITIONS
(All defined terms contained in this Exhibit N shall only be used in connection
with Sections 7.1 (o), (p), (q), (r) and (s).)
Capitalized terms used in this Exhibit N which are also defined herein, are used
as so defined herein.
"Account" has the meaning assigned to such term in the UCC.
-------
"Accounts and Inventory Report" means a report, signed by an Authorized
-----------------------------
Signatory, in substantially the form of Exhibit E of the Credit Agreement,
appropriately completed.
"Acquisition" means any transaction pursuant to which the Borrower or any
-----------
of its Subsidiaries, (i) whether by means of a capital contribution or purchase
or other acquisition of stock or other securities or other equity participation
or interest, (A) acquires more than 50% of the equity interest in any Person
pursuant to a solicitation by the Borrower or such Subsidiary of tenders of
equity securities of such Person, or through one or more negotiated block,
market, private or other transactions, or a combination of any of the foregoing,
or (B) makes any corporation a Subsidiary of the Borrower or such Subsidiary, or
causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to be
merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or such Subsidiary), or
(ii) purchases all or substantially all of the business or assets of any Person
or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas,
---------------------
N-1
<PAGE>
N.A., a national banking association, as administrative agent for Lenders, or
such successor administrative agent appointed pursuant to Section 10.1(b) of the
Credit Agreement.
"Administrative Lender Fee Letter" has the meaning specified in Section
--------------------------------
2.4(c) of the Credit Agreement.
"Advance" means a Facility A Advance, a Facility B Advance or a Swing Line
-------
Advance and "Advances" means Facility A Advances, Facility B Advances and Swing
--------
Line Advances.
"Affiliate" means, as applied to any Person, any other Person that,
---------
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.
"Agreement Date" means the date of the Credit Agreement.
--------------
"Applicable Environmental Laws" means applicable laws pertaining to health
-----------------------------
or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
------
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
----
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
--------------
the laws of the
N-2
<PAGE>
United States of America, including without limitation 12 USC '' 85 and 86,
as amended from time to time, and any other statute of the United States of
America now or at any time hereafter prescribing the maximum rates of
interest on loans and extensions of credit, and the laws of the State of
Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other
---------
statute of the State of Texas; provided that the parties hereto agree that
the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas,
1925, as amended, shall not apply to Advances, this Agreement, the Notes or
any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum
----------------------------
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability
-------------
<S> <C>
(a) Initial Pricing Period 1.000%
1.250%
0.750%
(b) Subsequent Pricing Period
(1) The Fixed Charge Coverage Ratio is greater than 0.750%
or equal to 2.50 to 1 1.000%
0.625%
(2) The Fixed Charge Coverage Ratio is less than 0.875%
2.50 to 1 but greater than or equal to 2.00 to 1 1.125%
0.750%
(3) The Fixed Charge Coverage Ratio is less than 1.000%
2.00 to 1 but greater than or equal to 1.50 to 1 1.250%
0.875%
(4) The Fixed Charge Coverage Ratio is less than 1.250%
1.50 to 1 1.500%
1.125%
</TABLE>
N-3
<PAGE>
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a quarterly basis according to the
performance of the Borrower as tested by using the Fixed Charge Coverage Ratio
calculated as of the end of each fiscal quarter during the Subsequent Pricing
Period; provided, that each adjustment in the LIBOR Basis shall be effective
--------
with respect to LIBOR Advances (i) made following receipt by the Administrative
Lender of the financial statements required to be delivered pursuant to Section
6.2 or 6.3 of the Credit Agreement, as applicable, for each such fiscal
quarter, and the corresponding Compliance Certificate required pursuant to
Section 6.4 of the Credit Agreement, on the date of making such LIBOR Advance
and (ii) outstanding on the date of receipt of such financial statements and
Compliance Certificate referred to in clause (i) immediately preceding, on the
date which is two Business Days following the date of receipt of such financial
statements and Compliance Certificate. If such financial statements and
Compliance Certificate are not received by the Administrative Lender by the date
required, effective as of the first Business Day following notification thereof
from the Administrative Lender to the Borrower, the Applicable LIBOR Rate Margin
shall be determined as if the Fixed Charge Coverage Ratio is less than 1.50 to 1
until such time as such financial statements and Compliance Certificate are
received.
"Asset Coverage Ratio" means, for the Borrower and its Subsidiaries
--------------------
determined in accordance with GAAP on a consolidated basis, at the time in
question, the ratio of (a) the sum of (i) Cash and Cash Equivalents, plus (ii)
Accounts, plus (iii) Inventory to (b) the sum of (i) outstanding obligations in
respect of Facility A and Swing Line Advances, Reimbursement Obligations and
other Indebtedness, plus (ii) the Net Exposure Under Securitization, plus (iii)
accounts payable and accrued liabilities in the ordinary course of business.
"Assignees" means any assignee of a Lender pursuant to an Assignment
---------
Agreement and shall have the meaning
N-4
<PAGE>
ascribed thereto in Section 11.6 of the Credit Agreement.
"Assignment Agreement" has the meaning specified in of the Credit Agreement.
--------------------
"Authorized Signatory" means such senior personnel of the Borrower as may be
--------------------
duly authorized and designated in writing by the Borrower to execute documents,
agreements and instruments on behalf of the Borrower, and to request Advances
and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base Rate Basis.
-----------------
"Base Rate Basis" means, for any day, a per annum interest rate equal to the
---------------
higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such day
or (b) the Prime Rate on such day. The Base Rate Basis shall be adjusted
automatically without notice as of the opening of business on the effective date
of each change in the Prime Rate to account for such change.
"Borrower" has the meaning specified in the introductory provision of the
--------
Credit Agreement.
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Dallas, Texas, and, (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and its
-------
Subsidiaries, on a consolidated basis determined in accordance with GAAP, the
sum of (a) Funded Debt plus (b) Net Worth.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost
N-5
<PAGE>
of the item, but excluding capital expenditures made with insurance proceeds to
the extent used to replace or repair damaged fixed assets, plant and equipment)
computed in accordance with GAAP, consistently applied.
"Capital Stock" means, as to any Person, the equity interests in such Person,
-------------
including, without limitation, the shares of each class of capital stock in any
Person that is a corporation, and each class of partnership interest (including,
without limitation, general, limited and preference units) in any Person that is
a partnership.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (i) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (ii) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper issued by any Lender or the parent corporation of any Lender,
and commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equiva-
N-6
<PAGE>
lent thereof by Moody's Investors Service, Inc., and in each case maturing
within six months after the date of acquisition, and (vi) a readily redeemable
"money market mutual fund" advised by a bank described in clause (iii) hereof,
or an investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, that has and maintains an investment policy limiting its
investments primarily to instruments of the types described in clauses (i)
through (v) hereof and having on the date of such Investment total assets of at
least One Hundred Million Dollars ($100,000,000.00).
"CFI" means CSI Funding, Inc., a Delaware corporation and wholly-owned
---
Subsidiary of the Borrower, as purchaser under the RPA.
"CFI Note" means the "Subordinated Note" as defined by the RPA, and any and
--------
all renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Change of Control" means the occurrence of any of the following events after
-----------------
the Agreement Date: (a) any Person or any Persons acting together which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the
-----
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
------------
successor provision thereto, other than the Group whose nominees constituted a
majority of the board of directors of the Borrower as of the close of business
on the Agreement Date, together with any Affiliates or Related Persons thereof,
shall beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; or (b) any Person or Group, other than any Person or Group whose
nominees constituted a majority of the board of directors of the Borrower as of
the close of business on the Agreement Date, together with any Affiliates or
Related Persons thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of the Borrower, such that such
nominees, when added to any existing director
N-7
<PAGE>
remaining on the Board of Directors of the Borrower after such election who is
an Affiliate or Related Person of such Group, shall constitute a majority of the
Board of Directors of the Borrower.
"ClientLink Note" means that certain promissory note, dated September 5, 1996,
---------------
in the original principal amount of $2,500,000 executed and delivered by
ClientLink, Inc. and payable to the order of the Borrower, and any and all
renewals, extensions, modifications, amendments, supplements or restatements
thereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral granted at any time by any Person to the
----------
Administrative Lender for the benefit of the Lenders to secure the Obligations;
provided, however, that on the Agreement Date or as soon as practical thereafter
the Administrative Lender shall release any Liens held by the Administrative
Lender insofar as such Liens cover the Receivables and provided, further, that
upon the occurrence of the Inventory Release Event, the Administrative Lender
shall also release any Liens held by the Administrative Lender insofar as such
Liens cover the Inventory of the Borrower or any of its Subsidiaries.
"Collateral Document" means any document under which Collateral is granted and
-------------------
any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) of the Credit
--------------
Agreement.
"Commitments" means, collectively, the Facility A Commitment and the Facility
-----------
B Commitment, as reduced from time to time pursuant to Section 2.6 of the
Credit Agreement.
"Compliance Certificate" means a certificate, signed by an Authorized
----------------------
Signatory, in substantially the form of Exhibit G to the Credit Agreement,
appropriately completed.
N-8
<PAGE>
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Credit Agreement" means the Amended and Restated Credit Agreement, dated
----------------
November 3, 1997, among CompuCom Systems, Inc., certain Lenders (as such term is
defined in this Exhibit N), and NationsBank of Texas, N.A. as Administrative
Lender (as such term is defined in this Exhibit N), as amended, modified,
supplemented or restated from time to time.
"Creditor" means a creditor of the Borrower or any Subsidiary of the Borrower
--------
and shall not include any Affiliate of any such creditor.
"Current Maturities" means, with respect to any Person, the principal portion
------------------
payable by such Person on Long Term Debt during the twelve-month period
immediately succeeding the date of determination.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from
N-9
<PAGE>
time to time in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable, relating
-------------
to the real property of the Borrower purchased with the proceeds of the Facility
B Advances, in a form acceptable to the Administrative Lender, as amended,
modified, renewed, supplemented or restated from time to time.
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1 of the Credit Agreement, regardless of whether there shall have
occurred any passage of time or giving of notice that would be necessary in
order to constitute such event an Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the lesser of
(i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess of the
Applicable Rate Margin then in effect.
"Determining Lenders" means, on any date of determination, any combination of
-------------------
the Lenders having in excess of 50.0% of the aggregate amount of the Advances
(which for purposes of the calculation shall include for each Lender an amount
equal to the product of such Lender's Specified Percentage multiplied by the
aggregate principal amount of Swing Line Advances outstanding) then outstanding;
provided, however, that if there are no Advances outstanding hereunder,
"Determining Lenders" shall mean any combination of Lenders whose Specified
--------------------
Percentages aggregate in excess of 50.0%.
"Dividend" means, as to any Person, (a) any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any shares of Capital Stock of, or other similar interest in, such
Person and (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of, or similar interest in,
N-10
<PAGE>
such Person.
"Dollar" or "$" means the lawful currency of the United States of America.
------ -
"Domestic Subsidiary" means any Subsidiary of the Borrower other than a
-------------------
Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense.
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
"EFC" means Enterprise Funding Corporation, a Delaware corporation, as
---
purchaser of an undivided interest in a portion of the Receivables, as provided
by the TAA.
"Equipment" has the meaning assigned to such term in the UCC.
---------
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time, and any
N-11
<PAGE>
regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a) a
-----------
Reportable Event (other than a Reportable Event not subject to the provision for
30-day notice to the PBGC pursuant to regulations issued under Section 4043 of
ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1 of the
----------------
Credit Agreement, provided that any requirement for notice or lapse of time has
been satisfied.
"Existing Credit Agreement" has the meaning specified in the Background
-------------------------
provision hereof.
"Facility A Advance" means an Advance made pursuant to Section 2.1(a) of the
------------------
Credit Agreement.
"Facility A Commitment" means $125,000,000.00, as reduced pursuant to Section
---------------------
2.6 of the Credit Agreement .
"Facility A Maturity Date" means October 30, 2002, or the earlier date of
------------------------
termination in whole of the Facility A Commitment pursuant to Section 2.6 or 8.2
of the Credit Agreement.
N-12
<PAGE>
"Facility A Notes" means the promissory notes of Borrower evidencing Facility
----------------
A Advances hereunder, substantially in the form of Exhibit A of the Credit
Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"Facility B Advance" means an Advance made pursuant to Section 2.1(b) of the
------------------
Credit Agreement in order to refinance the outstanding Facility B Advances under
the Existing Credit Agreement as of the Agreement Date.
"Facility B Commitment" means $25,000,000.00, as reduced from time to time
---------------------
pursuant to Section 2.6 of the Credit Agreement.
"Facility B Maturity Date" means October 30, 2002, or the earlier date of
------------------------
termination in whole of the Facility B Commitment pursuant to Section 2.6 or
8.2 of the Credit Agreement.
"Facility B Notes" means the promissory notes of Borrower evidencing Facility
----------------
B Advances hereunder, substantially in the form of Exhibit B to the Credit
Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
------------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Lender from three
Federal funds brokers of recognized standing selected by it.
N-13
<PAGE>
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) the greater of (i) Current Maturities and (ii) 10% of Funded Debt, plus (b)
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges,
---------------------------
calculated for the four consecutive fiscal quarters immediately preceding the
date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America or the
District of Columbia.
"Funded Debt" means, as of any date of determination, determined for the
-----------
Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services other than trade payables incurred in the ordinary course
of business, (iv) Capitalized Lease Obligations and (v) Net Exposure Under
Securitization.
"GAAP" means generally accepted accounting principles applied on a consistent
----
basis, set forth in the Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants, or their successors which
are applicable in the circumstances as of the date in question. The requirement
that such principles be applied on a consistent basis shall mean that the
accounting principles applied in a current period are comparable in all material
respects to those applied in a preceding period.
"Guaranties" means, collectively, the Parent Guaranty and the Subsidiary
----------
Guaranty.
"Guarantor" means each direct and indirect Subsidiary of the Borrower that
---------
executes and delivers a Subsid-
N-14
<PAGE>
iary Guaranty hereunder.
"Guaranty" or "Guaranteed", as applied to an obligation of another Person,
-------- ----------
means (a) a guaranty, direct or indirect, in any manner, of any part or all of
such obligation, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit; provided, however, Guaranty does
not mean (i) the endorsement of instruments for collection or deposit in the
ordinary course of business and (ii) customary indemnities given in connection
with asset sales in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or arrangements
----------------
designed to protect at least one of the parties thereto from the fluctuations of
interest rates, exchange rates or forward rates applicable to such party's
assets, liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap, swap or collar protection
agreements, and forward rate currency or interest rate options, as the same may
be amended or modified and in effect from time to time, and any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
N-15
<PAGE>
"Indebtedness" means, with respect to any Person, without duplication, (a) all
------------
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition the amount of such
Indebtedness at any time shall be deemed to equal the fair market value of such
property or asset at such time), (f) to the extent not otherwise included, all
Capitalized Lease Obligations of such Person, all obligations in respect of
letters of credit, bankers' acceptances and similar instruments, and all
obligations under Hedge Agreements, (g) any Guaranty of such Person of any
obligation of another Person constituting obligations of a type set forth above
and (h) the Net Exposure Under Securitization.
"Indemnified Matters" has the meaning specified in Section 5.9(a) of the
-------------------
Credit Agreement.
"Indemnitees" has the meaning specified in Section 5.9(a) of the Credit
-----------
Agreement.
"Initial Pricing Period" means the period from and including the Agreement
----------------------
Date to and including the Rate Adjustment Date.
"Intangible Assets" means those assets which are treated as intangible
-----------------
pursuant to GAAP, and in any event including, without limitation: (i)
obligations, if any, owing by Affiliates to the Borrower or any Subsidiary of
the Borrower, (ii) the amount, if any, by which inventory exceeds the lower of
cost or market value thereof, (iii) the value of any inventory which is obsolete
or damaged or is otherwise deemed by the Administrative
N-16
<PAGE>
Lender not to be of a marketable quality commensurate with the inventory of the
Borrower and its Subsidiaries as a whole; (iv) accounts receivable which are
deemed by the Borrower, any of its Subsidiaries or the Administrative Lender to
be uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or setoffs; (v) leases and
leasehold improvements; (vi) any asset which is intangible or lacks intrinsic
and marketable value or collectibility, including without limitation goodwill,
noncompetition agreements, patents, copyrights, trademarks, franchises or
organization or research and development costs; (vii) organizational and
experimental expense; and (viii) unamortized debt discount and expense.
"Intercreditor Agreements" collectively means the following certain
------------------------
agreements: (i) Amended and Restated Intercreditor Agreement dated effective as
of April 1, 1996 among NationsBank of Texas, N.A., in its capacity as a lender,
the Borrower, IBM Credit Corporation and NationsBank of Texas, N.A. , (ii)
Subordination Agreement dated August 22, 1994 among NationsBank of Texas, N.A.,
in its capacity as a lender, the Borrower, IBM Credit Corporation and Hewlett-
Packard Company, (iii) Intercreditor Agreement dated December 27, 1993 among
NationsBank of Texas, N.A., in its capacity as a lender, the Borrower and Compaq
Computer Corporation, and (iv) any other intercreditor agreement hereafter
entered into among NationsBank of Texas, N.A., in its capacity as the
Administrative Lender, the Borrower and any Person that is a vendor to the
Borrower of Inventory, as any of the foregoing may be renewed, extended,
modified, amended, supplemented or restated from time to time.
"Interest Period" means the period beginning on the day any LIBOR Advance is
---------------
made and ending one, two, three or six months thereafter (as the Borrower shall
select); provided, however, that all of the foregoing provisions are subject to
-------- -------
the following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, such Interest
N-17
<PAGE>
Period shall be extended to the next succeeding Business Day, unless, with
respect to a LIBOR Advance, the result of such extension would be to extend
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month; and
(iii) the Borrower may not select any Interest Period which ends after the
date of a scheduled principal payment on the Advances unless, after giving
effect to such selection, the aggregate unpaid principal amount of the LIBOR
Advances for which Interest Periods end after such scheduled principal payment
shall be equal to or less than the principal amount to which the Advances or
Facility B Commitment are required to be reduced after such scheduled
principal payment is made.
"Inventory" has the meaning assigned to such term in the UCC.
---------
"Inventory Release Event" means the the occurrence of all of the following
-----------------------
events: (i) the release in writing (in form and substance acceptable to the
Administrative Lender) by all holders (other than the Administrative Lender) of
all Liens covering the Inventory, or any of same, of the Borower and/or any of
its Subsidiaries, (ii) the release or termination, as applicable, of any and all
UCC financing statements with respect to such Liens on such Inventory, (iii) the
delivery to the Administrative Lender of UCC searches, or other evidence
acceptable to the Administrative Lender, evidencing such releases, and (iv) the
delivery to the Administrative Lender of such other documents, agreements and
papers as the Administrative Lender shall reasonably request in order to
evidence that such Inventory is not subject to
N-18
<PAGE>
any Lien(s) in favor of any Person (other than the Administrative Lender).
"Investment" means any acquisition of all or substantially all assets of any
----------
Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
------------
association, in its capacity as issuer of the Letters of Credit.
"Landlord's Waiver" means an agreement in form and substance satisfactory to
-----------------
the Administrative Lender pursuant to which the landlord of any leased location
where any Collateral is located shall waive its rights, if any, to the
Collateral and shall grant to the Administrative Lender rights to enter upon the
premises to inspect, remove or dispose of the Collateral.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages hereof
------
so long as such financial institution maintains a portion of the Commitments or
is owed any part of the Obligations (including the Administrative Lender in its
individual capacity), and each Assignee that hereafter becomes a party hereto
pursuant to Section 11.6 of the Credit Agreement, subject to the limitations
set forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e) of the
---------------------
Credit Agreement.
N-19
<PAGE>
"Letter of Credit" has the meaning specified in Section 2.15(a) of the
----------------
Credit Agreement.
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b) of
--------------------------
the Credit Agreement.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a) of
-------------------------
the Credit Agreement.
"Leverage Ratio" means, for any date of calculation, the ratio of Funded Debt
--------------
as of the date of determination to EBITDA calculated for the four consecutive
fiscal quarters immediately preceding the date of calculation.
"LIBOR Advance" means an Advance which the Borrower requests to be made as a
-------------
LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with the
provisions of Section 2.2 of the Credit Agreement.
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office designated
--------------------
as its LIBOR Lending Office on Schedule 1 attached to the Credit Agreement, and
such other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
----------
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars
N-20
<PAGE>
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period. If
for any reason such rate is not available, the term "LIBOR Rate" shall mean, for
----------
any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
--------
however, if more than one rate is specified on Reuters Screen LIBO Page, the
- -------
applicable rate shall be the arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement or
other instrument.
"Loan Documents" means the Credit Agreement, the Notes, the Security
--------------
Agreement, the Pledge Agreement, the Subsidiary Guaranty, any other Collateral
Document, the Administrative Lender Fee Letter, any Hedge Agreements entered
into with any Lender, and any other document or agreement executed or delivered
from time to time by the Borrower, any Subsidiary of the Borrower or any other
Person in connection herewith or as security for the Obligations.
"Long Term Debt" means any obligation which is due
--------------
N-21
<PAGE>
one year or more from the date of creation thereof which under GAAP is shown as
a liability, plus (without duplication) amounts equal to the aggregate net
rentals (after making allowances for any interest, taxes or other expenses
included therein) payable more than one year from the date of creation thereof
under Capitalized Lease Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Subsidiaries taken as a whole, or (b) in any manner whatsoever
does or could reasonably be expected to materially and adversely affect the
validity or enforceability of any Loan Document.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender hereunder.
"NCGI Note" means that certain subordinated convertible note, dated October
---------
31, 1995, in the original principal amount of $3,000,000, executed and delivered
by the Borrower and payable to the order of Network Compatibility Group, Inc.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties,
including the sale of any Inventory.
"Net Cash Proceeds" means, with respect to any sale,
-----------------
N-22
<PAGE>
lease, transfer or other disposition of any asset by any Person, the amount of
cash received by such Person in connection with such transaction (including cash
proceeds of any property received in consideration of any such sale, lease,
transfer or other disposition) after deducting therefrom the aggregate, without
duplication, of the following amounts to the extent properly attributable to
such transaction or to the asset that is the subject thereof: (i) reasonable
brokerage commissions, legal fees, finder's fees, financial advisory fees,
accounting fees, underwriting fees, investment banking fees and other similar
commissions and fees, in each case, to the extent paid or payable by such
Person; (ii) filing, recording or registration fees or charges or similar fees
or charges paid by such Person; (iii) taxes paid or payable by such Person or
any shareholder, partner or member of such Person to governmental taxing
authorities as a result of such sale or other disposition; and (iv) payment of
the outstanding principal amount of, premium or penalty, if any, and interest on
any Indebtedness that is secured by a Lien on the asset in question and that is
required to be repaid under the terms thereof as a result of such asset sale.
"Net Exposure Under Securitization" means, for any date of calculation, the
---------------------------------
sum of the following (without duplication): (i) the "Net Investment" (as such
term is defined in the TAA) as of such date of calculation and (ii) any and all
obligations and liabilities of the Borrower, CFI or any other Subsidiary of
Borrower under, or in connection with, the Securitization, as of such date of
calculation, to the extent that same constitute liabilities of the Borrower or
of any Subsidiary of the Borrower under GAAP or would, under GAAP, constitute
liabilities of the Borrower or of any Subsidiary of the Borrower if the
Securitization was treated as an on balance sheet transaction.
"Net Income" means, with respect to any Person for any period, the net income
----------
(loss) of such Person, after provisions for taxes and extraordinary items,
determined in accordance with GAAP.
N-23
<PAGE>
"Net Worth" means, as of any date of calculation, for the Borrower and its
---------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, the
consolidated total stockholders' equity of the Borrower and its Subsidiaries.
"Notes" means, collectively, the Facility A Notes, the Facility B Notes and
-----
the Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a) of the
-------------------
Credit Agreement.
"Notice of Issuance" has the meaning specified in Section 2.15(b) of the
------------------
Credit Agreement.
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any other Obligor to any Lender or the Administrative Lender under
any of the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Borrower or any other Obligor of any obligation, covenant or
undertaking with respect to any Loan Document payable by the Borrower or any
other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
-------
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) of the Credit
-----------
Agreement
"Participation" has the meaning specified in Section 11.6(c) of the Credit
-------------
Agreement.
"Payment Date" means the last day of the Interest
------------
N-24
<PAGE>
Period for any LIBOR Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
----
to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, and (ii)
Liens for taxes, assessments, governmental charges, levies or claims that are
not yet delinquent or that are being diligently contested in good faith by
appropriate proceedings in accordance with Section 5.6 of the Credit Agreement
and for which adequate reserves shall have been set aside on such Person's
books, but only so long as no foreclosure, restraint, sale or similar
proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
incurred in the ordinary course of business for sums not yet due or being
contested in good faith, if such reserve or appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired (or existing
on property at the time such property is acquired) by such Person or created to
secure Indebtedness permitted by Section 7.1(c) or 7.1(d) of the Credit
Agreement, which is incurred solely for the
N-25
<PAGE>
purpose of financing the acquisition of such assets and incurred at the time of
acquisition or which exists against such assets at the time of acquisition
thereof, so long as each such Lien shall at all times be confined solely to the
asset or assets so acquired (and proceeds thereof), and refinancings thereof so
long as any such Lien remains solely on the asset or assets acquired and the
amount of Indebtedness related thereto is not in creased; provided, however,
that from and after the occurrence of the Inventory Release Event, Liens
covering Inventory of the Borrower or any of its Subsidiaries shall not
constitute Permitted Liens hereunder;
(g) Liens in respect of judgments or awards for which appeals or proceedings
for review are being prosecuted and in respect of which a stay of execution upon
any such appeal or proceeding for review shall have been secured, provided that
(i) such Person shall have established adequate reserves for such judgments or
awards, (ii) such judgments or awards shall be fully insured (subject to
customary deductibles) and the insurer shall not have denied coverage, or (iii)
such judgments or awards shall have been bonded to the satisfaction of the
Determining Lenders;
(h) Any Liens which are described on Schedule 2 to the Credit Agreement, and
Liens resulting from the refinancing of the related Indebtedness, provided that
the Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of the Borrower; provided, however, that from and after
the occurrence of the Inventory Release Event, Liens covering Inventory of the
Borrower or any of its Subsidiaries shall not constitute Permitted Liens
hereunder;
(i) Liens arising from filing Uniform Commercial Code financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;
(j) Any zoning or similar law or right reserved to or vested in any Tribunal
to control or regulate the use
N-26
<PAGE>
of any real property;
(k) Any other title exception with respect to real property assets disclosed
by any preliminary title report, title commitment report or other search of
title provided to the Administrative Lender in accordance with this Agreement
unless disapproved by the Administrative Lender prior to the Agreement Date;
(l) Any Lien in favor of any Lender to secure any obligations owed to such
Lender in respect of any Hedge Agreement;
(m) Liens incurred or deposits made to secure the performance of bids, trade
contracts (other than for Indebtedness), statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(n) Liens securing Indebtedness or other obligations of the Borrower or a
Subsidiary of the Borrower owing to the Borrower or a Subsidiary;
(o) Liens to the extent allowed under the MSAA or the Intercreditor
Agreements; provided, however, that from and after the occurrence of the
Inventory Release Event, Liens covering Inventory of the Borrower or any of its
Subsidiaries shall not constitute Permitted Liens hereunder;
(p) Liens in favor of EFC under, or in connection with, the TAA and/or the
RPA;
(q) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (h), (i), (j), (m),
(o) and (p) hereof; and
(r) Liens securing Indebtedness permitted by Section 7.1(k) of the Credit
Agreement, to the extent only that such Liens cover Inventory manufactured by,
purchased from or acquired from the holder of such Indebtedness and any renewals
thereof; provided, however, that
N-27
<PAGE>
from and after the occurrence of the Inventory Release Event, Liens covering
Inventory of the Borrower or any of its Subsidiaries shall not constitute
Permitted Liens hereunder.
"Person" means an individual, corporation, partnership, trust or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledge Agreement" means the pledge agreement, substantially in the form of
----------------
Exhibit F of the Credit Agreement, as amended, modified, renewed, supplemented
or restated from time to time, executed by the Borrower.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
--------------
December, beginning December 31, 1997.
"Rate Adjustment Date" means the date which is two Business Days following the
--------------------
date that the Lenders receive the financial statements for the fiscal year
ending December 31, 1996, required to be delivered pursuant to Section 6.2 of
the Credit Agreement.
N-28
<PAGE>
"Receivables" has the meaning assigned to such term in the RPA.
-----------
"Reference Lender" means NationsBank; provided that if the NationsBank
----------------
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank shall cease to be the Reference Lender, and
Administrative Lender (after consultation with Borrower) shall, with notice to
Borrower and Lenders, designate another Lender as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any individual
--------------
or entity who directly or indirectly holds 10% or more of any class of Capital
Stock of the Borrower, (c) any relative of such individual by blood, marriage or
adoption not more remote than first cousin and (d) any officer or director of
the Borrower.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of ERISA.
----------------
"Restricted Payments" means, collectively, (i) Dividends and (ii) any (A)
-------------------
payment or prepayment of principal, premium or penalty on any Subordinated Debt
of the Borrower or any Subsidiary of the Borrower or any defeasance, redemption,
purchase, repurchase or other acquisition or retirement for value, in whole or
in part, of any Subordinated Debt (including, without limitation, the setting
aside of assets or the deposit of funds
N-29
<PAGE>
therefor) and (B) prepayment of interest on any Subordinated Debt.
"Rights" means rights, remedies, powers and privileges.
------
"RPA" means that certain Receivables Purchase Agreement, dated as of April 1,
---
1996, as amended and restated as of November 3, 1997, between the Borrower and
CFI providing for the sale by the Borrower to CFI and the purchase by CFI from
the Borrower all Receivables now owned and hereafter acquired and arising from
time to time prior to termination of the RPA, on the terms provided therein, as
the same may be renewed, extended, modified, amended or restated from time to
time.
"Securitization" means, collectively, the transactions evidenced and governed
--------------
by the Securitization Documents.
"Securitization Documents" means, collectively, the RPA and the TAA and any
------------------------
other agreements or documents executed or delivered by any Person in connection
therewith.
"Security Agreement" means the security agreement relating to all Inventory
------------------
and Equipment (and all computer programs, applications, disks, plans, manuals,
specifications, files and other records pertaining thereto) of the Borrower and
its Subsidiaries, substantially in the form of Exhibit D to the Credit
Agreement, as amended, modified, renewed, supplemented or restated from time to
time.
"Solvent" means, with respect to any Person, that the fair value of the assets
-------
of such Person (both at fair valuation and at present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and such Person does not have
unreasonably small capital with which to
N-30
<PAGE>
carry on its business. In computing the amount of contingent or unliquidated
liabilities at any time, such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability discounted to present value at rates believed to be reasonable by such
Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C., or
---------------
such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
--------------------
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subordinated Debt" means (i) the NCGI Note and (ii) any other Indebtedness of
-----------------
the Borrower or any Subsidiary of the Borrower having maturities and terms, and
which is subordinated to payment of the Obligations in a manner, approved in
writing by the Administrative Lender and the Determining Lenders, with only such
changes or amendments as are not prohibited by Section 7.22 of the Credit
Agreement.
"Subsequent Pricing Period" means the period from and including the date which
-------------------------
is the first day following the end of the Initial Pricing Period to and
including the Facility A Maturity Date or Facility B Maturity Date, whichever is
later.
"Subsidiary" of any Person means any corporation, partnership, joint venture,
----------
trust or estate or other Person of which (or in which) more than 50% of:
(a) the outstanding capital stock having voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingen-
N-31
<PAGE>
cy),
(b) the interest in the capital or profits of such partnership or joint
venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries;
provided, however, that no Person shall be deemed to be a Subsidiary of the
Borrower solely by virtue of the fact that certain shares of the stock of such
Person have been pledged to the Borrower.
"Subsidiary Guaranty" means a guaranty, substantially in the form of Exhibit
-------------------
I to the Credit Agreement, executed and delivered by each Guarantor, as such
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Swing Line Advance" means an Advance made pursuant to Section 2.1(c) of the
------------------
Credit Agreement.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successor thereto
---------------
appointed in accordance with Section 10.1(b) of the Credit Agreement.
"Swing Line Facility" has the meaning specified in Section 2.1(c) of the
-------------------
Credit Agreement.
"Swing Line Note" means the Swing Line Note of the Borrower payable to the
---------------
order of the Swing Line Bank, substantially in the form of Exhibit C of the
Credit Agreement, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"TAA" means that certain the Transfer and Administration Agreement, dated as
---
of April 1, 1996, as amended and restated as of November 3, 1997, among the
Borrower,
N-32
<PAGE>
CFI, EFC and NationsBank, N.A. in its capacity as Agent and a Bank Investor
thereunder, providing for the transfer by CFI to EFC and the acceptance by EFC
from CFI of an undivided interest in certain Receivables acquired by CFI from
the Borrower pursuant to the RPA, from time to time, on the terms provided
therein, as the same may be renewed, extended, modified, amended or restated
from time to time.
"Tangible Net Worth" means the sum of the following for the Borrower and its
------------------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, (a)
Net Worth minus (b) the sum of the following (without duplication in respect of
items already deducted in arriving at Net Worth): Intangible Assets, and any
write-up in the book value of assets resulting from revaluation thereof
subsequent to December 31, 1995.
"Taxes" has the meaning specified in Section 2.14 of the Credit Agreement.
-----
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
--------
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory or
public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unused Portion" means an amount equal to the result of (a) the sum of (i) the
--------------
Facility A Commitment plus (ii) the Facility B Commitment minus (b) the sum of
(i) the outstanding Facility A Advances plus (ii) the outstanding Facility B
Advances plus (iii) the outstanding Reimbursement Obligations in respect of the
Letters of Credit.
N-33
<PAGE>
Exhibit 10.32
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated October 24, 1997 is made and entered into by and
between CompuCom Systems, a Delaware corporation ("Employer"), and Edward R.
Anderson, an executive employee of Employer ("Executive").
Recitals
A. Executive is employed by Employer in an executive capacity and
Executive has agreed to continue as an employee of Employer pursuant to the
terms of this Agreement.
B. Employer desires that the Executive continue as an employee of
Employer in order to provide the necessary leadership and senior management
skills that are important to the success of Employer. Employer believes that
retaining the Executive's services as an employee of Employer and the
benefits of his business experience are of material importance to Employer
and Employer's shareholders.
Agreement
NOW, THEREFORE, in consideration of Executive's continued employment by
Employer and the mutual promises and covenants contained herein the receipt
and sufficiency of which is hereby acknowledged, Employer and Executive
intend by this Agreement to specify the terms and conditions of Executive's
employment relationship with Employer.
Section I. General Duties of Employer and Executive.
1.1. Employer agrees to employ Executive and Executive agrees to
accept employment by Employer and to serve Employer in an executive capacity
upon the terms and conditions set forth herein. The duties and
responsibilities of Executive shall include those described for the
particular position held by Executive while employed hereunder in the Bylaws
of Employer or other documents of Employer, and shall also include such other
or additional duties, for Employer, as may from time-to-time be assigned to
Executive by the Board of Directors of Employer or any duly authorized
committee thereof. The executive capacity that Executive shall hold while
this Agreement is in effect shall be that position as determined by the Board
of Directors, or any duly authorized committee thereof, from time to time in
its sole
<PAGE>
discretion. While employed hereunder, the initial position that Executive
shall hold (until such time as such position may be changed as aforesaid)
shall be the position of President, Chief Executive Officer.
1.2. While employed hereunder, Executive shall obey the lawful
directions of the Board of Directors of Employer, or any duly authorized
committee thereof, and shall use his best efforts to promote the interests of
Employer and to maintain and to promote the reputation thereof. While
employed hereunder, Executive shall devote his time, efforts, skills and
attention to the affairs of Employer in order that he shall faithfully perform
his duties and obligations hereunder and such as may be assigned to or
vested in him by the Board of Directors of Employer, or any duly authorized
committee thereof.
1.3. While this Agreement is in effect, Executive may from time to
time engage in any businesses or activities that do not compete directly and
materially with Employer, provided that such businesses or activities do not
materially interfere with his performance of the duties assigned to him in
compliance with this Agreement by the Board of Directors of Employer or any
duly authorized committee thereof. In any event, Executive is permitted to
(i) invest his personal assets as a passive investor in such form or manner
as Executive may choose in his discretion, (ii) participate in various
charitable efforts, and (iii) serve as a director or officer of any other
entity or organization that does not compete with Employer.
Section 2. Compensation and Benefits.
2.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$30,000. Any increases to such rate shall be at the discretion of the
Compensation Committee duly elected by the Board of Directors. The salary
shall be payable in equal bi-weekly installments, subject only to such
payroll and withholding deductions as may be required by law and other
deductions applied generally to employees of Employer for insurance and other
employee benefit plans. In addition, Executive shall be entitled to
participate in the Company's Management Incentive Compensation Plan ("MICP")
at a rate of 120% of base salary. This bonus will be subject to the
parameters set forth by the Compensation Committee each year and the amount
of payment will be determined by such Committee. In addition, for the
initial three years of this Agreement, provided extensions
<PAGE>
are made, Executive will receive a lump sum bonus of $175,000 each year,
subject to required payroll and withholding deductions, on May 15, 1998, 1999
and 2000, respectively.
2.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties
hereunder (including, without limitation, travel and entertainment expenses)
and containing sufficient information to establish the amount, date, place
and essential character of the expenditure, Executive shall be reimbursed for
such costs and expenses in accordance with Employer's normal expense
reimbursement policy.
2.3. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a guaranteed renewable term life insurance
policy having a death benefit of not less than $1 million. Unless prohibited
by any policy or plan under which such insurance is provided, Executive will
have the right to purchase at Executive's cost additional coverage under such
policy or plan. Employer will not permit, even in the event of termination
of this Agreement for any reason, any such policy to lapse without offering
Executive the opportunity to take up the premium payments and continue the
policy in force.
2.4. Executive shall have the right to participate in any additional
compensation, medical and dental insurance plan, 401(k) plan, other benefit,
life insurance or other plan or arrangement of Employer now or hereafter
existing for the benefit of executive officers of Employer.
2.5. Executive shall be entitled to such vacation (in no event less
than three (3) weeks per year), holidays and other paid or unpaid leaves of
absence as consistent with Employer's normal policies or as otherwise
approved by the Board of Directors.
2.6. Executive agrees to submit to and Company agrees to pay for one
complete physical examination on an annual basis at the Cooper Clinic (or
similar medical clinic) in Dallas, Texas.
2.7. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a comprehensive long-term disability
insurance policy. Employer will not permit, even in the event of termination
of this agreement for any reason, any such policy to lapse without offering
Executive the
<PAGE>
opportunity to take up the premium payments and continue the policy in force.
Section 3. Preservation of Business; Fiduciary Responsibility.
3.1. Executive shall use his best efforts to preserve the business and
organization of Employer, to keep available to Employer the services of
present employees and to preserve the business relations of Employer.
Executive shall not commit any act, or in any way assist others to commit any
act, that would injure Employer. So long as the Executive is employed by
Employer, Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.
Section 4. Initial Term; Extensions of the Term.
4.1. The term of this Agreement shall commence on the effective date
hereof and shall end on October 24, 1999.
4.2. The term of this Agreement shall automatically be extended for
additional one-year periods commencing on October 24, 1999 and continuing
each year thereafter, unless Executive gives written notice to Employer on or
before September 24, 1998 and each year thereafter on September 24th, of his
intention not to extend this Agreement.
Section 5. Termination other than by Expiration of the Term. Employer
or Executive may terminate Executive's employment under this Agreement at any
time, but only on the following terms:
5.1. Executive may terminate his employment under this Agreement at any
time upon at least thirty (30) days prior written notice to Employer.
5.2. Employer may terminate Executive's employment under this Agreement
at any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of Employer that "due cause" exists
for the termination of the employment relationship. As used herein, the term
"due cause" shall mean any of the following events:
(i) any intentional misapplication by Executive of Employer's
funds, or any other act of dishonesty injurious to Employer committed by
Executive; or
<PAGE>
(ii) Executive's conviction of a crime involving moral turpitude;
or
(iii) Executive's use or possession of any controlled substance or
chronic abuse of alcoholic beverages; or
(iv) Executive's breach, non-performance or non-observance of any
of the terms of this Agreement if such breach, non-performance or
non-observance shall continue beyond a period of ten (10) business days
immediately after notice thereof by Employer to Executive; or
(v) any other action by the Executive involving willful and
deliberate malfeasance or gross negligence in the performance of Executive's
duties.
5.3. In the event Executive is incapacitated by accident, sickness or
otherwise so as to render Executive mentally or physically incapable of
performing the services required under Section 1 of this Agreement for a
period of one hundred eighty (180) consecutive business days, and such
incapacity is confirmed by the written opinion of two (2) practicing medical
doctors licensed by and in good standing in the state in which they maintain
offices for the practice of medicine, upon the expiration of such period or
at any time reasonably thereafter, or in the event of Executive's death,
Employer may terminate Executive's employment under this Agreement upon
giving Executive or his legal representative written notice at least thirty
(30) days prior to the termination date. Executive agrees, after written
notice by the Board of Directors of Employer or a duly authorized committee
or officer of Employer, to submit to examinations by such practicing medical
doctors selected by the Board of Directors of Employer or a duly authorized
committee or officer of Employer.
5.4. Employer may terminate Executive's employment under this Agreement
at any time for any reason whatsoever, even without "due cause", by giving a
written notice of termination to Executive, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
Section 6. Effect of Termination.
6.1. In the event the employment relationship is terminated (a) by
Executive upon thirty (30) days' written notice pursuant
<PAGE>
to Subsection 5.1 hereof, (b) by Employer for "due cause" pursuant to
Subsection 5.2 hereof, or (c) by Executive breaching this Agreement by
refusing to continue his employment and failing to give the requisite thirty
(30) days' written notice, all compensation and benefits shall cease as of
the date of termination, other than: (i) those benefits that are provided by
retirement and benefit plans and programs specifically adopted and approved
by Employer for Executive that are earned and vested by the date of
termination, (ii) Executive's pro rata annual salary through the date of
termination, and (iii) those benefits required by law to be made available to
terminating employees.
6.2. If Executive's employment relationship is terminated pursuant to
Subsection 5.3 hereof due to Executive's incapacity or death, Executive (or,
in the event of Executive's death, Executive's legal representative) will be
entitled to those benefits that are provided by retirement and benefits plans
and programs specifically adopted and approved by Employer for Executive that
are earned and vested at the date of termination and, even though no longer
employed by Employer, shall continue to receive the salary compensation
(payable in the manner as prescribed in the second sentence of Subsection
2.1) for the remaining term of this Agreement.
6.3. If Employer (i) terminates the employment of Executive other than
pursuant to Subsection 5.2 hereof for "due cause" or other than for a
disability or death pursuant to Subsection 5.3 hereof, (ii) demotes the
Executive to a position below the level of the position described in
Subsection 1.1, or (iii) decreases Executive's salary below the level or
reduces the employee benefits and perquisites below the level provided for by
the terms of Section 2 hereof, other than as a result of any amendment or
termination of any employee and/or executive benefit plan or arrangement,
which amendment or termination is applicable to all qualifying executives of
Employer, then such action by Employer, unless consented to in writing by
Executive, shall be deemed to be a constructive termination by Employer of
Executive's employment (a "Constructive Termination"). In the event of a
Constructive Termination, the Executive shall be entitled to receive, in a
lump sum within ten (10) days after the date of the Constructive Termination,
an amount equal to the salary that would have been paid for the remainder of
the Agreement. The Company will also provide outplacement assistance to
Executive in an amount not to exceed $25,000, if so desired by the Executive.
<PAGE>
6.4. For purposes of this Section 6, the term "salary" shall mean the
sum of (i) the annual rate of compensation provided to Executive by Employer
under Subsection 2.1 immediately prior to the Constructive Termination plus
(ii) the average annual cash bonuses or other cash incentive compensation
paid to Executive (based upon most recent position) by Employer for the two
calendar year period immediately preceding the year in which there shall
occur a Constructive Termination, excluding the lump sum bonus of $175,000 to
be paid for two (2) years described under Subsection 2.1.
6.5. In the event of a Constructive Termination, all other rights and
benefits Executive may have under the employee and/or executive benefit plans
and arrangements of Employer generally shall be determined in accordance with
the terms and conditions of such plans and arrangements.
Section 7. Covenants of Noncompetition.
7.1. Executive acknowledges that he has received and/or will receive
specialized knowledge and training from Employer during the term of this
Agreement, and that such knowledge and training would provide an unfair
advantage if used to compete with Employer. In order to avoid such unfair
advantage, Executive agrees that while he is employed with Employer and for a
period equal to two (2) years after the date of a voluntary termination of
employment (the "Restricted Period"), he shall not, directly or indirectly,
individually or as an owner, lender, consultant, adviser, independent
contractor, employee, partner, officer, director or in any other capacity,
alone or in association with other persons or entities, own, assist, finance,
participate in or be employed by any business or other endeavor that is in
any way in competition with Employer in any business at the time the
termination occurs, including, but not limited to, computer resellers,
service companies providing the same services as CompuCom, and computer
retail companies. Executive also agrees that, for the Restricted Period, he
will not, either directly or indirectly, solicit any employee or other
independent contractor of the Employer to terminate his employment or
contract with the Employer. In the event of a Constructive Termination or
termination due to change in control, Executive will not compete for the same
period of time for which payments are received in accordance with Subsection
6.3.
7.2. Executive represents and acknowledges to Employer that his
education, experience and/or abilities are such that he can
<PAGE>
obtain employment in a non-competing business and that enforcement of the
terms of this Agreement through temporary and/or permanent injunctive relief
will not prevent him from earning a livelihood and will not cause an undue
hardship upon him. Executive hereby acknowledges that $10,000 of his monthly
salary described in Subsection 2.1 is paid by Employer in consideration for
Executive's agreement to be bound by the non-competition provisions of this
Agreement.
Section 8. Change in Control.
8.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Employer occurs and, within six
months from the date of the Change in Control, the Executive voluntarily
terminates his employment under Subsection 5.1, then the Executive, even
though no longer employed by the Employer, shall be entitled to all payments
provided in Subsection 6.3, payable in a lump sum within thirty (30) days
after the date of termination.
8.2. If a Change of Control occurs during the course of this Agreement,
the Board of Directors will cause to vest, within ten (10) days of the
effective date of the Change of Control, all remaining unvested stock
options, both CompuCom and ClientLink, granted to Executive.
8.3. For the purposes of this Agreement, the term "Change in Control"
of the Employer shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended) other than any Employer employee stock ownership plan or
the Employer, becomes the beneficial owner (as such term is used in Section
13(d) of the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of the Employer representing 25% or more of the
combined voting power of the Employer's then outstanding securities, (ii) the
Board ceases to consist of a majority of Continuing Directors (as defined
below) or (iii) a person (as defined in clause (i) above) acquires (or,
during the 12-month period ending on the date for the most recent acquisition
by such person or group of persons, has acquired) gross assets of Employer
that have an aggregate market value greater than or equal to over 50% of the
fair market value of all of the gross assets of Employer immediately prior to
such acquisition or acquisitions. It is clearly understood, however, that no
change of control will be considered as having occurred
<PAGE>
as long as Safeguard Scientifics, Inc. continues to maintain effective
control of the Company, evidenced by their ownership of more than 35% of the
outstanding common shares of the Company and/or the effective control of the
Board of Directors. It is also understood that the change of control
provisions will not become effective if Executive is offered and willingly
accepts a position in a newly formed Company in the event a merger occurs.
8.4. For purposes of this Agreement, a "Continuing Director" shall mean
a member of the Board of Directors who either (i) is a member of the Board of
Directors at the date of this Agreement or (ii) is nominated or appointed to
serve as a director by a majority of the then Continuing Directors.
8.5. Notwithstanding any other provision of this Agreement, if (a) there
is a change in the ownership or effective control of the Employer or (b) in
the ownership of a substantial portion of the assets of the Employer within
the meaning of Section 280G of the Internal Revenue Code ("Section 280G"),
the payments to be paid to the Executive in the nature of compensation to be
received by or for the benefit of the Executive and contingent upon such
event (the "Termination Payments") would create an "excess parachute payment"
within the meaning of Section 280G, then the Employer shall make the
Termination Payments in substantially equal installments, the first
installment being due within thirty (30) days after the date of termination
and each subsequent installment being due on January 31 of each year, such
that the aggregate present value of all Termination Payments, whether
pursuant to this Agreement or otherwise, will be as close as possible to two
times the Executive's base salary and average cash bonuses, within the
meaning of Section 280G. It is the intention of this Subsection 8.5 to avoid
excise taxes on the Executive under Section 4999 of the Code and the
disallowance of a deduction to the Employer pursuant to Section 280G.
However, if the Company makes an error which triggers the excise tax,
Executive will be entitled to receive a gross up to cover incremental taxes
owed due to such error.
Section 9. Inventions.
9.1. Any and all inventions, product, discoveries, improvements,
processes, formulae, manufacturing methods or techniques, designs or styles
(collectively, "Inventions") made, developed or created by Executive, alone
or in conjunction with others, during regular hours of work or otherwise,
during the term of Executive's employment with the Employer and for a period
<PAGE>
of two (2) years thereafter that may be directly or indirectly related to the
business of, or tests being carried out by, the Employer, or any of its
subsidiaries, shall be promptly disclosed by Executive to Employer and shall
be the Employer's exclusive property.
9.2. Executive will, upon the Employer's request and without additional
compensation, execute any documents necessary or advisable in the opinion of
the Employer's counsel to direct the issuance of patents to the Employer with
respect to Inventions that are to be the Employer's exclusive property under
this Section 9 or to vest in the Employer title to such Inventions; the
expense of securing any patent, however, shall be borne by the Employer.
9.3. Executive will hold for the Employer's sole benefit any Invention
that is to be the Employer's exclusive property under this Section 9 for
which no patent is issued.
9.4. Executive grants to Employer a royalty-free, nonexclusive
irrevocable license for any Inventions developed prior to the employment with
the Company that he has not reserved that are used by Executive in the
performance of his duties for the Employer. Employee represents and warrants
that any work produced by Executive will not, to the best knowledge of
Executive, infringe on any other person's or entity's copyright or other
proprietary rights, and Employee will hold the Employer harmless from any
claims and losses based on such infringements.
Section 10. No Violation. Executive represents that he is not bound by
any agreement with any former employer or other party that would be violated
by Executive's work for Employer.
Section 11. Confidential and Proprietary Information.
11.1. Executive acknowledges and agrees that he will not, without the
prior written consent of the Employer, at any time during the term of this
Agreement or any time thereafter, except as may be required by competent
legal authority or as required by the Employer to be disclosed in the course
of performing Executive's duties under this Agreement for the Employer, use
or disclose to any person, firm or other legal entity, any confidential
records, secrets or information related to the Employer or any parent,
subsidiary or affiliated person or entity (collectively, "Confidential
Information"). Confidential Information shall include, without limitation,
information about
<PAGE>
the Employer's Inventions, customer lists, customer contracts, vendor
contracts, and non-public financial information. Executive acknowledges and
agrees that all Confidential Information of Employer and/or its affiliates
that he has acquired, or may acquire, were received, or will be received in
confidence and as a fiduciary of the Employer. Executive will exercise
utmost diligence to protect and guard such Confidential Information.
11.2. Executive agrees that he will not take with him upon the
termination of this Agreement, any document or paper, or any photocopy or
reproduction or duplication thereof, relating to any Confidential Information.
Section 12. Return of Employer's Property. Upon the termination of this
Agreement or whenever requested by Employer, Executive shall immediately
deliver to Employer all property in his possession or under his control
belonging to Employer, in good condition, ordinary wear and tear excepted.
Section 13. Injunctive Relief. Executive acknowledges that the breach,
or threatened breach, by the Executive of the provisions of this Agreement
shall cause irreparable harm to the Employer, which harm cannot be fully
redressed by the payment of damages to the Employer. Accordingly, the
Employer shall be entitled, in addition to any other right or remedy it may
have at law or in equity, to an inunction enjoining or restraining Executive
from any violation or threatened violation of this Agreement.
Section 14. Arbitration.
14.1. As concluded by the parties and as evidenced by the signatures of
the parties, any dispute between the parties arising out of any section of
this Agreement except Sections 7, 9 and 11, will, on the written notice of
one party served on the other, be submitted to arbitration complying with and
governed by the provisions of the Texas General Arbitration Act, Articles 224
through 238-20 of the Texas Revised Civil Statutes.
14.2. Each of the parties will appoint one person as an arbitrator to
hear and determine the dispute and if they are unable to agree, then the two
arbitrators so chosen will select a third impartial arbitrator whose decision
will be final and conclusive upon the parties.
<PAGE>
14.3. The expenses of such arbitration will be borne by the losing party
or in such proportion as the arbitrators decide.
14.4. A material or anticipatory breach of any section of this Agreement
shall not release either party from the obligations of this Section 14.
Section 15. Miscellaneous.
15.1. If any provision contained in this Agreement is for any reason
held to be totally invalid or unenforceable, such provision will be fully
severable, and in lieu of such invalid or unenforceable provision there will
be added automatically as part of this Agreement a provision as similar in
terms as may be valid and enforceable.
15.2. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in
writing and shall be deemed to have been given when mailed by registered mail
or certified mail, return receipt requested, as follows (provided that notice
of change of address shall be deemed given only when received):
if to Employer:
7171 Forest Lane
Dallas, Texas 75230
Attn: Chief Financial Officer
if to Executive:
or to such other names or addresses as Employer or Executive, as the case may
be, shall designate by notice to the other party hereto in the manner
specified in this Subsection 15.2.
15.3. This Agreement shall be binding upon and inure to the benefit of
Employer, its successors, legal representatives and assigns, and upon
Executive, his heirs, executors, administrators, representatives, legatees
and assigns. Executive agrees that his rights and obligations hereunder are
personal to him and may not be assigned without the express written consent
of Employer.
<PAGE>
15.4. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Executive
and Employer with respect to the subject matter of this Agreement. This
Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative
of Employer or by any written agreement unless signed by an officer of
Employer who is expressly authorized by Employer to execute such document.
15.5. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of
execution or the place for performance thereof, and Employer and Executive
agree that the state and federal courts situated in Dallas County, Texas
shall have personal jurisdiction over Employer and Executive to hear all
disputes arising under this Agreement. This agreement is to be at least
partially performed in Dallas County, Texas, and, as such, Employer and
Executive agree that venue shall be proper with the state or federal courts
in Dallas County, Texas to hear such disputes. In the event either Employer
or Executive is not able to effect service of process upon the other with
respect to such disputes, Employer and Executive expressly agree that the
Secretary of State for the State of Texas shall be an agent of Employer
and/or the Executive to receive service of process on behalf of Employer
and/or the Executive with respect to such disputes.
15.6. Executive and Employer shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to
carry out the purposes of this Agreement.
15.7. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
15.8. If either party should file a lawsuit against the other to
enforce any right such party has hereunder, the prevailing party shall also
be entitled to recover reasonable attorneys' fees and costs of suit in
addition to any other relief awarded such prevailing party.
15.9. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement.
<PAGE>
15.10. Executive acknowledges that Executive has had the opportunity to
read this Agreement and discuss it with advisors and legal counsel, if
Executive has so chosen. Executive also acknowledges the importance of this
Agreement and that Employer is relying on this Agreement in continuing an
employment relationship with Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
EMPLOYER:
CompuCom Systems, Inc.
By: /s/ Lazane Smith
----------------
Its: Senior Vice President, Finance
and Chief Financial Officer
EXECUTIVE:
/s/ Edward R. Anderson
-----------------------
Edward R. Anderson
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 1,985,225 $ 2,062,809 $ 1,517,740 $ 1,412,026 $ 1,168,349
Net earnings............................... 21,501 19,927 18,263 15,740 3,853(1)
Earnings per share(3)
Basic..................................... .69 .67 .63 .56 .13
Diluted................................... .66 .61 .53 .47 .07
Total assets............................... 714,541(2) 936,070 742,874 617,155 542,824
Long-term debt, including current portion
CompuCom.................................. 100,425(2) 239,946 123,461 137,310 125,354
Other..................................... 30,060 21,419 110,835 98,838 77,257
Convertible subordinated notes............. 90,881 102,131
Shareholders' equity....................... 207,070 169,011 154,309 110,547 88,767
</TABLE>
- ------------------------
The Company offers its shareholders, through the rights offering process,
the opportunity to acquire direct ownership in selected partnership
companies which it believes are ready for public ownership.
No cash dividends have been declared in any of the years presented and the
Company has no present intention to declare cash dividends.
(1) After goodwill write-off of $6.4 million or $.22 per share (basic) and $.21
per share (diluted).
(2) Reflects the effect of $175 million in off-balance sheet financing. (See
Note 3)
(3) Per share amounts have been retroactively restated in accordance with the
Company's adoption of a new accounting pronouncement. (See Note 1)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's business strategy is the development of primarily information
technology-oriented, entrepreneurially-driven partnership companies to achieve
superior returns for its shareholders. The Company provides to its partnership
companies and associated venture funds active strategic management, operating
guidance, acquisition and disposition assistance, board and management
recruitment, and innovative financing. The Company offers its shareholders,
through the rights offering process, the opportunity to acquire direct ownership
in selected partnership companies which it believes are ready for public
ownership.
If the Company's ownership in any of the partnership companies changes
significantly, the Company's consolidated revenues and related costs and
expenses may fluctuate primarily due to the applicable accounting method used
for recognizing its participation in the operating results of that company.
The revenues and related costs and expenses of a partnership company are
included in the Company's consolidated operating results if the Company owns
more than 50% of the outstanding voting securities of the partnership company.
Participation of shareholders other than the Company in the earnings or losses
of a more than 50% owned partnership company is reflected in the caption
"Minority interest" in the Consolidated Statements of Operations. Minority
interest adjusts consolidated earnings to reflect only the Company's share of
the earnings or losses of the partnership company. The partnership companies
that are included in the Company's consolidated operating results in 1997 are
CompuCom Systems, Inc., Tangram Enterprise Solutions, Inc., Premier Solutions
Ltd., and Pioneer Metal Finishing. Premier and Pioneer were sold in 1997 and are
included in the Company's consolidated operating results through their
respective sale dates.
Investments in companies in which the Company owns 50% or less of the
outstanding voting securities, in which significant influence is exercised, are
accounted for on the equity method of accounting. Significant influence is
presumed at a 20% ownership level; however, the Company applies the equity
method for certain companies in which it owns less than 20% because it exerts
significant influence through representation on those companies' Boards of
Directors and other means. On the equity method of accounting, a partnership
company's revenues and related costs and expenses are not included in the
Company's consolidated operating results; however, the Company's share of the
earnings or losses of the partnership company is reflected in the caption
"Income from equity investments, net" in the Consolidated Statements of
Operations.
The net effect of a partnership company's results of operations on the
Company's net earnings is the same under either consolidation accounting or the
equity method of accounting, as only the Company's share of the earnings or
losses of a partnership company is included in the Company's net earnings in the
Consolidated Statements of Operations.
27
<PAGE>
Investments not consolidated or accounted for on the equity method are
accounted for on the cost method of accounting under which the Company's
share of the earnings or losses of such companies is not included in the
Company's Consolidated Statements of Operations.
As mentioned in Operations Overview, the Company's consolidated revenues,
costs, and expenses are significantly influenced by CompuCom's results of
operations. At December 31, 1997, the Company owns approximately 51% of
CompuCom's outstanding common stock and owns preferred stock which gives it 60%
of the vote for CompuCom's directors.
CompuCom competes in the computer reseller industry which has been
undergoing significant transformation and consolidation. Several of
CompuCom's competitors have been growing through acquisitions and others have
been acquired. In addition, companies previously engaged in the retail
channel have begun to enter the corporate reseller market, heightening the
competition.
As a result, while growing internally, CompuCom is also looking to
strengthen its market share through acquisitions. If CompuCom were to use its
stock for acquisitions or if some other dilutive event were to occur, the
Company's voting interest in CompuCom could decrease below 50%. Under current
generally accepted accounting principles, the Company would cease consolidating
CompuCom's results and instead would account for its investment in CompuCom on
the equity method provided the Company maintained the ability to exercise
significant influence over CompuCom's ordinary course of business. The Company's
share of CompuCom's earnings, on the equity method versus consolidation, would
differ only to the extent that the Company's ownership of CompuCom changed.
However, the presentation of the Consolidated Statements of Operations and
Balance Sheets would change dramatically.
Note 9 to the Company's Consolidated Financial Statements summarizes the
Parent Company Statements of Operations and Balance Sheets of the Company for
the same periods presented in the Consolidated Financial Statements. These
statements differ from the Consolidated Financial Statements by excluding the
revenues, costs, expenses, assets, and liabilities of the Company's less than
wholly-owned subsidiaries (primarily CompuCom and Tangram) and instead treating
these companies as if they were accounted for on the equity method. The
Company's share of the results of operations of less than wholly-owned
subsidiaries is included in "Equity income, net" and the carrying value of these
companies is included in "Investments" in the Parent Company Statements of
Operations and Balance Sheets, respectively.
Although the Parent Company Statements of Operations and Balance Sheets
presented in Note 9 are accurate relative to the Company's historical
Consolidated Financial Statements, they are not necessarily indicative of future
Parent Company Statements of Operations and Balance Sheets.
OPERATIONS OVERVIEW
Comparability of 1997 and 1996 net sales and earnings to prior periods is
impacted by the sale of Premier and Pioneer in 1997 and the sale of the
Company's commercial real estate operations in 1996. These entities are only
included in the Company's consolidated results through their respective sale
dates.
Net sales decreased 4% in 1997 compared to an increase of 36% in 1996. The
decrease in 1997 is primarily attributable to the sale of Premier and Pioneer
during 1997 and decreased product sales at CompuCom (Microcomputer Systems and
Services) as CompuCom focused primarily on increasing earnings through growth in
its higher-margin services business in 1997. CompuCom's total sales decreased 2%
for the year, with services sales increasing 40% while product sales decreased
6%. CompuCom represented 98% and 97% of the Company's total consolidated net
sales in 1997 and 1996, respectively. As a result of the relative significance
of CompuCom in the consolidated results, fluctuations in the financial results
of other business units have tended to have a minimal impact.
The following after-tax data reflect the components of the Company's net
earnings (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Earnings before securities and other gains, net and minority interest............ $ 20,823 $ 13,664 $ 15,212
Securities and other gains, net.................................................. 16,114 18,223 11,375
Minority interest................................................................ (15,436) (11,960) (8,324)
--------- --------- ---------
Net earnings..................................................................... $ 21,501 $ 19,927 $ 18,263
--------- --------- ---------
</TABLE>
Earnings before securities and other gains and minority interest increased
52% in 1997 primarily due to a 26% increase in CompuCom's earnings (excluding
non- recurring gains) and the elimination of losses at Premier due to its sale
in early 1997. Partially offsetting this increase was the elimination of
Pioneer's earnings due to its sale in mid-1997, increased losses at Tangram,
lower income from equity investments, and an increase in general corporate
expense to support the increased activity at partnership companies. In 1996,
CompuCom's earnings, excluding a non-recurring gain, increased 22%. However,
overall earnings before securities and other gains and minority interest
decreased 10% in 1996 due to losses at Premier, losses or reduced earnings at
certain of the Company's other business units, and an increase in general
corporate and interest expense to support the increased activity at partnership
companies.
Securities and other gains in 1997 include the open market sales of a
portion of the Company's interest in Cambridge Technology Partners, the sale of
shares of
28
<PAGE>
Diamond Technology Partners and ChromaVision Medical Systems in rights
offerings to the Company's shareholders, distributions from the Company's
associated venture funds, and the Company's share of CompuCom's gain from the
sale of its former headquarters building. The Company also recorded gains in
1997 from the sale of Premier and Pioneer. Partially offsetting these gains was
a write-down of the Company's holdings in Sybase due to the other than temporary
decline in the market price of that stock, charges incurred in the disposition
of investments, and provisions for other investments and notes. Securities and
other gains in 1996 included the open market sales of a portion of the Company's
interests in Coherent Communications Systems Corporation and Cambridge, and the
sale of shares of Integrated Systems Consulting Group and Sanchez Computer
Associates in rights offerings to the Company's shareholders.
Securities and other gains in 1996 also included the sale of the Company's
remaining interest in Gandalf Technologies and the Company's share of
CompuCom's gain from the sale of substantially all of their holdings in PC
Service Source. Partially offsetting these 1996 gains was a write-down of the
Company's holdings in Sybase due to the other than temporary decline in the
market price of that stock. Securities and other gains in 1995 included the open
market sales of the Company's remaining interest in Novell, the open market
sales of a portion of its interests in Coherent and Gandalf, and distributions
from the Company's associated venture funds. Partially offsetting the 1996 and
1995 securities and other gains were charges incurred in the disposition of
investments and provisions for other investments and notes. Securities and other
gains of varying magnitude have been realized in recent years; prior gains are
not necessarily indicative of gains which may be realized in the future.
Several of the Company's partnership companies are accounted for on the
equity method. The Company's current strategy is to acquire, where possible,
significant minority positions in larger, more mature companies. As a result of
this strategy and increased sales of existing equity method companies, total net
sales of the Company's equity investments, which are not included in the
Consolidated Statements of Operations, have increased significantly (see Note 2
to the Consolidated Financial Statements). Also, the excess of carrying value of
equity investments over the Company's share of the underlying net assets of such
investments has increased.
Income from equity investments fluctuates with the Company's ownership
percentage and the operating results of investees accounted for on the equity
method. Increased equity income from most of the Company's public investments
in 1997 was more than offset by the Company's share of losses at certain
private, early-stage equity investments and increased amortization of the
excess of the Company's carrying value of equity investments over its share
of the underlying net assets. The Company's public investments accounted for
on the equity method in 1997 included Cambridge, ChromaVision, Coherent, OAO
Technology Solutions, Sanchez, and USDATA Corporation.
Cambridge's sales and earnings increased 49% and 52%, respectively, in
1997 and 52% and 53%, respectively, in 1996. In 1997, Cambridge expanded its
service offerings through advancement of its proprietary service
methodologies, including an electronic commerce and interactive solutions
methodology. At year end, 50% of its completed projects contained an Internet
or interactive component. Cambridge also continued its successful acquisition
strategy with the fourth quarter acquisition of Peter Chadwick Holdings
Limited which significantly increased Cambridge's skills in the areas of
operations strategies and performance improvements. The Company owns
approximately 16% of Cambridge's common stock at December 31, 1997.
ChromaVision completed its initial public offering through a rights offering
to the Company's shareholders in the third quarter of 1997. ChromaVision
achieved several significant milestones in 1997 including the signing of a
worldwide distribution and development agreement with Sigma Diagnostics related
to prenatal screening, receipt of 510(k) clearance from the Food and Drug
Administration for a leukemia screen, and the initiation of clinical trials for
the identification of cancer micrometastases. ChromaVision reported a net loss
of $6.3 million for 1997, primarily due to research and product development
initiatives and commencement of clinical trials. The Company owns approximately
20% of ChromaVision's common stock at December 31, 1997. In February 1998, the
Company purchased an additional 6% of ChromaVision's common stock in a private
transaction with an unrelated third party.
Coherent's sales and earnings increased 35% and 43%, respectively, in 1997
and 24% and 28%, respectively, in 1996 as it continued to add to its impressive
list of major customers worldwide. Sales were especially strong in Europe, and
Coherent also increased its sales in the Asia Pacific region despite the decline
other companies have experienced in that region. The Company owns approximately
32% of the common stock of Coherent at December 31, 1997. In February 1998,
Tellabs, Inc. announced it would exchange shares of its publicly-traded stock
valued at approximately $670 million for all of the outstanding shares of
Coherent based on a ratio of .72 shares of Tellabs stock for each share of
Coherent stock. The Company's pre-tax gain from the transaction would be
approximately $190 million based on the closing price of Tellabs common stock on
February 13, 1998, and the Company would own less than 5% of Tellabs. The
ultimate gain recorded by the Company will vary based on the value of Tellabs
stock at the completion of the transaction. There is no assurance the
transaction will be completed, as it is subject to various conditions and
approvals by appropriate government agencies and Coherent's stockholders.
OAO's sales and earnings increased 46% and 58%, respectively, in 1997
compared to 1996. OAO completed its initial public offering through a rights
offering to the
29
<PAGE>
Company's shareholders in the fourth quarter of 1997. OAO completed its first
acquisition in the fourth quarter of 1997 when it acquired a business which
develops and markets software for managed care operations. The Company owns
approximately 29% of OAO's common stock at December 31, 1997.
Sanchez's sales and earnings increased 60% and 221%, respectively, in 1997
compared to 1996. During 1997, Sanchez executed ten contracts valued at more
than $40 million with banking organizations in eight countries. Sanchez
continues to focus on increasing its presence in the U.S. and global
marketplaces and significantly enhanced its strategic partnership relationships
in 1997. The Company owns approximately 25% of Sanchez's common stock at
December 31, 1997.
In February 1998, USDATA announced its intention to dispose of its system
integration and hardware servicing business and focus primarily on growing and
expanding its software business. Also in February 1998, USDATA announced the
release of Factory Link ECS 6.5 for Microsoft Windows NT and Windows 95. USDATA
reported a 1997 net loss from continuing operations of approximately $3.9
million compared to a net loss from continuing operations of approximately $2.7
million in 1996. USDATA's results from continuing operations will continue to be
impacted by investment spending required to implement its new strategy. The
Company owns approximately 24% of USDATA's common stock at December 31, 1997.
SEGMENT TRENDS
MICROCOMPUTER SYSTEMS AND SERVICES (CompuCom) posted record earnings for
the ninth consecutive year in 1997, while sales decreased slightly. Product
sales, which are primarily derived from the sale of distributed desktop
computer products to corporate customers, were $1.7 billion, $1.8 billion,
and $1.3 billion in 1997, 1996, and 1995, respectively. Although CompuCom
shipped more desktop, laptop, and server units in 1997 compared to 1996, the
units were sold at lower average sales prices primarily due to manufacturer
price reductions, contributing to the overall decrease in product sales. In
addition, CompuCom believes the decrease in product sales is also
attributable to an increase in direct marketers' market share and CompuCom's
efforts during much of 1997 to reduce the amount of low-margin product
business.
Services sales, primarily derived from systems integration services,
including field engineering, product configuration, consulting, network
management, and help desk services, increased to $251 million in 1997, compared
to $178 million in 1996 and $107 million in 1995, or 13%, 9%, and 7% of
CompuCom's total sales in 1997, 1996, and 1995, respectively. The increase in
services sales reflects CompuCom's continued focus on growing this higher-margin
portion of its business through the hiring of additional service personnel and
growing its higher-end service offerings. Also contributing to the increase in
services sales was the increase in the number of units sold during 1997 as
compared to 1996, which increased demand for services such as configuration and
installation.
Part of CompuCom's strategy to increase revenues is through acquisitions to
increase its presence in certain geographical markets and continuing to
focus on increasing its services business through growing its higher-end service
offerings and number of service personnel.
CompuCom's product gross margin increased to 10.4% in 1997 compared to 10.0%
in 1996, due primarily to an increased focus on higher-margin product business,
and an increase in the amount of manufacturer-sponsored incentives in 1997
compared to 1996. Product gross margin decreased to 10.0% in 1996 from 10.6% in
1995 due principally to pricing to win new business and increased price
competitiveness in the marketplace. Services gross margin increased to 35.7% in
1997 from 33.3% in 1996 and 30.5% in 1995 primarily due to improved utilization
of CompuCom's service personnel and growth in CompuCom's higher-end service
offerings, such as systems engineering and consulting, which typically have
higher margins than some of CompuCom's other services.
Primarily as a result of the higher services sales and increased services
margins, CompuCom was able to increase its earnings in 1997 despite its overall
sales decrease. Future profitability at CompuCom will depend on its ability
to hire and retain quality service personnel while effectively managing the
utilization of such personnel. It will also depend on increased focus on
providing technical service and support to customers, product demand,
competition, manufacturer product availability and pricing changes, effective
utilization of vendor programs, successfully designing and implementing
final assembly programs with its major vendors, and control of operating
expenses. CompuCom participates in certain manufacturer-sponsored programs
designed to increase sales of specific products. These programs, excluding
volume incentive programs and specific product rebates offered by certain
manufacturers, are not material when compared to CompuCom's overall financial
results.
The Company owns approximately 51% of the outstanding common stock of
CompuCom and owns preferred stock which gives the Company 60% of the vote for
CompuCom's directors at December 31, 1997.
INFORMATION SOLUTIONS (Tangram) sales increased in 1997 principally due to
the signing of major contracts for the purchase of Tangram's Asset Insight-TM-
product. In 1997, Tangram developed relationships with several additional
resellers for the marketing of Asset Insight-TM-. Tangram's net loss increased
in 1997 compared to 1996 due to its investments in workforce and research and
development to support the Asset Insight-TM- opportunity. Tangram expects Asset
Insight-TM- to account for a significant portion of its sales for the
foreseeable future and expects to continue devoting substantial resources to
developing sales and research and development of this product. The Company owns
approximately 67% of Tangram's common stock at December 31, 1997.
30
<PAGE>
COSTS AND EXPENSES
The Company's overall gross margin was 14.4% in 1997 compared to 13.1% for
1996. The increase is attributable to the increased product margin at CompuCom,
as well as increased services sales at CompuCom which generate higher gross
margins relative to product sales. Gross margin decreased to 13.1% in 1996 from
13.6% in 1995 primarily due to decreased product margin at CompuCom, partially
offset by its increased higher-margin services sales.
Selling and service and general and administrative expenses, in absolute
dollars and as a percentage of sales, increased in 1997 and 1996 compared to the
respective prior years. This was primarily due to CompuCom's costs to manage and
expand the growing services business and its continued investment in its
information systems resources required to broaden electronic commerce
capabilities and improve efficiency within CompuCom's customer center. This
increase was also due to Tangram's investment in workforce and research and
development for Asset Insight-TM-, and increased corporate expenses incurred to
support the growing activities of the partnership companies. These increases
were partially offset by the elimination of expenses resulting from the sale of
Premier and Pioneer in 1997. CompuCom's general and administrative expenses are
reported net of reimbursements by certain manufacturers for specific training,
promotional, and marketing programs. These reimbursements offset the expenses
incurred by CompuCom.
Depreciation and amortization decreased in 1997 primarily due to the
elimination of depreciation and amortization resulting from the sale of Premier
and Pioneer in 1997 and the Company's commercial real estate operations in 1996,
partially offset by increased depreciation at CompuCom. The increase at CompuCom
is primarily associated with its new corporate headquarters and operations
campus, which was fully occupied in the second half of 1997, and enhancements to
CompuCom's information systems. Depreciation and amortization increased in 1996
primarily due to an increase at CompuCom related to facility and warehouse
improvements for its new eastern distribution facility, enhancements to its
information systems, and other capital expenditures to support increased
business activity.
Interest and financing expense decreased slightly in 1997 compared to
1996 primarily as a result of the conversion of approximately $24 million of
the Company's Convertible Subordinated Notes in the fourth quarter of 1996
and the first quarter of 1997 into the Company's Common Stock, and the
elimination of interest resulting from the sale of Premier and Pioneer in
1997 and the Company's commercial real estate operations in 1996, partially
offset by increased borrowings by the Company. CompuCom's borrowing levels,
including the Securitization Facility (see Note 3), were slightly higher in
1997 when compared to 1996; however, this was offset by a lower effective
rate for 1997 due primarily to changes in CompCom's financing arrangements.
Interest expense increased in 1996 compared to 1995 primarily as a result of
the issuance of the Company's Convertible Subordinated Notes in February 1996
and higher working capital required to support the sales growth at CompuCom.
These increases were partially offset by the repayment of all of the
outstanding indebtedness under the Company's bank revolving credit facility,
the lower interest rate on the Company's Convertible Subordinated Notes
compared to the bank revolving credit facility, CompuCom's lower effective
interest rate, and the conversion of CompuCom's convertible subordinated
notes in October 1995.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company issued $115 million of 6% Convertible
Subordinated Notes ("Notes") due February 1, 2006. The Notes are convertible
into the Company's Common Stock at $28.985 per share. The Company used
approximately $67 million of the net proceeds to repay all of its outstanding
indebtedness under its bank revolving credit facility. Through March 1998,
approximately $42.7 million of Notes were converted into 1,471,619 shares of the
Company's Common Stock.
In June 1997, the Company amended its bank revolving credit facility
which increased the borrowing availability under the facility from $100
million to $150 million, reduced the rate of borrowings on LIBOR traunches by
.5% to LIBOR plus 1.25%, and extended the maturity to May 2001. The bank
revolving credit facility is secured by certain equity securities the Company
holds of its publicly-traded partnership companies, including CompuCom. The
value of these securities significantly exceeds the total availability under
the bank revolving credit facility. There was $6.1 million outstanding under
this facility at December 31, 1997. The Company is increasing the
availability under the bank revolving credit facility to $200 million in the
first half of 1998.
In 1997, the Company entered into revolving credit facilities with certain
partnership companies whereby the Company may borrow up to $17 million from
these partnership companies on a revolving basis at a rate that varies with the
Company's effective borrowing rate. At December 31, 1997, $16.1 million was
outstanding under these agreements.
Availability under the Company's revolving credit facilities, proceeds from
the sales from time to time of selected publicly-traded securities, and other
internal sources of cash flow should be sufficient to fund the Company's cash
requirements through 1998, including investments in new or existing partnership
companies, general corporate requirements, and the repurchase of the Company's
Common Stock from time to time in the open market. In connection with certain
investments, the Company is contingently obligated for approximately $140
million of possible future commit-
31
<PAGE>
ments, including committed capital to various venture funds and private
equity partnerships, to be funded over the next several years.
CompuCom maintains separate, independent financing arrangements, which
are non-recourse to the Company and are secured by certain assets of
CompuCom. During recent years, CompuCom has utilized operating earnings, bank
financing arrangements, long-term subordinated notes, and internally
generated funds to fund its cash requirements. CompuCom's financing
arrangements were amended in 1997 such that at December 31, 1997 they
consisted of a $125 million working capital facility, a $175 million
revolving Securitization Facility, and a $25 million real estate loan
(collectively, the "credit agreements"). The credit agreements prohibit the
payment of common stock dividends by CompuCom while the agreements remain
outstanding. At December 31, 1997, approximately $97.4 million was
outstanding under the working capital facility and the real estate loan, and
the Securitization Facility was fully utilized. The credit agreements mature
in November 2002, except for the real estate loan which is due in quarterly
installments beginning April 1999. CompuCom is currently evaluating other
permanent financing options for the real estate loan.
Cash flow provided by operating activities increased significantly in 1997
primarily from the effect of CompuCom's Securitization Facility in which $175
million of accounts receivable were sold with the proceeds used to pay down
long-term debt.
The Company's operations are not capital intensive, and capital expenditures
in any year normally would not be significant in relation to the overall
financial position of the Company. Capital asset requirements are generally
funded through bank credit facilities, internally generated funds, or other
financing sources. Capital expenditures during 1997 were primarily related to
preparing CompuCom's new headquarters and operations campus for full occupancy.
The Company expects capital expenditures to decline in 1998 as this project is
significantly complete as of December 31, 1997. There are no material capital
asset purchase commitments at December 31, 1997.
YEAR 2000 ISSUE
The Company is currently addressing the Year 2000 issue, which results
from the fact that many computer programs were previously written using two
digits rather than four to define the applicable year. Programs written in
this way may recognize a date ending in "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations. The Company has conducted an assessment of its
computer information systems and believes that it will not need to incur any
material extraordinary expense to correct its systems which are not Year 2000
compliant on a timely basis. The Company has also surveyed its majority-owned
and equity investee partnership companies regarding this issue. The Company's
most significant consolidated subsidiary, CompuCom, has completed initial
assessment of its computer information systems, and has plans in place to
complete remediation and begin testing during 1998. The rest of the Company's
partnership companies are in varying stages of assessing, remediating, and
testing for internal Year 2000 compliance and assessing Year 2000 compliance
of their vendors, business partners, and customers. Most of the partnership
companies are in the business of providing software products, information
technology consulting, or outsourcing services. Those partnership companies
which produce software or products with embedded programming believe that the
current version of their products either are Year 2000 compliant or will be
revised to be compliant in 1998. Certain partnership companies are continuing
to determine the extent to which previously sold software products and
services were non-compliant. The total cost and time which will be incurred
by the partnership companies on the Year 2000 issue cannot presently be
determined. There can be no assurance that all necessary work will be
completed in time, or that such costs and liabilities will not materially
adversely impact one or more of such partnership companies. In addition,
required spending on the Year 2000 effort will cause customers of most of the
Company's partnership companies to reallocate at least part of their
information systems budgets. Although several partnership companies have
offerings which may be useful in such efforts, such reallocations could
materially adversely affect the results of operations of many partnership
companies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued
pronouncements relating to the presentation and disclosure of information
related to comprehensive income (SFAS 130) and segment data (SFAS 131). In 1998,
the FASB issued a pronouncement relating to the disclosure of information about
pensions and other postretirement benefits (SFAS 132). The Company is required
to adopt the provisions of these pronouncements, if applicable, for the year
ending December 31, 1998. The adoption of these pronouncements will not have an
impact on the Company's financial position and results of operations, but may
change the presentation of certain of the Company's financial statements and
related notes and data thereto.
Also in 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position (SOP)
on software revenue recognition (SOP 97-2) that supersedes SOP 91-1. SOP 97-2 is
effective for transactions entered into in fiscal years beginning after December
15, 1997. The adoption of SOP 97-2 is not expected to have a material effect on
the Company's financial position or results of operations.
32
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
FINANCIAL INFORMATION--INDUSTRY SEGMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES
Information Technology
Microcomputer Systems and Services............... $ 1,949,802 $ 1,995,190 $ 1,441,597
Information Solutions............................ 14,074 11,142 12,538
------------ ------------ ------------
1,963,876 2,006,332 1,454,135
Other.............................................. 21,349 56,477 63,605
------------ ------------ ------------
$ 1,985,225 $ 2,062,809 $ 1,517,740
------------ ------------ ------------
OPERATING PROFIT (LOSS)
Information Technology
Microcomputer Systems and Services............... $ 66,933 $ 55,704 $ 46,567
Information Solutions............................ (2,256) (625) (897)
------------ ------------ ------------
64,677 55,079 45,670
Other.............................................. 1,584 (1,268) 2,563
------------ ------------ ------------
66,261 53,811 48,233
Securities and other gains, net.................... 26,857 30,373 18,925
Income from equity investments, net................ 417 1,539 2,731
Interest and financing............................. (22,359) (23,916) (19,538)
General corporate expense, net..................... (9,612) (8,661) (6,111)
Minority interest.................................. (25,727) (19,934) (13,853)
------------ ------------ ------------
Earnings before taxes on income.................... $ 35,837 $ 33,212 $ 30,387
------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
Information Technology
Microcomputer Systems and Services............... $ 12,507 $ 9,600 $ 6,866
Information Solutions............................ 2,534 2,993 2,879
------------ ------------ ------------
15,041 12,593 9,745
Other............................................. 1,782 7,051 6,392
General Corporate................................. 1,309 1,001 790
------------ ------------ ------------
$ 18,132 $ 20,645 $ 16,927
------------ ------------ ------------
CAPITAL EXPENDITURES
Information Technology
Microcomputer Systems and Services............... $ 22,418 $ 42,135 $ 5,999
Information Solutions............................ 955 492 178
------------ ------------ ------------
23,373 42,627 6,177
Other............................................. 3,921 4,922 4,573
General Corporate................................. 4,020 2,435 541
------------ ------------ ------------
$ 31,314 $ 49,984 $ 11,291
ASSETS EMPLOYED
Information Technology
Microcomputer Systems and Services.............. $ 470,782 $ 700,773 $ 514,674
Information Solutions.......................... 14,077 12,946 12,828
------------ ------------ ------------
484,859 713,719 527,502
Other............................................ 49,570 61,583
General Corporate................................ 229,682 172,781 153,789
------------ ------------ ------------
$ 714,541 $ 936,070 $ 742,874
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
Information Technology consists of the delivery of personal computer services,
including procurement and configuration of personal computers, application
software and related products, network integration, and technical support;
and the design, development, sale and implementation of enterprise-wide
asset tracking software management solutions.
Other includes Pioneer Metal Finishing and Premier Solutions which were sold
during 1997 and Commercial Real Estate which was sold during 1996.
33
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- -------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 5,382 $ 12,881
Receivables less allowances ($2,872-1997; $3,088-1996)..................... 187,385 399,403
Inventories................................................................ 198,053 234,543
Other current assets....................................................... 6,459 7,239
---------- ----------
Total current assets..................................................... 397,279 654,066
PROPERTY, PLANT, AND EQUIPMENT................................................. 105,188 118,394
Less accumulated depreciation and amortization............................... (28,221) (39,525)
---------- ----------
Total property, plant, and equipment, net.................................. 76,967 78,869
OTHER ASSETS
Investments................................................................ 185,111 134,844
Notes and other receivables................................................ 21,035 9,038
Excess of cost over net assets of businesses acquired, net................. 26,168 30,286
Other...................................................................... 7,981 28,967
---------- ----------
Total other assets....................................................... 240,295 203,135
---------- ----------
TOTAL ASSETS............................................................. $ 714,541 $ 936,070
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current debt obligations................................................... $ 3,396 $ 8,640
Accounts payable........................................................... 74,025 221,992
Accrued expenses........................................................... 91,857 77,904
---------- ----------
Total current liabilities................................................ 169,278 308,536
LONG-TERM DEBT................................................................. 127,089 252,725
DEFERRED TAXES................................................................. 20,044 18,311
MINORITY INTEREST AND OTHER.................................................... 100,179 85,356
CONVERTIBLE SUBORDINATED NOTES................................................. 90,881 102,131
SHAREHOLDERS' EQUITY
Common stock, par value $.10 a share
Authorized 100,000,000 shares; Issued 32,799,342 Shares.................... 3,280 3,280
Additional paid-in capital.................................................... 49,952 35,566
Retained earnings............................................................ 151,471 129,970
Treasury stock, at cost (1997-1,563,626 shares; 1996-2,231,829 shares)....... (13,339) (7,165)
Net unrealized appreciation on investments................................... 15,706 7,360
---------- ----------
Total shareholders' equity................................................. 207,070 169,011
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 714,541 $ 936,070
---------- ----------
---------- ----------
</TABLE>
- ------------------------
See notes to consolidated financial statements.
34
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Net sales
Product................................... $ 1,724,220 $ 1,856,889 $ 1,380,371
Services.................................. 261,005 205,920 137,369
------------ ------------ ------------
Total net sales............................. 1,985,225 2,062,809 1,517,740
Securities and other gains, net............. 26,857 30,373 18,925
Other income................................ 12,932 8,646 9,132
------------ ------------ ------------
Total revenues............................ 2,025,014 2,101,828 1,545,797
COSTS AND EXPENSES
Cost of sales--product...................... 1,534,310 1,655,893 1,219,055
Cost of sales--services..................... 164,882 137,065 92,277
Selling and service......................... 136,646 128,467 92,998
General and administrative.................. 87,538 84,235 63,493
Depreciation and amortization............... 18,132 20,645 16,927
Interest and financing...................... 22,359 23,916 19,538
Income from equity investments, net......... (417) (1,539) (2,731)
------------ ------------ ------------
Total costs and expenses.................. 1,963,450 2,048,682 1,501,557
------------ ------------ ------------
EARNINGS BEFORE MINORITY INTEREST
AND TAXES ON INCOME........................... 61,564 53,146 44,240
Minority interest........................... (25,727) (19,934) (13,853)
------------ ------------ ------------
EARNINGS BEFORE TAXES ON INCOME................ 35,837 33,212 30,387
Provision for taxes on income............... 14,336 13,285 12,124
------------ ------------ ------------
NET EARNINGS.................................. $ 21,501 $ 19,927 $ 18,263
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER SHARE
Basic....................................... $ .69 $ .67 $ .63
Diluted..................................... $ .66 $ .61 $ .53
AVERAGE COMMON SHARES OUTSTANDING
Basic....................................... 31,249 29,900 29,052
Diluted..................................... 31,996 31,348 30,734
</TABLE>
- ------------------------
See notes to consolidated financial statements.
35
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- -------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................................... $ 21,501 $ 19,927 $ 18,263
Adjustments to reconcile net earnings to cash
provided (used) by operating activities
Depreciation and amortization............................ 18,132 20,645 16,927
Deferred income taxes.................................... (2,566) 1,910 7,968
Income from equity investments, net...................... (417) (1,539) (2,731)
Securities and other gains, net.......................... (26,857) (30,373) (18,925)
Minority interest, net................................... 15,436 11,960 8,419
Cash provided (used) by changes in working
capital items
Receivables.............................................. 210,578 (113,719) (30,113)
Inventories.............................................. 35,498 (36,595) (41,298)
Accounts payable, accrued expenses, and other............ (123,759) 38,454 36,310
---------- ---------- ---------
Cash provided (used) by operating activities............... 147,546 (89,330) (5,180)
Proceeds from securities and other gains, net.............. 71,318 53,350 24,952
---------- ---------- ---------
Cash provided (used) by operating activities and
securities and other gains, net............................. 218,864 (35,980) 19,772
OTHER INVESTING ACTIVITIES
Investments and notes acquired, net........................ (78,412) (59,270) (25,707)
Business acquisitions, net of cash acquired................ (6,937) (2,310)
Capital expenditures....................................... (31,314) (49,984) (11,291)
Other, net................................................. 449 (14,197) (8,250)
---------- ---------- ---------
Cash (used) by other investing activities.................... (109,277) (130,388) (47,558)
FINANCING ACTIVITIES
Net borrowings (repayments) on revolving
credit facilities.......................................... (117,766) 27,131 22,934
Net borrowings (repayments) on term debt................... (168) 24,165 (1,576)
Issuance of convertible subordinated notes, net............ 112,109
Repurchase of company common stock......................... (9,488) (33)
Issuance of company common stock........................... 5,819 5,210 3,771
Issuance of subsidiary common stock........................ 4,517 3,367 2,097
---------- ---------- ---------
Cash provided (used) by financing activities................. (117,086) 171,982 27,193
---------- ---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. (7,499) 5,614 (593)
Cash and cash equivalents--beginning of year................. 12,881 7,267 7,860
---------- ---------- ---------
CASH AND CASH EQUIVALENTS--END OF YEAR....................... $ 5,382 $ 12,881 $ 7,267
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
- ------------------------
See notes to consolidated financial statements.
36
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION> NET
COMMON STOCK ADDITIONAL TREASURY STOCK UNREALIZED
---------------------- PAID-IN RETAINED --------------------- APPRECIATION ON
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT INVESTMENTS
---------- ---------- --------- --------- ---------- --------- ---------------
<C> <C> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1994............... 32,799,342 $ 3,280 $ 23,482 $ 91,780 4,348,788 $ (13,228) $ 5,233
Net earnings........................... 18,263
Stock options exercised, net........... 981 (918,160) 2,790
Repurchase of common stock............. 4,200 (33)
Subsidiaries' equity transactions...... (3,754)
Net change in unrealized
appreciation on investments.......... 25,515
---------- ---------- --------- --------- ---------- --------- ---------
BALANCE--DECEMBER 31, 1995............... 32,799,342 3,280 20,709 110,043 3,434,828 (10,471) 30,748
Net earnings........................... 19,927
Stock options exercised, net........... 3,323 (759,011) 1,887
Conversion of convertible 11,364 (443,988) 1,419
subordinated notes...................
Subsidiaries' equity transactions...... 170
Net change in unrealized
appreciation on investments.......... (23,388)
---------- ---------- --------- --------- ---------- --------- ---------
BALANCE--DECEMBER 31, 1996............... 32,799,342 3,280 35,566 129,970 2,231,829 (7,165) 7,360
Net earnings........................... 21,501
Stock options exercised, net........... 3,784 (670,649) 2,035
Repurchase of common stock............. 390,577 (9,488)
Conversion of convertible
subordinated notes................... 9,371 (388,131) 1,279
Subsidiaries' equity transactions...... 871
Net change in unrealized
appreciation on investments.......... 8,346
---------- ---------- --------- --------- ---------- --------- ---------
BALANCE--DECEMBER 31, 1997.............. 32,799,342 $ 3,280 $ 49,952 $ 151,471 1,563,626 $ (13,339) $ 15,706
---------- ---------- --------- --------- ---------- --------- ---------
</TABLE>
- ------------------------
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY-The Company is engaged in the business of
identifying, acquiring interests in, and developing partnership companies,
most of which are engaged in information technology businesses, broadly
defined to include all activities related to the acquisition, processing, and
dissemination of information and related technology and services to improve
business and personal productivity. The most significant of the Company's
partnership companies are engaged in the delivery of personal computer
services, including procurement and configuration of personal computers,
application software and related products, network integration, and technical
support. In addition, partnership companies in the information technology
industry are engaged in outsourcing and the development, sale, and
implementation of strategic business software and services, imaging equipment
and software, multimedia technology and services, and telecommunications
technology.
PRINCIPLES OF CONSOLIDATION-The Consolidated Financial Statements include the
accounts of the Company and its majority-owned subsidiaries, primarily
CompuCom Systems, Inc. and Tangram Enterprise Solutions, Inc. The effect of
adjustments to the Company's carrying values of these subsidiaries resulting
from their underlying equity transactions is included in the Company's
Additional Paid-in Capital. Investments in companies owned 50% or less, in
which significant influence is exercised, are accounted for on the equity
method of accounting. Significant influence is presumed at a 20% ownership
level; however, the Company applies the equity method for certain companies
in which it owns less than 20% because it exerts significant influence
through representation on those companies' Boards of Directors and other
means. Certain investments accounted for on the cost method are classified as
available-for-sale and are recorded at fair value. The related net unrealized
appreciation of these investments of $15.7 million and $7.4 million, which is
net of
37
<PAGE>
taxes of $8.1 million and $3.8 million, is recorded as a separate component
of Shareholders' Equity at December 31, 1997 and 1996, respectively. All
other investments are stated at the lower of cost or net realizable value.
The Company continually evaluates investments for indications of impairment
based on the market value of each investment relative to cost, financial
condition, near-term prospects of the investment, and other relative factors.
All material intercompany accounts and transactions have been eliminated.
In 1997, the Company sold its Pioneer Metal Finishing division and all of
the assets of Premier Solutions Ltd. and, in 1996, the Company sold its
commercial real estate operations. As a result, these entities are only included
in the Company's Consolidated Financial Statements through their respective sale
dates.
ACCOUNTING ESTIMATES-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS-The Company considers all highly liquid
instruments with an original maturity of 90 days or less at the time of
purchase to be cash equivalents. Included in cash and cash equivalents at
December 31, 1996 is approximately $7.1 million of investments in
institutional money market accounts.
ACCOUNTS RECEIVABLE SECURITIZATIONS-In 1997, CompuCom adopted Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125),
which establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial components approach that focuses on
control. (See Note 3)
INVENTORIES, primarily finished goods, are stated at the lower of average
cost or market. The Company continually assesses the appropriateness of the
inventory valuations considering obsolete, slow-moving, and non-salable
inventory.
PROPERTY, PLANT, AND EQUIPMENT are carried at cost less accumulated
depreciation and amortization. Included in property, plant, and equipment was
$57.7 million and $56.1 million of land, buildings, and improvements and $47.5
million and $62.3 million of machinery and equipment at December 31, 1997 and
1996, respectively. The provision for depreciation and amortization is based
on the estimated useful lives of the assets (buildings and improvements-3 to
33 years; machinery and equipment-3 to 12 years) and is computed primarily
on the straight-line method.
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED is amortized on a
straight-line basis primarily over 7 to 10 years. Accumulated amortization at
December 31, 1997 and 1996 was $24.0 million and $17.8 million, respectively.
The Company continually evaluates goodwill for indications of impairment
based on the forecasted undiscounted cash flow from the related business
activity (including possible proceeds from a sale of the business). The
amount by which the Company's carrying value exceeds its share of the
underlying net assets of equity investees is amortized on a straight-line
basis which adjusts the Company's share of the investees' earnings or losses.
TAXES ON INCOME are reduced by allowable tax credits. Deferred taxes are
accounted for using the asset and liability method of accounting for income
taxes. Under this method, deferred taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
FINANCIAL INSTRUMENTS-The Company's financial instruments, principally cash,
accounts receivable, accounts payable, and accrued expenses, are carried at
cost which approximates fair value due to the short-term maturity of these
instruments. The Company's long-term debt is carried at cost which
approximates fair value as the debt bears interest at rates approximating
current market rates. At December 31, 1997, the market value of the Company's
Convertible Subordinated Notes was approximately $104 million based on quoted
market prices.
EARNINGS PER SHARE-At December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share"
(APB 15), and requires companies to present basic and diluted earnings per
share (EPS), instead of primary and fully diluted EPS previously
required. All EPS amounts have been restated in accordance with SFAS 128.
(See Note 7)
EPS is computed on net earnings using the weighted-average number of
common shares outstanding during each year. Dilutive EPS includes common
stock equivalents (unless anti-dilutive) which would arise from exercise of
stock options and conversion of other convertible securities and is adjusted,
if applicable, for the effect on net earnings of such transactions. Dilutive
EPS calculations adjust net earnings for the dilutive effect of common stock
equivalents and convertible securities issued by the Company's public
investees.
REVENUE RECOGNITION--Product sales are generally recognized upon shipment
with provisions made for anticipated returns, which historically have been
immaterial. Services sales are generally recognized when the service is
rendered or ratably if performed over a service contract period.
VENDOR PROGRAMS--CompuCom receives volume incentives and rebates from certain
manufacturers related to sales of certain products which are recorded as a
reduction of cost of sales when earned. CompuCom also receives manufacturer
reimbursements for certain training, promotional, and marketing activities
that offset the expenses incurred by CompuCom.
STOCK-BASED COMPENSATION--The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) for stock
options and other stock-based awards while disclosing pro forma net earnings
and net earnings per share as if the fair value method had been applied in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). (See Note 8)
38
<PAGE>
2. INVESTMENTS
The following summarizes the Company's investments at December 31, 1997
and 1996 (in thousands). Investments are classified according to the
applicable accounting method at December 31, 1997. Market value reflects the
price of publicly-traded securities at the close of business on December 31
of each year. Unrealized appreciation reflects the net excess of market value
over carrying value of publicly-traded securities classified as
available-for-sale.
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
CARRYING MARKET CARRYING MARKET
DECEMBER 31 VALUE VALUE VALUE VALUE
- ----------------------------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity Investees (voting %)
Cambridge (16%)........................... $ 24,679 $ 371,394 $ 15,340 $ 316,620
ChromaVision (20%)........................ 4,689 30,044 3,056
Coherent (32%)............................ 14,799 135,008 10,206 94,445
OAO (29%)................................. 13,887 43,716 10,132
Sanchez (25%)............................. 7,196 89,068 4,346 22,799
USDATA (24%).............................. 7,194 13,325 6,664 14,410
Non-public companies...................... 45,339 24,644
----------- ----------
117,783 74,388
Brandywine Realty Trust................... 8,519 13,851 8,519 9,695
Diamond................................... 1,526 14,717 1,769
Integrated Systems Consulting Group....... 1,891 7,785 1,891 9,770
National Media............................ 2,035 1,563 2,035 7,790
Sybase.................................... 4,407 2,967 13,733 9,059
Other public companies.................... 432 1,723 989 2,005
Unrealized appreciation................... 23,796 11,152
Non-public companies...................... 24,722 20,368
----------- ----------
$ 185,111 $ 134,844
----------- ----------
----------- ----------
</TABLE>
The following summarized financial information for investees accounted for
on the equity method of accounting at December 31, 1997 has been compiled from
the financial statements of the respective investees and reflects certain
historical adjustments (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31 1997 1996
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Current assets.............................. $ 409,867 $ 265,771
Non-current assets.......................... 157,278 101,639
---------- ----------
Total assets................................ $ 567,145 $ 367,410
---------- ----------
---------- ----------
Current liabilities......................... $ 179,691 $ 131,030
Non-current liabilities..................... 27,388 17,480
Shareholders' equity........................ 360,066 218,900
---------- ----------
Total liabilities and equity................ $ 567,145 $ 367,410
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31 1997 1996 1995
- -------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
Public companies.......................... $ 615,716 $ 426,800 $ 302,974
Non-public companies
RMS................................... 90,946 83,811 93,688
DocuCorp.............................. 40,834 32,171 24,570
MultiGen.............................. 11,205 8,071 7,860
Other................................. 46,481 28,188 22,411
---------- ---------- ----------
$ 805,182 $ 579,041 $ 451,503
---------- ---------- ----------
---------- ---------- ----------
Net Income.................................. $ 30,365 $ 23,911 $ 21,080
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
39
<PAGE>
Average cost is generally used to compute securities and other gains.
Securities and other gains are net of related costs, charges incurred in the
disposition of the investments, and provisions for other investments and
notes. The following summarizes significant pre-tax gains from securities and
other gains (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- -------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Cambridge................................... $ 18.8 $ 18.6 $ 0.7
Coherent.................................... 15.1 5.5
Premier..................................... 6.3
Diamond..................................... 5.4
ChromaVision................................ 3.9
Pioneer..................................... 3.4
Venture Funds............................... 2.3 .2 3.4
Sanchez..................................... 5.3
Sybase...................................... (3.0) (4.5)
Other....................................... (10.2) (4.3) 9.3
--------- --------- ---------
$ 26.9 $ 30.4 $ 18.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
Securities and other gains in 1997 include the results of the open market
sales of a portion of the Company's interest in Cambridge, the sale of shares
of Diamond and ChromaVision in rights offerings to the Company's
shareholders, distributions from the Company's associated venture funds, and
the sale of Premier. Also in 1997, the Company sold its Pioneer Metal
Finishing division to the management group at Pioneer for a combination of
cash, subordinated notes and assumed obligations. The Company recorded a gain
of $3.4 million and deferred an additional gain pending collection of the
notes from the management group and resolution of certain ongoing obligations
of the Company with respect to Pioneer. Partially offsetting these 1997 gains
was a write-down of the Company's holdings in Sybase due to the other than
temporary decline in the market price of that stock, charges incurred in the
disposition of investments, and provisions for other investments and notes.
Securities and other gains in 1996 included the results of the open
market sales of a portion of the Company's interests in Coherent and
Cambridge and the sale of shares of Integrated Systems Consulting Group and
Sanchez in rights offerings to the Company's shareholders. Securities and
other gains in 1996 also included the sale of the Company's remaining
interest in Gandalf, the Company's share of CompuCom's gain from the sale of
substantially all of its holdings in PC Service Source, and the sale of the
Company's commercial real estate operations. Partially offsetting these gains
was a write-down of the Company's holdings in Sybase due to the other than
temporary decline in the market price of that stock. Securities and other
gains in 1995 included the open market sales of the Company's remaining
interest in Novell, the open market sales of a portion of its interests in
Coherent and Gandalf, and distributions from the Company's associated venture
funds. Partially offsetting the 1996 and 1995 securities and other gains were
charges incurred in the disposition of investments and provisions for other
investments and notes.
3. DEBT
The following is a summary of long-term debt (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ---------------------------------------------------- ---------- -----------
<S> <C> <C>
Parent Company and Other Recourse Debt
Revolving credit facilities......................... $ 22,200
Pioneer Metal Finishing............................. $ 11,870
Other............................................... 7,822 4,281
---------- ----------
30,022 16,151
Subsidiary Debt (Non-Recourse to Parent)
CompuCom............................................ 100,425 239,946
Premier Solutions................................... 4,912
Other............................................... 38 356
---------- ----------
100,463 245,214
---------- ----------
Total debt.......................................... 130,485 261,365
Current debt obligations............................ (3,396) (8,640)
---------- ----------
Long-term debt...................................... $ 127,089 $ 252,725
---------- ----------
---------- ----------
</TABLE>
In 1997, the Company amended its bank revolving credit facility which
increased the borrowing availability under this facility from $100 million to
$150 million, reduced the interest rate of borrowings on LIBOR traunches by .5%
to LIBOR plus 1.25%, and extended the maturity to May 2001. The bank revolving
credit facility is secured by certain equity securities the Company holds of its
publicly-traded partnership companies, including CompuCom. The bank revolving
credit facility bears interest at the prime rate and/or, at the Company's
option, at LIBOR (approximately 5.7% at December 31, 1997) plus 1.25% and is
subject to a commitment fee of .25% on the unused portion. At December 31, 1997,
$6.1 million is outstanding under the bank revolving credit facility. The
Company borrowed a maximum of $15.8 million and $67.5 million during 1997 and
1996, respectively. The Company is increasing the availability under the bank
revolving credit facility to $200 million in the first half of 1998.
The Company had aggregate indebtedness of $16.1 million under revolving
credit facilities to certain partnership companies as of December 31, 1997.
These facilities are payable on demand, and bear interest at the Company's
effective borrowing rate less .75%. The Company has the intent and ability, if
necessary, to repay these facilities with proceeds from its bank revolving
credit facility; accordingly, they are classified as long-term.
40
<PAGE>
CompuCom has $325 million of separate, independent financing arrangements
which are secured by certain assets of CompuCom and consist of a $125 million
working capital facility, a $175 million Receivables Securitization Facility
("Securitization Facility"), and a $25 million real estate loan (collectively,
the "credit agreements"). In 1997, CompuCom amended its credit agreements,
increasing the availability under its Securitization Facility to $175 million
from $100 million and reducing the working capital facility to $125 million
from $200 million. The interest rate on the working capital facility and the
real estate loan is LIBOR plus .75%, subject to adjustment based on certain
performance criteria.
Under the terms of CompuCom's Securitization Facility, CompuCom sells, on a
revolving basis, an interest in a portion of its accounts receivable. During
1997, the Securitization Facility was amended such that the sale of its
receivables is required to be accounted for in accordance with SFAS 125.
CompuCom is retained as servicer of the receivables; however, the cost to
service the receivables is not material. The interest rate applicable to the
Securitization Facility is based upon the bank's commercial paper rate (4.95% at
December 31, 1997) plus 55 basis points. Discounts associated with the sale of
receivables totaled $4.7 million for 1997 and are included in "Interest and
financing" in the Consolidated Statements of Operations.
In 1997, CompuCom extended the maturity of its credit agreements to November
2002, except for the $25 million real estate loan which is due in quarterly
installments beginning April 1999. CompuCom is currently evaluating other
permanent financing options for the real estate loan. Of the $325 million of
availability, $272 million was utilized at December 31, 1997 (including $175
million under the off-balance sheet Securitization Facility).
The credit facilities of the Company and CompuCom generally require some or
all of the following: the maintenance of specified levels of tangible net worth,
debt to tangible net worth and net earnings, specified interest coverage ratios,
and limitations on the amount available for dividends, capital expenditures,
investments, and third party guarantees. The aggregate net assets of
subsidiaries which are restricted and unavailable for dividends at December 31,
1997 is approximately $107 million.
Aggregate maturities of long-term debt during future years are (in
millions): $3.4-1998; $1.9-1999; $4.3-2000; $30.5-2001; $84.4-2002 and
$6.0-thereafter.
Interest paid in 1997, 1996, and 1995 was $21.9 million, $22.0 million, and
$19.2 million, respectively, of which $5.8 million and $3.4 million in 1997 and
1996, respectively, related to the Company's Convertible Subordinated Notes and
$1.1 million and $2.0 million in 1996 and 1995, respectively, related to
commercial real estate debt.
4. CONVERTIBLE SUBORDINATED NOTES
In February 1996, the Company issued $115 million of 6% Convertible
Subordinated Notes ("Notes") due February 1, 2006. The Notes are convertible
into the Company's Common Stock at $28.985 per share. Interest is payable
semi-annually. The Notes are redeemable in whole or in part at the option of the
Company on or after February 2, 1999 for a maximum of 104% of face value
depending on the date of redemption and subject to certain restrictions.
In November 1996 and February 1997, approximately $12.9 million and $11.3
million of Notes, respectively, were converted into 443,988 and 388,131
shares, respectively, of the Company's Common Stock. The Company recorded in
Shareholders' Equity the principal amount of the converted debt along with
forfeited interest and a proportionate share of the related unamortized
deferred charges. In February 1998, approximately $18.5 million of Notes were
converted into 639,500 shares of the Company's Common Stock.
5. LEASES
The Company conducts a portion of its operations in leased facilities and
leases machinery and equipment under leases expiring at various dates to 2004.
Future minimum lease payments under non-cancelable operating leases with
initial or remaining terms of one year or more at December 31, 1997 are (in
millions): $8.8-1998; $7.8-1999; $5.7-2000; $3.7-2001; $2.0-2002 and
$3.1-thereafter.
Total rental expense under operating leases was $10.2 million, $14.5
million, and $8.9 million in 1997, 1996, and 1995, respectively.
6. INCOME TAXES
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- ------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Current................................................. $ 16,902 $ 11,375 $ 4,156
Deferred............................................... (2,566) 1,910 7,968
--------- --------- ---------
--------- --------- ---------
$ 14,336 $ 13,285 $ 12,124
State taxes on income included above................... $ 2,235 $ 1,607 $ 1,248
--------- --------- ---------
--------- --------- ---------
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 35% to earnings before income taxes as a result
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- -------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Statutory tax provision................................. 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Non-deductible goodwill amortization................. 3.4 4.1 3.9
Book/tax basis difference on securities sold......... (.9) (.2)
State taxes, net of federal tax benefit.............. 4.1 3.1 2.7
Income taxed at rates other than statutory rate...... (2.5) (1.3) (1.5)
---- ---- ----
40.0% 40.0% 39.9%
---- ---- ----
---- ---- ----
</TABLE>
41
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands):
<TABLE>
<CAPTION> 1997 1996
- ----------------------------------------------------------- ---------- ----------
<S> <C> <C>
Deferred tax assets:
Subsidiary/investee carrying values..................... $ 3,539 $ 1,292
Accounts receivable allowances.......................... 1,034 806
Inventories, reserves, and tax capitalized costs........ 5,141 6,694
Other................................................... 2,522 1,768
---------- ---------
Gross deferred tax assets................................. 12,236 10,560
Less valuation allowance................................ (1,600) (1,600)
---------- ---------
Deferred tax assets....................................... 10,636 8,960
---------- ---------
---------- ---------
Deferred tax liabilities:
Subsidiary/investee carrying values..................... (11,522) (9,371)
Accelerated depreciation................................ (4,521) (4,760)
Unrealized appreciation on investments.................. (8,091) (3,792)
Other................................................... (6,546) (9,348)
---------- ---------
Deferred tax liabilities.................................. (30,680) (27,271)
---------- ---------
Net deferred tax liabilities.............................. $ (20,044) $ (18,311)
---------- ---------
---------- ---------
</TABLE>
The valuation allowance relates to the uncertainty surrounding the
realization of tax benefits attributable to the difference between the book
basis and tax basis of certain of the Company's investments. Tax benefits
recognized in the future relating to the valuation allowance for deferred tax
assets as of December 31, 1997 will be reported as an income tax benefit in the
Consolidated Statements of Operations.
Income taxes paid were $13.5 million, $18.4 million, and $10.9 million in
1997, 1996, and 1995, respectively.
The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
certain of its subsidiaries (such difference relates primarily to unremitted
earnings of the subsidiaries) because the Company does not expect this basis
difference to become subject to tax at the parent level. The Company believes it
can implement certain tax strategies to recover its investment in these
subsidiaries tax-free.
7. EARNINGS PER SHARE
The calculations of earnings per share (EPS) were (in
thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Basic EPS
Net earnings.............................................. $ 21,501 $ 19,927 $ 18,263
Average common shares outstanding....................... 31,249 29,900 29,052
Basic EPS................................................. $ .69 $ .67 $ .63
--------- --------- ---------
Diluted EPS
Net earnings.............................................. $ 21,501 $ 19,927 $ 18,263
Adjustment (a)............................................ (328) (779) (1,937)
--------- --------- ---------
Adjusted net earnings..................................... 21,173 19,148 16,326
Average common shares outstanding......................... 31,249 29,900 29,052
Effect of dilutive options................................ 747 1,448 1,682
--------- --------- ---------
Average number of common shares assuming dilution......... 31,996 31,348 30,734
Diluted EPS............................................... $ .66 $ .61 $ .53
--------- --------- ---------
</TABLE>
- ------------------------
(a) Net earnings are adjusted for the dilutive effect of public investee common
stock equivalents and convertible securities.
Options to purchase approximately 502,000, 91,000, and 527,000 shares of
Common Stock at an average price of $32.56, $35.07, and $22.71 per share at
December 31, 1997, 1996, and 1995, respectively, were anti-dilutive and are not
included in the calculations of diluted EPS because the options' exercise price
was greater than the average market price of common shares for each respective
period. Shares issuable upon the conversion of the Company's Convertible
Subordinated Notes (See Note 4) at December 31, 1997 and 1996 were anti-dilutive
and are not included in the calculations of diluted EPS.
From March 1997 through February 1998, the Company repurchased $10.3 million
of its Common Stock in the open market at prices ranging from $17.69 to $31.63
and is authorized to purchase up to an additional $20 million.
8. STOCK-BASED COMPENSATION
Options may be granted to Company employees, directors, and consultants
under various stock option plans. Generally, outstanding options vest over
periods not exceeding four years after the date of grant and expire eight years
after the date of grant. To the extent allowable, all grants are incentive stock
options. All options granted under the plans to date have been at prices which
have been equal to the fair market value at the date of grant. At December 31,
1997, the Company reserved approximately 2.5 million shares of Common Stock for
possible future issuance under its stock option plans. Several subsidiaries also
maintain stock option plans for their employees and directors.
42
<PAGE>
Option activity under the Company's plans is summarized below (in thousands
except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 2,078 $ 10.82 2,702 $ 7.11 3,104 $ 3.16
Options granted.......................... 350 31.59 190 32.96 527 22.71
Options exercised........................ (673) 4.56 (774) 2.86 (919) 2.73
Options canceled......................... (18) 22.88 (40) 19.24 (10) 3.93
----- ------ ----- ----------- -------- ---------
Outstanding at end of year............... 1,737 $ 17.58 2,078 $ 10.82 2,702 $ 7.11
----- ------ ----- ----------- -------- ---------
Options exercisable at year-end.......... 867 1,150 1,220
Shares available for future grant........ 807 1,139 1,255
----- ------ ----- -------
</TABLE>
The following summarizes information about the Company's stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE EXERCISABLE EXERCISE
(IN THOUSANDS) (IN YEARS) PRICE (IN THOUSANDS) PRICE
- ---------------------------- -------------- ------------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.04 -- $ 3.58 305 2.9 $ 2.71 305 $ 2.71
3.92 -- 5.75 426 4.2 4.40 269 4.38
21.00 -- 22.00 228 5.8 21.63 130 21.64
23.50 -- 26.13 276 6.2 23.79 125 23.50
29.25 -- 39.88 502 7.5 32.56 38 33.66
--
--------- ----- --- ------ --- ------
$ 2.04 -- $ 39.88 1,737 5.4 $ 17.58 867 $ 10.43
-- --------- ----- --- ------ --- ------
-- --------- ----- --- ------ --- ------
</TABLE>
The Company, its subsidiaries, and its investees accounted for on the equity
method apply APB 25 and related interpretations in accounting for stock
option plans. Had compensation cost been recognized consistent with SFAS 123,
the Company's consolidated net earnings and earnings per share would have
been reduced to the pro forma amounts indicated below (in thousands except
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
Consolidated net earnings
As reported........................ $ 21,501 $ 19,927 $ 18,263
Pro forma.......................... $ 17,314 $ 15,986 $ 16,799
Earnings per share
Basic
As reported........................ $ .69 $ .67 $ .63
Pro forma.......................... $ .55 $ .53 $ .58
Diluted
As reported........................ $ .66 $ .61 $ .53
Pro forma.......................... $ .53 $ .48 $ .48
Per share weighted-average fair
value of stock options issued on
date of grant............................ $ 14.97 $ 14.64 $ 9.83
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following range of assumptions were used by the Company, its
subsidiaries, and its investees accounted for on the equity method to
determine the fair value of stock options granted in 1997, 1996, and 1995
using the Black-Scholes option-pricing model:
<TABLE>
<CAPTION>
SUBSIDIARIES
AND
COMPANY INVESTEES
- --------------------------------------- --------------- ---------------
<S> <C> <C>
Dividend yield.......................... 0% 0%
Expected volatility.................... 40% to 45% 30% to 64%
Average expected option life........... 5 years 3-1/2 to 6 years
Risk-free interest rate................ 5.4% to 6.8% 5.4% to 7.1%
--------------- ---------------
</TABLE>
The full impact of calculating compensation cost for stock options under
SFAS 123 is not reflected in the pro forma consolidated net earnings amounts
presented above because compensation cost is reflected over an option's vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
43
<PAGE>
9. PARENT COMPANY FINANCIAL INFORMATION
Condensed Financial Information is provided to reflect the results of
operations and financial position of the "Parent Company", or the Company
without the effect of consolidating its less than wholly-owned subsidiaries. The
Company presents complete Condensed Financial Information in Schedule I to its
Form 10- K.
The following summarizes the Parent Company Balance Sheets of Safeguard
Scientifics, Inc. and its wholly-owned subsidiaries (in thousands). These Parent
Company Balance Sheets differ from the Consolidated Balance Sheets due to the
exclusion of the assets and liabilities of the Company's less than wholly-owned
subsidiaries, primarily CompuCom and Tangram, with the carrying values of these
companies included in "Investments".
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- ----------------------------------------------------- ---------- ----------
<S> <C> <C>
Assets
Current assets..................................... $ 11,710 $ 30,681
Investments........................................ 310,877 241,490
Other.............................................. 37,567 45,542
---------- ----------
Total assets......................................... $ 360,154 $ 317,713
---------- ----------
---------- ----------
Liabilities & Shareholders' Equity
Current liabilities................................ $ 18,525 $ 21,992
Long-term debt..................................... 29,689 12,591
Other liabilities.................................. 13,989 11,988
Convertible subordinated notes..................... 90,881 102,131
Shareholders' equity............................... 207,070 169,011
---------- ----------
Total liabilities & shareholders' equity............. $ 360,154 $ 317,713
---------- ----------
---------- ----------
</TABLE>
The following summarizes the Company's investments in less than wholly-owned
subsidiaries (in thousands). Market value reflects the price of publicly-traded
securities at the close of business on December 31 of each year.
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING MARKET CARRYING MARKET
DECEMBER 31 VALUE VALUE VALUE VALUE
- ----------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
CompuCom..................... $ 122,613 $ 211,504 $ 101,664 $ 267,862
Tangram..................... 3,153 68,570 5,907 62,692
Cambridge................... 24,679 371,394 15,340 316,620
Coherent.................... 14,799 135,008 10,206 94,445
Other public................ 75,572 218,759 64,286 75,528
Other....................... 70,061 44,087
----------- -----------
$ 310,877 $ 241,490
----------- -----------
----------- -----------
</TABLE>
The following summarizes the Parent Company Statements of Operations of
Safeguard Scientifics, Inc. and its wholly-owned subsidiaries (in thousands).
1997 includes net sales and cost of sales and operating expenses of $16.0
million and $14.6 million, respectively, related to Pioneer which was sold in
mid-1997. These Parent Company Statements of Operations differ from the
Consolidated Statements of Operations by excluding the revenues and related
costs and expenses of the Company's less than wholly-owned subsidiaries,
primarily CompuCom and Tangram, with the Company's share of the earnings or
losses of these companies reflected in the caption "Equity income, net".
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues
Net sales....................................... $ 15,982 $ 30,286 $ 35,628
Securities and other gains, net................. 24,025 26,011 17,464
Other income.................................... 14,223 10,273 9,210
--------- --------- ---------
Total revenues................................ 54,230 66,570 62,302
--------- --------- ---------
--------- --------- ---------
Costs and Expenses
Cost of sales and operating expenses............ 45,389 54,376 54,139
Equity income, net.............................. (14,873) (12,345) (12,655)
--------- --------- ---------
Total costs and expenses...................... 30,516 42,031 41,484
--------- --------- ---------
--------- --------- ---------
Earnings Before Taxes on Income................... 23,714 24,539 20,818
Provision for taxes on income..................... 2,213 4,612 2,555
--------- --------- ---------
Net Earnings...................................... $ 21,501 $ 19,927 $ 18,263
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. PREFERRED STOCK
Shares of Preferred Stock, par value $10 a share, are voting and are
issuable in one or more series with rights and preferences as to dividends,
redemption, liquidation, sinking funds, and conversion determined by the Board
of Directors. At December 31, 1997 and 1996, there were 55,423 shares authorized
and none outstanding.
11. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
In connection with certain investments, the Company is contingently
obligated for approximately $40 million in bank loan and other guarantees and
approximately $100 million for possible future investments, including committed
capital to various venture funds and private equity partnerships.
44
<PAGE>
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.
Wayne, Pennsylvania
We have audited the accompanying consolidated balance sheets of Safeguard
Scientifics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and shareholders'
equity for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of certain nonsubsidiary investee companies. The Company's investment
in these nonsubsidiary investee companies at December 31, 1997 was $75.8 million
and its equity in earnings of these nonsubsidiary investee companies was $6.0
million for the year ended December 31, 1997. The financial statements of these
nonsubsidiary investee companies were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the amounts
included for these nonsubsidiary investee companies, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Safeguard Scientifics, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 7, 1998
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and objectivity
of the consolidated financial statements and related financial information in
this Annual Report. The statements are prepared in conformity with generally
accepted accounting principles. The financial statements reflect management's
informed judgment and estimation as to the effect of events and transactions
that are accounted for or disclosed.
Management maintains a system of internal control at each business unit.
This system, which undergoes continual evaluation, is designed to provide
reasonable assurance that assets are safeguarded and records are adequate for
the preparation of reliable financial data. In determining the extent of the
system of internal control, management recognizes that the cost should not
exceed the benefits derived. The evaluation of these factors requires estimates
and judgment by management.
KPMG Peat Marwick LLP is engaged to render an opinion as to whether
management's financial statements present fairly, in all material respects,
Safeguard Scientifics, Inc.'s financial condition and operating results in
accordance with generally accepted accounting principles. The scope of their
engagement included a review of the internal control system, tests of the
accounting records, and other auditing procedures to the extent deemed
necessary to render their opinion on the financial statements. Their report
is presented above.
The Audit Committee of the Board of Directors meets with the independent
auditors and management to satisfy itself that they are properly discharging
their responsibilities. The auditors have direct access to the Audit Committee.
Safeguard Scientifics, Inc.
/s/ Michael W. Miles
Michael W. Miles
Senior Vice President and Chief Financial Officer
45
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In the opinion of the Company, the following unaudited quarterly data
includes all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of operations for such periods.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales....................................... $ 447,576 $ 502,706 $ 505,312 $ 529,631
After-tax Operating Earnings*................... 2,559 5,437 5,476 7,351
After-tax Securities and Other Gains, Net....... 4,321 4,103 4,010 3,680
Net Earnings.................................... 4,492 5,636 5,265 6,108
Earnings Per Share
Basic......................................... .14 .18 .17 .20
Diluted....................................... .14 .17 .16 .19
1996
Net Sales....................................... $ 430,097 $ 527,442 $ 515,338 $ 589,932
After-tax Operating Earnings*................... 3,308 5,140 2,176 3,040
After-tax Securities and Other Gains, Net....... 3,408 3,767 4,882 6,166
Net Earnings.................................... 3,980 5,408 4,745 5,794
Earnings Per Share
Basic......................................... .13 .18 .16 .19
Diluted....................................... .12 .16 .15 .18
</TABLE>
- ------------------------
* Before securities and other gains, net and minority interest.
Net securities and other gains of varying magnitude have been realized in recent
years; prior gains are not necessarily indicative of gains which may be realized
in the future.
Earnings per share calculations for each of the quarters are based on the
weighted average number of shares outstanding in each period. Diluted earnings
per share calculations adjust net earnings for the dilutive effect of public
investee common stock equivalents and convertible securities. Therefore, the sum
of the quarters may not necessarily equal the year-to-date earnings per share.
Sales are typically higher in the fourth quarter of each year, reflecting the
historically stronger fourth quarter results at CompuCom, the Company's largest
subsidiary.
COMMON STOCK DATA
The Company's Common Stock is listed on the New York Stock Exchange (Symbol:
SFE). As of March 9, 1998, there were approximately 24,000 beneficial holders of
the Company's Common Stock. The high and low sale prices reported within each
quarter for the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- -----------------------
HIGH LOW HIGH LOW
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
First Quarter................... $ 32.63 $ 16.88 $ 29.69 $ 21.00
Second Quarter................. 33.00 19.75 47.44 29.56
Third Quarter.................. 32.06 25.00 39.88 26.00
Fourth Quarter................. 36.50 27.50 43.50 27.25
</TABLE>
------------------------
The high and low sale prices reported in 1998 through March 9 were $37.44 and
$30.13, respectively, and the last sale price reported on March 9, 1998 was
$36.75.
No cash dividends have been declared in any of the years presented and the
Company has no present intention to declare cash dividends.
46
<PAGE>
Exhibit 21
SUBSIDIARIES OF SAFEGUARD SCIENTIFICS, INC.
Exclusive of immaterial subsidiaries and companies in which Registrant
holds a minority interest, Registrant as of March 20, 1998 had the following
subsidiaries:
<TABLE>
<CAPTION>
PLACE OF
NAME INCORPORATION
- ---- -------------
<S> <C>
CompuCom Systems, Inc. Delaware
CompuCom Properties, Inc. Delaware
ClientLink, Inc. Delaware
The Computer Factory Inc. New York
International Micronet System California
CSI Funding, Inc. Delaware
CompuShop Incorporated Delaware
DRC Holdings, Inc. Delaware
Mobile Broadcasting Corporation Delaware
Penn-Sylvan Management, Inc. Pennsylvania
Pennsylvania Early State Partners GP, L.L.C. Pennsylvania
Radnor Venture Management Company Pennsylvania
Safeguard Scientifics (Delaware), Inc. Delaware
Safeguard Delaware, Inc. Delaware
Safeguard 97 Capital L.P. Delaware
Safeguard 98 Capital L.P. Delaware
Safeguard XL Capital L.P. Delaware
Safeguard Capital Management, Inc. Delaware
Safeguard International Group, Inc. Delaware
Safeguard Technologies, Inc. Delaware
SFINT, Inc. Delaware
SSIB, Inc. Delaware
SSI Buttonwood, Inc. Delaware
SSI Management Company, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PLACE OF
NAME INCORPORATION
- ---- -------------
<S> <C>
SSIP (Delaware), Inc. Delaware
SSI Partnership Holdings, Inc. Delaware
SSI Partnership Holdings (Pennsylvania), Inc. Pennsylvania
Tangram Enterprise Solutions, Inc. Pennsylvania
Technology Leaders Management, Inc. Delaware
XL Realty Corp. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Safeguard Scientifics, Inc.:
We consent to incorporation by reference in the Registration Statements
(No.33-41853, No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No.
33-48462, No. 2-72362, No. 33-72559 and No. 33-72560) on Form S-8 and (No.
2-93525) on Form S-3 of Safeguard Scientifics, Inc. of our report dated
February 7, 1998, relating to the consolidated balance sheets of Safeguard
Scientifics, Inc. and subsidiaries as of December 31, 1997 and 1996, the
related consolidated statements of operations, cash flows and shareholders'
equity and related schedules for each of the years in the three-year period
ended December 31, 1997, which reports are included or incorporated by
reference in the December 31, 1997 annual report on Form 10-K of Safeguard
Scientifics, Inc.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Safeguard Scientifics, Inc. on Form S-8 (File Nos. 33-41853, 33-31840,
2-79617, 2-63245, 33-48579, 33-48462, 2-72362, 33-72559 and 33-72560) and on
Form S-3 (File No. 2-93525) of our report dated February 2, 1998, on our
audit of the consolidated financial statements of Cambridge Technology
Partners (Massachusetts), Inc. as of December 31, 1997 and for the year then
ended, which report is included in this annual report of Safeguard
Scientifics. Inc. on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 27, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
We have audited the consolidated balance sheet of Cambridge Technology
Partners (Massachusetts), Inc. as of December 31, l997 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cambridge
Technology Partners (Massachusetts), Inc. as of December 31, 1997, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 2, 1998
<PAGE>
EXHIBIT 23.3
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements
of Safeguard Scientifics, Inc. on Form S-8 (File Nos. 33-41853, 33-31840,
2-79617, 2-63245, 33-48579, 33-48462, 2-72362, 33-72559 and 33-72560) and on
Form S-3 (File No. 2-93525) of our report dated February 6, 1998, on our
audit of the consolidated financial statements of Sanchez Computer
Associates, Inc. as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997, which report is included in
this annual report of Safeguard Scientifics, Inc. on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
March 25, 1998
Report of Independent Accountants
To the Shareholders and Board of Directors
Sanchez Computer Associates, Inc.
We have audited the accompanying consolidated balance sheets of Sanchez
Computer Associates, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sanchez
Computer Associates, Inc. as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1998
<PAGE>
EXHIBIT 23.4
Consent of Independent Accountants
We consent to incorporation by reference in the Registration Statements (No.
33-41853, No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No.
33-48462, No. 2-72362, No. 33-72559 and No. 33-72560) on Form S-8 and (No.
2-93525) on Form S-3 of Safeguard Scientifics, Inc. of our report dated March
30, 1998, on our audit of the consolidated financial statements of RMS
Holdings, Inc. and subsidiaries as of December 31, 1997 and December 27,
1996 and for the period December 28, 1996 through December 31, 1997,
which report is included or incorporated by reference in the December 31, 1997
annual report on Form 10-K of Safeguard Scientifics, Inc.
/s/ Coopers & Lybrand L.L.P.
McLean, Virginia
March 30, 1998
Report of Independent Accountants
To the Board of Directors and Stockholders of
RMS Holdings, Inc.
We have audited the accompanying consolidated balance sheets of RMS
Holdings, Inc. and subsidiaries (the Company), as of December 31, 1997 and
December 27, 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the period December 28,
1996 through December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of RMS
Holdings, Inc. and subsidiaries, at December 31, 1997 and December 27, 1996
and the results of their operations and their cash flows for the period
December 28, l996 through December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
McLean, Virginia
March 30, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8 (No. 33-41853,
No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No. 33-48462,
No. 2-72362, No. 33-72559 and No. 33-72560) and on Form S-3 (No. 2-93525) of
Safeguard Scientifics, Inc. (Safeguard) of our report dated February 11, 1998
relating to the consolidated financial statements of USDATA Corporation as of
December 31, 1997 and 1996, and for the three years ended December 31, 1997,
which opinion is included in this Safeguard 1997 Annual Report on Form 10-K.
/s/ Price Waterhouse L.L.P.
Dallas, Texas
March 30, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of USDATA Corporation
In our opinion, the consolidated balance sheets, statements of income, of
cash flows and of stockholders' equity (not presented separately herein)
present fairly, in all material respects, the financial position of USDATA
Corporation and its subsidiaries (the Company) at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards 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/ Price Waterhouse L.L.P.
Dallas, Texas
February 11, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8 (No. 33-41853,
No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No. 33-48462, No.
2-72362, No. 33-72559 and No. 33-72560) and on Form S-3 (No. 2-93525) of
Safeguard Scientifics, Inc. (Safeguard) of our report dated September 26,
1997 (except as to Note 10, which is as of December 9, 1997) relating to the
consolidated financial statements of DocuCorp International, Inc. as of July
31, 1997 and 1996, and for the three years ended July 31, 1997, which opinion
is included in this Safeguard 1997 Annual Report on Form 10-K.
/s/ Price Waterhouse L.L.P.
Dallas, Texas
March 30, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
DocuCorp International, Inc.:
In our opinion, the consolidated balance sheets and the related consolidated
statements of operations, cash flows and changes in stockholders' equity (not
presented separately herein) present fairly, in all material respects, the
financial position of DocuCorp International, Inc. and its subsidiaries at
July 31, 1996 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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/ Price Waterhouse L.L.P.
Dallas, Texas
September 26, 1997, except as to Note 10, which is
as of December 9, 1997 and Note 11, which is as of
January 31, 1998
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(No. 33-41853, No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No.
33-48462, No. 2-72362, No. 33-72559 and No. 33-72560) on Form S-8 and (No.
2-93525) on Form S-3 of Safeguard Scientifics, Inc. of our report dated
February 10, 1998 (relating to the financial statements of OAO Technology
Solutions, Inc.) which report is included as an exhibit to the Annual Report
on Form 10-K of Safeguard Scientifics, Inc. for the year ended December 31,
1997.
/s/ Deloitte & Touche L.L.P.
Washington, D. C.
March 30, 1998
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
OAO Technology Solutions, Inc.:
We have audited the consolidated balance sheets of OAO Technology Solutions,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997 (not
presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OAO Technology Solutions,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche L.L.P.
Washington, D. C.
February 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,382
<SECURITIES> 0
<RECEIVABLES> 190,257
<ALLOWANCES> 2,872
<INVENTORY> 198,053
<CURRENT-ASSETS> 397,279
<PP&E> 105,188
<DEPRECIATION> 28,221
<TOTAL-ASSETS> 714,541
<CURRENT-LIABILITIES> 169,278
<BONDS> 217,970
0
0
<COMMON> 3,280
<OTHER-SE> 203,790
<TOTAL-LIABILITY-AND-EQUITY> 714,541
<SALES> 1,724,220
<TOTAL-REVENUES> 2,025,014
<CGS> 1,534,310
<TOTAL-COSTS> 1,699,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,183
<INTEREST-EXPENSE> 22,359
<INCOME-PRETAX> 61,147
<INCOME-TAX> 14,336
<INCOME-CONTINUING> 21,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,501
<EPS-PRIMARY> .69
<EPS-DILUTED> .66
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995, AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 12,881 7,267
<SECURITIES> 0 0
<RECEIVABLES> 402,491 288,328
<ALLOWANCES> 3,088 2,644
<INVENTORY> 234,543 197,948
<CURRENT-ASSETS> 654,066 498,275
<PP&E> 118,394 106,045
<DEPRECIATION> 39,525 44,983
<TOTAL-ASSETS> 936,070 742,874
<CURRENT-LIABILITIES> 308,536 271,616
<BONDS> 354,856 221,811
0 0
0 0
<COMMON> 3,280 3,280
<OTHER-SE> 165,731 151,029
<TOTAL-LIABILITY-AND-EQUITY> 936,070 742,874
<SALES> 1,856,889 1,380,371
<TOTAL-REVENUES> 2,101,828 1,545,797
<CGS> 1,655,893 1,219,055
<TOTAL-COSTS> 1,792,958 1,311,332
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,472 1,277
<INTEREST-EXPENSE> 23,916 19,538
<INCOME-PRETAX> 51,607 41,509
<INCOME-TAX> 13,285 12,124
<INCOME-CONTINUING> 19,927 18,263
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,927 18,263
<EPS-PRIMARY> .67 .63
<EPS-DILUTED> .61 .53
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997, JUNE 30, 1997, AND
SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTH, SIX MONTH AND NINE MONTH PERIODS THEN ENDED, RESPECTIVELY, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 5,399 5,233 5,378
<SECURITIES> 0 0 0
<RECEIVABLES> 344,833 227,472 243,512
<ALLOWANCES> 3,105 2,763 2,786
<INVENTORY> 193,253 227,171 169,840
<CURRENT-ASSETS> 549,306 465,265 434,482
<PP&E> 122,858 126,779 108,833
<DEPRECIATION> 40,780 38,933 30,142
<TOTAL-ASSETS> 851,146 769,289 732,226
<CURRENT-LIABILITIES> 230,214 229,272 169,879
<BONDS> 326,373 238,945 248,415
0 0 0
0 0 0
<COMMON> 3,280 3,280 3,280
<OTHER-SE> 184,202 188,649 195,098
<TOTAL-LIABILITY-AND-EQUITY> 851,146 769,289 732,226
<SALES> 385,405 823,668 1,263,196
<TOTAL-REVENUES> 457,463 969,861 1,485,062
<CGS> 342,068 734,997 1,128,157
<TOTAL-COSTS> 382,330 814,671 1,248,539
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5,198 10,323 16,321
<INCOME-PRETAX> 11,362 26,948 44,085
<INCOME-TAX> 2,995 6,754 10,264
<INCOME-CONTINUING> 4,492 10,128 15,393
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,492 10,128 15,393
<EPS-PRIMARY> .14 .32 .49
<EPS-DILUTED> .14 .31 .47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996, JUNE 30, 1996, AND
SEPTEMBER 30, 1996, AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTH, SIX AND MONTH NINE MONTH PERIODS THEN ENDED, RESPECTIVELY, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 48,730 38,354 32,955
<SECURITIES> 0 0 0
<RECEIVABLES> 289,457 352,833 361,485
<ALLOWANCES> 2,639 2,923 2,676
<INVENTORY> 232,408 213,011 254,976
<CURRENT-ASSETS> 573,850 607,172 654,188
<PP&E> 98,152 105,041 111,299
<DEPRECIATION> 40,363 43,064 36,483
<TOTAL-ASSETS> 804,174 867,349 924,210
<CURRENT-LIABILITIES> 281,994 280,174 303,450
<BONDS> 284,942 320,111 357,807
0 0 0
0 0 0
<COMMON> 3,280 3,280 3,280
<OTHER-SE> 142,358 161,683 159,167
<TOTAL-LIABILITY-AND-EQUITY> 804,174 867,349 924,210
<SALES> 390,087 867,137 1,326,516
<TOTAL-REVENUES> 437,665 973,336 1,499,402
<CGS> 346,292 770,435 1,179,057
<TOTAL-COSTS> 371,769 830,461 1,277,364
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5,355 11,158 17,556
<INCOME-PRETAX> 10,306 24,072 36,094
<INCOME-TAX> 2,654 6,259 9,422
<INCOME-CONTINUING> 3,980 9,388 14,133
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,980 9,388 14,133
<EPS-PRIMARY> .13 .31 .47
<EPS-DILUTED> .12 .28 .43
</TABLE>
