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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-20730
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MICRO WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 06-1192793
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
535 Connecticut Avenue, Norwalk, Connecticut 06854
(Address of Principal Executive Offices)
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(203) 899-4000
Registrant's Telephone Number, including Area Code
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
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<PAGE>
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 of such
filing requirements for the past 90 days. Yes |x| No |_|
Indicate by check mark if the 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 the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to the Form 10-K. |x|
The aggregate market value of voting stock held by non-affiliates of
the Registrant computed by reference to the closing sales price as reported on
the Nasdaq Stock Market on March 26, 1998 was approximately $359,667,669. In
determining the market value of the voting stock held by non-affiliates, shares
of Common Stock beneficially owned by each executive officer, director and
holder of more than 10% of the outstanding shares of Common Stock have been
excluded. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
Common Stock outstanding as of March 26, 1998: 34,611,532
DOCUMENTS INCORPORATED BY REFERENCE:
Pursuant to General Instruction G(3) to this form, the information
required by Part III (Items 10, 11, 12, and 13) hereof is incorporated by
reference from the registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders scheduled to be held on June 4, 1998.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 7
Item 3. Legal Matters................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............. 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 9
Item 6. Selected Financial Data......................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
Item 8. Financial Statements and Supplementary Data..................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 14
PART III
Item 10.Directors and Executive Officers of the Registrant.............. 14
Item 11.Executive Compensation.......................................... 14
Item 12.Security Ownership of Certain Beneficial Owners and Management.. 14
Item 13.Certain Relationships and Related Transactions.................. 14
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 15
Signatures...................................................... 16
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PART I
ITEM 1. BUSINESS
Micro Warehouse, Inc. (the "Company" or "Micro Warehouse") is a specialty
catalog retailer and direct marketer of brand name personal computers, computer
software, accessories, peripheral and networking products to commercial and
consumer customers. The Company markets its products through frequent mailings
of its distinctive, colorful catalogs, Internet catalog and auction web sites
and telemarketing account managers who focus on corporate, education and
government accounts. The Company offers brand name hardware and software from
leading vendors such as Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM,
Iomega, Microsoft, Motorola, and Toshiba.
Through its four core catalogs, MicroWarehouse, MacWarehouse, Data Comm
Warehouse and Inmac, various specialty catalogs and its Internet sites, the
Company offers a broad assortment of more than 30,000 computer products at
competitive prices. With colorful illustrations, concise product descriptions
and relevant technical information, each catalog title focuses on a specific
segment of the computer market. The catalogs are recognized as a leading source
for computer hardware, software and other products. During the year ended
December 31, 1997 the Company distributed approximately 124 million catalogs
worldwide and as of December 31, 1997 the Company had approximately 2.2 million
customers who had purchased products within the last 12 months.
International operations represented 30% of the Company's sales in 1997.
In 1991 the Company established full-service, direct marketing operations in the
United Kingdom. In late 1992 the Company began operations in France and Germany
and in 1993 and 1994 acquired companies or initiated operations in Sweden,
Denmark, Norway, the Netherlands, Belgium, Finland and France. In this same
timeframe, the Company also expanded into the non-European markets of Japan,
Canada and Mexico. In 1995 the Company acquired businesses in the United
Kingdom, Germany, Australia and Switzerland. In 1996 the Company acquired Santa
Clara, California-based Inmac Corp. ("Inmac"). Inmac was a leading international
direct-response marketer of a wide range of personal computer and networking
products with operations in the United States, Canada, France, Germany, the
Netherlands, Sweden and the United Kingdom. In 1996 the Company discontinued its
Macintosh-only operations in Belgium and Switzerland. The Company currently
publishes catalogs in seven countries outside the United States and distributed
approximately 25 million catalogs internationally in the year ended December 31,
1997. See note 12 to notes to consolidated financial statements for information
regarding the Company's operations in different geographic areas.
In November 1996 the Company completed the acquisition of the business of
USA Flex, a Bloomingdale, Illinois direct marketer of IBM PC-compatible
("Wintel") personal computer products. USA Flex had been successful in acquiring
customers and building its business from advertisements placed in domestic
computer publications, particularly Computer Shopper. In July 1997 the Company
acquired Online Interactive Inc. ("OLI"), a Seattle, Washington-based electronic
software reselling business. OLI offered customers the ability to purchase and
download software via the Internet.
In December 1997 the Company announced a major restructuring of its
operations. The restructuring objectives were to simplify the Company's business
worldwide, reduce the Company's cost structure, eliminate certain unprofitable
businesses and concentrate efforts on the productivity of the salesforce and
the continued growth of the Wintel business. In connection with this
restructuring the Company discontinued its Macintosh-dependent operations in
Australia and Japan and completed the sale of three small Macintosh-dependent
operations in Denmark, Norway and Finland. In the United States the Company
consolidated its underperforming businesses, USA Flex and OLI, into the
Company's existing New Jersey and Connecticut facilities. In addition, the
Company reorganized its domestic salesforce. These measures involved
eliminating approximately 600 positions or 14% of the workforce.
The Company maintains a full-service distribution center in Wilmington,
Ohio, totaling approximately 353,000 square feet and telemarketing centers in
Lakewood and Gibbsboro, New Jersey, and South Norwalk, Connecticut. The Company
operates 24 hours a day, seven days a week in the United States. The Company
also operates telemarketing and distribution facilities in the United Kingdom,
France, Germany, Sweden, the Netherlands, Canada and Mexico. The Company's
international operations generally use the same distribution and processing
computer systems and are able to exchange data with United States operations.
The Company began operations in 1987 as a Connecticut corporation and
was reincorporated in Delaware on October 2, 1992.
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Catalog Publication
The Company currently publishes four main catalogs in the United
States: MacWarehouse for the Macintosh market, MicroWarehouse and Inmac for the
Wintel market, and Data Comm Warehouse for the data communications and
networking market. In 1997 the Company published 14 editions of MacWarehouse, 12
editions each of MicroWarehouse and Data Comm Warehouse and 6 editions of the
Inmac catalog. Additional specialty catalogs are produced at various intervals.
Domestically, active customers (customers who have placed orders within the past
12 months) receive a catalog at least monthly and all customers receive a
catalog with every order shipped. The Company also mails targeted versions of
its catalogs to its corporate, education and government customers.
Internationally, catalogs are published under a variety of titles including
MicroWarehouse, MacWarehouse, Inmac, and Lan Warehouse at various frequencies.
The numbers of catalogs distributed during the last three years were 124 million
in 1997, 121 million in 1996, and 103 million in 1995.
Each catalog is printed with full-color photographs and detailed
product descriptions. The catalogs are generally created and produced in-house
by the Company's designers and production artists on a computer-based desktop
publishing system. The in-house preparation of most portions of the catalog
streamlines the production process, provides for greater flexibility and
creativity in catalog production and results in significant cost savings.
Marketing and Sales
Micro Warehouse services commercial and consumer customers but the
focus of the business has moved towards the commercial segment. As of December
31, 1997 commercial customers represented approximately 37% of the total
domestic customer base and accounted for approximately 73% of total domestic
sales. The Company's various marketing programs are designed to attract new
customers and to stimulate additional purchases from existing customers. The
Company continuously attracts new customers by selectively mailing catalogs to
prospective customers as well as through advertising in major computer magazines
and on the Internet. The Company obtains the names of prospective customers
through the use of selected mailing lists from various sources, including
manufacturers, suppliers, software publishers and computer magazine publishers.
Worldwide active customers in 1997 were 2.2 million, and were 2.3 million and
2.1 million in 1996 and 1995, respectively.
Salesforce Restructuring. In early 1998 the Company reorganized its
domestic salesforce by forming four separate business units to attempt to
streamline and improve the productivity of sales operations. As a result,
approximately 230 positions were eliminated. Revised compensation, commission
and training programs were also introduced. The Company believes that as the
focus of sales shifts toward the commercial segment, its future success depends,
in part, on its ability to improve the skills, effectiveness and productivity of
its sales force.
Strategic Business Unit. The Strategic Business Unit is responsible for
sales to the Company's key and major commercial accounts and the Company's
education and government accounts. This unit combines account management and
catalog mailing to penetrate these accounts. Through frequent contact the
Company's sales staff seeks to build long-term relationships with these
customers.
General Business Unit. The General Business Unit services orders from
all other customers. This unit assists customers in purchasing decisions,
processes product orders and responds to customer inquiries on order status,
product pricing and availability. Through the Company's integrated computer and
telephone systems, a sales representative can quickly access a customer's record
which details past purchases as well as billing information. To provide more
targeted service, the General Business Unit has separate inbound sales groups
for different product platforms and commercial customers.
Customer Service/Technical Support Business Unit. The Company believes
that its ability to provide prompt and efficient customer service has been
critical to its success. The Company's dedicated customer service
representatives are trained to respond to frequently asked questions such as the
status of an order or the Company's return policy. The Company also has a
technical support staff to assist customers with the selection, installation and
operation of their products. The Company offers a toll-free number for customer
service and technical support from 8:00 a.m. to midnight, eastern time, Monday
through Friday and from 10:00 a.m. to 6:00 p.m. on Saturday and Sunday.
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Sales Operations Business Unit. The Sales Operations Business Unit
provides administrative and sales support to the other sales business units.
These services include general administration, on-line correspondence, training
and providing sales statistics.
Customer Return Policy. The Company provides a 30-day guarantee against
defects with respect to most of its products. The Company works closely with
customers and vendors to assure that all vendor warranties and return privileges
are fully honored. For the year ended December 31, 1997 the Company had a return
rate of approximately 7% of gross sales. Returns are received and processed as a
segregated activity to maintain control over the returned product, to initiate
the refund process and to obtain appropriate credit from suppliers. Return
experience is closely monitored at the stock-keeping-unit ("SKU") level to
identify trends in product offerings, enhance customer satisfaction and reduce
overall returns.
Micro Warehouse on the Internet. In July 1995 the Company launched its
Internet catalog on the worldwide web (http://www.warehouse.com). Product
descriptions and prices of more than 23,000 products are provided on-line with
full information and on screen images available for 2,500 items. Selected
corporate clients can gain access to their own exclusive on-line catalog,
complete with unique product selections and customized pricing. Some of the
Company's overseas subsidiaries also have their own web sites. In November 1997
the Company opened its live Internet auction site WebAuction.com
(http://www.webauction.com). The site offers a selection of personal computers
and home electronic products including first-run merchandise, refurbished and
end-of-life items. Auctions are conducted 24 hours a day, 7 days a week.
Seasonality. Customer response rates are subject to variations. The
first and last quarters of the year generally have higher response rates while
the two middle quarters typically have lower response rates. The slower quarters
are impacted by the summer months, particularly in Europe.
Products and Merchandising
The Company offers over 30,000 microcomputer hardware, software and
peripheral products. For the year ended December 31, 1997 sales of Wintel
computers and related products represented approximately 59% of the Company's
net sales, while sales for Macintosh computers and related products represented
approximately 41% of net sales. The Company's product evaluation teams for the
various product categories constantly monitor the market for new products from
new and existing vendors. As product areas decline in importance, the amount of
catalog exposure is reduced in favor of "hotter" new products and the inventory
levels and numbers of SKU's are adjusted. For the year ended December 31, 1997
no single product accounted for more than 2% of the Company's net sales.
Hardware. The Company offers a large selection of hardware items. This
category includes personal computers, servers, printers, modems, monitors, data
storage devices, add-on circuit boards, connectivity products and certain
business machines. Brands sold in this category include American Power
Conversion, Apple, 3Com, Compaq, Epson, Hewlett Packard, IBM, Iomega, Texas
Instruments and Toshiba. Hardware sales constituted approximately 75% of the
Company's domestic net sales in 1997.
Software. The Company sells a wide variety of computer software
packages in the business and personal productivity, connectivity, utility,
language, education and entertainment categories. The Company offers products
from the larger, well known vendors as well as numerous specialty products from
new and emerging vendors. Brands offered by the Company include Adobe, Claris,
Connectix, Corel, Intuit, Macromedia, Microsoft, Novell, Quark, and Symantec.
Software sales constituted approximately 18% of the Company's domestic net sales
in 1997.
Supplies and Accessories. The Company currently sells various supplies
such as media, toner cartridges, desk and computer accessories and computer
furniture through its catalogs. Sales of these products constituted
approximately 7% of the Company's domestic net sales in 1997.
Private Label Brands. Under its private label brands, Power User, USA
Flex and NuData, the Company sells products such as microcomputers, hard drives,
server switches, memory chips, CD-Roms, cables, and accessories. Sales of these
products constituted approximately 8% of the Company's domestic net sales in
1997.
Purchasing
Domestically, the Company purchases products from approximately 1,500
vendors and purchases approximately 65% of its products directly from
manufacturers with the balance from distributors. The Company's largest domestic
vendors include Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM, Iomega,
Microsoft and Toshiba. In 1997 the leading 100 products sold by the Company
accounted for approximately 23% of its net sales. Purchases of products from
Apple, the Company's largest vendor, constituted approximately 11% of the
Company's product purchases.
5
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The Company believes that its volume purchases enable it to obtain
favorable product pricing. Many of the Company's suppliers make funds available
to the Company in the form of advertising allowances and incentives to promote
and increase sales of their products. Generally, the Company has been able to
return unsold or obsolete inventory to its vendors through written agreements
with, or unwritten policies of, such vendors. In addition, the Company typically
receives price protection should a vendor subsequently lower its price.
Recently, however, certain domestic vendors have been limiting the amount of
price protection and the quantity of returns. In addition, international
vendors' price protection and return privileges are more limited. There can be
no assurance that the Company will continue to receive any price protection or
return privileges in the future (see "Outlook" in Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations").
Distribution Centers
All of the Company's United States distribution operations are
conducted at the Wilmington, Ohio warehouse/distribution center, which consists
of approximately 353,000 square feet located in four facilities adjacent to the
main distribution facility of Airborne Express. Domestic orders accepted by
midnight, eastern time, are generally shipped for delivery the following day via
Airborne Express for a charge based on weight. Upon request, orders may also be
shipped by alternate means. The Company also operates distribution facilities in
the United Kingdom, France, Germany, Sweden, the Netherlands, Canada, and
Mexico.
Domestic orders are placed at the Company's Lakewood and Gibbsboro, New
Jersey and South Norwalk, Connecticut facilities. Some of these facilities also
include telemarketing, customer service, training, management information
systems, accounting and administration functions. When an order is entered into
the Company's computer system, a credit check or credit card verification is
performed and, if approved, the order is electronically transmitted to the
warehouse in Wilmington, Ohio and a packing slip is printed for order
fulfillment. Inventory shrinkage has been minimal.
Management Information Systems
The Company has committed significant resources to the development of
an integrated computer system which is used to manage all aspects of its
business. The main computer system is principally comprised of Hewlett Packard
hardware and licensed and internally-developed software. This system supports
telemarketing, marketing, purchasing, accounting, order entry, financial
reporting, customer service, warehousing and distribution. The system allows the
Company, among other things, to monitor sales trends, make informed purchasing
decisions, provide product availability and order status information. In
addition to the main system, the Company has a system of networked personal
computers which provide numerous additional management control, planning, and
exception reporting which facilitates data sharing and provides an automated
office environment. During 1997, the Company made installations and upgrades to
its computer systems in both its domestic and international operations, at an
approximate cost of $9.1 million. The Company's international operations
generally use the same system and are able to exchange data with the Company's
United States operations. Routine capacity enhancements are made periodically.
For a description of certain management information system issues facing the
Company related to the Year 2000, see "Year 2000 Compliant Information Systems"
in Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Competition
The computer products business is highly competitive. The Company
competes with consumer electronic and computer retail stores, including
superstores, corporate resellers, value-added resellers, other direct marketers
of software and computer related products and various "on-line" vendors and
other resellers of computer products. Some of those competitors provide superior
product support, configuration, and installation services. Several hardware and
software vendors sell their products directly to end users. Certain competitors
of the Company have financial and other resources greater than those of the
Company. There can be no assurance that the Company can continue to compete
effectively against existing competitors or new competitors that may enter the
market. Price is an important competitive factor in the personal computer
software and hardware market and there can be no assurance that the Company will
not be subject to increased price competition.
Employees
As of December 31, 1997, the Company employed 4,133 persons, of whom
469 were in management, support services and administration; 1,895 in sales,
technical support and customer service; 601 in warehouse/distribution and 1,168
employed at international locations. The Company's domestic employees are not
represented by a labor union and it has experienced no work stoppages. The
Company believes that its employee relations are good.
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Sales Tax
The Company presently collects sales tax on sales of products to
residents in the states of New Jersey, Connecticut, Ohio, Illinois and
Washington. Various states have tried to impose on direct marketers the burden
of collecting sales taxes on the sale of products shipped to state residents.
The United States Supreme Court affirmed its position that it is unlawful for a
state to impose sales tax collection obligations on an out-of-state mail order
company whose only contacts with the state are the distribution of catalogs and
other advertising materials through the mail and subsequent delivery of
purchased goods by parcel post and interstate common carriers. It is possible
that legislation may be passed to overturn the United States Supreme Court's
decision or the Court may change its position. Additionally, it is currently
uncertain as to whether electronic commerce, which will likely include the
Company's Internet and auction web sites' sales activities, will be subject to
state sales tax. The imposition of new sales tax collection obligations on the
Company in states to which it ships products would result in additional
administrative expenses to the Company and could result in price increases to
the customer.
Trademarks
The Company conducts its business under the trademarks and service
marks "MacWAREHOUSE," "MacSHOPPER," "MicroWAREHOUSE," "Upgrade Warehouse,"
"Windows Warehouse," "Power User," "Data CommWAREHOUSE," "CD-Rom WAREHOUSE,"
"Micro SystemsWAREHOUSE," "Mac Systems WAREHOUSE," "Home ComputerWAREHOUSE,"
"LanWAREHOUSE," "WAREHOUSE-On-Line," "Academic WAREHOUSE," "Developer's
WAREHOUSE," "The Mac Superstore," "NU DATA," "Workstation EXPRESS," "PC Select,"
"USA Flex," "Inmac," "MacSelect," "The Inmac Advantage," "Good Impressions,"
"Black Pearl," "Datamaster," "Auction Warehouse," "Desktop Publishers
Warehouse," "Download Warehouse," "Toolkit Warehouse," "Webauction," "Wireless
Warehouse," "Replacement Warehouse", "AtOnce," and "Online Interactive." The
Company also maintains and conducts business under numerous domain names on the
Internet. The Company intends to use and protect these or related marks and
domain names, as necessary and appropriate, in the United States and in various
foreign countries. The Company believes its trademarks, service marks and domain
names have significant value and are an important factor in the marketing of its
products. The Company's trademarks, servicemarks and domain names have an
indefinite term as long as they are used in connection with the Company's
business activities. The Company intends to take steps to maintain use of its
marks and domain names as appropriate and to renew registrations as necessary.
Regulation
The direct response business as conducted by the Company is subject to
the Mail and Telephone Order Merchandise Rule and 1996 Telemarketing Sales Rule
and related regulations promulgated by the Federal Trade Commission and
comparable state agencies. The Company believes it is in compliance with such
rules and regulations and has implemented programs and systems to assure ongoing
compliance.
ITEM 2. PROPERTIES
The Company's principal facilities, all of which are leased, are as
follows:
<TABLE>
<CAPTION>
Approx. Expiration of
Facility Location Sq. Ft. Leases
-------- -------- ------- ------
<S> <C> <C> <C>
Telemarketing, technical support, management information
systems and customer service center................... Lakewood, NJ 52,109 1999
Telemarketing, technical support, management information
systems and customer service center................... Lakewood, NJ 41,514 2000
Manufacturing, sales and distribution.................... Lakewood, NJ 30,360 2001
Telemarketing, technical support, management information
systems and customer service center................... Gibbsboro, NJ 82,000 2002
Warehouse and distribution center........................ Wilmington, OH 102,400 1998
Warehouse and distribution center........................ Wilmington, OH 102,400 1999
Warehouse and distribution center........................ Wilmington, OH 32,000 1998
Warehouse and distribution center........................ Wilmington, OH 70,400 2001
Warehouse and distribution center........................ Wilmington, OH 44,800 1999
Headquarters and Administrative offices.................. Norwalk, CT 83,000 2001
Corporate Sales.......................................... South Norwalk, CT 26,500 1998
European Coordination Center and offices................. Bracknell, England 11,000 2011
Offices and distribution center.......................... Watford, London, England 37,500 2004
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Warehouse and distribution center........................ Runcorn, England 69,000 2015
Offices.................................................. Kingsbury, Wembly, England 10,550 1998
Offices.................................................. Suresnes, France 10,000 1998
Offices and warehouse.................................... Mitry-Mory, France 63,900 1999
Offices and distribution center.......................... Florsheim, Germany 77,800 1998
Distribution center...................................... Neu-Isenburg, Germany 7,200 2000
Offices and distribution center.......................... Amsterdam, Netherlands 10,000 1999
Offices and distribution center.......................... Stockholm, Sweden 11,475 1998
Offices.................................................. Stockholm, Sweden 12,000 2000
Offices and distribution center.......................... Mexico City, Mexico 4,600 1998
Retail and offices....................................... Toronto, Ontario, Canada 5,000 2001
Warehouse................................................ Toronto, Ontario, Canada 2,500 1998
Offices and warehouse.................................... Mississauga, Ontario, Canada 56,000 2004
Retail, offices and warehouse............................ North York, Ontario, Canada 3,500 1999
</TABLE>
The Company believes that its facilities are adequate for its current
needs and that suitable additional space will be available as needed.
ITEM 3. LEGAL MATTERS
A pre-tax charge of $20.7 million was recorded in the third quarter of
1997 for the proposed settlements of the consolidated class action and
derivative lawsuit that arose out of the facts underlying the Company's
announcements in September and October, 1996 that it intended to restate certain
prior financial statements covering years 1992 through 1995. The charge of $20.7
million was comprised of $31.6 million for the settlements of the consolidated
class action and derivative lawsuit including estimated legal fees, offset by
insurance proceeds of $10.9 million. The settlements are contingent upon final
approval by the United States District Court following hearing upon notice to
class participants and, as appropriate, other shareholders.
The settlement of these matters excludes a separate action relating to the
restatement of prior year financial statements brought in the United States
District Court in Connecticut against the Company and certain of its present and
former officers and directors by the State Board of Administration of Florida
covering its purchase of fewer than 60,000 shares. The settlement also excludes
the lawsuit brought by holders of approximately 1.3 million shares of the
Company's stock against the Company and certain of its officers, former officers
and directors in Santa Clara County, California, arising out of the stock merger
between the Company and Inmac Corp. on January 25, 1996. The Company has made no
provision for the outcome or financial impact of these litigations in the
consolidated financial statements.
In addition, the staff of the Securities and Exchange Commission ("SEC") is
conducting a formal investigation into the events underlying the restatement of
prior years financial statements. The Company is cooperating with the SEC in its
investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol MWHS. As of December 31, 1997, the Common Stock was held by
approximately 268 holders of record. The table below sets forth the reported
quarterly high and low sales prices for the Common Stock on the Nasdaq Stock
Market for Fiscal Year 1997 and 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal 1997 High Low
- ------------------------------------------------------------------------------------------------------------
First Quarter $16.50 $ 9.75
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Second Quarter 18.63 12.88
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Third Quarter 30.00 13.00
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Fourth Quarter 24.75 9.88
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Fiscal 1996
- ------------------------------------------------------------------------------------------------------------
First Quarter $51.75 $31.25
- ------------------------------------------------------------------------------------------------------------
Second Quarter 45.25 18.38
- ------------------------------------------------------------------------------------------------------------
Third Quarter 32.75 14.00
- ------------------------------------------------------------------------------------------------------------
Fourth Quarter 27.25 10.75
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has never declared nor paid any cash dividends on its
Common Stock. The Company currently intends to retain future earnings, if any,
for future growth and does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
(In thousands, except per share and operating data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $2,125,698 $1,916,244 $1,684,627 $1,130,796 $789,971
Gross profit 351,976 342,446 323,991 246,678 210,818
Restructuring, merger costs and goodwill write-off 67,828 32,161 -- -- 16,546
Litigation settlements 20,700 -- -- -- --
Income (loss) from operations before interest, income
taxes and extraordinary charge (42,455) 33,093 57,715 41,063 10,858
Income (loss) before income taxes and extraordinary
charge (37,816) 36,601 57,903 40,877 10,255
Extraordinary charge, net of taxes -- 1,584 -- -- --
===============================================================================================================================
Net income (loss) ($36,681) $15,298 $35,244 $24,556 $4,519
===============================================================================================================================
Basic net income (loss) per share (A) ($1.06) $0.45 $1.07 $0.82 $0.17
Diluted net income (loss) per share (A) ($1.06) $0.44 $1.05 $0.80 $0.17
Shares used in per share calculation -
Basic (A) 34,475 34,310 32,940 29,847 26,010
Diluted (A) 34,475 34,793 33,605 30,560 26,423
===============================================================================================================================
Operating Data:
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit percentage 16.6% 17.9% 19.2% 21.8% 26.7%
Operating profit (loss) percentage (2.0%) 1.7% 3.4% 3.6% 1.4%
Current ratio 2.0:1 2.2:1 2.8:1 2.5:1 1.8:1
Balance Sheet Data (at December 31):
- -------------------------------------------------------------------------------------------------------------------------------
Working capital $262,527 $271,530 $298,843 $210,278 $101,804
Total assets 619,344 607,842 554,546 411,876 261,314
Long - term obligations 78 376 20,458 1,497 940
Short-term debt obligations 12,984 40,803 18,888 25,461 28,804
Stockholders' equity 348,789 384,168 364,669 270,862 128,673
===============================================================================================================================
</TABLE>
(A) Amounts reflect the adoption of Statement of Financial Accounting Standards
No. 128, Earnings Per Share.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business
Micro Warehouse, Inc. (the "Company" or "Micro Warehouse") is a specialty
catalog retailer and direct marketer of brand name personal computers, computer
software, accessories, peripheral and networking products to commercial and
consumer customers. The Company markets its products through frequent mailings
of its distinctive, colorful catalogs, Internet catalog and auction web sites
and telemarketing account managers who focus on corporate, education and
government accounts. The Company offers brand name hardware and software from
leading vendors such as Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM,
Iomega, Microsoft, Motorola, and Toshiba.
Through its four core catalogs, MicroWarehouse, MacWarehouse, Data Comm
Warehouse and Inmac, various specialty catalogs and its Internet sites, the
Company offers a broad assortment of more than 30,000 computer products at
competitive prices. With colorful illustrations, concise product descriptions
and relevant technical information, each catalog title focuses on a specific
segment of the computer market. The catalogs are recognized as a leading source
for computer hardware, software and other products. During the year ended
December 31, 1997, the Company distributed approximately 124 million catalogs
worldwide and as of December 31, 1997 the Company had approximately 2.2 million
customers who had purchased products within the last 12 months.
International operations represented 30% of the Company's sales in 1997.
In 1991, the Company established full-service, direct marketing operations in
the United Kingdom. In late 1992, the Company began operations in France and
Germany and in 1993 and 1994 acquired companies or initiated operations in
Sweden, Denmark, Norway, the Netherlands, Belgium, Finland and France. In this
same timeframe, the Company also expanded into the non-European markets of
Japan, Canada and Mexico. In 1995 the Company acquired businesses in the United
Kingdom, Germany, Australia and Switzerland. In 1996 the Company acquired Santa
Clara, California-based Inmac Corp. ("Inmac"). Inmac was a leading international
direct-response marketer of a wide range of personal computer and networking
products with operations in the United States, Canada, France, Germany, the
Netherlands, Sweden and the United Kingdom. In 1996 the Company discontinued its
Macintosh-only operations in Belgium and Switzerland. The Company currently
publishes catalogs in seven countries outside the United States and distributed
approximately 25 million catalogs internationally in the year ended December 31,
1997. See note 12 to notes to consolidated financial statements for information
regarding the Company's operations in different geographic areas.
In November 1996 the Company completed the acquisition of the business of
USA Flex, a Bloomingdale, Illinois direct marketer of IBM PC-compatible
("Wintel") personal computer products. USA Flex had been successful in acquiring
customers and building its business from advertisements placed in domestic
computer publications, particularly Computer Shopper. In July 1997 the Company
acquired Online Interactive Inc. ("OLI"), a Seattle, Washington-based electronic
software reselling business. OLI offered customers the ability to purchase and
download software via the Internet.
In December 1997 the Company announced a major restructuring of its
operations. The restructuring objectives were to simplify the Company's business
worldwide, reduce the Company's cost structure, eliminate certain unprofitable
businesses and concentrate efforts on the productivity of the salesforce and
the continued growth of the Wintel business. In connection with this
restructuring the Company discontinued its Macintosh-dependent operations in
Australia and Japan and completed the sale of three small Macintosh-dependent
operations in Denmark, Norway and Finland. In the United States the Company
consolidated its underperforming businesses, USA Flex and OLI, into the
Company's existing New Jersey and Connecticut facilities. In addition, the
Company reorganized its domestic salesforce. These measures involved eliminating
approximately 600 positions or 14% of the workforce.
The Company maintains a full-service distribution center in Wilmington,
Ohio, totaling approximately 353,000 square feet and telemarketing centers in
Lakewood and Gibbsboro, New Jersey, and South Norwalk, Connecticut. The Company
operates 24 hours a day, seven days a week in the United States. The Company
also operates telemarketing and distribution facilities in the United Kingdom,
France, Germany, Sweden, the Netherlands, Canada and Mexico. The Company's
international operations generally use the same distribution and processing
computer systems and are able to exchange data with domestic operations.
Results of Operations
The table below sets forth certain items expressed as a percent of net
sales for each of the years in the three-year period ended December 31, 1997.
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cost of sales 83.4 82.1 80.8
- -----------------------------------------------------------------------------------------------------------------
Gross profit 16.6 17.9 19.2
Selling, general and administrative expenses 14.4 14.5 15.8
Restructuring costs, merger costs, and goodwill write-off 3.2 1.7 --
Litigation settlements 1.0 -- --
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from operations before interest, income
taxes and extraordinary charge (2.0) 1.7 3.4
Interest income, net .2 .2 --
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge (1.8%) 1.9% 3.4%
=================================================================================================================
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased $209.5 million or 10.9% to $2.126 billion from $1.916
billion in the prior year. Wintel sales increased approximately $268 million or
27.2% compared to 1996, while Macintosh-related sales decreased approximately
$59 million or 6.3%. Wintel sales in 1997 increased in both the domestic and
international markets while the Macintosh business decreased in both markets
compared to 1996. Overall, domestic sales increased 15.7% over 1996 and
international sales increased 1.3%. The increase in sales is in part due to the
increase in the number of catalogs distributed worldwide which increased 3.0% to
124.1 million catalogs and a 2.4% increase in the number of orders.
Additionally, the continued shift in product mix to hardware resulted in an
average order size of $503 in 1997, an increase of 8.4% compared to 1996.
Gross profit increased to $352.0 million in 1997 from $342.4 million in
1996 but decreased as a percentage of net sales to 16.6% in 1997 from 17.9% in
1996. The gross profit percentage declined primarily due to lower margins in
Europe resulting from a higher proportion of hardware sales and on a worldwide
basis due to a continuing shift in product mix to the Wintel business which
typically has lower margins than the Macintosh business. The Company expects
continued pressure on gross profit margins in 1998 due to continued
industry-wide pricing pressures. Also, some manufacturers and distributors
provide the Company with substantial incentives in the form of supplier
reimbursements, price protection and rebates. No assurance can be given that the
Company will continue to receive such incentives in the future.
Selling, general and administrative expenses decreased as a percentage of
net sales to 14.4% from 14.5% in 1996, primarily reflecting a 0.9% decrease in
net advertising costs to 1.3% of net sales from 2.2% of net sales in 1996
partially offset by an increase in headcount in the sales force and most other
areas of the Company.
The 1997 results include pre-tax charges of $67.8 million relating to the
write-off of goodwill ($41.9 million) and restructuring costs ($25.9 million).
These charges were incurred in connection with the closing of the Company's
businesses in Australia and Japan and the sale of its operations in Norway,
Denmark and Finland and the write-off of goodwill in its German business. In
addition, the Company closed its European headquarters in the United Kingdom
reducing certain functions and transferring others to the United Kingdom, other
European business units and the United States. In the United States, the Company
consolidated its USA Flex business from its facility in Bloomingdale, Illinois
and its OLI business from its facility in Seattle, Washington into its New
Jersey and Connecticut facilities and reorganized its sales force. These
measures involved eliminating approximately 600 positions. All of these actions
were completed by early 1998.
The 1997 results also include a pre-tax charge of $20.7 million relating to
the proposed settlements of the consolidated class action and derivative lawsuit
that arose out of the facts underlying the Company's announcements in September
and October, 1996 that it intended to restate certain prior financial statements
covering years 1992 through 1995 (the "Litigation Settlements").
The Company's loss from operations for 1997 was $42.5 million or 2.0% of
net sales compared to income from operations of $33.1 million or 1.7% of net
sales in 1996. Excluding the charges related to the restructuring, goodwill
write-off and the Litigation Settlements, 1997 income from operations would have
been $46.1 million. The 1996 results include pre-tax charges of $32.2 million
relating to the write-off of goodwill and restructuring and merger costs
relating to the 1996 Inmac merger. Income from operations for 1996 excluding
such charges would have been $65.3 million.
Net interest income totaled $4.6 million in 1997 compared to $3.5 million
in 1996. The 1997 and 1996 results included interest income of $1.3 million and
$1.4 million, respectively, on anticipated federal and state tax refunds as a
result of the restatement of prior year financial statements (see note 14 to
notes to consolidated financial statements).
The effective income tax rate for 1997 was a benefit of 3.0% compared to a
provision of 54.9% in 1996 including the extraordinary charge. The 1997 income
tax rate was impacted by valuation allowances recorded on the tax benefits of
certain
11
<PAGE>
restructuring costs and the write-off of goodwill. Excluding these items the
effective tax rate was 47.2%, as compared to 40.7% in 1996, excluding certain
restructuring and merger costs and goodwill write-offs incurred in 1996. The
higher rate is principally due to the absence of a tax benefit on certain
foreign losses.
The Company's net loss for 1997 was $36.7 million compared to net income of
$15.3 million in 1996. Excluding the charges related to the restructuring,
goodwill write-offs, the Litigation Settlements, merger costs and extraordinary
charge, net income for 1997 would have been $28.5 million or $0.83 per share
(basic and diluted) as compared to $40.9 million or $1.19 and $1.18 per share
(basic and diluted, respectively) in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased $231.6 million or 13.7% to $1.916 billion from $1.685
billion in the prior year. Wintel sales increased $187.1 million or 23.4%
compared to 1995, while Macintosh-related sales increased $44.5 million or 5.0%.
Wintel sales in 1996 increased in both the domestic and international markets
while the Macintosh business experienced domestic growth, but decreased in the
international market compared to 1995. Overall, domestic sales increased 17.4%
over 1995 and international sales increased 6.3%. The increase in sales is in
part due to the increase in the number of catalogs distributed worldwide which
increased 17.4% to 120.5 million catalogs. Additionally, the continued shift in
product mix to hardware resulted in an average order size of $464 in 1996, an
increase of 12.2% compared to 1995.
Gross profit increased to $342.4 million in 1996 from $324.0 million in
1995, but decreased as a percentage of net sales to 17.9% in 1996 from 19.2% in
1995. The gross profit percentage declined primarily due to heightened
competitive pressures and change of product mix in the Inmac portion of the
Wintel business and increased competitive pressures in the Macintosh business.
Additionally, across all businesses there was a continuation of product mix
shift towards hardware with typically lower margins.
Selling, general and administrative expenses decreased as a percentage of
net sales to 14.5% from 15.8% in 1995, primarily reflecting the integration of
the Inmac business.
Income from operations for 1996 was $33.1 million or 1.7% of net sales
compared to $57.7 million or 3.4% of net sales in 1995. The 1996 results include
costs associated with the Inmac restructuring and merger charges of $20.1
million and $6.1 million, respectively, and a write-off of $6.0 million for
international Macintosh-related goodwill. Operating income for 1996 excluding
these costs would have been $65.3 million or 3.4% of net sales.
Net interest income totaled $3.5 million in 1996 compared to $0.2 million
in 1995. The 1996 results included interest income of $1.4 million on
anticipated federal and state tax refunds as a result of the restatement of
prior year financial statements.
Net income for 1996 was $15.3 million compared to $35.2 million in 1995.
Excluding the charges related to the restructuring, merger costs and
extraordinary charge, net income for 1996 would have been $40.9 million or $1.19
and $1.18 per share (basic and diluted, respectively) compared to $35.2 million
or $1.07 and $1.05 per share (basic and diluted, respectively) for 1995.
Liquidity and Capital Resources
Cash and marketable securities were $78.9 million at December 31, 1997
compared to $52.3 million at December 31, 1996. The increase of $26.6 million
was due primarily to improved inventory and accounts payable management.
Inventory decreased $30.6 million to $170.5 million at year end 1997 from
$201.1 million at year end 1996. Accounts receivable increased $13.8 million
from a year ago, reflecting the shift to more commercial as opposed to consumer
customers. Current liabilities include $16.1 million (net of expected insurance
recovery) related to the Litigation Settlements, of which up to $9.0 million, at
the Company's option, may be paid in the form of common stock. Overall, working
capital decreased $9.0 million from 1996 to 1997.
Capital expenditures for 1997 and 1996 were $16.5 million and $11.2
million, respectively, primarily for computer equipment and leasehold
improvements. The Company anticipates that future growth will require continued
investment in its computer systems and distribution facilities. Capital
expenditures during 1998 are expected to be approximately $20.0 million.
At December 31, 1997, the Company had a multi-currency revolving credit
facility of $75.0 million which reduces by an aggregate of $20.0 million at the
rate of $6.7 million on each of June 30, September 30, and December 31, 1998.
This facility expires on June 30, 1999. The facility is used for general
corporate and working capital purposes for the Company's domestic and certain of
the Company's foreign subsidiaries. Total borrowings at December 31, 1997 under
this multi-currency agreement were $12.6 million. Additionally, at December 31,
1997 the Company had unused lines of credit in the United Kingdom and France
which provide for unsecured borrowings up to 2.0 million British pounds ($3.3
million at December 31, 1997 exchange rate) and 45 million
12
<PAGE>
French francs ($7.5 million at December 31, 1997 exchange rate), respectively,
for working capital purposes.
The Company is utilizing forward exchange contracts to manage exposure to
foreign currency risk related to intercompany loans and investments in its
foreign subsidiaries. Outstanding agreements involve the exchange of one
currency for another at a fixed rate. The Company's credit exposure is limited
to the replacement cost, if any, of the instruments and the Company only enters
into such agreements with highly-rated counterparties. The Company matches the
term and notional amount of the contracts to the underlying intercompany loans
or investments and does not enter into forward exchange contracts for trading or
speculative purposes. At December 31, 1997 the Company had outstanding forward
exchange contracts of $27.1 million which mature in six months or less. The
single largest currency represented was the British pound.
The Company believes that its existing cash reserves, expected cash flow
from operations and existing credit facilities will be sufficient to satisfy its
operating cash needs for at least the next 12 months.
Impact of Inflation and Seasonality
Customer response rates are subject to variations. The first and last
quarters of the year generally have higher response rates while the two middle
quarters typically have lower response rates. The slower quarters are impacted
by the summer months, particularly in Europe. The Company does not believe that
inflation has had a material effect on the Company's sales during recent years.
Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
The Company will be required to implement SFAS No. 130 in 1998.
Also, in June 1997 the FASB issued SFAS No. 131, " Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the manner in which public companies report information about
operating segments in annual and interim financial statements. The Company is
currently evaluating the operating segment information that it will be required
to report. The Company will be required to implement SFAS No. 131 in 1998.
Year 2000 Compliant Information Systems
The Company uses software and related technologies throughout its business
that will be affected by the Year 2000 problem common to most businesses
concerning the inability of information systems, primarily computer software
programs, to properly recognize and process date sensitive information as the
year 2000 approaches. The Company is evaluating its software operating systems
to improve its operations and achieve Year 2000 compliance. As a result, the
Company will modify certain of its software operating systems and is in the
process of replacing its financial software systems. The Company is presently in
the process of finalizing its estimates with respect to such costs and expects
that such costs will not be material to the Company's results of operations.
System maintenance and software modification costs will be expensed as incurred
while the costs of new software will be capitalized and amortized over the
software's expected useful life.
Outlook
Apple Computer, Inc. ("Apple") experienced considerable management and
financial turmoil throughout 1997. By the end of 1997 the Apple "clone" market
had essentially disappeared. Apple also announced more restrictive price
protection and other terms for 1998. These and other changes in the Macintosh
environment will contribute to continued pressure on the Company's gross profit
margins in 1998. Apple has begun reducing the level of advertising allowances
and incentives available to resellers and has significantly restricted the
number of authorized resellers of its products. Apple has also commenced direct
competition with the Company and other resellers on the Internet. In addition to
the continuing impact of these matters, other ongoing uncertainties concerning
Apple may adversely affect the Company's worldwide Macintosh-related sales.
Some Wintel manufacturers and distributors have historically provided the
Company with incentives in the form of supplier reimbursements, price protection
payments and rebates. The increasingly competitive Wintel environment between
and amongst computer hardware manufacturers has already resulted in reduction
and/or elimination of some of these incentive programs. Additionally, the return
rights historically offered by manufacturers have become more limited during the
second half of 1997 and it
13
<PAGE>
is likely that such limitations and reduced incentive payment levels will
continue into 1998. Manufacturers are also taking steps to reduce their
inventory exposure by supporting "build to order" programs in which distributors
and resellers are being authorized and, in some instances, required to directly
manufacture computer hardware. This trend is part of an overall effort by
manufacturers to reduce their costs and shift the burden of inventory risk to
resellers like the Company.
In December 1997 the Company commenced a major restructuring of its
operations. The objectives were to simplify the business worldwide, reduce the
cost structure, eliminate certain unprofitable businesses and concentrate
efforts on the productivity of the salesforce and the continued growth of the
Wintel business. In connection with this restructuring, the Company discontinued
its Macintosh-dependent international operations in Australia and Japan and
completed the sale of three small Macintosh-dependent operations in Denmark,
Norway and Finland. In the United States the Company consolidated its
underperforming businesses, USA Flex and OLI, into the Company's existing New
Jersey and Connecticut facilities. In addition, the Company reorganized its
domestic salesforce. These measures involved eliminating approximately 600
positions or 14% of the workforce. The Company believes that its future success
depends, in part, on its ability to improve the skills and productivity of its
salesforce, improve the performance of the European businesses and reduce the
Company's SG&A expense as a percent of sales.
Information Concerning Forward-Looking Statements
With the exception of the historical information contained in this
report, the matters described herein contain forward-looking statements that
involve risks and uncertainties including but not limited to economic,
competitive, governmental, technological and litigation factors outside of the
control of the Company. These factors more specifically include: uncertainties
attributable to Internet commerce generally; uncertainties surrounding the
electronic software reselling business attributable to technological and
commercial issues; uncertainties surrounding the demand for and supply of
products manufactured by and compatible with those of Apple products;
competition from other catalog, retail store, on-line and other resellers of
computer products; issues surrounding the Company's European businesses;
uncertainties surrounding the implementation of programs and activities
described in the Company's December 1997 announced restructuring; and the
ultimate outcome of the not yet settled litigation proceedings and SEC formal
investigation brought in connection with the Company's reported accounting
errors. These and other factors are described generally and most specifically in
the paragraphs in this section captioned "Liquidity and Capital Resources,"
"Impact of Inflation and Seasonality", and "Outlook". Forward-looking statements
are typically identified by the words "believe," "expect," "anticipate,"
"intend," "estimate," and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
their dates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements.
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
The information required by this item appears in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to
be held on June 4, 1998 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to
be held on June 4, 1998 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to
be held on June 4, 1998 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
14
<PAGE>
The information required by this item appears in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to
be held on June 4, 1998 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a)(1) Consolidated Financial Statements:
The following consolidated financial statements are filed as part of
this report:
Responsibility for Financial Statements and Independent Auditors'
Report
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity as of and for the years
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(a)(2) Consolidated Financial Statement Schedule:
The following Consolidated Financial Statement Schedule of the Company
as set forth below is filed with this report:
Schedule II Valuation and Qualifying Accounts
Independent Auditors' Report on Consolidated Financial Statement
Schedule
Consolidated Financial Statement Schedules other than the one listed
above are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto.
(a)(3) Exhibits
See Exhibit Index for exhibits filed with this report on Form 10-K.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K pursuant to Item 5 therein on
September 4, 1997 to report that it had reached a tentative
settlement of the consolidated securities class action lawsuit
pending in the U.S. District Court for the District of
Connecticut.
2. The Company filed a Form 8-K pursuant to Item 5 therein on
October 27, 1997 to report that Linwood A. Lacy, Jr. had
resigned as President and Chief Executive Officer and that
Peter Godfrey, Chairman of the Board of Directors of the
Company, had been appointed to those positions.
3. The Company filed a Form 8-K pursuant to Item 5 therein on
December 12, 1997 to report a restructuring of its operations.
Such restructuring included the closing of operations in
Australia and Japan, the sale of operations in Norway,
Denmark and Finland, the closing of the Company's European
headquarters and the consolidation of the Company's USA Flex
and Online Interactive businesses to existing Company
facilities in New Jersey and Connecticut.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICRO WAREHOUSE, INC.
By: /s/ Peter Godfrey
----------------------------------
Peter Godfrey
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Peter Godfrey and Bruce L. Lev, or either of them, his attorneys-in-fact, with
the power of substitution, for him in any and all capacities, to sign any
amendments to this report on Form 10-K for the year ended December 31, 1997, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K for the year ended December 31, 1997 has been signed
below by the following persons on behalf of the Company and in the capacities
and on the dates indicated.
Name Title Date
- ---- ----- ----
Peter Godfrey /s/ Peter Godfrey March 30,1998
-------------------------------
Chairman, Chief Executive
Officer and President
Felix Dennis /s/ Felix Dennis March 30,1998
-------------------------------
Director
Frederick H. Fruitman /s/ Frederick H. Fruitman March 30,1998
-------------------------------
Director
Joseph M. Walsh /s/ Joseph M. Walsh March 30,1998
-------------------------------
Director
Wayne P. Garten /s/ Wayne P. Garten March 30,1998
-------------------------------
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
16
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Responsibility for Financial Statements and Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996. F-3
Consolidated Statements of Operations for the years ended December 31, F-4
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity as of and for the years
ended December 31, 1997, 1996 and 1995. F-5
Consolidated Statements of Cash flows for the years ended F-6
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Responsibility for Financial Statements
and Independent Auditors' Report
Micro Warehouse, Inc.
Management Responsibility for Financial Statements
The financial data in this report, including the audited financial
statements, have been prepared by management using the best available
information and applying judgment. Accounting principles used in preparing the
financial statements are those that are generally accepted in the United States.
In meeting our responsibility for the integrity of the financial statements
we maintain a system of internal controls designed to provide reasonable
assurance that assets are safeguarded, transactions are executed in accordance
with management's authorization and accounting records provide a reliable basis
for the preparation of the financial statements. Management has also established
a formal Business Code of Ethics which is distributed throughout the Company. We
acknowledge our responsibility to establish and preserve an environment in which
all employees properly understand the fundamental importance of high ethical
standards in the conduct of our business.
Our independent auditors are engaged to audit and to render an opinion on
the fairness in all material respects of our consolidated financial statements
presented in conformity with generally accepted accounting principles. In
performing their audit in accordance with generally accepted auditing standards,
they evaluate the effectiveness of our internal accounting control systems,
review selected transactions and carry out other auditing procedures to the
extent they consider necessary in expressing their opinion on our financial
statements.
The Audit Committee of the Board of Directors meets with management,
internal audit and our independent auditors to review accounting, auditing and
financial matters. Our Audit Committee is composed of only outside directors.
This committee and the independent auditors have free access to each other with
or without management being present.
Peter Godfrey Wayne P. Garten
President, Chief Executive Officer and Executive Vice President and
Chairman of the Board Chief Financial Officer
Independent Auditors' Report
KPMG Peat Marwick LLP
The Board of Directors and Stockholders of Micro Warehouse, Inc.:
We have audited the accompanying consolidated balance sheets of Micro
Warehouse, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of
Micro Warehouse, 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.
Stamford, Connecticut
February 18, 1998
F-2
<PAGE>
Consolidated Balance Sheets
Micro Warehouse, Inc.
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 58,051 $ 32,234
Marketable securities at market value 20,817 20,022
Accounts receivable, net of allowance for doubtful accounts ($13,399
and $10,876 at December 31, 1997 and 1996, respectively) 217,475 203,687
Inventories 170,543 201,119
Prepaid expenses and other current assets 11,763 17,886
Tax refunds 23,452 16,433
Deferred taxes 30,903 3,447
- -----------------------------------------------------------------------------------------------------------
Total current assets 533,004 494,828
- -----------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 32,416 29,712
Goodwill, net 45,744 66,291
Non-current deferred taxes 5,850 14,443
Other assets 2,330 2,568
- -----------------------------------------------------------------------------------------------------------
Total assets $ 619,344 $ 607,842
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 168,886 $ 127,723
Accrued expenses 66,563 52,445
Accrued litigation settlements 16,100 --
Deferred revenue 5,944 2,327
Loans payable, bank 12,570 40,505
Equipment obligations 414 298
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 270,477 223,298
Equipment obligations 78 376
- -----------------------------------------------------------------------------------------------------------
Total liabilities 270,555 223,674
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized - 100 shares; none issued -- --
Series A Junior Participating Preferred Stock, $.01 par value:
Authorized - 10 shares; none issued -- --
Common stock, $.01 par value:
Authorized - 100,000 shares; issued and outstanding: 34,639 and 34,359
shares at December 31, 1997 and 1996, respectively 346 343
Additional paid-in capital 282,865 271,183
Deferred compensation (4,413) --
Loan to former officer -- (1,400)
Retained earnings 80,390 117,071
Cumulative translation adjustment (10,403) (3,047)
Valuation adjustment for marketable securities 4 18
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 348,789 384,168
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 619,344 $ 607,842
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Consolidated Statements of Operations
Micro Warehouse, Inc.
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,125,698 $ 1,916,244 $ 1,684,627
Cost of goods sold 1,773,722 1,573,798 1,360,636
- ------------------------------------------------------------------------------------------------------------
Gross profit 351,976 342,446 323,991
Selling, general and administrative expenses 305,903 277,192 266,276
Write-off of goodwill 41,907 5,977 --
Restructuring costs 25,921 20,071 --
Merger costs -- 6,113 --
Provision for settlement of class action and derivative
litigation 20,700 -- --
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations before interest,income taxes and
extraordinary charge (42,455) 33,093 57,715
Interest income 6,408 5,717 4,348
Interest expense (1,769) (2,209) (4,160)
- ------------------------------------------------------------------------------------------------------------
Interest income, net 4,639 3,508 188
- ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge (37,816) 36,601 57,903
Income tax provision (benefit) (1,135) 19,719 22,659
- ------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (36,681) 16,882 35,244
Extraordinary charge, net of taxes of $1,078 -- 1,584 --
- ------------------------------------------------------------------------------------------------------------
Net income (loss) ($ 36,681) $ 15,298 $ 35,244
============================================================================================================
Basic net income (loss) per share ($ 1.06) $ 0.45 $ 1.07
Basic net income (loss) per share before extraordinary charge ($ 1.06) $ 0.49 $ 1.07
Diluted net income (loss) per share ($ 1.06) $ 0.44 $ 1.05
Diluted net income (loss) per share before extraordinary charge ($ 1.06) $ 0.49 $ 1.05
- ------------------------------------------------------------------------------------------------------------
Shares used in per share calculation -
Basic 34,475 34,310 32,940
Diluted 34,475 34,793 33,605
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Consolidated Statements of Stockholders' Equity
Micro Warehouse, Inc.
<TABLE>
<CAPTION>
Valuation
Additional Loan to Cumulative Adjustment
Common Stock Paid-in Deferred Former Retained Translation Marketable
(In thousands) Shares Amount Capital Compensation Officer Earnings Adjustment Securities Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 32,417 $324 $208,008 $ -- $ -- $66,529 ($3,549) ($450) $270,862
====================================================================================================================================
Net income -- -- -- -- -- 35,244 -- -- 35,244
Common stock offering 1,200 12 50,799 -- -- -- -- -- 50,811
Common stock issued pursuant
to stock options exercised 315 3 4,148 -- -- -- -- -- 4,151
Common stock issued pursuant
to acquisitions 26 -- 1,150 -- -- -- -- -- 1,150
Retirement of treasury shares (14) -- (469) -- -- -- -- -- (469)
Foreign currency translation
adjustment -- -- -- -- -- -- 2,516 -- 2,516
Valuation adjustment for
marketable securities -- -- -- -- -- -- -- 404 404
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 33,944 339 263,636 -- -- 101,773 (1,033) (46) 364,669
====================================================================================================================================
Net income -- -- -- -- -- 15,298 -- -- 15,298
Common stock issued pursuant
to stock awards, stock
options and warrants
exercised 415 4 5,807 -- -- -- -- -- 5,811
Loan to former officer -- -- 1,400 -- (1,400) -- -- -- --
Deferred compensation -- -- 340 -- -- -- -- -- 340
Foreign currency translation
adjustment -- -- -- -- -- -- (2,014) -- (2,014)
Valuation adjustment for
marketable securities -- -- -- -- -- -- -- 64 64
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 34,359 343 271,183 -- (1,400) 117,071 (3,047) 18 384,168
====================================================================================================================================
Net (loss) -- -- -- -- -- (36,681) -- -- (36,681)
Common stock issued pursuant
to stock options exercised 280 3 6,256 -- -- -- -- -- 6,259
Loan to former officer -- -- (775) -- 1,400 -- -- -- 625
Deferred compensation -- -- 6,201 (4,413) -- -- -- -- 1,788
Foreign currency translation
adjustment -- -- -- -- -- -- (7,356) -- (7,356)
Valuation adjustment for
marketable securities -- -- -- -- -- -- -- (14) (14)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 34,639 $346 $282,865 ($4,413) $ -- $80,390 ($10,403) $ 4 $348,789
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Consolidated Statements of Cash Flows
Representing Increases (Decreases) in Cash and Cash Equivalents
Micro Warehouse, Inc.
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 36,681) $ 15,298 $ 35,244
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 16,160 12,340 12,191
Write-off of goodwill 41,907 5,977 --
Restructuring costs - non-cash portion 11,853 3,457 --
Litigation settlements 20,700 -- --
Non-cash compensation 1,788 421 --
Deferred taxes (19,062) (4,389) (3,973)
Extraordinary charge -- 1,900 --
Changes in assets and liabilities:
Accounts receivable, net (23,069) (24,662) (33,508)
Inventories 26,576 (55,530) (28,048)
Prepaid expenses and other current assets 1,853 10,781 (7,830)
Tax refunds (7,196) (3,710) (11,993)
Other assets (199) 1,119 (469)
Accounts payable 38,936 15,447 29,245
Accrued expenses 6,607 14,677 2,352
Deferred revenue 3,619 (2,249) 148
Other (38) (473) 468
- ----------------------------------------------------------------------------------------------------
Total adjustments 120,435 (24,894) (41,417)
- ----------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 83,754 (9,596) (6,173)
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (16,518) (11,172) (13,774)
Purchases of businesses, represented by:
Goodwill (20,883) (28,986) (20,327)
Net liabilities (assets) 654 (5,836) (4,954)
Proceeds from sale of equipment 147 576 162
Sales (purchases) of marketable securities, net (809) 622 24,028
- ----------------------------------------------------------------------------------------------------
Net cash used by investing activities (37,409) (44,796) (14,865)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 6,259 5,811 54,962
Purchase of treasury stock -- -- (469)
Borrowings under (repayments of) lines of credit, net (24,467) 22,037 (7,708)
Borrowing (repayment) of notes payable -- (21,900) 20,000
Principal payments of obligations under capital leases (218) (378) (942)
- ----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (18,426) 5,570 65,843
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (2,102) (558) 802
- ----------------------------------------------------------------------------------------------------
Net change in cash 25,817 (49,380) 45,607
Cash and cash equivalents:
Beginning of year 32,234 81,614 36,007
- ----------------------------------------------------------------------------------------------------
End of year $ 58,051 $ 32,234 $ 81,614
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Notes to Consolidated Financial Statements
Micro Warehouse, Inc.
(Amounts in thousands, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include Micro Warehouse, Inc. and
its subsidiaries (the "Company"), which are all wholly-owned. All significant
inter-company accounts and transactions are eliminated in consolidation. Certain
reclassifications have been made to conform prior years to the 1997
presentation.
Cash Equivalents
All repurchase agreements, money market funds and highly liquid
investments with initial maturities of three months or less are considered cash
equivalents.
Marketable Securities
Marketable securities consist primarily of highly liquid tax exempt
municipal bonds which all have maturity dates less than one year. All
investments are classified as available-for-sale and are reported at fair market
value with net unrealized gains and losses included in equity. For all
investment securities, unrealized losses that are other than temporary are
recognized in earnings. As of December 31, 1997 unrealized gains were $4 and
there were no unrealized losses.
Inventories
Inventories (substantially all finished goods) consist of computer
hardware, software and peripheral equipment, and are stated at cost (determined
under the first-in, first-out cost method) or market, whichever is lower.
Prepaid Catalog Costs and Deferred Revenue
The costs of producing and distributing catalogs are deferred and
charged to expense over the period that each catalog remains the most current
selling vehicle (generally one to two months). Vendors have the ability to place
advertisements in the catalogs for which the Company receives advertising
allowances and incentives. These revenues are recognized on the same basis as
the catalog costs.
Property, Plant and Equipment
Property, plant and equipment (including equipment acquired under
capital leases) are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, as follows:
Computer equipment 3-5 years
Furniture and fixtures 7 years
Leasehold improvements Life of lease or 7 years
Machinery and equipment 7 years
Intangible Assets
Intangible assets are stated at cost and are amortized using the
straight-line method over the estimated useful lives of the assets, as follows:
Trademarks 5 years
Goodwill 40 years
Income Taxes
Deferred income 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. A valuation allowance is used
to reduce the carrying amount of deferred tax assets which may not be realized.
Revenue Recognition
Revenue on product sales is recognized at the time of shipment. A
reserve for product returns is established based upon historical trends.
F-7
<PAGE>
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into
United States dollars at the exchange rate in effect at the balance sheet date
or at historical rates, as applicable. Revenue and expenses are translated at
average rates in effect during the period. The resultant translation adjustment
is reflected as a separate component of Stockholders' Equity on the balance
sheet.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the amounts reported in the
accompanying financial statements. Actual results could differ from those
estimates.
Net Income Per Share
In the fourth quarter of 1997 the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 establishes standards for computing and presenting earnings per share and
replaces the presentation of primary and fully diluted earnings per share with a
presentation of basic and diluted earnings per share. The impact of this change
was not significant. Diluted earnings per share reflects the potential dilution
that could occur if outstanding common stock options were exercised. The
dilutive effect of such options to weighted average shares outstanding was 483
and 665 in 1996 and 1995, respectively. Potentially dilutive shares of 191 in
1997 were not reflected in the calculation of diluted earnings per share since
such amounts were antidilutive as a result of the net loss for the year.
Long-Lived Assets
The Company periodically evaluates the carrying value of intangibles
and the related periods of amortization to determine whether events and
circumstances warrant revised estimates of asset value or useful lives. The
Company annually assesses the recoverability of goodwill by determining whether
the amortization of the balance over its remaining life can be recovered through
projected undiscounted future operating cash flows. Evaluations of asset value
as well as periods of amortization are performed on a disaggregated basis by
distinct geographic market.
Stock-Based Compensation
On January 1, 1996 the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, and elected thereunder to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 (see note 11). As such, compensation expense is recorded only if
the current market price of the Company's stock on the date of grant (or
measurement date, if later) exceeds the exercise price.
Unaudited Condensed Quarterly Data
In the opinion of management, the unaudited condensed quarterly
financial data in note 13 reflect all adjustments which are necessary for a fair
statement of the results of operations for the periods presented.
NOTE 2. BUSINESS COMBINATIONS
In July 1997 the Company acquired the business of Online Interactive,
Inc., a Seattle, Washington-based electronic reseller of software ("OLI") in a
business combination accounted for as a purchase. The total cost of the
acquisition was $16,400 which exceeded the fair value of the net assets by
$17,066.
In February 1997 the Company acquired two businesses, one with
operations in Canada and one with operations in Australia. These acquisitions
were accounted for as purchases. The total cost of the acquisitions was $3,829
which exceeded the fair value of the net assets acquired by $3,817.
In October 1996 the Company acquired the business of USA Flex in a
business combination accounted for as a purchase. USA Flex directly markets IBM
PC-compatible ("Wintel") computers and peripherals. The total cost of the
acquisition was $26,762 which exceeded the fair value of the net assets acquired
by $22,053.
In January 1996, the Company acquired Inmac Corp. ("Inmac") through an
exchange of 3,034 of its shares for all of Inmac's 10,817 shares in a
transaction accounted for as a pooling of interests. Inmac, a leading
international direct-response marketer of multi-vendor products for the computer
desktop and networking industries, had operations in the United States, United
Kingdom, Canada, France, Germany, the Netherlands and Sweden. Under pooling of
interests accounting, all of the Company's consolidated financial statements as
of and for periods prior to the acquisition of Inmac have been restated to
reflect Inmac and the Company on a combined basis. In connection with the
transaction, the Company recorded (i) $20,071 of restructuring charges,
F-8
<PAGE>
primarily for personnel and facilities matters; (ii) $6,113 for merger costs;
and (iii) an extraordinary charge of $1,584 (net of tax benefit of $1,078)
related to a mandatory prepayment to extinguish certain Inmac indebtedness.
During 1996 the Company also acquired two businesses, one with
operations in Finland and one with operations in the United States. These
acquisitions were accounted for as purchases. The aggregate purchase price and
goodwill were $7,411 and $6,284, respectively.
During 1995, the Company acquired eight businesses with operations in
the United Kingdom, Australia, Germany, Switzerland and the United States. These
acquisitions were accounted for as purchases. The aggregate purchase price was
comprised of approximately $24,229 in cash and 26 common shares with an average
market value of approximately $44.00 per share. The aggregate goodwill was
$20,425.
In connection with the December 11, 1997 announced restructuring plan,
the goodwill related to the USA Flex, OLI, Norway, Finland, Germany and
Australia businesses were written-off (see note 3).
NOTE 3. RESTRUCTURING AND GOODWILL WRITE-OFFS
On December 11, 1997, the Company announced a restructuring of its
operations (the "Restructuring"). The objectives of the Restructuring are to
simplify the business worldwide, reduce the cost structure, increase
productivity of the salesforce and eliminate certain non-core businesses
currently operating at a loss. The Restructuring involved the closing of its
businesses in Australia and Japan, the sale of its operations in Norway, Denmark
and Finland and the write-off of its goodwill of its German business. In
addition, the Company closed its European headquarters in the United Kingdom
reducing certain functions and transferring others to the United Kingdom
operation, other European business units and the United States. In the United
States, the Company consolidated its USA Flex business from its facility in
Bloomingdale, Illinois to existing facilities in New Jersey and wrote-off all of
the goodwill associated with this business. The Company also closed its OLI
facility and wrote-off the related goodwill. In addition, the Company
reorganized its domestic salesforce. In connection with the Restructuring,
approximately 600 positions were eliminated. These restructuring activities will
be substantially completed in early 1998.
As a result of the Restructuring, the Company recorded a pre-tax charge
of $67,828. The charge was comprised of goodwill write-offs of $41,907 (see note
6), severance costs of $10,314 and $15,607 of other costs including lease
terminations, moving and asset write-downs. Substantially all of such severance
and other costs were paid in early 1998. In 1997, the operations intended for
closing or sale had revenues of approximately $59,000 and operating losses of
approximately $5,000.
In connection with the merger with Inmac during 1996, the Company
initiated a restructuring plan to reduce costs and increase future operating
efficiencies by eliminating excess operations and facilities acquired in the
Inmac acquisition. The closing of the facilities was completed during the first
half of 1997. As a result, the Company recorded restructuring costs of $20,071
in 1996.
In connection with the Inmac restructuring, approximately 493 employees
associated with the facilities closed were terminated. Estimated employee
termination costs of $10,886 were accrued in 1996 and paid in 1996 and 1997. In
addition to the cost of terminating employees, the principal costs of the Inmac
restructuring included the write-off of fixed assets and lease terminations.
Estimated charges of $2,983 for asset write downs, $3,952 for lease terminations
and $2,250 of other costs were accrued in 1996 and paid in 1996 and 1997.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
1997 1996
- --------------------------------------------------------------------------
Computer equipment $48,427 $40,123
Furniture and fixtures 14,005 11,730
Leasehold improvements 10,024 8,408
Machinery and equipment 8,687 8,933
- --------------------------------------------------------------------------
81,143 69,194
Less accumulated depreciation and amortization 48,727 39,482
- --------------------------------------------------------------------------
$32,416 $29,712
==========================================================================
F-9
<PAGE>
NOTE 5. BORROWING ARRANGEMENTS
Lines of Credit
The Company has a $75,000 unsecured multi-currency revolving credit
facility permitting borrowing by the Company and certain of its foreign
subsidiaries. The facility reduces by an aggregate of $20,000 at the rate of
$6,667 on each of June 30, September 30, and December 31, 1998 and expires on
June 30, 1999. The balance outstanding was $12,570 and $40,505 at December 31,
1997 and 1996, respectively. The facility provides for borrowing with interest
at the bank's prime rate or LIBOR (or its foreign currency equivalent) plus
0.50%-1.25%, based on the ratio of debt to earnings before interest and taxes.
The weighted average interest rate was approximately 5.8% and 5.5% for loans
outstanding as of December 31, 1997 and 1996, respectively. Commitment fees were
not significant.
At December 31, 1997 the Company had unused lines of credit in the United
Kingdom and France, which provide for unsecured borrowings up to 2,000 British
pounds ($3,286 at December 31, 1997 currency exchange rate) and 45,000 French
francs ($7,476 at December 31, 1997 currency exchange rate), respectively, for
working capital purposes.
At December 31, 1996 the Company had a $10,000 unused line of credit in the
United States that expired in 1997. At December 31, 1996 the Company also had a
1,800 British pounds ($3,082 at December 31, 1996 currency exchange rate) unused
line of credit in the United Kingdom.
Inmac Borrowings
During 1996 as a result of the merger with the Company all Inmac borrowings
were repaid. An extraordinary charge of $1,584 after-tax ($2,662 pre-tax) was
recorded for fees and penalties arising from the early extinguishment of such
borrowings.
Hedging
The Company utilizes forward exchange contracts to manage exposure to
foreign currency risk related to intercompany loans and investments in its
foreign subsidiaries. Outstanding agreements involve the exchange of one
currency for another at a fixed rate. The Company's credit exposure is limited
to the replacement cost, if any, of the instruments and the Company only enters
into such agreements with highly rated counterparties. The Company matches the
term and notional amount of the contracts to the underlying intercompany loans
or investments and does not enter into forward exchange contracts for trading or
speculative purposes. Gains and losses on such contracts are charged or credited
to cumulative translation adjustment.
At December 31, 1997 the Company had outstanding forward exchange contracts
in notional amounts of $27,095 (fair value of $27,123) which mature in six
months or less. The single largest currency represented was the British pound.
NOTE 6. GOODWILL
Amounts consist of:
1997 1996
- --------------------------------------------------------------------------------
Goodwill $49,316 $68,961
Less: Amortization 3,572 2,670
- --------------------------------------------------------------------------------
$45,744 $66,291
================================================================================
During 1997 in connection with the Restructuring (see note 3) the Company
recorded a charge for goodwill write-offs of $41,907 related to the sale or
closing of its businesses in Norway, Finland and Australia, and the diminution
in value of the goodwill associated with the USA Flex, OLI and German
businesses. In 1996 due to the uncertainties in the Macintosh marketplace, the
Company re-evaluated the carrying value of goodwill in its Macintosh-only
subsidiaries in Australia, Denmark, Mexico and Switzerland. As a result of that
re-evaluation in 1996, the Company recorded a charge of $5,977, which
represented all the goodwill related to these subsidiaries.
NOTE 7. ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1996 include approximately $7,335
and $11,882 respectively, of accrued catalog costs and $21,498 and $2,343
respectively, of accrued restructuring costs.
F-10
<PAGE>
NOTE 8. COMMITMENTS
Leases
The Company rents certain office facilities from related parties, occupies
office and warehouse space, and rents equipment under various operating leases
with independent parties which provide for minimum annual rentals.
Future minimum annual rentals at December 31, 1997 were as follows:
Related
Total Party
- --------------------------------------------------------------------------------
1998 $8,250 $312
1999 4,930 --
2000 3,932 --
2001 2,956 --
2002 and after 2,401 --
- --------------------------------------------------------------------------------
Total 22,469 $312
- --------------------------------------------------------------------------------
Rent expense was as follows:
Related
Total Party
- --------------------------------------------------------------------------------
Year ended December 31, 1997 $10,444 $312
Year ended December 31, 1996 8,774 312
Year ended December 31, 1995 12,593 354
NOTE 9. INCOME TAXES
The provision (benefit) for income taxes was:
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Current
Federal $ 16,254 $ 23,012 $ 18,005
State 1,195 1,920 2,086
Foreign 478 (1,902) 6,541
- --------------------------------------------------------------------------------
17,927 23,030 26,632
Deferred
Federal (16,155) (1,537) (2,473)
State (1,195) (202) 181
Foreign (1,712) (2,650) (1,681)
- --------------------------------------------------------------------------------
(19,062) (4,389) (3,973)
- --------------------------------------------------------------------------------
Total ($ 1,135) $ 18,641 $ 22,659
================================================================================
The following table accounts for the difference between the actual tax
provision (benefit) and the amounts obtained by applying the statutory United
States Federal income tax rate of 35% to income (loss) before taxes.
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Statutory federal tax rate (35.0%) 35.0% 35.0%
State income taxes net of Federal benefit -- 3.3 2.5
Tax-exempt interest income (0.7) (0.7) (0.6)
Non-deductible restructuring and merger costs 11.0 6.3 --
Goodwill amortization and write-off 8.9 7.9 0.5
Foreign rate difference and unused foreign losses 10.6 4.4 3.5
Other, net 2.2 (1.3) (1.8)
- --------------------------------------------------------------------------------
Effective tax rate (3.0%) 54.9% 39.1%
================================================================================
F-11
<PAGE>
The United States and foreign components of income (loss) before income
taxes were:
United States Foreign
- --------------------------------------------------------------------------------
Year ended December 31, 1997 ($11,299) ($26,517)
Year ended December 31, 1996 52,255 (18,316)
Year ended December 31, 1995 49,494 8,409
Taxes have not been provided for undistributed earnings of foreign
subsidiaries since the Company presently intends to continue to reinvest these
earnings.
Components of the net deferred tax asset relate to:
December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets
Accounts receivable reserve $ 3,259 $ 2,091 $ 1,564
Inventory reserve 2,503 2,002 1,394
Restructuring reserve 12,489 -- --
Accrued expenses 3,169 3,346 609
Inventory capitalization 970 1,066 431
Litigation settlement reserve 7,351 -- --
Other 1,965 2,673 1,267
Alternative minimum tax credit carryforward 648 648 648
Tax loss carryforwards 20,769 18,970 16,752
- --------------------------------------------------------------------------------
53,123 30,796 22,665
Valuation allowance for tax loss carryforwards (16,370) (12,906) (9,164)
- --------------------------------------------------------------------------------
Total deferred tax asset 36,753 17,890 13,501
================================================================================
The Company has approximately $29,467 in unutilized foreign tax loss
carryforwards and approximately $24,117 in unutilized United States federal tax
loss carryforwards. Of these loss carryforwards, $17,896 have no expiration
dates, $29,912 expire beginning 2005 through 2010, and $5,776 expire beginning
1999 through 2004. In addition, the Company has approximately $648 of unutilized
alternative minimum tax credits that can be carried forward indefinitely. United
States tax law imposes a limitation on the amount of the United States tax loss
carryforwards which can be utilized each year when there is a change in the
stock ownership of the Company which incurred the losses. The United States
federal tax losses which became an asset of the Company through the acquisition
of Inmac Corp. are subject to this rule ($24,117 remaining balance as of
December 31,1997). Based on the Company's historical and expected taxable
earnings, management believes it is more likely than not that the Company will
realize the benefit of the existing net deferred tax asset at December 31, 1997.
NOTE 10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1997 1996 1995
- --------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 1,776 $ 1,805 $ 4,088
Income taxes 18,418 27,297 32,956
Non-cash investing and financing activities:
Loan to (settlement from) former officer for
purchase of stock (1,400) 1,400 --
Net assets acquired and goodwill established
through issuance of common stock -- -- 1,150
================================================================================
NOTE 11. STOCK OPTIONS, EMPLOYEE BENEFIT PLAN AND STOCKHOLDERS RIGHTS PLAN
In June 1997 the Stockholders of the Company approved an amendment to the
1994 stock option plan which increased the number of shares reserved for
issuance from 1,000 to 4,000. In January 1997, the Company approved a
comprehensive option grant program providing a total of 2,017 options to
directors and all qualified employees of the Company and authorized the exchange
of 360 outstanding stock options. The exercise price for options under these
programs is $12.63 per share. As a result of this program, the Company recorded
deferred compensation of $8,387 representing the difference between the exercise
price and closing market price on the date of stockholder approval for the
shares granted. Such amount is being amortized over the 5-year
F-12
<PAGE>
vesting period of the options. Amortization of deferred compensation relating to
these grants for 1997 was $1,788 and $2,186 of such amount of deferred
compensation was forfeited.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation. Accordingly, compensation expense is
recorded only if the current market price of the Company's common stock on the
date of grant (or measurement date if later) exceeds the exercise price. Had
compensation cost been determined on a fair value basis consistent with SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) As reported ($36,681) $15,298 $35,244
Pro forma ($38,693) $12,673 $34,272
Net income (loss) per share - diluted basis As reported ($1.06) $0.44 $1.05
Pro forma ($1.12) $0.36 $1.02
</TABLE>
The fair value of each option grant included in the pro forma amounts above
was estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions for 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.3 percent, 6.2 percent and 7.4 percent; dividend yield of
zero for all years; expected lives of 5 years for all years; and volatility of
39.3 percent, 42.5 percent and 43.3 percent.
A summary of the status of stock options outstanding as of December 31,
1997, 1996 and 1995 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option:
Outstanding at beginning of year 1,710 $22.28 1,328 $17.18 1,346 $13.79
Granted 3,048 $13.58 836 27.50 338 27.63
Exercised (594) $12.21 (346) 16.79 (315) 13.18
Forfeited (992) $21.40 (108) 23.23 (41) 17.45
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,172 $14.44 1,710 $22.28 1,328 $17.18
===================================================================================================================================
Options exercisable at year end 512 $16.06 407 $15.56 420 $13.99
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value per share of
options granted during 1997, 1996, and 1995 $6.07 $12.64 $13.30
</TABLE>
1992 and 1994 Stock Option Plans
The 1992 and 1994 Stock Option Plans (the "Plans") provide for the grant of
stock options to officers, directors and key employees of, and consultants to,
the Company and its subsidiaries. Under the Plans, the Company may grant options
that are intended to qualify as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), or options not intended to qualify as Incentive
Stock Options ("Non-statutory Stock Options"). A total of 5,000 shares of common
stock have been reserved for issuance upon the exercise of options granted under
the Plans.
The Plans are administered by the Compensation and Stock Option Committee
of the Board of Directors. Subject to the provisions of the Plans, the Committee
has the authority to select the employees, directors and consultants to whom
options are granted and determine the terms of each option, including (i) the
number of shares of common stock covered by the option, (ii) when the option
becomes exercisable, (iii) the option exercise price, which must be at least
100%, with respect to Incentive Stock Options, and at least 85%, with respect to
Non-statutory Stock Options, of the fair market value of the common stock as of
the date of grant, and (iv) the duration of the option (which may not exceed ten
years).
Stock Options Issued Outside the Plans
During 1996 and 1997 the Company granted to certain senior executives
options to purchase 890 shares of common stock at prices ranging from $10.75 to
$25.00 per share. During 1997, 574 of these options were forfeited.
F-13
<PAGE>
Stock options outstanding at December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Number average remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9.00 - $13.06 2,331 8.7 years $12.43 330 $11.52
$14.31 - $17.75 630 9.1 years 16.43 85 16.43
$22.50 - $28.25 54 8.5 years 27.45 13 26.59
$30.13 - $32.00 155 7.8 years 31.63 83 31.63
$44.50 - $46.69 2 7.8 years 44.70 1 44.70
$9.00 - $46.69 3,172 8.8 years $14.44 512 $16.06
</TABLE>
Stock Awards
During 1997 the Company granted to certain senior executives awards for 78
shares of common stock that are outstanding at December 31, 1997. Such awards
will be fully vested in 1998.
401(k) Savings Plan
The Company sponsors a 401(k) Savings Plan (the "401(k) Plan") which covers
substantially all full-time employees who meet the 401(k) Plan's eligibility
requirements. Participants may make tax deferred contributions of up to 15% of
annual compensation (subject to other limitations specified by the Internal
Revenue Code) and the Company will make a 25% matching contribution for amounts
which do not exceed 6% of participant's annual compensation. The Company may
also make discretionary profit sharing contributions to the 401(k) Plan. During
1997, 1996 and 1995, the Company incurred approximately $534, $556, and $466,
respectively, of expense related to the 401(k) matching component of the 401(k)
Plan.
Stockholders Rights Plan
Under a stockholder rights plan effective June 27, 1996, rights to purchase
a unit consisting of one one-thousandth of a share of a new Series A Junior
Participating Preferred Stock at an exercise price of $110.00 have been
distributed as a dividend at the rate of one right for each share of the
Company's common stock. The terms of the Preferred Stock have been designed so
that each one one-thousandth of a share of Preferred Stock will approximate the
same economic value of one share of the Company's common stock.
The rights become exercisable only following the acquisition by a person or
group, without the prior consent of the Company, of 20% or more of the Company's
voting stock or following the announcement of a tender offer or exchange offer
to acquire an interest in the Company of 20% or more. After the rights become
exercisable, they will be adjusted upon the occurrence of certain events
relating to an attempted acquisition of the Company so as to entitle all
holders, except the takeover bidder, to purchase stock in the Company or the
prospective acquirer's company, as the case may be, at a bargain price. The
effect of the plan is to encourage a prospective acquirer to negotiate with the
Board of Directors of the Company a transaction that is fair to all
stockholders.
F-14
<PAGE>
NOTE 12. OPERATIONS BY GEOGRAPHIC AREAS
The Company operates primarily in one industry segment, the distribution of
computer hardware, software, supplies and accessories. Information about the
Company's operations in different geographic areas for the years ended December
31, 1997, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
Asia/
Year Ended December 31, 1997 North America Europe Pacific Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,549,024 $567,197 $9,477 $2,125,698
Restructuring costs and goodwill write-off 49,493 14,671 3,664 67,828
(Loss) from operations before
interest and income taxes (16,959) (19,231) (6,265) (42,455)
Identifiable assets 424,184 192,839 2,321 619,344
<CAPTION>
Asia/
Year Ended December 31, 1996 North America Europe Pacific Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,330,601 $570,388 $15,255 $1,916,244
Restructuring, merger costs, and goodwill
write-offs 17,413 14,382 366 32,161
Income (loss) from operations before
interest and income taxes 37,062 (2,847) (1,122) 33,093
Identifiable assets 422,967 182,298 2,577 607,842
<CAPTION>
Asia/
Year Ended December 31, 1995 North America Europe Pacific Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,130,292 $546,559 $7,776 $1,684,627
Income from operations before
interest and income taxes 40,290 17,354 71 57,715
Identifiable assets 370,573 179,798 4,175 554,546
</TABLE>
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1997 Net sales $529,503 500,420 522,072 $573,703
Gross profit 87,465 83,913 86,457 94,141
Net income (loss) 7,813 7,821 (7,118) (45,197)
Basic net income (loss) per share (A) $0.23 $0.23 ($0.21) ($1.30)
Diluted net income (loss) per share (A) $0.23 $0.23 ($0.21) ($1.30)
Shares used in per share calculation -
Basic 34,364 34,432 34,550 34,637
Incremental shares from assumed
conversion of options (B) 73 300 -- --
Diluted 34,437 34,732 34,550 34,637
- -----------------------------------------------------------------------------------------------------------------------------------
1996 Net sales $514,391 $437,175 $437,981 $526,697
Gross profit 98,542 84,987 78,692 80,225
Income (loss) before extraordinary charge (5,101) 5,410 10,725 5,848
Net income (loss) (6,685) 5,410 10,725 5,848
Basic income (loss) before extraordinary
charge per share ($0.15) $0.16 $0.31 $0.17
Diluted income (loss) before extraordinary
charge per share ($0.15) $0.16 $0.31 $0.17
Basic net income (loss) per share (A) ($0.20) $0.16 $0.31 $0.17
Diluted net income (loss) per share (A) ($0.20) $0.16 $0.31 $0.17
Shares used in per share calculation -
</TABLE>
F-15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Basic 33,996 34,175 34,294 34,345
Incremental shares from assumed
conversion of options(B) -- 526 336 312
Diluted 33,996 34,701 34,630 34,657
</TABLE>
(A) The sum of the quarterly amounts on a per share basis do not equal amounts
for the year due to rounding.
(B) Incremental shares were not included for periods with a net loss as they
would have had an antidilutive effect.
NOTE 14. LEGAL PROCEEDINGS
A pre-tax charge of $20,700 was recorded in the third quarter of 1997 for
the proposed settlements of the consolidated class action and derivative lawsuit
that arose out of the facts underlying the Company's announcements in September
and October, 1996 that it intended to restate certain prior financial statements
covering years 1992 through 1995. The charge of $20,700 was comprised of $31,600
for the settlements of the consolidated class action and derivative lawsuit
including estimated legal fees, offset by insurance proceeds of $10,900. The
settlements are contingent upon final approval by the United States District
Court following hearing upon notice to class participants and, as appropriate,
other shareholders.
The settlement of these matters excludes a separate action relating to the
restatement of prior year financial statements brought in the United States
District Court in Connecticut against the Company and certain of its present and
former officers and directors by the State Board of Administration of Florida
covering its purchase of fewer than 60,000 shares. The settlement also excludes
the lawsuit brought by holders of approximately 1.3 million shares of the
Company's stock against the Company and certain of its officers, former officers
and directors in Santa Clara County, California, arising out of the stock merger
between the Company and Inmac Corp. on January 25, 1996. The Company has made no
provision for the outcome or financial impact of these litigations in the
consolidated financial statements.
In addition, the staff of the Securities and Exchange Commission ("SEC") is
conducting a formal investigation into the events underlying the restatement of
prior years financial statements. The Company is cooperating with the SEC in its
investigation.
F-16
<PAGE>
SCHEDULE II
MICRO WAREHOUSE, INC.
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance at
Beginning of Charged from End
Year to Operations Reserves of Year
---- ------------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts Year ended:
December 31, 1995 5,676 7,099 (4,967) 7,808
December 31, 1996 7,808 8,195 (5,127) 10,876
December 31, 1997 10,876 11,242 (8,719) 13,399
Reserve for obsolete inventory
Year ended:
December 31, 1995 6,333 6,388 (4,385) 8,336
December 31, 1996 8,336 5,601 (3,416) 10,521
December 31, 1997 10,521 10,246 (8,030) 12,737
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders of Micro Warehouse, Inc.
Under date of February 18, 1998, we reported on the consolidated
balance sheets of Micro Warehouse, Inc. and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997 which are included in this Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedule as listed under
(a)(2). This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, the related consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
Stamford, Connecticut
February 18, 1998
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the
Company ...................................................
3.2 Amended and Restated By-Laws of the Company .................
4.1* Stockholders Rights Plan dated June 27, 1996 ................
10.1** 1992 Stock Option Plan ......................................
10.2*** Amendment No. 1 to 1992 Stock Option Plan ...................
10.3**** Amendment No. 2 to 1992 Stock Option Plan ...................
10.4 Amended and Restated 1994 Stock Option Plan .................
10.5** Lease Agreements between C.P. Lakewood, L.P. and the
Company relating to the Lakewood, New Jersey
facilities ................................................
10.6** Lease Agreement between Miller-Valentine Partners and
the Company relating to the Wilmington, Ohio
facility ..................................................
10.7** Lease Agreement between Peter Godfrey and the
Company relating to the South Norwalk, Connecticut
facility ..................................................
10.8** (a)Lease Agreement between Hialet Associates and the
Company relating to a South Norwalk, Connecticut
facility (53 Water Street) ................................
10.9** (b)Lease Agreement between Hialet Associates and the
Company relating to a South Norwalk, Connecticut
facility (29 Haviland Street) .............................
10.10** Lease Agreement between 50 Water Street Associates and
the Company relating to the South Norwalk,
Connecticut facility ......................................
10.11** Lease between Union Square Assoc. Ltd. Part. and the
Company relating to the South Norwalk, Connecticut
facility ..................................................
10.12** Lease Agreement between South Norwalk Redevelopment
Partnership and the Company relating to the South
Norwalk, Connecticut facility .............................
10.13** Second Amendment to Lease Agreement between Peter
Godfrey and the Company relating to the South
Norwalk, Connecticut facility (47 Water Street) ...........
10.14** Second Amendment to Lease Agreement between Hialet
Associates and the Company relating to the South
Norwalk, Connecticut facility (53 Water Street) ...........
10.15***** Lease Agreement between BBS Norwalk One Inc. and the
Company relating to the Norwalk, Connecticut
facility ..................................................
10.16*** Employment Agreement between Peter Godfrey and the
Company ...................................................
10.17** Employment Agreement between Stephen England and the
Company ...................................................
10.18****** Employment Agreement between Adam W. Shaffer and the
Company ...................................................
10.19****** Amendment to Employment Agreement between Adam W.
Shaffer and the Company ...................................
10.20******* Employment Agreement between Linwood A. Lacy, Jr. and
the Company ...............................................
10.21******* Amendment to Employment Agreement between Linwood A.
Lacy, Jr. and the Company .................................
10.22*** Employment Agreement between Bruce L. Lev and the
Company ...................................................
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
10.23 Consulting Services Agreement between Felix Dennis and the
Company, as amended .......................................
10.24 Form of Indemnification Agreement with Officers and
Directors .................................................
10.25 Amended and Restated Credit Agreement among the
Company, the Subsidiaries of the Company, and The
Chase Manhattan Bank dated as of December 31, 1997 ........
10.26 Resignation Agreement by and between Linwood A. Lacy,
Jr. and the Company dated December 8, 1997 ................
10.27 Resignation Agreement by and between Kris Rogers and
the Company dated January 28, 1998 ........................
11 Statement re Computation of Per Share Earnings ..............
21.1 Subsidiaries of the Company .................................
23.1 Consent of Independent Auditors .............................
24.1 Power of Attorney (included on signature page)...............
27 Financial Data Schedule .....................................
* Incorporated by reference to the Company's Registration Statement on
Form 8-A (File No. 00-20730)
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-53100)
*** Incorporated by reference to the Company's Annual Report on Form 10-K
for fiscal year 1995
**** Incorporated by reference to the Company's Annual Report on Form 10-K
for fiscal year 1996
***** Incorporated by reference to the Company's Form 10-Q for the quarter
ended June 30, 1994
****** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-66066)
******* Incorporated by reference to the Company's Form 10-Q for the quarter
ended September 30, 1996
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MICRO WAREHOUSE, INC.
Micro Warehouse, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Micro Warehouse, Inc. (hereinafter,
the "Corporation").
SECOND: The date of filing of its original Certificate of Incorporation
with the Secretary of State of Delaware was August 27, 1992.
THIRD: Pursuant to the sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and further amends the provisions of the Certificate of Incorporation
of this Corporation.
FOURTH: The Amended and Restated Certificate of Incorporation of said
Corporation shall be amended and restated to read in full as follows:
1. Name: The name of the corporation is Micro Warehouse, Inc.
2. Registered Office: The address of the registered office of the
Corporation in the State of Delaware is The Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at that address is The Corporation Trust Company.
3. Purpose: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
4. Corporation Stock:
(a) The total number of shares of stock which the Corporation shall
have authority to issue is One Hundred Million One Hundred Thousand
(100,100,000) shares, consisting of One Hundred Million (100,000,000) shares of
Common Stock, having a par value of $.01 per share, and One Hundred Thousand
(100,000) shares of Preferred Stock, having a par value of $.01 per share.
<PAGE>
(b) Holders of shares of Common Stock shall be entitled to one (1)
vote for each share held of record. Shares of the Common Stock shall have no
preference over any other shares of capital stock of the Corporation with
respect to distribution of assets on dissolution or liquidation or with respect
to payment of dividends.
(c) Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of which class or
series shall have such distinctive designation or title as shall be fixed by the
Board of Directors of the Corporation (the "Board of Directors") prior to the
issuance of any shares thereof. Each such class or series of Preferred Stock
shall have such voting powers, full or limited or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualification, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issue of such class or series
of Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware. The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock, or of any class or series thereof,
unless a vote of any such holders is required pursuant to the certificate or
certificates establishing the class or series of Preferred Stock.
(d) The shares of Common Stock and Preferred Stock shall be issued
only as fully paid and non-assessable shares.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The by-laws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a
2
<PAGE>
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in the by-laws of the Corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Amended and Restated Certificate
of Incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
by-laws of the Corporation; and, unless the resolution or by-laws expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with law,
to sell, lease or exchange all or substantially all of the property and assets
of the Corporation, including its good will and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the Corporation.
7. Elections of directors need not be by written ballot unless the by-laws
of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the by-laws of the Corporation.
8. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
10. A director of the Corporation shall not be personally liable to the
Corporation or
3
<PAGE>
its stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derives any improper personal benefit.
If the General Corporation Law of the State of Delaware is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent authorized by the General Corporation Law of the State of
Delaware, as so amended. Any repeal or modification of this paragraph 10 shall
not adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to or at
the time of such repeal or modification. This paragraph shall not be deemed to
limit or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by this paragraph 10.
FOURTH: This Amended and Restated Certificate of Incorporation was
duly adopted by the Board of Directors of this Corporation.
FIFTH: This Amended and Restated Certificate of Incorporation was approved
by the holders of the necessary number of outstanding shares of the Corporation
as required by the General Corporation Law of the State of Delaware and by the
existing Certificate of Incorporation at the annual meeting of stockholders held
on June 4, 1996.
IN WITNESS WHEREOF, said Micro Warehouse, Inc., has caused this
certificate to be signed by its Vice President, General Counsel and Secretary
this day of June, 1996.
MICRO WAREHOUSE, INC.
By /s/ Bruce L. Lev
--------------------------------------
Name: Bruce L. Lev
Title: Vice President, General
Counsel and Secretary
4
EXHIBIT 3.2
MICRO WAREHOUSE, INC.
AMENDED AND RESTATED BY LAWS
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle and State of Delaware.
Section 2. The Corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Norwalk, State of Connecticut, at such place as may
be fixed from time to time by the Board of Directors, or such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
<PAGE>
Section 2. Annual meetings of stockholders commencing with the year
1993, shall be held on or about the 1st day of May, if not a legal holiday, and
if a legal holiday, then on the next secular day following, at 10:00 a.m. or at
such other date and at such time as shall be designated from time to- time by
the board of directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote, a board of directors, and transact such other
business as may properly be brought before the meeting in accordance with this
Article II.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning at least 80% of
the entire capital stock of the Corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. A majority of the stockholders, holding stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the
<PAGE>
meeting as originally notified. If the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
ORDER OF BUSINESS
Section 11. The president, or such other officer of the Corporation
designated by a majority of the board of directors, will call meetings of the
stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the board of directors prior to the meeting, the
presiding officer of the meeting of the stockholders will also determine the
order of business and have the authority in his or her sole discretion to
regulate the conduct of
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any such meeting, including without limitation by imposing restrictions on the
persons (other than stockholders of the Corporation or their duly appointed
proxies) who may attend any such stockholders' meeting, by ascertaining whether
any stockholder or his or her proxy may be excluded from any meeting of the
stockholders based upon any determination by the presiding officer, in his or
her sole discretion, that any such person has unduly disrupted or is likely to
disrupt the proceedings thereat, and by determining the circumstances in which
any person may make a statement or ask questions at any meeting of the
stockholders.
Section 12. At an annual meeting of the stockholders, only such
business will be conducted or considered as is properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board in accordance with Section 3 of this Article, (b)
otherwise properly brought before the meeting by the presiding officer or by or
at the direction of a majority of the board of directors, or (c) otherwise
properly requested to be brought before the meeting by a stockholder of the
Corporation in accordance with Section 13 of this Article.
Section 13. For business to be properly requested by a stockholder
to be brought before an annual meeting, the stockholder must (a) be a
stockholder of the Corporation of record at the time of the giving of the notice
for such annual meeting provided for in these By Laws, (b) be entitled to vote
at such meeting, and (c) have given timely notice thereof in writing to the
secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
60
<PAGE>
calendar days prior to the annual meeting; provided, however, that in the event
public announcement of the date of the annual meeting is not made at least 75
calendar days prior to the date of the annual meeting, notice by the stockholder
to be timely must be so received not later than the close of business on the
10th calendar day following the day on which public announcement is first made
of the date of the annual meeting. A stockholder's notice to the secretary must
set forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a description in reasonable detail of the business desired to
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made, (iii) the class
and number of shares of the Corporation that are owned beneficially and of
record by the stockholder proposing such business and by the beneficial owner,
if any, on whose behalf the proposal is made, and (iv) any material interest of
such stockholder proposing such business and the beneficial owner, if any, on
whose behalf the proposal is made in such business. Notwithstanding the
foregoing provisions of this Section 13, a stockholder must also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 13. For purposes of this Section 13 and Section 5 of Article III,
"public announcement" means disclosure in a press release reported by the Dow
Jones News Service, Associated Press, or comparable national news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14, or 15(d) of the Securities
<PAGE>
Exchange Act of 1934, as amended, or furnished to stockholders. Nothing in this
Section 13 will be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended.
Section 14. At a special meeting of stockholders, only such business
may be conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (a) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the president or a majority of the board of directors in accordance with
Section 6 of this Article II, or (b) otherwise properly brought before the
meeting by the presiding officer or by or at the direction of a majority of the
board of directors.
Section 15. The determination of whether any business sought to be
brought before any annual or special meeting of the stockholders is properly
brought before such meeting in accordance with this Article II will be made by
the presiding officer of such meeting. If the presiding officer determines that
any business is not properly brought before such meeting, he or she will so
declare to the meeting and any such business will not be conducted or
considered.
<PAGE>
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than two nor more than five. The first board shall
consist of two directors. Thereafter, within the limits above specified, the
number of directors shall be determined by resolution of the board of directors
or by the vote of at least 80% of the stockholders entitled to vote for the
election of directors at an annual meeting. Subject to the proper nomination
procedure under this Article III, the directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly
<PAGE>
created directorships, or to replace the directors chosen by the directors then
in office.
NOMINATIONS OF DIRECTORS
Section 3. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock designation, only persons who are nominated in
accordance with the following procedures will be eligible for election at a
meeting of stockholders as directors of the Corporation.
Section 4. Nominations of persons for election as directors of the
Corporation may be made only at an annual meeting of stockholders (a) by or at
the direction of the board of directors or (b) by any stockholder who (i) is a
stockholder of record at the time such stockholder gave notice as provided for
in this Section 4; (ii) is entitled to vote for the election of directors at
such meeting, and (iii) complies with the procedures set forth in Section 5 of
this Article 3. All nominations by stockholders must be made pursuant to timely
notice in proper written form to the secretary.
Section 5. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 calendar days prior to the annual meeting of stockholders;
provided, however, that in the event that public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. To be
in proper
<PAGE>
written form, such stockholder's notice must set forth or include (a) the name
and address, as they appear on the Corporation's books, of the stockholder
giving the notice and of the beneficial owner, if any, on whose behalf the
nomination is made; (b) a representation that the stockholder giving the notice
is a holder of record of stock of the Corporation entitled to vote at such
annual meeting and intends to appear in person or by proxy at the annual meeting
to nominate the person or persons specified in the notice; (c) the class and
number of shares of stock of the Corporation owned beneficially and of record by
the stockholder giving the notice and by the beneficial owner, if any, on whose
behalf the nomination is made; (d) a description of all arrangements or
understandings between or among any of (i) the stockholder giving the notice,
(ii) the beneficial owner on whose behalf the notice is given, (iii) each
nominee, and (iv) any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder giving the notice; (e) such other information regarding each nominee
proposed by the stockholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the board of directors; and (f) the signed consent of each
nominee to serve as a director of the Corporation if so elected. At the request
of the board of directors, any person nominated by the board of directors for
election as a director must furnish to the secretary that information required
to be set forth in a stockholder's notice of nomination which pertains to the
nominee. The presiding officer of any annual meeting will, if the facts warrant,
determine that a nomination was not made in accordance with the procedures
prescribed by this Article III, and
<PAGE>
if he or she should so determine, he or she will so declare to the meeting and
the defective nomination will be disregarded. Notwithstanding the foregoing
provisions of this Article III, a stockholder must also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Article III.
BUSINESS OF CORPORATION
Section 6. The business of the Corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these By Laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 7. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the States of
Delaware.
Section 8. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the
<PAGE>
failure of the stockholders to fix the time or place of such first meeting of
the newly elected board of directors, or in the event such meeting is not held
at the time and place so fixed by the stockholders, the meeting may be held at
such- time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 9. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 10. Special meetings of the board may be called by the
chairman or president on two day's notice to each director, either personally or
by mail or by telegram; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director; in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 11. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the directors, except as may be otherwise specifically
provided by statute or by the certificate of incorporation. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 12. Unless prohibited by the certificate of incorporation or
these By
<PAGE>
Laws, any action required or permitted to be taken at any meeting of the board
of directors or of any committee thereof may be taken without a meeting, if all
members of the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the board or committee.
Section 13. Unless prohibited by the certificate of incorporation or
these By Laws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
INTERESTED DIRECTORS
Section 14. Whenever the business being transacted by the Board
relates to any contract or transaction between the Corporation and one or more
of its directors or officers, the Board shall conduct said meeting and vote on
said matter in full compliance with Section 144 of the Delaware Corporation Law
as the same may be amended from time to time.
COMMITTEES OF THE BOARD
Section 15. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The board may
designate one or more directors as
<PAGE>
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a), fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By Laws of the Corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
<PAGE>
Section 16. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 17. Unless otherwise restricted by the certificate of
incorporation or these By Laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board-of directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 18. Unless otherwise restricted by the certificate of
incorporation or by law, any director may be removed with cause by a majority of
the board of directors and any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
<PAGE>
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these By Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these By
Laws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
board of directors and shall be a president, a vice president, a secretary and a
treasurer. The board of directors may also choose additional vice presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these By Laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more vice
presidents, a secretary and a
<PAGE>
treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers of the Corporation shall be
fixed by the board of directors.
Section 5. The officers of the Corporation shall hold --office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
Corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
Corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the Corporation.
<PAGE>
THE VICE PRESIDENT-CHIEF OPERATING OFFICER
Section 8. In the absence of the president or in the event of his
inability or refusal to act, a vice president who shall be the chief operating
officer shall have all the powers of and be subject to all of the restrictions
upon the president. The vice president-chief operating officer shall perform
such other duties and shall have such other powers as the board of directors may
from time to time prescribe.
THE VICE PRESIDENTS
Section 9. In the absence of the president and the vice
president-chief operating officer or in the event of their inability or refusal
to act, the vice president (or in the event there be more than one vice
president, the vice presidents in the order designated by the directors, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the president and vice president-chief operating officer,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president and vice president-chief operating officer. The
vice presidents shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall
<PAGE>
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or president, under whose supervision he
shall be. He shall have custody of the corporate seal of the Corporation and he,
or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature.
Section 11. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURER
Section 12. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipt and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors.
<PAGE>
Section 13. He shall disburse the funds of the Corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 14. If required by the board of directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 15. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
<PAGE>
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the Corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the Corporation by, the chairman or vice chairman of the board of
directors, or the president or a vice president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
Corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer
<PAGE>
agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of property transfer instructions from the registered
<PAGE>
owner of uncertificated shares, such uncertificated shares shall be canceled and
issuance of new equivalent uncertificated shares or certificated shares shall be
made to the person entitled thereto and the transaction shall be recorded upon
the books of the Corporation.
FIXING RECORD DATE
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to Corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the
<PAGE>
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
<PAGE>
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the Corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
<PAGE>
Section 7. The Corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the General Corporation Law
of Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These By Laws may be altered, amended or repealed or new
By Laws may be adopted by the stockholders or by the board of directors when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new By
Laws be contained in the notice of such special meeting. If the power to adopt,
amend or repeal By Laws is conferred upon the board of directors by the
certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal By Law.
MICRO WAREHOUSE, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. Purpose. The purpose of this 1994 Stock Option Plan (the "1994 Plan")
is to secure for Micro Warehouse, Inc., a Delaware corporation (the "Company"),
and its shareholders the benefits arising from capital stock ownership by
employees, directors and consultants of the Company and any subsidiaries who
will be responsible for the Company's future by stimulating their efforts on
behalf of the Company's further growth and continued success.
2. Shares Subject to the 1994 Plan. Subject to adjustment, as provided in
paragraph 10, the stock to be offered under the 1994 Plan shall consist of
shares of the Company's Common Stock ("Stock"), and the number of shares of
Stock that may be issued upon exercise of all options granted under the 1994
Plan shall not exceed in the aggregate 4,000,000 shares; however, the maximum
number of shares underlying an option grant shall not exceed 500,000 in any one
year to any individual. Such shares may be authorized and unissued shares or may
be treasury shares. If an option granted under the 1994 Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available under the 1994 Plan.
Stock issued under the 1994 Plan may be subject to such restrictions on
transfer, repurchase rights or other restrictions as shall be determined by the
Board of Directors of the Company ("the Board") or a Committee of the Board (the
"Committee") as determined under paragraph 4 hereinbelow.
3. Effective Date and Duration of the 1994 Plan.
(a) Effective Date. The 1994 Plan shall become effective when
adopted by the Board or the Committee, but no option granted under the 1994 Plan
shall be exercised prior to the approval of the 1994 Plan by the holders of at
least a majority of the outstanding shares of capital stock of the Company
voting thereon. Subject to this limitation, options may be granted at any time
after the effective date and before termination of the 1994 Plan.
(b) Duration. The 1994 Plan shall continue in effect until, in the
aggregate, options have been granted and exercised with respect to all of the
shares available under the 1994 Plan as set forth in paragraph 2, subject to any
adjustments herein; provided, however, that unless sooner terminated by action
of the Board or the Committee, the 1994 Plan shall terminate on, and no options
shall be granted on or after, the tenth (10th) anniversary of the effective
date. The Board or the Committee shall have the right to suspend or terminate
the 1994 Plan at any time except with respect to options then outstanding under
the 1994 Plan.
<PAGE>
4. Administration.
The 1994 Plan shall at all times be administered in accordance with the
regulations of Rule 16b-3 of the Securities and Exchange Act of 1934 as amended
by the Securities and Exchange Commission release No. 34-37260. The 1994 Plan
may be administered by the Board of Directors or by a Committee of two or more
"non-employee directors". The Board or the Committee shall determine and
designate, from time to time the employees, directors and consultants to whom
options shall be granted and the number of shares to be covered by each option,
the option price, the period of each option, and the time or times at which
options may be exercised. Subject to the provisions of the 1994 Plan, the Board
or the Committee may, from time to time, adopt rules and regulation relating to
administration of the 1994 Plan and make all other determinations in the
judgment of the Board or the Committee necessary or desirable for the
administration of the 1994 Plan. The interpretation and construction of the
provisions of the 1994 Plan and stock option agreements implemented thereunder
by the Board or the Committee shall be final and conclusive. The Board or the
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the 1994 Plan or in any option agreement in the manner and to
the extent it shall deem expedient to carry the 1994 Plan into effect and it
shall be the sole and final judge of such expediency.
5. Grants, Awards and Sales.
(a) Type of Security. The Board or the Committee may, from time to
time, take the following action, separately or in combination, under the 1994
Plan: (i) grant Incentive Stock Options, as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraph
5(b); and (ii) grant options other than Incentive Stock Options (herein
"Nonstatutory Stock Options") as provided in paragraph 5(c). The Board or the
Committee shall specify the action taken with respect to each optionee granted
any option under the 1994 Plan, and shall specifically designate each option
granted under the 1994 Plan as an Incentive Stock Option or Nonstatutory Stock
Option.
(b) Incentive Stock Options. Incentive Stock Options shall be
subject to the following additional terms and conditions:
(i) In no event shall the aggregate fair market value
(determined at the time such options are granted) of the Stock with respect to
which the employee's Incentive Stock Options first become exercisable during any
calendar year under the 1994 Plan or under any other incentive stock option plan
(within the meaning of Section 422A of the Code) of the Company or a subsidiary
or parent corporation of the Company exceed $100,000.
(ii) An Incentive Stock Option may be granted under the 1994
Plan to an employee possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company only if the option price is at least one hundred ten
percent (110%) of the fair market value of the Stock subject to the option on
the date it is granted and the option by its terms is not exercisable after the
expiration of ten (10) years from the date it is granted.
2
<PAGE>
(iii) Incentive Stock Options may be granted under the 1994
Plan only to employees of the Company or any parent or subsidiary of the
Company. Except as provided in paragraph 9, no Incentive Stock Options granted
under the 1994 Plan may be exercised unless at the time of such exercise the
optionee is employed by the Company or any parent or subsidiary of the Company
and shall have been so employed continuously since the date such option was
granted. Absence on leave or on account of illness or disability shall not be
deemed an interruption of employment for this purpose, except under rules
prescribed by the Board or Committee in its discretion.
(iv) Subject to paragraphs 5(b)(ii) and 5(b)(iii), Incentive
Stock Options granted under the 1994 Plan shall continue in effect for the
period fixed by the Board or the Committee, except that no Incentive Stock
Option shall be exercisable after the expiration of ten (10) years from the date
it is granted.
(v) The option price per share shall be determined by the
Board or the Committee at the time of grant. Except as provided in paragraph
5(b)(ii), the option price shall not be less than one hundred percent (100%) of
the fair market value of the shares covered by the Incentive Stock Option at the
date the option is granted. The fair market value of shares covered by an
Incentive Stock Option shall be determined by the Board or the Committee.
(vi) Stock acquired upon exercise of the Incentive Stock
Options shall not be disposed of: [1] within two (2) years following the date
the option was granted and [2] within one (1) year following the date the Stock
is transferred to the employee.
(c) Nonstatutory Stock Options. Nonstatutory Stock Options shall be
subject to the following terms and conditions:
(i) Nonstatutory Stock Options may be granted under the 1994
Plan to employees, directors and consultants of the Company or any parent or
subsidiary of the Company. Nonstatutory Stock Options granted under the 1994
Plan shall continue in effect for the period fixed by the Board or the
Committee, except that a Nonstatutory Stock Option shall not be exercisable
after the expiration of ten (10) years from the date it is granted.
(ii) The option price per share shall be determined by the
Board or Committee at the time of grant. The option price may be more or less
than or equal to the fair market value of the shares covered by the Nonstatutory
Stock Option on the date the option is granted, provided that in no event shall
the exercise price be less than eighty-five percent (85%) of the fair market
value on such date. The fair market value of the shares covered by a
Nonstatutory Stock Option shall be determined by the Board or the Committee.
(d) Long Term Incentive Compensation Plan. Options may be granted
under the Company's long Term Incentive Compensation Plan to certain key
executives of the Company. The number of option grants is determined in advance
on the basis of the Company's earnings per share, earnings before interest and
taxes and revenue target levels, subject to amendment by the Board or Committee.
6. Exercise of Options. Except as provided in paragraph 8, options granted
under the 1994 Plan may be exercised from time to time over the period stated in
each option agreement in such amounts and at such times as shall be prescribed
by the Board or the Committee, provided that options shall not be exercised for
fractional shares. Unless otherwise determined by the Board or the Committee at
the date of grant, if the optionee does not exercise an option in any
3
<PAGE>
one (1) year with respect to the full number of shares to which the optionee is
entitled in that year, the optionee's rights shall be cumulative and the
optionee may exercise an option as to those shares in any subsequent year during
the term of the option.
7. Nontransferability.
(a) Options. Each option granted under the 1994 Plan by its terms
shall be nonassignable and nontransferable by the optionee, either voluntarily
or by operation of law, except that options may be assigned or transferred as
follows to: members of the optionee's immediate family intended to include
parents, spouse, children or grandchildren; or trusts, family partnerships, or
other like entities provided that all of the beneficiaries of the same are
members of said immediate family, or to any person or entity by will or by the
laws of descent and distribution of the state or country of the optionee's
domicile at the time of death. In all events, the transferrees' rights with
respect to any such option shall be subject to and fully governed by the
provisions of the Plan and any provisions which would have affected any
transferred options had the same not been transferred shall, pari passu, govern
said options. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this 1994 Plan or of any right or
privilege conferred hereby or hereunder contrary to the provisions hereof, or
upon the sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby or hereunder, such option relating thereto shall
thereupon terminate and become null and void. In all events, each such option by
its terms shall be exercisable by either the optionees or transferrees permitted
hereinabove.
(b) Stock. Stock issued upon exercise of an option may have, in
addition to restrictions on transfer imposed by law, such restrictions on
transfer as may be determined by the Board or the Committee.
8. Termination of Employment or Death.
(a) In the event the employment by or affiliation with the Company
or any parent or subsidiary of the Company by an optionee is terminated by
retirement or for any reason, voluntarily or involuntarily, with or without
cause, other than in the circumstances specified in the subparagraph (b) below,
any option held by such optionee may be exercised at any time prior to its
expiration date or the expiration of three (3) months after the date of such
termination of employment (or affiliation), whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the option on
the date of such termination. With reference to Nonstatutory Stock Options, the
Board or the Committee may, in its discretion, extend the three (3) month period
any length of time not later than the expiration date of the option, subject to
such terms and conditions as the Board or the Committee may determine.
(b) In the event an optionee's employment by or affiliation with the
Company or any parent or subsidiary of the Company is terminated because of
death or permanent disability ("permanent disability" is defined as an illness
which will prevent an optionee from performing his duties for a continuous
period of six months), any and all Incentive Stock Options and/or Nonstatutory
Stock Options held by such optionee shall immediately vest and become
4
<PAGE>
exercisable. If an optionee's employment by or affiliation with the Company is
terminated by death, any option held by the optionee shall be exercisable only
by the person or persons to whom such optionee's rights under such option shall
pass by the optionee's will or by the laws of descent and distribution of the
state or country of the optionee's domicile at the time of death. Any option
governed by this subparagraph must be exercised prior to the earlier of the
expiration of twelve (12) months from the date of disability or death or the
expiration of the option; provided, however, in the event optionee's employment
or affiliation with the Company is terminated because of death or permanent
disability, the Board or the Committee may, in its discretion, extend the twelve
(12) month period any length of time not later than the expiration date of the
option, subject to such terms and conditions as the Board or the Committee may
determine.
(c) To the extent an option held by any deceased optionee or by any
optionee whose employment or affiliation with the Company is terminated shall
not have been exercised within the limited periods provided above, all further
rights to purchase shares pursuant to such option and all other rights relating
to such option shall cease and terminate at the expiration of such periods.
(9) Purchase of Shares Pursuant to Option. Shares may be purchased or
acquired pursuant to an option granted under the 1994 Plan only upon receipt by
the Company of notice in writing from the optionee of the optionee's intention
to exercise, specifying the number of shares as to which the optionee desires to
exercise the option and the date on which the optionee desires to complete the
transaction, which shall not be more than thirty (30) days after receipt of the
notice and, unless in the opinion of counsel for the Company such a
representation is not required in order to comply with the Securities Act of
1933, as amended, containing a representation that is the optionee's present
intention to acquire the shares for investment and not with a view to
distribution. Unless otherwise approved, on or before the date specified for
completion of the purchase of shares pursuant to an option, the optionee must
have paid the Company for the full purchase price for such shares in cash
(including cash which may be the proceeds of a loan from the Company), in shares
of Common Stock of the Company previously acquired valued at fair market value
as determined by the Board or the Committee, or in any combination of cash and
such shares of Common Stock of the Company. No shares shall be issued until full
payment therefor has been made. Each optionee who has exercised an option shall,
upon notification of the amount due, if any, and prior to or concurrently with
delivery of the certificates representing the shares with respect to which the
option was exercised, pay to the Company amounts necessary to satisfy any
applicable federal, state and local tax withholding requirements. If additional
withholding is or becomes required beyond any amount deposited before delivery
of the certificates, the optionee shall pay such amount to the Company on
demand.
10. Changes in Capital Structure. In the event that the outstanding shares
of Stock of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation, by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares or dividend payable in shares, appropriate adjustment shall be made by
5
<PAGE>
the Board or the Committee in the number and kind of shares issuable upon
exercise of outstanding options, for which options may be granted under the 1994
Plan. In addition, the Board or the Committee shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or portions
thereof when unexercised, shall be exercisable, to the end that each optionee's
proportionate interest shall be maintained as before the occurrence of such
event. The Board or the Committee shall have no obligation to effect any
adjustment which would or might result in the issuance of fractional shares, and
any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board or the Committee. Any such
adjustment made by the Board or the Committee shall be conclusive. In the event
of dissolution or liquidation of the Company or a merger or consolidation in
which the Company is not the surviving corporation, in lieu of providing for
options or Stock subject to restrictions as described above in this paragraph
10, the Board or the Committee may, in its sole discretion, (i) provide a thirty
(30) day period immediately prior to such event during which optionees shall
have the right to exercise options in whole or in part without any limitation on
exercisability, except as limited by paragraph 5(b)(i) of the 1994 Plan, and
(ii) waive or modify any such restrictions.
11. Corporate Mergers, Acquisitions, Etc. The Board or the Committee may
also grant options having terms, conditions and provisions which vary from those
specified in this 1994 Plan provided that any options granted pursuant to this
section are granted in substitution for, or in connection with the assumption
of, existing options or Stock issued by another corporation and assumed or
otherwise agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company or a
subsidiary is a party.
12. Amendment of 1994 Plan. The Board or the Committee may, at any time
and from time to time, modify or amend the 1994 Plan in such respects as it
shall deem advisable because of changes in the law while the 1994 Plan is in
effect or for any other reason. Except as provided in paragraph 10, however, no
change in a option already granted shall be made without the written consent of
the holder of such option. Furthermore, unless approved at an annual meeting or
a special meeting by the holders of at least a majority of the votes cast, no
amendment or change shall be made in the 1994 Plan (i) increasing the total
number of shares which may be purchased under the 1994 Plan, (ii) changing the
minimum purchase prices specified in the 1994 Plan, or (iii) increasing the
maximum option periods.
13. Approvals. The obligations of the Company under the 1994 Plan shall be
subject to the approval of such state or federal authorities or agencies, if
any, as may have jurisdiction in the matter. The Company will use its best
efforts to take such steps as may be required by state or federal law or
applicable regulations, including rules and regulations of the Securities and
Exchange Commission and any stock exchange in which the Company's shares may
then be listed, in connection with the granting of any option under the 1994
Plan, the issuance or sale of any shares purchased upon exercise of any option
under the 1994 Plan or the listing of such shares on said exchange. The
foregoing notwithstanding, the Company shall not be obligated to issue or
deliver shares of Stock under the 1994 Plan if the Company is advised by its
legal counsel that such issuance or delivery would violate applicable state or
federal securities laws.
6
<PAGE>
14. Employment Rights. Nothing in the 1994 Plan or any option or Stock
granted pursuant to the 1994 Plan shall confer upon (i) any employee any right
to be continued in the employment of the Company or any parent or subsidiary of
the Company, or to interfere in any way with the right of the Company or any
parent or subsidiary of the Company by whom such employee is employed to
terminate such employee's employment at any time, with or without cause, or to
increase or decrease such employee's compensation, or (ii) any person engaged by
the Company any right to be retained or employed by the Company or to the
continuation, extension, renewal or modification of any compensation, contract
or arrangement with or by the Company.
15. Rights as a Stockholder. The holder of an option shall have no rights
as a stockholder with respect to any shares covered by any option agreement
until the date of issue of a stock certificate to him or her for such shares.
Except as otherwise expressly provided in the 1994 Plan, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
7
EXHIBIT 10.23
CONSULTING SERVICES AGREEMENT
AGREEMENT made as of the 1st day of January, 1997 by and between MICRO
WAREHOUSE, INC., a Delaware corporation, whose principal office is located at
535 Connecticut Avenue, Norwalk, Connecticut (hereinafter referred to as
"Company") and FELIX DENNIS, 39 Goodge Street, London, W1P 1FD, England
(hereinafter referred to as "Consultant").
W I T N E S S E T H
WHEREAS, an Amendment to Consulting Services Agreement dated as of January
1, 1992 between the Company and Consultant expired on December 31, 1996; and
WHEREAS, the Company is desirous of retaining Consultant to provide
certain consultancy services for the Company as set forth herein; and
WHEREAS, Consultant is willing to perform such services under the terms
and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1. Consulting Services. The Company hereby retains Consultant and
Consultant hereby agrees to render such services as he has previously rendered
to the Company as the Company from time to time shall require such services.
Consultant agrees to perform such
<PAGE>
consulting services related to the business of the Company as shall from time to
time be mutually agreed.
2. Term of Engagement. The engagement hereunder shall be for a period
which shall commence on January 1, 1997 and shall end on December 31, 1997 (the
"Term of Engagement").
3. Compensation.
3.1 Compensation. As compensation for services to be rendered
hereunder, the Company shall during the Term of Engagement pay to Consultant
Fifty Thousand Dollars ($50,000) which shall be payable in equal quarterly
installments on March 31, June 30, September 30, and December 31 in arrears.
3.2 No Other Benefits. With the exception of reasonable expenses
incurred by the Consultant in connection with the discharge of his duties
described herein, no other fringe benefits, perquisites, or other benefits are
included in this Agreement.
4. Intellectual Property; Confidentiality. Consultant agrees that he will
not divulge to anyone other than authorized representatives of the Company any
knowledge or information of any type whatsoever of a confidential nature
relating to the business of the Company, including without limitation all types
of trade secrets, unless such information is readily ascertainable from public
or published information or trade sources. Consultant further agrees not to
disclose, publish or make use of any such knowledge or information of a
confidential nature without the prior written consent of the Company.
5. Reimbursement of Expenses. Consultant shall be entitled to be
reimbursed for travel and other expenses incurred in connection with
Consultant's services to the Company during the Term of Engagement.
<PAGE>
6. Breach by Consultant. The parties hereto recognize that the services to
be rendered under this Agreement by Consultant are special, unique and
extraordinary in character, and that in the event of a breach by Consultant of
the terms and conditions of this Agreement to be performed by Consultant, the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or in equity,
to obtain direct and actual damages for any breach of this Agreement, or to
enforce the specific performance thereof by Consultant, or to obtain such other
and further relief as the court may deem proper.
7. Relationship. The relationship of Consultant to the Company shall be
that of independent contractor. Nothing herein shall be deemed to constitute an
employment or agency relationship between Consultant and the Company.
Nevertheless, nothing contained herein shall be deemed to preclude the creation
of such relationship by separate agreement of the parties, in writing, for a
particular purpose. Except as expressly agreed in writing, Consultant shall not
have the authority to obligate, bind or commit the Company in any manner
whatsoever. Unless required by statute, regulation or treaty, the Company shall
not (i) withhold any monies payable hereunder in respect of any Federal, State,
local or foreign withholding tax or other similar tax or regulation or (ii)
provide Consultant with any worker's compensation, disability insurance; or
(iii) pay for other insurance coverage.
8. Consultant's Warranties and Representation. The Consultant warrants and
represents that he has full power and authority to enter into this Agreement and
to perform the obligations hereunder and that to the best of his knowledge,
there are no suits or proceedings pending or threatened against or affecting
him, which if adversely determined, would impair the terms of this Agreement. No
consent of any other party and no declaration with any
<PAGE>
governmental authority, bureau or agency is required in connection with the
execution or performance of this Agreement.
9. Company's Warranties and Representation. The Company represents and
warrants that it has the full power and authority to enter into this Agreement
and to perform the obligations hereunder and that to the best of its knowledge,
there are no suits or proceedings pending or threatened against or affecting it
which, if adversely determined, would impair the terms of this Agreement. No
consent of any other party and no declaration with any governmental authority,
bureau or agency is required in connection with the execution or performance of
this Agreement.
10. Survival of Warranties and Representations. All warranties and
representations made by the parties hereunder shall survive the termination of
this Agreement.
11. Waiver. No failure on the part of any party hereto to enforce the
breach of any of the obligations, agreements or conditions hereunder shall be
construed as a waiver of such breach or any subsequent performance hereunder
unless such waiver shall be in writing signed by the party to whom such
obligations or compliance is owed. No executory agreement shall be effective to
change or modify or to discharge in whole or in part this Agreement unless such
executory agreement is in writing and signed by the parties.
12. Governing Law; Headings. This Agreement contains the entire agreement
between the parties and shall be governed by the laws of the State of
Connecticut without regard to its laws in the area of conflicts of law.
Paragraph headings herein are for convenience of reference only and shall not be
considered a part of this Agreement.
13. Prior Agreements. This Agreement supersedes and terminates all prior
agreements, written or oral, between the parties relating to the subject matter
herein addressed.
<PAGE>
14.Notices. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement
shall be in writing and shall be considered properly given or made if
sent by courier service or if transmitted (and actually received by the
addressee) by any telecommunication device (e.g. telex or telecopier)
or if sent to such party by prepaid first class certified mail, return
receipt requested, or by courier service, to the addresses set forth
below. Any party may change its address by giving notice in writing to
the other parties of its new address.
To the Company: Micro Warehouse, Inc.
535 Connecticut Avenue
Norwalk, CT 06854
Attention: Linwood A. Lacy, Jr.
Facsimile (203) 899-4400
with a copy to: Bruce L. Lev, Esquire
Vice President and General Counsel
Micro Warehouse, Inc.
535 Connecticut Avenue
Norwalk, CT 06854
Facsimile (203) 899-4312
To Consultant: Mr. Felix Dennis
c/o 39 Goodge Street
London, England W1P 1FD
Facsimile 011 44 171 636 1305
with a copy to: Michael H. Nixon, Esquire
Gersten & Nixon
National House
60/66 Wardour Street
London, England W1V 3HP
Facsimile 011 44 171 734 2479
16. Successors. This Agreement shall be binding on the parties hereto and
their
<PAGE>
successors.
IN WITNESS WHEREOF, the Company has, by its appropriate officer,
signed this Agreement, and Consultant, as an individual, has signed this
Agreement, as of the 1st day of January, 1997.
THE COMPANY
MICRO WAREHOUSE, INC.
By /s/ Linwood A. Lacy, Jr.
-------------------------
Linwood A. Lacy, Jr.
Its President and Chief
Executive Officer
Hereunto Duly Authorized
ATTEST:
/s/ Bruce L. Lev
----------------
Its Secretary
CONSULTANT
/s/ Felix Dennis
----------------
Felix Dennis
[FORM OF]
INDEMNIFICATION AGREEMENT
This agreement ("Agreement") is made as of this 1st day of January, l994
between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred to
as the "Corporation") and _____________________________ (hereinafter referred to
as "Indemnitee").
W I T N E S S E T H:
WHEREAS, Indemnitee is an officer of Micro Warehouse, Inc., and in such
capacity is performing a valuable service to the Corporation; and
WHEREAS, the Board of Directors of the Corporation has adopted by-laws
providing for the indemnification of the officers, directors, agents (as
hereinafter defined) and employees of the Corporation to the maximum extent
authorized by Section 145 of the Delaware General Corporation Law; and
WHEREAS, Section 145(f) of the Delaware General Corporation Law allows for
the indemnification of officers, directors, agents and employees of the
Corporation by means of indemnification agreements such as contemplated herein;
and
WHEREAS, in order to thereby induce Indemnitee to serve or to continue to
serve the Corporation, the Corporation has determined and agreed to enter into
this Agreement with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's service or continued
service as a director or officer of the Corporation after the date hereof, the
parties hereto agree as follows:
1. Definitions.
(a) The term "Agent" means any person who is or was a director,
officer, employee or other agent of the Corporation or a subsidiary of the
Corporation; or is or was serving at the request of, for the convenience of, or
to represent the interests of, the Corporation or a subsidiary of the
Corporation as a director, officer, employee or agent of another entity or
enterprise; or was a director, officer, employee or agent of a predecessor
corporation of the Corporation or a subsidiary (as hereinafter defined) of the
Corporation, or was a director, officer, employee or agent of another enterprise
at the request of, for the convenience of, or to represent
<PAGE>
the interests of such predecessor corporation.
(b) The term "Expenses" means all direct and indirect costs of any
type or nature whatsoever (including without limitation, all attorneys' fees,
costs of investigation and related disbursements) incurred by the Indemnitee in
connection with the investigation, settlement, defense or appeal of a claim or
proceeding (as hereinafter defined) covered hereby or establishing or enforcing
a right to indemnification under this Agreement.
(c) The term "Proceeding" means any threatened, pending or completed
claim, suit or action, whether civil, criminal, administrative, investigative or
otherwise.
(d) "Subsidiary" means any corporation of which more than 10% of the
outstanding voting securities is owned directly or indirectly by the
Corporation, and one or more Subsidiaries, taken as a whole.
2. Maintenance of Liability Insurance.
(a) The Corporation hereby covenants and agrees to each Indemnitee
that, so long as such Indemnitee shall continue to serve as an Agent of the
Corporation and thereafter so long as the Indemnitee shall be subject to any
claim or Proceeding by reason of the fact that the Indemnitee was an Agent of
the Corporation or in connection with such Indemnitee's acts as such an Agent,
the Corporation, subject to paragraph 2(b), shall obtain and maintain or cause
to be obtained and maintained in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from established and
reputable insurers, but no less than the amounts currently in effect on the date
hereof.
(b) Notwithstanding the foregoing, the Corporation shall have no
obligation to obtain or maintain D&O Insurance if the Corporation determines in
good faith that the premium costs for such insurance are disproportionate to the
amount of coverage provided after giving effect to exclusions.
3. Mandatory Indemnification. The Corporation shall defend, indemnify
and hold harmless each Indemnitee:
(a) Third Party Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any Proceeding (other than an
action by or in the right of the Corporation) by reason of the fact that such
Indemnitee is or was an Agent of the Corporation, or by reason of anything done
or not done by the Indemnitee in any such capacity, against any and all Expenses
and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) incurred by him or her in connection with the investigation,
defense, settlement or appeal of such Proceeding, so long as the Indemnitee
acted in good faith and in a manner he or she reasonably believed to be
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in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or Proceeding, had reasonable cause to believe his or her
conduct was not unlawful.
(b) Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any Proceeding by or in the right
of the Corporation by reason of the fact that he or she is or was an Agent of
the Corporation, or by reason of anything done or not done by him or her in any
such capacity, against any amounts paid in settlement of any such Proceeding and
all other Expenses incurred by him or her in connection with the investigation,
defense, settlement or appeal of such Proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation; except that no indemnification under this
subparagraph shall be made, and the Indemnitee shall repay all amounts
previously advanced by the Corporation, in respect of any claim, issue or matter
for which such person is judged to be liable to the Corporation by a court of
competent jurisdiction due to misconduct in the performance of his or her duties
to the Corporation, unless and only to the extent that the court in which such
Proceeding was brought shall determine that such person is fairly and reasonably
entitled to indemnity.
(c) Actions Where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
Proceeding by reason of the fact that he or she is or was an Agent of the
Corporation, or by reason of anything done or not done by him or her in any such
capacity, and prior to, during the pendency of, or after completion of, such
Proceeding, the Indemnitee shall die, then the Corporation shall defend,
indemnify and hold harmless the estate, heirs and legatees of the Indemnitee
against any and all Expenses and liabilities incurred by or for such persons or
entities in connection with the investigation, defense, settlement or appeal of
such Proceeding on the same basis as provided for the Indemnitee in paragraphs
3(a) and 3(b) above.
The Expenses and liabilities covered hereby shall be net of any payments by D&O
Insurance carriers or others.
4. Partial Indemnification. If an Indemnitee is found under paragraph
3(b), 7 or 10 hereof not to be entitled to indemnification for all of the
Expenses relating to a Proceeding, the Corporation shall indemnify the
Indemnitee for any portion of such Expenses not specifically precluded by the
operation of such paragraph 3(b), 7 or 10.
5. Mandatory Advancement of Expenses. Until a determination to the
contrary under paragraph 7 hereof is made and unless the provisions of paragraph
10 apply, the Corporation shall advance all Expenses incurred by each Indemnitee
in connection with the investigation, defense, settlement or appeal of any
Proceeding to which the Indemnitee is a party or is threatened to be made a
party covered by the indemnification in paragraph 3 hereof. As a condition to
such advance, each Indemnitee shall, at the request of the Corporation,
undertake in a manner satisfactory to the Corporation to repay such amounts
advanced if it shall ultimately be determined by an order of a court that the
Indemnitee is not entitled to be indemnified by the
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Corporation by the terms hereof or under applicable law. Subject to paragraph 6
hereof, the advances to be made hereunder shall be paid by the Corporation to
the Indemnitee within twenty (20) days following delivery of a written request
by
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the Indemnitee to the Corporation, which request shall be accompanied by
vouchers, invoices and similar evidence documenting the amounts requested.
6. Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement or threat of any Proceeding covered hereby, the Indemnitee shall
notify the Corporation of the commencement or threat thereof, provided that any
failure to so notify shall not relieve the Corporation of any of its obligations
hereunder, except to the extent that such failure or delay increases the
liability of the Corporation hereunder.
(b) If, at the time of the receipt of a notice pursuant to paragraph
6(a) above, the Corporation has D&O Insurance in effect, the Corporation shall
give prompt notice of the Proceeding or claim to its insurers in accordance with
the procedures set forth in the applicable policies. The Corporation shall
thereafter take all necessary or desirable action to cause such insurers to pay
all amounts payable as a result of such Proceeding in accordance with the terms
of such policies and the Indemnitee shall not take any action (by waiver,
settlement or otherwise) which would adversely affect the ability of the
Corporation to obtain payment from its insurers.
(c) If the Corporation shall be obligated to pay the Expenses of any
Indemnitee, the Corporation shall assume the defense of the Proceeding to which
the Expenses relate and shall deliver a notice of assumption to the Indemnitee.
The Corporation will not be liable to the Indemnitee under this Agreement for
any fees of counsel incurred after delivery of such notice with respect to such
Proceeding or any costs of settlement not approved in advance in writing by the
Corporation, provided that (i) the Indemnitee shall have the right to employ his
or her own counsel in any such Proceeding at the Indemnitee's expense, and (ii)
if (1) the employment of counsel by the Indemnitee has been previously
authorized by the Corporation, (2) the Indemnitee shall have provided the
Corporation with an opinion of counsel stating that there is a strong argument
that a conflict of interest exists between the Corporation and the Indemnitee in
the conduct of any such defense, or (3) the Corporation shall not have assumed
the defense of such Proceeding, the fees and Expenses of Indemnitee's counsel
shall be at the expense of the Corporation.
7. Determination of Right to Indemnification.
(a) To the extent an Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding, claim, issue or matter covered hereby,
the Indemnitee need not repay any of the Expenses advanced in connection with
the investigation, defense or appeal of such Proceeding.
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(b) If paragraph 7(a) is inapplicable, the Corporation shall remain
obligated to indemnify the Indemnitee, and the Indemnitee need not repay
Expenses previously advanced, unless the Corporation, by contested motion before
a court of competent jurisdiction, obtains preliminary or permanent relief
suspending or denying the obligation to advance or indemnification for Expenses.
(c) Notwithstanding a determination by a court that the Indemnitee
is not entitled to indemnification with respect to a specific Proceeding, the
Indemnitee shall have the right to apply to the Court of Chancery of Delaware
for the purpose of enforcing the Indemnitee's right to indemnification pursuant
to this Agreement.
(d) Notwithstanding any other provision in this Agreement to the
contrary, the Corporation shall indemnify the Indemnitee against all Expenses
incurred by the Indemnitee in connection with any Proceeding under paragraph
7(b) or 7(c) above and against all Expenses incurred by the Indemnitee in
connection with any other Proceeding between the Corporation and the Indemnitee
involving the interpretation or enforcement of the rights of the Indemnitee
under this Agreement unless a court of competent jurisdiction finds that the
material claims and/or defenses of the Indemnitee in any such Proceeding were
frivolous or made in bad faith.
8. Certificate of Incorporation and By Laws. The Corporation agrees that
the Certificate of Incorporation and By Laws of the Corporation in effect on the
date hereof shall not be amended to reduce, limit, hinder or delay (i) the
rights of the Indemnitee granted hereby or (ii) the ability of the Corporation
to indemnify the Indemnitee as required hereby. The Corporation further agrees
that it shall exercise the powers granted to it under its Certificate of
Incorporation, its By Laws and by applicable law to indemnify any Indemnitee to
the fullest extent possible as required hereby. The Corporation further
covenants and agrees that Articles 9 and 10 of the Corporation's Certificate of
Incorporation shall not be amended in a manner (i) adverse to any Indemnitee or
(ii) inconsistent with the benefits granted to the Indemnitee hereby.
9. Witness Expenses. The Corporation agrees to reimburse each Indemnitee
for all Expenses, including attorneys' fees and travel costs, incurred by such
Indemnitee in connection with being a witness, or if an Indemnitee is threatened
to be made a witness, with respect to any Proceeding, by reason of his serving
or having served as an Agent of the Corporation.
10. Exceptions. Notwithstanding any other provision herein to the
contrary, the Corporation shall not be obligated pursuant to the terms of this
Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to the Indemnitee with respect to Proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense (other than Proceedings
brought to establish or enforce a right to indemnification under this Agreement
or the provisions of the Corporation's Certificate of Incorporation or By Laws
unless a court of competent jurisdiction determines that each of the material
assertions made by the Indemnitee in such Proceeding was not made in good faith
or was
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frivolous).
(b) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a Proceeding covered hereby
without the prior written consent of the Corporation to such settlement.
11. Non-exclusivity. This Agreement is not the exclusive arrangement
between the Corporation and any Indemnitee regarding the subject mater hereof
and shall not diminish or affect any other rights which each Indemnitee may have
under any provision of law, the Corporation's Certificate of Incorporation or By
Laws, under other agreements, or otherwise.
12. Continuation after Term. Each Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as a director or Agent of the
Corporation and the benefits hereof shall inure to the benefit of the heirs,
executors and administrators of each Indemnitee.
13. Interpretation of Agreement. This Agreement shall be interpreted and
enforced so as to provide indemnification to the Indemnitee to the fullest
extent now or hereafter permitted by law.
14. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, (i) the validity, legality and
enforceability of the remaining provisions of the Agreement shall not in any way
be effected or impaired thereby, and (ii) to the fullest extent possible, the
provisions of this Agreement shall be construed or altered by the court so as to
remain enforceable and to provide the Indemnitee with as many of the benefits
contemplated hereby as are permitted under law.
15. Counterparts, Modification and Waiver. This Agreement may be signed in
counterparts. This Agreement constitutes a separate agreement between the
Corporation and each Indemnitee and may be supplemented or amended as to an
Indemnitee only by a written instrument signed by the Corporation and such
Indemnitee, with such amendment binding only the Corporation and the signing
Indemnitee(s). All waivers must be in a written document signed by the party to
be charged. No waiver of any of the provisions of this Agreement shall be
implied by the conduct of the parties. A waiver of any right hereunder shall not
constitute a waiver of any other right hereunder.
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IN WITNESS WHEREOF, the parties hereby have caused this agreement to be
duly executed as of the day and year first above written.
MICRO WAREHOUSE, INC.
By____________________________
Bruce L. Lev, Its
Executive Vice President
Hereunto Duly Authorized
----------------------------
8
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 31, 1997
among
MICRO WAREHOUSE, INC.
THE SUBSIDIARIES OF MICRO WAREHOUSE, INC.
THE LENDERS SIGNATORY HERETO
and
THE CHASE MANHATTAN BANK
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS......................................2
Section 1.01. Definitions...............................................2
Section 1.02. Accounting Terms.........................................17
ARTICLE 2. THE CREDIT........................................................17
Section 2.01. Revolving Credit Loans...................................17
Section 2.02. The Revolving Credit Notes...............................18
Section 2.03. Purpose..................................................18
Section 2.04. Borrowing Procedures.....................................18
Section 2.05. Prepayments and Conversions..............................18
Section 2.06. Interest Periods; Renewals...............................19
Section 2.07. Changes of Revolving Credit Commitments..................20
Section 2.08. Certain Notices..........................................20
Section 2.09. Minimum Amounts..........................................20
Section 2.10. Interest.................................................21
Section 2.11. Fees.....................................................21
Section 2.12. Payments Generally.......................................22
Section 2.13. Novation.................................................22
ARTICLE 3. THE LETTERS OF CREDIT.............................................23
Section 3.01. Letters of Credit........................................23
Section 3.02. Purposes.................................................23
Section 3.03. Procedures for Issuance of Letters of Credit.............23
Section 3.04. Participating Interests..................................23
Section 3.05. Payments.................................................24
Section 3.06. Further Assurances.......................................25
Section 3.07. Obligations Absolute.....................................25
Section 3.08. Cash Collateral Account..................................25
Section 3.09. Letter of Credit Fees....................................26
ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC.................................26
Section 4.01. Additional Costs.........................................26
Section 4.02. Limitation on Eurocurrency Loans.........................28
Section 4.03. Illegality...............................................28
Section 4.04. Certain Conversions pursuant to Sections 4.01
and 4.03.................................................29
Section 4.05. Certain Compensation.....................................30
Section 4.06. Taxes....................................................30
ARTICLE 5. CONDITIONS PRECEDENT..............................................32
Section 5.01. Documentary Conditions Precedent.........................32
Section 5.02. Additional Conditions Precedent..........................33
Section 5.03. Deemed Representations...................................33
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ARTICLE 6. REPRESENTATIONS AND WARRANTIES....................................33
Section 6.01. Incorporation, Good Standing and Due Qualification.......33
Section 6.02. Corporate Power and Authority; No Conflicts..............33
Section 6.03. Legally Enforceable Agreements...........................34
Section 6.04. Litigation...............................................34
Section 6.05. Financial Statements.....................................34
Section 6.06. Ownership and Liens......................................35
Section 6.07. Taxes....................................................35
Section 6.08. ERISA....................................................35
Section 6.09. Consolidated Entities and Affiliates.....................36
Section 6.10. Credit Arrangements......................................36
Section 6.11. Operation of Business....................................36
Section 6.12. Hazardous Materials......................................36
Section 6.13. No Default on Outstanding Judgments or Orders............37
Section 6.14. No Defaults on Other Agreements..........................37
Section 6.15. Labor Disputes and Acts of God...........................37
Section 6.16. Governmental Regulation..................................37
Section 6.17. No Forfeiture............................................37
Section 6.18. Solvency.................................................37
ARTICLE 7. AFFIRMATIVE COVENANTS.............................................38
Section 7.01. Maintenance of Existence.................................38
Section 7.02. Conduct of Business......................................38
Section 7.03. Maintenance of Properties................................38
Section 7.04. Maintenance of Records...................................38
Section 7.05. Maintenance of Insurance.................................39
Section 7.06. Compliance with Laws.....................................39
Section 7.07. Right of Inspection......................................39
Section 7.08. Reporting Requirements...................................39
Section 7.09. Additional Subsidiary Guarantors.........................43
ARTICLE 8. NEGATIVE COVENANTS................................................43
Section 8.01. Debt.....................................................43
Section 8.02. Guaranties...............................................44
Section 8.03. Liens....................................................44
Section 8.04. Leases...................................................45
Section 8.05. Investments..............................................46
Section 8.06. Distributions............................................46
Section 8.07. Sale of Assets...........................................47
Section 8.08. Subsidiary Capital Stock.................................47
Section 8.09. Transactions with Affiliates.............................47
Section 8.10. Mergers, Etc.............................................47
Section 8.11. Acquisitions.............................................48
Section 8.12. No Activities Leading to Forfeiture......................48
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Section 8.13. Capital Expenditures.....................................48
Section 8.14. Restrictions.............................................48
Section 8.15. Fiscal Year..............................................48
ARTICLE 9. FINANCIAL COVENANTS...............................................48
Section 9.01. Interest Coverage Ratio..................................49
Section 9.02. Minimum Tangible Net Worth...............................49
Section 9.03. Leverage Ratio...........................................49
Section 9.04. Current Ratio............................................49
Section 9.05. Domestic Net Worth.......................................49
ARTICLE 10. EVENTS OF DEFAULT................................................49
Section 10.01. Events of Default.......................................49
ARTICLE 11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS.......................52
Section 11.01. Guarantied Obligations..................................52
Section 11.02. Performance Under This Agreement........................52
Section 11.03. Waivers.................................................52
Section 11.04. Releases................................................54
Section 11.05. Marshaling..............................................54
Section 11.06. Liability...............................................55
Section 11.07. Unconditional Obligation................................55
Section 11.08. Election to Perform Obligations.........................55
Section 11.09. No Election.............................................55
Section 11.10. Severability............................................56
Section 11.11. Other Enforcement Rights................................56
Section 11.12. Delay or Omission; No Waiver............................56
Section 11.13. Restoration of Rights and Remedies......................56
Section 11.14. Cumulative Remedies.....................................57
Section 11.15. Survival................................................57
Section 11.16. No Setoff, Counterclaim or Withholding; Gross-Up........57
Section 11.17. Payment in Applicable Currency..........................57
ARTICLE 12. THE ADMINISTRATIVE AGENT.........................................57
Section 12.01. Appointment, Powers and Immunities of
Administrative Agent....................................57
Section 12.02. Reliance by Administrative Agent........................58
Section 12.03. Defaults................................................58
Section 12.04. Rights of Administrative Agent as a Lender..............59
Section 12.05. Indemnification of Administrative Agent.................59
Section 12.06. Documents...............................................60
Section 12.07. Non-Reliance on Administrative Agent and Other
Lenders.................................................60
Section 12.08. Failure of Administrative Agent to Act..................60
Section 12.09. Resignation or Removal of Administrative Agent..........60
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Section 12.10. Amendments Concerning Agency Function...................61
Section 12.11. Liability of Administrative Agent.......................61
Section 12.12. Transfer of Agency Function.............................61
Section 12.13. Non-Receipt of Funds by the Administrative Agent........61
Section 12.14. Withholding Taxes.......................................62
Section 12.15. Several Obligations and Rights of Lenders...............62
Section 12.16. Pro Rata Treatment of Revolving Credit Loans, Etc.......62
Section 12.17. Sharing of Payments Among Lenders.......................63
ARTICLE 13. MISCELLANEOUS.....................................................63
Section 13.01. Amendments and Waivers..................................63
Section 13.02. Usury...................................................64
Section 13.03. Expenses................................................64
Section 13.04. Survival................................................65
Section 13.05. Assignment; Participations..............................65
Section 13.06. Notices.................................................66
Section 13.07. Setoff..................................................66
SECTION 13.08. JURISDICTION; IMMUNITIES......................................66
Section 13.09. Table of Contents; Headings.............................68
Section 13.10. Severability............................................68
Section 13.11. Counterparts............................................68
Section 13.12. Integration.............................................68
Section 13.13. Governing Law...........................................68
Section 13.14. Confidentiality.........................................68
Section 13.15. Treatment of Certain Information........................69
Section 13.16. Judgment Currency.......................................69
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v
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vi
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vii
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EXHIBITS
Exhibit A Opinion of Outside Counsel to the
Consolidated Entities
SCHEDULES
Schedule I Revolving Credit Commitments
Schedule II Consolidated Entities and Affiliates
Schedule III Credit Arrangements
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AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 31, 1997 among
MICRO WAREHOUSE, INC., a corporation organized under the laws of Delaware
("Micro Warehouse"); each of the Subsidiaries of Micro Warehouse which is a
signatory hereto as a "Subsidiary Borrower" (individually a "Subsidiary
Borrower" and collectively the "Subsidiary Borrowers" and, together with Micro
Warehouse, the "Borrowers"); each of the other Subsidiaries of Micro Warehouse
which is a signatory hereto as a "Subsidiary Guarantor" or which shall become a
party hereto as a "Subsidiary Guarantor" from time to time (individually a
"Subsidiary Guarantor" and collectively the "Subsidiary Guarantors" and,
together with the Borrowers, the "Obligors"); each of the financial institutions
which is a signatory hereto as a "Lender" or which shall become a party hereto
as a "Lender" from time to time (individually a "Lender" and collectively the
"Lenders"); and THE CHASE MANHATTAN BANK, a bank organized under the laws of New
York, as agent for the Lenders (in such capacity, together with its successors
in such capacity, the "Administrative Agent").
WHEREAS, Micro Warehouse, the Subsidiary Borrowers (other than Micro
Warehouse Limited), the Subsidiary Guarantors, the Lenders and the
Administrative Agent have entered into that certain Credit Agreement dated as of
July 25, 1995 (as amended, the "Existing Credit Agreement") pursuant to which
the Lenders have extended credit to the Obligors evidenced by certain Revolving
Credit Notes issued by the respective Borrower (other than Micro Warehouse
Limited) and guarantied by the other Borrowers (other than Micro Warehouse
Limited) and the Subsidiary Guarantors;
WHEREAS, Micro Warehouse Limited acquired the entire business and
undertaking of the company of that name ("the Old MWL") which is party to the
Existing Credit Agreement. Micro Warehouse Limited wishes to step into the
position of the Old MWL and be treated in all respects as if it had by a
novation replaced the Old MWL as party to the Existing Credit Agreement.
WHEREAS, Micro Warehouse, the Subsidiary Borrowers, the Subsidiary
Guarantors, the Lenders and the Administrative Agent have agreed to enter into
this Agreement to amend and restate the Existing Credit Agreement to provide
for, among other things, an extension of the Revolving Credit Termination Date,
an automatic reduction in the Revolving Credit Commitments and modifications of
certain covenants and definitions contained therein; and
WHEREAS, the Obligors have requested that the Lenders make loans to the
respective Borrower, the repayment of which will be guarantied by the other
Borrowers and the Subsidiary Guarantors; each Obligor will receive direct
economic and financial benefits from the Debt incurred under this Agreement and
the incurrence of such Debt is in the best interests of such Obligor; and each
Obligor acknowledges that the Lenders would not provide the financing hereunder
but for the joint and several obligations of such Obligor hereunder with respect
hereto.
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NOW THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Acceptable Acquisition" means any Acquisition which meets all of the
following conditions: (a) the aggregate consideration paid for such Acquisition
and for all prior Acquisitions during the same Fiscal Year does not exceed
$50,000,000; (b) such Acquisition has been approved in good faith by the Board
of Directors of the Person making the Acquisition; (c) no Default or Event of
Default exists or would exist after giving effect to such Acquisition; and (d)
after reviewing historical financial statements of the business being acquired
and considering the pro forma position of the Consolidated Entities subsequent
to such Acquisition, Micro Warehouse believes in good faith that the
Consolidated Entities will continue to be in compliance with the financial
covenants contained in Article 9 on a pro forma basis.
"Acquisition" means any transaction pursuant to which any Consolidated
Entity (a) acquires equity securities (or warrants, options or other rights to
acquire such securities) of any Person, (b) causes or permits any Person to be
merged into such Consolidated Entity, in any case pursuant to a merger, purchase
of assets or any reorganization providing for the delivery or issuance to the
holders of such Person's then outstanding securities, in exchange for such
securities, of cash or securities of any Consolidated Entity, or a combination
thereof, or (c) purchases all or substantially all of the business or assets of
any Person.
"Additional Costs" shall have the meaning assigned to such term in Section
4.01 hereof.
"Affiliate" means any Person: (a) which directly or indirectly controls,
or is controlled by, or is under common control with, any Consolidated Entity;
(b) which directly or indirectly beneficially owns or holds 5% or more of any
class of voting stock of any Consolidated Entity; (c) 5% or more of the voting
stock of which is directly or indirectly beneficially owned or held by any
Consolidated Entity; or (d) which is a partnership in which any Consolidated
Entity is a general partner. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Administrative Agent" shall have the meaning assigned to such term in the
introductory paragraph hereof.
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"Agreement" means this Credit Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the like
refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Alternative Currency" means any currency other than Dollars which is
commonly dealt with in the London interbank market and is freely transferable
and convertible into Dollars.
"Alternative Currency Equivalent" means, with respect to an amount of
Dollars on any date in relation to any specified Alternative Currency, the
amount of such specified Alternative Currency that may be purchased with such
amount of Dollars at the Spot Exchange Rate with respect to Dollars on such
date.
"Assumption Agreements" means each of the Assumption Agreements in the
form of Exhibit E to the Existing Credit Agreement delivered under Section 7.09
hereof.
"Banking Day" means any day on which commercial banks are not authorized
or required to close in New York, New York and whenever such day relates to a
Eurocurrency Loan or notice with respect to any Eurocurrency Loan, a day on
which dealings in Dollar or the applicable Alternative Currency deposits are
also carried out in the London interbank market.
"Borrowers" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Capital Expenditures" means, with respect to any Person, any expenditures
made by such Person to acquire or construct fixed assets, plant and equipment
(including renewals, improvements, replacements and incurrence of obligations
under Capital Leases, but excluding repairs and Acquisitions).
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Closing Date" means the date upon which the initial borrowing or initial
issuance of a Letter of Credit hereunder occurs.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment Percentage" means, as to any Lender at any date of
determination thereof, the percentage of the aggregate Revolving Credit
Commitments constituted by such Lender's Revolving Credit Commitments at such
date.
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"Compliance Certificate" means the compliance certificate in the form of
Exhibit B2 to the Existing Credit Agreement to be delivered by Micro Warehouse
under the terms of this Agreement.
"Consolidated Capital Expenditures" means, with respect to any fiscal
period, the aggregate amount of Capital Expenditures of the Consolidated
Entities for such period, as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Current Assets" means, at any date of determination thereof,
all assets of the Consolidated Entities treated as current assets, as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities" means, at any date of determination
thereof, all liabilities of the Consolidated Entities treated as current
liabilities, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Debt" means, at any date of determination thereof, the
aggregate amount of Debt of the Consolidated Entities, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated EBIT" means, with respect to any fiscal period, the sum of
(a) Consolidated Net Income for such period, plus (b) the aggregate amount of
(i) income taxes, (ii) Consolidated Interest Expense, (iii) non-cash charges
taken in the Fiscal Quarter ending on December 31, 1997 arising from the
implementation of the Restructuring Plan not to exceed $53,000,000 and (iv)
non-cash charges arising from any resolution of the action of certain
stockholders pending against Micro Warehouse arising out of the stock merger
between Micro Warehouse and Inmac Corp., to the extent that such aggregate
amount was deducted in the computation of Consolidated Net Income for such
period.
"Consolidated Entity" means Micro Warehouse or any Subsidiary of Micro
Warehouse whose accounts are or are required to be consolidated with the
accounts of Micro Warehouse in accordance with GAAP.
"Consolidated Intangible Assets" means, at any date of determination
thereof, all assets of the Consolidated Entities which would be classified as
intangibles under GAAP but in any event including, without limitation,
unamortized debt discount and expense, unamortized acquisition, organization and
reorganization expense, patents, copyrights, trademarks, trade names,
franchises, goodwill and other similar intangible assets.
"Consolidated Interest Expense" means, with respect to any fiscal period,
the amount of interest accrued on, and with respect to, Consolidated Debt
(including, without limitation, amortization of debt discount and imputed
interest on Capital Leases) plus all finance charges, premiums and other fees,
charges and expenses
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extracted in exchange for the forbearance from the collection of money during
such period, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Liabilities" means, at any date of determination thereof,
all liabilities of the Consolidated Entities (other than (a) the litigation
settlement accrual arising from the proposed settlements of the consolidated
securities class action lawsuit arising out of Micro Warehouse's announcements
in September and October 1996 that it intended to restate certain financial
statements covering the 1992 through 1995 Fiscal Years not to exceed $9,000,000
and (b) the non-cash portion of the litigation settlement accrual arising from
any resolution of the action of certain stockholders pending against Micro
Warehouse arising out of the stock merger between Micro Warehouse and Inmac
Corp.), as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any fiscal period, net
income for the Consolidated Entities for such fiscal period, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, at any date of determination thereof, all
amounts which would be included under stockholders' equity on a consolidated
balance sheet of the Consolidated Entities, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Subordinated Debt" means, at any date of determination
thereof, all Debt of the Consolidated Entities which is subordinated to all
obligations owed to the Required Lenders on terms and conditions acceptable to
the Lenders, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Tangible Net Worth" means, at any date of determination
thereof, the result of (a) Consolidated Net Worth minus (b) Consolidated
Intangible Assets.
"Currency Protection Agreement" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other financial agreement
or arrangement between one or more Lenders and a Consolidated Entity designed to
protect against fluctuations in currency values.
"Current Ratio" means, at any date of determination thereof, the ratio of
(a) Consolidated Current Assets to (b) Consolidated Current Liabilities.
"Customer" means the account debtor with respect to any of the Receivables
and/or the purchaser of goods, services or both with respect to any contract or
contract right, and/or any Person who enters into any contract or other
arrangement with any Borrower, pursuant to which such Borrower is to deliver any
personal Property or perform any services.
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"Debt" means, with respect to any Person: (a) indebtedness of such Person
for borrowed money; (b) indebtedness for the deferred purchase price of Property
or services (except trade payables and accrued expenses in the ordinary course
of business); (c) Unfunded Benefit Liabilities of such Person (if such Person is
not a Consolidated Entity, determined in a manner analogous to that of
determining Unfunded Benefit Liabilities of the Consolidated Entities); (d) the
face amount of any outstanding letters of credit issued for the account of such
Person; (e) obligations arising under acceptance facilities; (f) Guaranties of
such Person; (g) obligations secured by any Lien on Property of such Person; (h)
obligations of such Person as lessee under Capital Leases; (i) obligations of
such Person in respect of interest rate protection agreements, foreign currency
exchange agreements, commodity purchase or option agreements or other interest
or exchange rate or commodity price hedging arrangements; and (j) all capital
stock of such Person subject to repurchase or redemption other than at the sole
option of such Person.
"Debt to EBIT Ratio" means, at any date of determination thereof, the
ratio of (a) Consolidated Debt (exclusive of "Debt" included under clause (i) of
the definition thereof) to (b) Consolidated EBIT for the four most recently
ended Fiscal Quarters.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means, with respect to the principal of any Revolving
Credit Loan and, to the extent permitted by law, any other amount payable by any
Obligor under this Agreement, any Revolving Credit Note or any other Facility
Document, that is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period from and including the due
date, to, but excluding the date on which such amount is paid in full equal to
four percent (4%) above the Variable Rate as in effect from time to time plus
the Interest Margin (if any); provided that, if the amount so in default is
principal of a Eurocurrency Loan and the due date thereof is a day other than
the last day of the Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, two percent (2%) above
the interest rate for such Eurocurrency Loan as provided in Section 2.10 hereof
and, thereafter, the rate provided for above in this definition.
"Denomination Date" means, in relation to any borrowing, conversion or
renewal in an Alternative Currency, the date that is three Banking Days before
the date such borrowing, conversion or renewal is made.
"Distribution" means, with respect to any Person, the declaration or
payment of any dividends by such Person, or the purchase, redemption, retirement
or other acquisition for value of any of its capital stock now or hereafter
outstanding, or the making of any distribution of assets to its stockholders as
such whether in cash, assets or in obligations of such Person, or the allocation
or other setting apart of any sum for the payment of any dividend or
distribution on, or for the purchase,
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redemption or retirement of any shares of its capital stock, or the making of
any other distribution by reduction of capital or otherwise in respect of any
shares of its capital stock, or the making of payments of interest on, or
payments or prepayments of principal of, or payments (or setting apart of money
for a sinking or other analogous fund) for the purchase,redemption, retirement
or other acquisition of principal or interest, on Consolidated Subordinated
Debt.
"Dollar Equivalent" means, with respect to an amount of any Alternative
Currency on any date, the amount of Dollars that may be purchased with such
amount of such Alternative Currency at the Spot Exchange Rate with respect to
such Alternative Currency on such date.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Domestic Cash Equivalents" means: (a) direct obligations of, or
obligations fully guarantied or insured by, the United States of America or any
agency or instrumentality thereof with maturities of one year or less from the
date of acquisition; (b) commercial paper of a domestic issuer rated at least
"A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service,
Inc.; (c) time deposits or certificates of deposit with maturities of one year
or less from the date of acquisition issued by any commercial bank operating
within the United States of America having capital and surplus in excess of
$100,000,000; and (d) money market or mutual funds whose sole investments are
comprised of investments permitted under the foregoing clauses (a) through (c).
"Domestic Net Worth" means, at any date of determination thereof, all
amounts which would be included under stockholders' equity on a combined balance
sheet of Micro Warehouse and the Domestic Subsidiaries, as determined on a
consolidated basis in accordance with GAAP.
"Domestic Obligations" means all Obligations of Micro Warehouse and the
Domestic Subsidiaries.
"Domestic Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Consolidated
Entities or any ERISA Affiliate and which is covered by Title IV of ERISA, other
than a Multiemployer Plan.
"Domestic Subsidiary" means a direct or indirect Subsidiary of Micro
Warehouse which is not a Foreign Subsidiary.
"Effective Date" shall have the meaning assigned to such term in Article
5.
"Environmental Laws" means any and all domestic, foreign, federal, state
and local statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees,
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permits, licenses, agreements with Governmental Authorities or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
industrial, toxic or hazardous substances or wastes into the environment
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which any Consolidated Entity is a member, or (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which any Consolidated Entity is a member.
"Eurocurrency Loan" means any Revolving Credit Loan when and to the extent
the interest rate therefor is determined on the basis of the definition "Fixed
Base Rate."
"Event of Default" shall have the meaning assigned to such term in Section
10.01 hereof.
"Existing Credit Agreement" shall have the meaning assigned to such term
in the first recital hereto.
"Facility Documents" means this Agreement, the Revolving Credit Notes, the
Letters of Credit, each Assumption Agreement, each Interest Rate Protection
Agreement and each Currency Protection Agreement, as each may be amended or
supplemented from time to time.
"Federal Funds Rate" means, for any day, the rate per annum (expressed on
a 365/366 day basis of calculation, if the rate on Variable Rate Loans is so
calculated) equal to the weighted average of the rates on overnight federal
funds transactions as published by the Federal Reserve Lender of New York for
such day (or for any day that is not a Banking Day, for the immediately
preceding Banking Day).
"Fiscal Quarter" means any calendar quarter.
"Fiscal Year" means any calendar year.
"Fiscal Year Net Worth Increase Amounts" means, with respect to each
Fiscal Year, the sum of (a) the greater of (i) Zero Dollars ($0) and (ii) 50% of
Consolidated
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Net Income for such Fiscal Year plus (b) 50% of the proceeds (net of
underwriting commissions and discounts and reasonable fees and expenses) from
the sale of capital stock of Micro Warehouse during such Fiscal Year.
"Fixed Base Rate" means with respect to any Interest Period for a
Eurocurrency Loan: the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent (1%)) quoted at approximately 11:00 a.m. London time
by the principal London branch of the Reference Lender two Banking Days prior to
the first day of such Interest Period for the offering to leading banks in the
London interbank market of Dollar or Alternative Currency deposits in
immediately available funds, for a period, and in an amount, comparable to the
Interest Period and principal amount of the Eurocurrency Loan which shall be
made.
"Fixed Rate" means, for any Eurocurrency Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of one percent (1%)) determined by the Administrative Agent to be equal to the
quotient of (i) the Fixed Base Rate for such Eurocurrency Loan for such Interest
Period, divided by (ii) one minus the Reserve Requirement for such Eurocurrency
Loan for such Interest Period.
"Foreign Cash Equivalents" means: (a) direct obligations of, or
obligations fully guarantied or insured by, the government of the country in
which any Foreign Subsidiary is incorporated or has its principal place of
business with maturities of one year or less from the date of acquisition; and
(b) direct demand obligations issued by the principal banking institutions
located in any such country.
"Foreign Plan" means any pension plan or other deferred compensation plan,
program or arrangement maintained by any Foreign Subsidiary which may or may
not, under applicable local law, be required to be funded through a trust or
other funding vehicle.
"Foreign Subsidiary" means each direct or indirect Subsidiary of Micro
Warehouse which was created or organized under the laws of a jurisdiction other
than the United States of America, any state thereof or the District of
Columbia.
"Forfeiture Proceeding" means any action, proceeding or investigation
affecting any Consolidated Entity or any of its Affiliates before any
Governmental Authority, or the receipt of notice by any such party that any of
them is a suspect in or a target of any governmental inquiry or investigation,
which may result in an indictment of any of them or the seizure or forfeiture of
any of their respective Properties.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
6.05 (except for material changes determined preferable by the Consolidated
Entities' independent public accountants).
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"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantied Obligations" shall have the meaning assigned to such term in
Section 11.01 hereof.
"Guarantor" shall have the meaning assigned to such term in Section 11.01
hereof.
"Guaranty" means, with respect to any Person, guaranties, endorsements
(other than for collection in the ordinary course of business) and other
contingent obligations of such Person with respect to the obligations of any
other Person (including, but not limited to, an agreement to purchase any
obligation, stock, assets, goods or services or to supply or advance any funds,
assets, goods or services, or an agreement to maintain or cause such Person to
maintain a minimum working capital or net worth or otherwise to assure the
creditors of any such other Person against loss).
"Hazardous Materials" means any and all pollutants, contaminants, toxic or
hazardous wastes or any other substances, the removal of which is required or
the generation, manufacture, refining, production, processing, treatment,
storage, handling, transportation, transfer, use, disposal, release, discharge,
spillage, seepage, or filtration of which is restricted, prohibited or penalized
by any applicable Environmental Law.
"Interest Coverage Ratio" means, at any date of determination thereof, the
ratio of (a) Consolidated EBIT for the most recently ended four Fiscal Quarters
to (b) Consolidated Interest Expense during such four Fiscal Quarters.
"Interest Margin" means, for each type of Revolving Credit Loan, the
percentage for such type of Revolving Credit Loan set forth below opposite the
range of the Debt to EBIT Ratio in the schedule below as determined as of the
last day of each Fiscal Quarter, with adjustments to become effective on the
date of receipt by the Administrative Agent of the most recent financial
statements of the Consolidated Entities required to be furnished to the Lenders
under Section 7.08:
Interest Margin
---------------
Debt to EBIT Ratio Variable Rate Eurocurrency
Loans Loans
(a) less than .75 to 1.00 0% .50%
(b) equal to or greater 0% .75%
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than .75 to 1.00 and
less than 1.00 to 1.00
(c) equal to or greater 0% 1.00%
than 1.00 to 1.00 and
less than 2.00 to 1.00
(d) equal to or greater 0% 1.25%
than 2.00 to 1.00
"Interest Period" means: with respect to any Eurocurrency Loan, the period
commencing on the date such Eurocurrency Loan is made, is converted from a
Variable Rate Loan or an Eurocurrency Loan denominated in another currency or is
renewed, as the case may be, and ending, as any Borrower may select pursuant to
Section 2.06: on the numerically corresponding day in the first, second, third,
or sixth calendar month thereafter, provided that each such Interest Period
which commences on the last Banking Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Banking Day of the appropriate calendar
month.
"Interest Rate Protection Agreement" means an interest rate swap, cap or
collar agreement or similar arrangement between one or more Lenders and a
Consolidated Entity providing for the transfer or mitigation of interest risks
either generally or under specific contingencies.
"Investment" means any loan or advance to any Person or any purchase or
other acquisition of any capital stock, assets, obligations or other securities
of and Person, or any capital contribution to, investment in, or other
acquisition of any interest in, any Person.
"Issuing Lender" means The Chase Manhattan Bank, a bank organized under
the laws of New York, acting in its capacity as Lender hereunder.
"Judgment Currency" shall have the meaning assigned to such term in
Section 13.16 hereof.
"Judgment Currency Conversion Date" shall have the meaning assigned to
such term in Section 13.16 hereof.
"Lender" shall have the meaning assigned to such term in the introductory
paragraph hereof.
"Lending Office" means, for each Lender and for each type of Revolving
Credit Loan, the lending office of such Lender (or of an affiliate of such
Lender) designated as such for such type of Revolving Credit Loan on its
signature page hereof or such
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other office of such Lender (or of an affiliate of such Lender) as such Lender
may from time to time specify to the Administrative Agent and Micro Warehouse as
the office by which its Revolving Credit Loans of such type are to be made and
maintained.
"Letter of Credit Availability" means, at any date of determination
thereof, the amount by which (a) the lesser of (i) the result of (A) the
aggregate amount of the Revolving Credit Commitments to Micro Warehouse as of
such date minus (B) the unpaid aggregate principal amount of the Revolving
Credit Loans to Micro Warehouse then outstanding and (ii) $10,000,000 exceeds
(b) the aggregate amount of the Letter of Credit Obligations at such date.
"Letter of Credit Funding" shall have the meaning assigned to such term in
Section 3.05(b) hereof.
"Letter of Credit Obligations" means, at any date of determination
thereof, all liabilities of Micro Warehouse with respect to Letters of Credit,
whether or not any liability is contingent, including, without limitation, the
sum of (a) the aggregate amount available to be drawn under the Letters of
Credit then outstanding plus (b) the aggregate amount of all unpaid
Reimbursement Obligations.
"Letters of Credit" shall have the meaning assigned to such term in
Section 3.01(a) hereof.
"Leverage Ratio" means, at any date of determination thereof, the ratio of
(a) Consolidated Liabilities to (b) Consolidated Tangible Net Worth.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other similar encumbrance or right of
others, or any agreement to give any of the foregoing.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Consolidated Entities, taken
as a whole, (b) the ability of any Obligor to perform its obligations under each
of the Facility Documents to which it is a party or (c) the binding nature,
validity or enforceability of any of the Facility Documents, which, in each
case, arises from, or reasonably could be expected to arise from, any action or
omission of action on the part of any Consolidated Entity or the occurrence of
any event or the existence of any fact or condition in respect of any
Consolidated Entity or any of its Properties.
"Micro Warehouse" shall have the meaning assigned to such term in the
introductory paragraph hereof.
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"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by any Consolidated Entity or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Obligation Currency" shall have the meaning assigned to such term in
Section 13.16 hereof.
"Obligations" means the unpaid principal of and interest on (including
interest accruing on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Revolving Credit Notes and all other obligations and liabilities
of any Obligor to the Administrative Agent or any Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any Revolving Credit Note, any Letter of Credit, any other Facility
Document and any other document made, delivered or given in connection therewith
or herewith, whether on account of principal, interest, Guaranties,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the Administrative
Agent or any Lender) or otherwise.
"Obligor" shall have the meaning assigned to such term in the introductory
paragraph hereof.
"Participating Lender" means, any Lender (other than Issuing Lender) with
respect to its Participating Interest in each Letter of Credit.
"Participating Interest" means, with respect to each Letter of Credit, (a)
in the case of the Issuing Lender, its interest in such Letter of Credit after
giving effect to the granting of any participating interest therein pursuant
hereto and (b) in the case of each Participating Lender, its undivided
participating interest in such Letter of Credit.
"Payor" shall have the meaning assigned to such term in Section 12.13
hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Prime Rate" means that rate of interest from time to time announced by
the Reference Lender at its Principal Office as its prime commercial lending
rate.
"Principal Office" means the principal office of the Administrative Agent,
presently located at 270 Park Avenue, New York, New York 10017.
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"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
"Pro Rata Share" means, with respect to each Lender, a share proportional
to such Lender's Commitment Percentage.
"Purchase Money Lien" means a Lien on any Property acquired by any
Consolidated Entity or placed on any Property in order to finance the
acquisition of such Property, or the assumption of any Lien on Property existing
at the time of the acquisition of such Property or a Lien incurred in connection
with any conditional sale or other title retention agreement or a Capital Lease.
"Receivables" means all accounts, contract rights, instruments, documents,
chattel paper, general intangibles relating to accounts, drafts and acceptances,
and all other forms of obligations arising out of or in connection with the sale
or lease of inventory or for services rendered (including, without limitation,
all rights to receive payments under all contracts), all guarantees and other
security therefor, whether secured or unsecured and whether now existing or
hereafter created.
"Reference Lender" means The Chase Manhattan Bank (or if The Chase
Manhattan Bank no longer quotes on the London interbank market, such successor
leading bank in the London interbank market which shall be reasonably appointed
by the Administrative Agent).
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means any change after the date of this Agreement in
United States federal, state, municipal or foreign laws or regulations
(including without limitation Regulation D) or the adoption or making after such
date of any interpretations, directives or requests applying to a class of banks
of which such bank is a member, of or under any United States, federal, state,
municipal or foreign laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reimbursement Obligation" means the obligation of Micro Warehouse to
reimburse the Issuing Lender in accordance with the terms of this Agreement for
the payment made by the Issuing Lender under any Letter of Credit.
"Required Lenders" means, at any time while no Obligations are
outstanding, Lenders having at least 51% of the aggregate amount of the
Revolving Credit
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Commitments and, at any time while Obligations are outstanding, Lenders holding
at least 51% of the aggregate amount of Obligations. For purposes of determining
the Required Lenders, any amounts denominated in an Alternative Currency shall
be translated into Dollars at the Spot Exchange Rate in effect at such time.
"Required Payment" shall have the meaning assigned to such term in Section
12.13 hereof.
"Reserve Requirement" means, for any Interest Period for any Eurocurrency
Loan for any Interest Period therefor, the average maximum rate at which
reserves (including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding $1,000,000,000 against in the case of Eurocurrency Loans,
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the Fixed Base Rate for Eurocurrency Loans is to
be determined as provided in the definition of "Fixed Base Rate" in this Section
1.01 or (ii) any category of extensions of credit or other assets which include
Eurocurrency Loans.
"Restructuring Plan" means the proposed restructuring of operations of the
Consolidated Entities involving the closing of businesses in Australia and Japan
and the disposal of its operations in Norway, Denmark and Finland and the
restructuring of USA Flex and OnLine Interactive, Inc.
"Revolving Credit Commitments" means, with respect to each Lender, the
obligation of such Lender to make its Revolving Credit Loans to the respective
Borrower under this Agreement in the aggregate principal amount set forth in
Schedule I, as such amount may be reduced or otherwise modified from time to
time.
"Revolving Credit Loans" shall have the meaning assigned to such term in
Section 2.01.
"Revolving Credit Notes" means the promissory notes of the respective
Borrower in the form of Exhibit A to the Existing Credit Agreement evidencing
the Revolving Credit Loans made by a Lender hereunder and all promissory notes
delivered in substitution or exchange therefor, as amended or supplemented from
time to time.
"Revolving Credit Termination Date" means June 30, 1999.
"Spot Exchange Rate" means, on any date of determination thereof, (a) with
respect to any Alternative Currency, the spot rate at which Dollars are offered
on such day by the principal London branch of the Reference Lender at
approximately 11:00 a.m. (London time) and (b) with respect to Dollars in
relation to any specified
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Alternative Currency, the spot rate at which such specified Alternative Currency
is offered on such date by the principal London branch for Dollars at
approximately 11:00 a.m. (London time). For purposes of determining the Spot
Exchange Rate in connection with a borrowing, conversion or renewal in an
Alternative Currency, such Spot Exchange Rate shall be determined as of the
Denomination Date for such borrowing, conversion or renewal with respect to
transactions in the applicable Alternative Currency that will settle on the date
of such borrowing, conversion or renewal.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by such Person. "Wholly-Owned Subsidiary" means any such corporation
or other entity of which all of such securities or other ownership interests are
so owned directly or indirectly by such Person.
"Subsidiary Borrower" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Subsidiary Guarantor" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Taxes" shall have the meaning assigned to such term in Section 4.06
hereof.
"`type' of Loan" shall have the meaning assigned to such term in Section
2.01 hereof.
"UCP" shall have the meaning assigned to such term in Section 13.13
hereof.
"Unconditional Guaranty" shall have the meaning assigned to such term in
Section 11.01 hereof.
"Unfunded Benefit Liabilities" means, with respect to any Domestic Plan or
Foreign Plan, the amount (if any) by which the present value of all benefit
liabilities (within the meaning of Section 4001(a)(16) of ERISA or within the
meaning of any similar foreign law) under such Domestic Plan or Foreign Plan
exceeds the fair market value of all assets of such Domestic Plan or Foreign
Plan allocable to such benefit liabilities, as determined on the most recent
valuation date of such Domestic Plan or Foreign Plan and in accordance with the
provisions of ERISA or such similar foreign law for calculating the potential
liability of any Consolidated Entity or any ERISA Affiliate under Title IV of
ERISA or such similar foreign law.
"Variable Rate" means, for any day, the higher of (a) the Federal Funds
Rate for such day plus 1/4 of one percent and (b) the Prime Rate for such day.
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"Variable Rate Loan" means any Revolving Credit Loan when and to the
extent the interest rate for such Revolving Credit Loan is determined in
relation to the Variable Rate.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.
ARTICLE 2. THE CREDIT.
Section 2.1. Revolving Credit Loans. (a) Subject to the terms and
conditions of this Agreement, each of the Lenders severally agrees to make
revolving credit loans (the "Revolving Credit Loans") to each Borrower (as
specified in the notice of each borrowing pursuant to Section 2.08) from time to
time from and including the date hereof to and including the Revolving Credit
Termination Date, up to but not exceeding in the aggregate principal amount at
any one time outstanding, the amount of the respective Revolving Credit
Commitments of such Lender to such Borrower. The aggregate amount of the
Revolving Credit Loans outstanding at any time shall never exceed the result of
(i) the aggregate amount of the Revolving Credit Commitments minus (ii) the
aggregate amount of Letter of Credit Obligations outstanding at such time. The
Revolving Credit Loans shall be due and payable on the Revolving Credit
Termination Date. The Revolving Credit Loans may be outstanding as Variable Rate
Loans or Eurocurrency Loans (each a "type" of Revolving Credit Loans).
Eurocurrency Loans may be denominated in Dollars or in one or more Alternative
Currencies but Variable Rate Loans shall be denominated only in Dollars. Each
type of Revolving Credit Loans of each Lender shall be made and maintained at
such Lender's applicable Lending Office for such type of Revolving Credit Loans.
(b) Any Eurocurrency Loan may be made in the Alternative Currency
specified in the notice of each borrowing pursuant to Section 2.08 in an amount
equal to the Alternative Currency Equivalent of the Dollar amount specified in
such notice, as determined by the Administrative Agent as of the Denomination
Date for such borrowing (which determination shall be conclusive absent manifest
error). For purposes of determining the amount outstanding under any Lender's
Revolving Credit Commitments, each Eurocurrency Loan denominated in an
Alternative Currency shall be the Dollar Equivalent for such Eurocurrency Loan
as of the Denomination Date.
Section 2.2. The Revolving Credit Notes. The Revolving Credit Loans of
each Lender to each Borrower are evidenced by a Revolving Credit Note in the
case of Micro Warehouse and Micro Warehouse Limited, dated the Effective Date,
and, in the case of each other Borrower, dated May 10, 1996, duly completed and
executed by such Borrower.
Section 2.3. Purpose. Each Borrower shall use the proceeds of the
Revolving Credit Loans for general corporate purposes (including, without
limitation, working
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capital and to finance Acceptable Acquisitions). Such proceeds shall not be used
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying "margin stock" within the meaning of Regulation U.
Section 2.4. Borrowing Procedures. Each Borrower shall give the
Administrative Agent notice of each borrowing to be made by it hereunder as
provided in Section 2.08. Not later than 12:00 noon New York, New York time on
the date specified for such borrowing hereunder, each Lender shall, through its
applicable Lending Office and subject to the conditions of this Agreement, make
the amount of the Revolving Credit Loan to be made by it on such day in the
currency in which such Revolving Credit Loan is to be made available to the
Administrative Agent at the Principal Office and in immediately available funds
for the account of the Administrative Agent. The amount so received by the
Administrative Agent shall, subject to the conditions of this Agreement, be made
available to such Borrower, in immediately available funds, by the
Administrative Agent crediting an account of such Borrower designated by such
Borrower and maintained with the Administrative Agent at the Principal Office.
Section 2.5. Prepayments and Conversions. (a) Each Borrower shall have the
right to make prepayments of principal, to convert one type of Revolving Credit
Loans into another type of Revolving Credit Loans or to convert Eurocurrency
Loans denominated in one currency to Eurocurrency Loans denominated in another
currency, at any time or from time to time; provided that: (a) such Borrower
shall give the Administrative Agent notice of each such prepayment or conversion
as provided in Section 2.08; and (b) Eurocurrency Loans may be prepaid or
converted only on the last day of an Interest Period for such Eurocurrency Loans
unless such Borrower agrees to provide to the Administrative Agent for the
account of each Lender compensation in accordance with Section 4.05.
(b) If at any time prior to the Revolving Credit Termination Date,
the aggregate amount of Revolving Credit Loans to any Borrower (plus, in the
case of Micro Warehouse, the Letter of Credit Obligations) shall exceed the
aggregate amount of the Revolving Credit Commitments to such Borrower, such
Borrower shall repay the Lenders forthwith such amounts as may be necessary to
eliminate such excess (and, in the case of Micro Warehouse, if the Revolving
Credit Loans cannot be repaid to eliminate such excess due to the amount of
outstanding Letters of Credit, Micro Warehouse shall deposit with the
Administrative Agent sufficient cash collateral to cover such excess), and the
failure of such Borrower to make and the Lenders to receive such payments shall
constitute an Event of Default hereunder. For the purposes of this Section
2.05(b), the amount outstanding under any Eurocurrency Loan denominated in an
Alternative Currency at any time shall be the Dollar Equivalent thereof as of
the Denomination Date.
Section 2.6. Interest Periods; Renewals. (a) In the case of each
Eurocurrency Loan, the Borrower thereunder shall select an Interest Period of
any duration in accordance with the definition of Interest Period in Section
1.01, subject to the
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following limitations: (i) no Interest Period may extend beyond the Revolving
Credit Termination Date; (ii) notwithstanding clause (i) above, no Interest
Period shall have a duration less than 30 days, and if any such proposed
Interest Period would otherwise be for a shorter period, such Interest Period
shall not be available; (iii) if an Interest Period would end on a day which is
not a Banking Day, such Interest Period shall be extended to the next Banking
Day, unless such Banking Day would fall in the next calendar month in which
event such Interest Period shall end on the immediately preceding Banking Day;
(iv) no more than ten Interest Periods may be outstanding at any one time; (v)
no more than two Eurocurrency Loan borrowings in each Alternative Currency may
be outstanding at any one time; and (vi) no more than twenty Eurocurrency Loan
borrowings may be outstanding at any one time. For purposes of this Section
2.06(a), borrowings having different Interest Periods or denominated in
different currencies, regardless of whether they commence on the same date,
shall be considered separate borrowings.
(b) Upon notice to the Administrative Agent as provided in Section
2.08, each Borrower may renew any Eurocurrency Loan on the last day of the
Interest Period therefor as the same type of Revolving Credit Loans with an
Interest Period of the same or different duration in accordance with the
limitations provided above. If such Borrower shall fail to give notice to the
Administrative Agent of such a renewal, (i) in the case of a Eurocurrency Loan
denominated in Dollars, such Eurocurrency Loan shall automatically become a
Variable Rate Loan on the last day of the current Interest Period and (ii) in
the case of a Eurocurrency Loan denominated in an Alternative Currency, such
Eurocurrency Loan shall automatically become a Eurocurrency Loan denominated in
the same Alternative Currency having an Interest Period of one month.
Section 2.7. Changes of Revolving Credit Commitments. If the aggregate
amount of the Revolving Credit Commitment of The Chase Manhattan Bank to the
Borrowers shall have not been reduced by $15,000,000 prior to June 30, 1998
(whether by assignment or otherwise), the aggregate amount of Revolving Credit
Commitments of all of the Lenders shall be automatically reduced by
$6,666,666.67 on June 30, 1998, $6,666,666.67 on September 30, 1998 and
$6,666,666.66 on December 31, 1998, each such reduction to be made pro rata in
accordance with each Lender's Pro Rata Share. The Borrowers shall have the right
to elect to have each such reduction applied to the Revolving Credit Commitments
extended to any Borrower(s) upon notice to the Administrative Agent as provided
in Section 2.08; provided that if no such election is made, the Revolving Credit
Commitments of each Lender to Micro Warehouse shall be automatically reduced.
Each Borrower shall have the right to further reduce or terminate the amount of
unused Revolving Credit Commitments at any time or from time to time, provided
that: (i) such Borrower shall give notice of each such reduction or termination
to the Administrative Agent as provided in Section 2.08; and (ii) each partial
reduction shall be in an aggregate amount at least equal to $1,000,000. The
Revolving Credit Commitments once reduced or terminated may not be reinstated.
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Section 2.8. Certain Notices. Notices by any Borrower to the
Administrative Agent of each borrowing pursuant to Section 2.04, and each
prepayment or conversion pursuant to Section 2.05 and each renewal pursuant to
Section 2.06(b), and each reduction or termination of the Revolving Credit
Commitments pursuant to Section 2.07(a) shall be irrevocable and shall be
effective only if received by the Administrative Agent not later than 11:00 a.m.
New York, New York time, and (a) in the case of borrowings and prepayments of,
conversions into and (in the case of Eurocurrency Loans) renewals of (i)
Variable Rate Loans, given the same Banking Day; and (ii) Eurocurrency Loans,
given three Banking Days prior thereto; and (b) in the case of reductions or
termination of the Revolving Credit Commitments, given the same Banking Day.
Each such notice shall specify the Revolving Credit Loans to be borrowed,
prepaid, converted or renewed, the amount (subject to Section 2.09), the type
and the currency of the Revolving Credit Loans to be borrowed, or converted, or
prepaid or renewed (and, in the case of a conversion, the type of Revolving
Credit Loans to result from such conversion and, in the case of a Eurocurrency
Loan, the Interest Period therefor) and the date of the borrowing or prepayment,
or conversion or renewal (which shall be a Banking Day). Each such notice of
reduction or termination shall specify the amount of the Revolving Credit
Commitments to be reduced or terminated. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice.
Section 2.9. Minimum Amounts. Except for borrowings which exhaust the full
remaining amount of the Revolving Credit Commitments, prepayments or conversions
which result in the prepayment or conversion of all Revolving Credit Loans of a
particular type and a particular currency or conversions made pursuant to
Section 4.04, each borrowing, prepayment, conversion and renewal of principal of
Revolving Credit Loans of a particular type and a particular currency shall be
in an amount not less than (i) $100,000 in the aggregate for all Lenders in the
case of Variable Rate Loans and (ii) $1,000,000 (or the Dollar Equivalent
thereof) in the aggregate and in increments of $100,000 (or the Dollar
Equivalent thereof) in the case of Eurocurrency Loans unless such minimum amount
is waived by the Required Lenders (borrowings, prepayments, conversions or
renewals of or into Revolving Credit Loans of different types or, in the case of
Eurocurrency Loans, having different Interest Periods or denominated in
different currencies at the same time hereunder to be deemed separate
borrowings, prepayments, conversions and renewals for the purposes of the
foregoing).
Section 2.10. Interest. (a) Interest shall accrue on the outstanding and
unpaid principal amount of each Revolving Credit Loan for the period from and
including the date of such Revolving Credit Loan to but excluding the date such
Revolving Credit Loan is due at the following rates per annum: (i) for a
Variable Rate Loan, at a variable rate per annum equal to the Variable Rate plus
the Interest Margin and (ii) for a Eurocurrency Loan, at a fixed rate equal to
the Fixed Rate plus the Interest Margin. If the principal amount of any
Revolving Credit Loan and any other amount payable by any Obligor hereunder,
under the Revolving Credit Notes or under the other Facility
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Documents shall not be paid when due (at stated maturity, by acceleration or
otherwise), interest shall accrue on such amount to the fullest extent permitted
by law from and including such due date to but excluding the date such amount is
paid in full at the Default Rate.
(b) The interest rate on each Variable Rate Loan shall change when
the Variable Rate changes and interest on each such Variable Rate Loan shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Interest on each Eurocurrency Loan shall be calculated on the basis of
a year of 360 days for the actual number of days elapsed. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Administrative Agent shall notify the applicable Borrower and the Lenders.
(c) Accrued interest shall be due and payable in the relevant
currency in arrears upon any full payment of principal or conversion and (i) for
each Variable Rate Loan, on the last day of each March, June, September and
December, commencing the first such date after such Variable Rate Loan; and (ii)
for each Eurocurrency Loan, on the last day of each Interest Period therefor
and, if such Interest Period is longer than three months, at three month
intervals following the first day of such Interest Period; provided that
interest accruing at the Default Rate shall be due and payable from time to time
on demand of the Administrative Agent.
Section 2.11. Fees. Each Borrower shall pay to the Administrative Agent
for the account of each Lender a commitment fee on the daily average of the
unused Revolving Credit Commitments to such Borrower of such Lender (minus, in
the case of Micro Warehouse, such Lender's Pro Rata Share of Letter of Credit
Obligations), for the period from and including the date hereof to the earlier
of the date the Revolving Credit Commitments are terminated or the Revolving
Credit Termination Date at a rate per annum (i) if the Debt to EBIT Ratio is
less than .75 to 1.00, equal to 1/8 of one percent, (ii) if the Debt to EBIT
Ratio is equal to or greater than .75 to 1.00 and less than 2.00 to 1.00, equal
to 1/4 of one percent or (iii) if the Debt to EBIT Ratio is equal to or greater
than 2.00 to 1.00, equal to 3/8 of one percent, calculated in each case on the
basis of a year of 360 days for the actual number of days elapsed. The accrued
commitment fee shall be due and payable in arrears upon any reduction or
termination of the Revolving Credit Commitments and on the last day of each
March, June, September and December, commencing on the first such date after the
Closing Date.
Section 2.12. Payments Generally. All payments under this Agreement, the
Revolving Credit Notes and the other Facility Documents shall be made in
immediately available funds in Dollars except that payments on Eurocurrency
Loans denominated in an Alternative Currency shall be made in such Alternative
Currency. All payments shall be made not later than 11:00 a.m. New York, New
York time on the relevant dates specified above (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Banking Day) to an account of the Administrative Agent maintained at the
Principal Office for the account of the
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applicable Lending Office of each Lender. The Administrative Agent, or any
Lender for whose account any such payment is to be made, may (but shall not be
obligated to) debit the amount of any such payment which is not made by such
time to any ordinary deposit account of the applicable Borrower with the
Administrative Agent or such Lender, as the case may be, and any Lender so doing
shall promptly notify the Administrative Agent. The applicable Borrower shall,
at the time of making each payment under this Agreement, any Revolving Credit
Note or any other Facility Document, specify to the Administrative Agent the
principal or other amount payable by such Borrower under this Agreement, such
Revolving Credit Note or such other Facility Document to which such payment is
to be applied (and in the event that it fails to so specify, or if a Default or
Event of Default has occurred and is continuing, the Administrative Agent may
apply such payment as it may elect in its sole discretion (subject to Section
12.16)). If the due date of any payment under this Agreement, any Revolving
Credit Note or any other Facility Document would otherwise fall on a day which
is not a Banking Day, such date shall be extended to the next succeeding Banking
Day and interest shall be payable for any principal so extended for the period
of such extension. Each payment received by the Administrative Agent hereunder,
under any Revolving Credit Note or under any other Facility Document for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's applicable Lending Office.
Section 2.13. Novation. Micro Warehouse Limited (Company No. 2640772)
hereby agrees to assume all liabilities and obligations whatsoever of the Old
MWL (Company No. 2431673) pursuant to the Existing Credit Agreement (as
amended.)
ARTICLE 3. THE LETTERS OF CREDIT.
Section 3.1. Letters of Credit. (a) Subject to the terms and conditions of
this Agreement, the Issuing Lender, on behalf of the Lenders, and in reliance on
the agreement of the Lenders set forth in Section 3.04, agrees to issue on any
Banking Day prior to the Revolving Credit Termination Date for the account of
Micro Warehouse irrevocable standby letters of credit in such form as may from
time to time be approved by the Issuing Lender acting reasonably (together with
the applications therefor, the "Letters of Credit"); provided that on the date
of the issuance of any Letter of Credit, and after giving effect to such
issuance, the Letter of Credit Obligations shall not exceed the Letter of Credit
Availability.
(b) Each Letter of Credit shall (i) have an expiry date no later
than the earlier of (A) one year from the date of issuance and (B) the Revolving
Credit Termination Date, (ii) be denominated in Dollars, (iii) be in a minimum
face amount of $100,000 and (iv) provide for the payment of sight drafts when
presented for honor thereunder in accordance with the terms thereof and when
accompanied by the documents described or when such documents are presented, as
the case may be.
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Section 3.2. Purposes. Micro Warehouse shall use the Letters of Credit for
the purpose of securing obligations incurred in the ordinary course of business
(including, without limitation, to secure obligations under insurance programs).
Section 3.3. Procedures for Issuance of Letters of Credit. Micro Warehouse
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at its address for notices specified herein
an application therefor in such form as may from time to time be approved by the
Issuing Lender acting reasonably, completed to the reasonable satisfaction of
the Issuing Lender, and such other certificates, documents and other papers and
information as the Issuing Lender may reasonably request. Upon receipt of any
application, the Issuing Lender will process such application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit in such customized form as may reasonably be
requested by Micro Warehouse (but in no event shall the Issuing Lender issue any
Letter of Credit later than five Banking Days after receipt of the application
therefor and all such other certificates, documents and other papers and
information relating thereto) by issuing the original of such Letter of Credit
to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender
and Micro Warehouse. the Issuing Lender shall furnish a copy of such Letter of
Credit to Micro Warehouse promptly following the issuance thereof.
Section 3.4. Participating Interests. In the case of each Letter of
Credit, effective as of the date of the issuance thereof, the Issuing Lender
agrees to allot and does allot to each other Lender, and each such Lender
severally and irrevocably agrees to take and does take a Participating Interest
in such Letter of Credit in a percentage equal to such Lender's Pro Rata Share
of the Letter of Credit Obligations. On the date that any Lender becomes a party
to this Agreement in accordance with Section 13.05, Participating Interests in
any outstanding Letter of Credit held by the transferor Lender from which such
transferee Lender acquired its interest hereunder shall be proportionately
reallotted between such transferee Lender and such transferor Lender. Each
Participating Lender hereby agrees that its obligation to participate in each
Letter of Credit, and to pay or to reimburse the Issuing Lender for its
participating share of the drafts drawn thereunder, is absolute, irrevocable and
unconditional and shall not be affected by any circumstances whatsoever,
including, without limitation, the occurrence and continuance of any Default or
Event of Default, and that each such payment shall be made without any offset,
abatement, withholding or other reduction whatsoever.
Section 3.5. Payments. (a) In order to induce the Issuing Lender to issue
the Letters of Credit, Micro Warehouse hereby agrees to reimburse the Issuing
Lender, unless such Reimbursement Obligation has been accelerated pursuant to
Section 10.02, on each date that Micro Warehouse has been notified by the
Issuing Lender that any draft presented under any Letter of Credit is paid by
the Issuing Lender, for (i) the amount of the draft paid by the Issuing Lender
and (ii) the amount of any taxes,
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fees, charges or other costs or expenses whatsoever incurred by the Issuing
Lender in connection with any payment made by the Issuing Lender under, or with
respect to, such Letter of Credit. Each such payment shall be made to the
Issuing Lender at its office specified in Section 13.06, in lawful money of the
United States and in immediately available funds on the day that payment is made
by the Issuing Lender. Interest on any and all amounts remaining unpaid by Micro
Warehouse under this Section 3.05 at any time from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full shall be payable to the Issuing Lender on demand at a fluctuating rate
per annum equal to the Variable Rate plus 2% per annum.
(b) In the event that the Issuing Lender makes a payment (a "Letter
of Credit Funding") under any Letter of Credit and is not reimbursed in full
therefor on the date of such Letter of Credit Funding, in accordance with the
terms hereof, the Issuing Lender will promptly through the Administrative Agent
notify each Participating Lender that acquired its Participating Interest in
such Letter of Credit from the Issuing Lender. No later than the close of
business on the date such notice is given if such notice is given, each such
Participating Lender will transfer to the Administrative Agent, for the account
of the Issuing Lender, in immediately available funds, an amount equal to such
Participating Lender's Pro Rata Share of the unreimbursed portion of such Letter
of Credit Funding, together with interest, if any, accrued thereon from and
including the date of such transfer at a rate per annum equal to the Federal
Funds Rate.
(c) Whenever, at any time after the Issuing Lender has made payment
under a Letter of Credit and has received from any Participating Lender such
Participating Lender's Pro Rata Share of the unreimbursed portion of such
payment, the Issuing Lender receives any reimbursement on account of such
unreimbursed portion or any payment of interest on account thereof, the Issuing
Lender will distribute to the Administrative Agent, for the account of such
Participating Lender, its Pro Rata Share thereof; provided, however, that in the
event that the receipt by the Issuing Lender of such reimbursement or such
payment of interest (as the case may be) is required to be returned, such
Participating Lender will promptly return to the Administrative Agent, for the
account of the Issuing Lender, any portion thereof previously distributed by the
Issuing Lender to it.
Section 3.6. Further Assurances. Micro Warehouse hereby agrees to do and
perform any and all acts and to execute any and all further instruments from
time to time reasonably requested by the Issuing Lender more fully to effect the
purposes of this Agreement and the issuance of the Letters of Credit opened
hereunder.
Section 3.7. Obligations Absolute. The payment obligations of Micro
Warehouse under Section 3.05 shall be unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
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(a) the existence of any claim, set-off, defense or other right
which Micro Warehouse may have at any time against any beneficiary, or any
transferee, of any Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Lender or any
Participating Lender, or any other Person, whether in connection with this
Agreement, any other Facility Document, the transactions contemplated herein, or
any unrelated transaction;
(b) any statement or any other document presented under any 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;
(c) payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit; or
(d) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.
Section 3.8. Cash Collateral Account. If the Revolving Credit Commitments
are duly terminated and all amounts owing under this Agreement, the Revolving
Credit Notes and the Letters of Credit become due and payable pursuant to
Section 10, Micro Warehouse shall deposit with the Administrative Agent, on the
date such obligations become due and payable, an amount in cash equal to the
Letter of Credit Obligations as of such date and the Letter of Credit fees in
accordance with Section 3.09. Such amount shall be deposited in a cash
collateral account to be established by the Administrative Agent, for the
benefit of the Lenders, and shall constitute collateral security for the Letter
of Credit Obligations and other amounts owing hereunder. All amounts in such
cash collateral account shall be maintained pursuant to a cash collateral
account agreement which shall grant to the Administrative Agent exclusive
dominion and control (including exclusive rights of withdrawal) over all such
amounts and shall be otherwise satisfactory in form and substance to the
Administrative Agent.
Section 3.9. Letter of Credit Fees. (a) Micro Warehouse agrees to pay the
Administrative Agent, for the account of the Issuing Lender and the
Participating Lenders, a non-refundable letter of credit fee with respect to
each Letter of Credit, payable in Dollars, computed at the rate per annum equal
to 3/4 of one percent, calculated on the basis of a year of 360 days for the
actual days elapsed, of the aggregate undrawn amount under such Letter of Credit
on the date on which such fee is calculated. Such fees shall be payable in
advance on the date of issuance of such Letter of Credit and shall be
nonrefundable.
(b) Micro Warehouse agrees to pay the Issuing Lender, for its own account,
its normal and customary administration, amendment, transfer, payment and
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negotiation fees charged in connection with its issuance and administration of
letters of credit.
ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC.
Section 4.1. Additional Costs. (a) Each Borrower shall pay directly to
each Lender from time to time on demand such amounts as such Lender may
determine to be necessary to compensate it for any costs which such Lender
determines are attributable to its making or maintaining any Eurocurrency Loans
to such Borrower under this Agreement or its Revolving Credit Note of such
Borrower or its obligation to make any such Eurocurrency Loans hereunder, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Eurocurrency Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change which: (i) changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Revolving Credit
Notes in respect of any of such Eurocurrency Loans to such Borrower (other than
taxes imposed on the overall net income or profits of such Lender or of its
Lending Office for any of such Eurocurrency Loans by the jurisdiction in which
such Lender has its principal office or such Lending Office, or any branch or
franchise tax applicable thereto); or (ii) imposes or modifies any reserve,
special deposit, deposit insurance or assessment, minimum capital, capital ratio
or similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of, such Lender (including any of such
Eurocurrency Loans or any deposits referred to in the definition of "Fixed Base
Rate" in Section 1.01); or (iii) imposes any other condition affecting this
Agreement or its Revolving Credit Notes (or any of such extensions of credit or
liabilities). Each Lender will notify the applicable Borrower of any event
occurring after the date of this Agreement which will entitle such Lender to
compensation pursuant to this Section 4.01(a) as promptly as practicable after
it obtains knowledge thereof and determines to request such compensation. If any
Lender requests compensation from a Borrower under this Section 4.01(a), or
under Section 4.01(c), such Borrower may, by notice to such Lender (with a copy
to the Administrative Agent), require that such Lender's affected Eurocurrency
Credit Loans with respect to which such compensation is requested be converted
in accordance with Section 4.04.
(b) Without limiting the effect of the foregoing provisions of this
Section 4.01, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurocurrency Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurocurrency
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the applicable Borrower (with a copy to the Administrative Agent), the
obligation of such Lender to make or renew, and to convert
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Variable Rate Loans and unaffected Eurocurrency Loans into, affected
Eurocurrency Loans hereunder shall be suspended until the date such Regulatory
Change ceases to be in effect (and all affected Eurocurrency Loans held by such
Lender then outstanding shall be converted in accordance with Section 4.04).
(c) Without limiting the effect of the foregoing provisions of this
Section 4.01 (but without duplication), each Borrower shall pay directly to each
Lender from time to time on request such amounts as such Lender may determine to
be necessary to compensate such Lender for any costs which it determines are
attributable to the maintenance by it or any of its affiliates pursuant to any
law or regulation of any jurisdiction or any interpretation, directive or
request (whether or not having the force of law and whether in effect on the
date of this Agreement or thereafter) of any court or governmental or monetary
authority of capital in respect of its Revolving Credit Loans to such Borrower
hereunder or its obligation to make Revolving Credit Loans hereunder (such
compensation to include, without limitation, an amount equal to any reduction in
return on assets or equity of such Lender to a level below that which it could
have achieved but for such law, regulation, interpretation, directive or
request). Each Lender will notify the applicable Borrower if it is entitled to
compensation pursuant to this Section 4.01(c) as promptly as practicable after
it determines to request such compensation.
(d) Determinations and allocations by a Lender for purposes of this
Section 4.01 of the effect of any Regulatory Change pursuant to subsections (a)
or (b), or of the effect of capital maintained pursuant to subsection (c), on
its costs of making or maintaining Revolving Credit Loans or its obligation to
make Revolving Credit Loans, or on amounts receivable by, or the rate of return
to, it in respect of Revolving Credit Loans or such obligation, and of the
additional amounts required to compensate such Lender under this Section 4.01,
shall be conclusive, provided that such determinations and allocations are made
on a reasonable basis.
Section 4.2. Limitation on Eurocurrency Loans. Anything herein to the
contrary notwithstanding, if:
(a) the Administrative Agent determines (which determination shall
be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Fixed Base Rate" in Section 1.01 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for any Eurocurrency Loans as provided in this
Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant rates of
interest referred to in the definition of "Fixed Base Rate" in Section 1.01 upon
the basis of which the rate of interest for any Eurocurrency Loans is to be
determined do not adequately cover the cost to the Lenders of making or
maintaining such Eurocurrency Loans; or
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(c) in the case of Eurocurrency Loans denominated in an Alternative
Currency, any Lender shall determine (which determination shall be conclusive)
and notify the Administrative Agent that the relevant Alternative Currency is
not available in the relevant amounts or for the relevant period, or that a
change in national or international controls has occurred which would, in the
opinion of such Lender, make it impracticable for such Lender to make, fund or
maintain its Eurocurrency Loans to be made in such Alternative Currency or for
any Borrower to pay the principal of or interest on such Eurocurrency Loans as
provided in this Agreement;
then the Administrative Agent shall give the applicable Borrower and each Lender
prompt notice thereof, and so long as such condition remains in effect, the
Lenders shall be under no obligation to make or renew affected Eurocurrency
Loans or to convert Variable Rate Loans or unaffected Eurocurrency Loans into
affected Eurocurrency Loans and such Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding affected Eurocurrency Loans,
either prepay such affected Eurocurrency Loans or convert such affected
Eurocurrency Loans into Variable Rate Loans in accordance with Section 2.05.
Section 4.3. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make, maintain or renew
Eurocurrency Loans in any currency hereunder or convert Variable Rate Loans or
Eurocurrency Loans in a different currency to Eurocurrency Loans in such
currency, then such Lender shall promptly notify the Borrower thereunder (with a
copy to the Administrative Agent) and such Lender's obligation to make or renew
affected Eurocurrency Loans and to convert Variable Rate Loans or unaffected
Eurocurrency Loans into affected Eurocurrency Loans hereunder shall be suspended
until such time as such Lender may again make, renew, or convert and maintain
such affected Eurocurrency Loans and such Lender's outstanding affected
Eurocurrency Loans, as the case may be, shall be converted in accordance with
Section 4.04.
Section 4.4. Certain Conversions pursuant to Sections 4.01 and 4.03. If
affected Eurocurrency Loans are to be converted pursuant to Section 4.01 or
4.03, such Lender's affected Eurocurrency Loans shall be automatically converted
into Variable Rate Loans on the last day(s) of the then current Interest
Period(s) for the affected Eurocurrency Loans (or, in the case of a conversion
required by Section 4.01(b) or 4.03, on such earlier date as such Lender may
specify to the Borrower thereunder with a copy to the Administrative Agent) and,
unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.01 or 4.03 which gave rise to such
conversion no longer exist:
(a) to the extent that such Lender's affected Eurocurrency Loans
have been so converted, all payments and prepayments of principal which would
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otherwise be applied to such Lender's affected Eurocurrency Loans shall be
applied instead to its Variable Rate Loans;
(b) all Eurocurrency Loans which would otherwise be made or renewed
by such Lender as affected Eurocurrency Loans shall be made instead as Variable
Rate Loans and all Variable Rate Loans or unaffected Eurocurrency Loans of such
Lender which would otherwise be converted into affected Eurocurrency Loans shall
be converted instead into (or shall remain as) Variable Rate Loans; and
(c) if affected Eurocurrency Loans of other Lenders are subsequently
converted into unaffected Eurocurrency Loans, such Lender's Variable Rate Loans
shall be automatically converted on the conversion date into such other
unaffected Eurocurrency Loans to the extent necessary so that, after giving
effect thereto, all Revolving Credit Loans held by such Lender and the Lenders
whose Revolving Credit Loans are so converted are held pro rata (as to principal
amounts, types, currencies and Interest Periods) in accordance with their
respective Revolving Credit Commitments.
If such Lender gives notice to the applicable Borrower (with a copy to the
Administrative Agent) that the circumstances specified in Section 4.01 or 4.03
which gave rise to the conversion of such Lender's affected Eurocurrency Loans
pursuant to this Section 4.04 no longer exist (which such Lender agrees to do
promptly upon such circumstances ceasing to exist) at a time when affected
Eurocurrency Loans are outstanding, such Lender's Variable Rate Loans shall be
automatically converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding affected Eurocurrency Loans to the extent
necessary so that, after giving effect thereto, all Revolving Credit Loans held
by the Lenders holding affected Eurocurrency Loans and by such Lender are held
pro rata (as to principal amounts, types, currencies and Interest Periods) in
accordance with their respective Revolving Credit Commitments.
Section 4.5. Certain Compensation. Each Borrower shall pay to the
Administrative Agent for the account of each Lender, upon the request of such
Lender through the Administrative Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Lender) to compensate it for any
loss, cost or expense which such Lender determines is attributable to:
(a) any payment, prepayment, conversion or renewal of a Eurocurrency
Loan of such Borrower made by such Lender on a date other than the last day of
an Interest Period for such Eurocurrency Loan (whether by reason of acceleration
or otherwise); or
(b) any failure by such Borrower to borrow, convert into or renew a
Eurocurrency Loan to be made, converted into or renewed by such Lender on the
date specified therefor in the relevant notice under Sections 2.04, 2.05 or
2.06, as the case may be.
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Without limiting the foregoing, such compensation shall include an amount
equal to the excess, if any, of: (i) the amount of interest which otherwise
would have accrued on the principal amount so paid, prepaid, converted or
renewed or not borrowed, converted or renewed for the period from and including
the date of such payment, prepayment or conversion or failure to borrow, convert
or renew to but excluding the last day of the then current Interest Period for
such Eurocurrency Loan (or, in the case of a failure to borrow, convert or
renew, to but excluding the last day of the Interest Period for such
Eurocurrency Loan which would have commenced on the date specified therefor in
the relevant notice) at the applicable rate of interest for such Eurocurrency
Loan provided for herein; over (ii) the amount of interest (as reasonably
determined by such Lender) such Lender would have bid in the London interbank
market for deposits in the relevant currency of leading banks for amounts
comparable to such principal amount and maturities comparable to such period. A
determination of any Lender as to the amounts payable pursuant to this Section
4.05 shall be conclusive absent manifest error; provided that such determination
is made on a reasonable basis.
Section 4.6. Taxes. Each Borrower covenants and agrees that:
(a) All payments on account of the principal of and interest on its
Revolving Credit Loans and the Revolving Credit Notes, and all other amounts
payable by such Borrower hereunder, under any Revolving Credit Note or under any
other Facility Document, including without limitation amounts payable under
Section 4.06(b), shall be made without any set-off or counterclaim and free and
clear of and without reduction by reason of, all present and future income,
stamp, registration and other taxes and levies, imposts, deductions, charges,
compulsory loans and withholdings whatsoever (other than taxes imposed on the
overall net income of any Lender, or of its applicable Lending Office, by the
jurisdiction in which such Lender's principal office or its applicable Lending
Office is located), and all interest, penalties or similar amounts with respect
thereto, now or hereafter imposed, assessed, levied or collected by any country
or any political subdivision or taxing authority thereof or therein or by any
federation or association of or with which any country may be a member or
associated or by any jurisdiction from which any payment hereunder or under any
Revolving Credit Note is made or any taxing authority thereof or therein, on or
in respect of this Agreement, the Revolving Credit Loans, any Revolving Credit
Note, any other Facility Document, the recording, registration, notarization or
other formalization of any thereof, the enforcement thereof or the introduction
thereof in any judicial proceedings, or on or in respect of any payments of
principal, interest, premiums, charges, fees or other amounts made on, under or
in respect of any thereof (hereinafter called "Taxes"), all of which will be
paid by such Borrower, for its own account, prior to the date on which penalties
attach thereto;
(b) Such Borrower shall indemnify each Lender against, and reimburse
each Lender on demand for, any Taxes and any loss, liability, claim or
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expense, including interest, penalties and reasonable legal fees (net of any
refunds or tax credits for such Taxes which such Lender shall actually receive
or utilize), which such Lender may incur at any time arising out of or in
connection with any failure of such Borrower to make any payments of Taxes when
due;
(c) In the event that such Borrower is required by applicable law,
decree or regulation to deduct or withhold Taxes from any amounts payable to any
Lender on, under or in respect of this Agreement, the Revolving Credit Loans,
any Revolving Credit Note or any other Facility Document, such Borrower shall
pay to such Lender such additional amount(s) as may be required, after the
deduction or withholding of Taxes, to enable such Lender to receive from such
Borrower an amount equal to the amount stated to be payable by such Borrower to
such Lender under this Agreement, its Revolving Credit Note held by such Lender
or under any other Facility Document;
(d) Such Borrower shall furnish to each Lender the official tax
receipts in respect of each payment of Taxes required under this Section 4.06
within 30 days after the date such payment is due pursuant to applicable law,
and such Borrower shall promptly furnish to each Lender at its request any other
information, documents and receipts that such Lender may, in its reasonable
discretion from time to time, require to establish to its satisfaction that full
and timely payment has been made of all Taxes required to be paid under this
Section 4.06; and
(e) In the event that the payments by such Borrower hereunder become
exempt from or not subject to Taxes, such Borrower will, upon the reasonable
request of any Lender, furnish to such Lender either a certificate from each
appropriate taxing authority or an opinion of counsel reasonably acceptable to
such Lender, in either case stating that payments hereunder are exempt from or
not subject to Taxes.
ARTICLE 5. CONDITIONS PRECEDENT.
Section 5.1. Documentary Conditions Precedent. The obligations of the
Lenders to make the Revolving Credit Loans constituting the initial borrowing
and of the Issuing Lender to issue the Letters of Credit are subject to the
condition precedent that the Administrative Agent shall have received on or
before March 27, 1998 (the "Effective Date") each of the following, in form and
substance satisfactory to the Administrative Agent and its counsel:
(a) counterparts of this Agreement duly executed by each of Micro
Warehouse, the Subsidiary Borrowers, the Subsidiary Guarantors, the Lenders and
the Administrative Agent;
(b) new Revolving Credit Notes executed by each of Micro Warehouse
and Micro Warehouse Limited;
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(c) certificates of the Secretary or Assistant Secretary of each of
the Obligors, dated the Effective Date, (i) attesting to all corporate action
taken by such Obligor, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of each of the Facility
Documents to which it is a party and each other document to be delivered
pursuant to this Agreement, (ii) certifying the names and true signatures of the
officers of such Obligor authorized to sign the Facility Documents to which it
is a party and the other documents to be delivered by such Obligor under this
Agreement and (iii) verifying that the charter and by-laws (or other analogous
documents) of such Obligor attached thereto are true, correct and complete as of
the date thereof;
(d) an opinion of Lev, Berlin & Dale, P.C., outside counsel to each
of the Consolidated Entities, dated the Effective Date, in substantially the
form of Exhibit A and as to such other matters as the Administrative Agent or
any Lender may reasonably request;
(e) an opinion of Courts & Co, United Kingdom counsel to Micro
Warehouse Limited, dated the Effective Date, in substantially the form of
Exhibit B; and
(f) certified complete and correct copies of all financial
statements described in Section 6.05 (including, without limitation, the 1998
budget of the Consolidated Entities dated March 13, 1998).
Section 5.2. Additional Conditions Precedent. The obligations of the
Lenders to make any Revolving Credit Loans pursuant to a borrowing which
increases the amount outstanding hereunder (including the initial borrowing) and
of the Issuing Lender to issue any Letters of Credit shall be subject to the
further conditions precedent that on the date of such Revolving Credit Loans or
the issuance of such Letters of Credit: (a) the following statements shall be
true: (i) the representations and warranties contained in Article 6 and in each
of the other Facility Documents are true and correct in all material respects on
and as of the date of such Revolving Credit Loans or the issuance of such Letter
of Credit as though made on and as of such date; and (ii) no Default or Event of
Default has occurred and is continuing, or would result from such Revolving
Credit Loans or the issuance of such Letters of Credit; (b) the Administrative
Agent shall have received such independent appraisals, audits and valuations of
assets reasonably satisfactory to the Administrative Agent as the Administrative
Agent may reasonably request; and (c) the Administrative Agent shall have
received such approvals, opinions or documents as the Administrative Agent may
reasonably request.
Section 5.3. Deemed Representations. Each notice of borrowing or request
for the issuance of a Letter of Credit hereunder and acceptance by any Borrower
of the proceeds of such borrowing or the benefit of such Letter of Credit shall
constitute a representation and warranty that the statements contained in
Section 5.02 are true
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and correct both on the date of such notice and, unless such Borrower otherwise
notifies the Administrative Agent prior to such borrowing or issuance, as of the
date of such borrowing or issuance.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES.
Each of the Obligors (as to itself and its Subsidiaries) hereby represents
and warrants that:
Section 6.1. Incorporation, Good Standing and Due Qualification. Each of
the Consolidated Entities is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged, and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required.
Section 6.2. Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by each of the Obligors of the Facility Documents to
which it is a party, the borrowings hereunder and the issuance of the Letters of
Credit have been duly authorized by all necessary corporate action and do not
and will not: (a) require any consent or approval of its stockholders (other
than with respect to Micro Warehouse France SARL, T.D. S.A. and T.D. 2 S.A.);
(b) contravene its charter or by-laws; (c) violate any provision of, or require
any filing, registration, consent or approval under, any law, rule, regulation
(including, without limitation, any exchange control law or regulation), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to any Consolidated Entity; (d) result in a breach of or
constitute a default or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which any
Consolidated Entity is a party or by which it or its Properties may be bound or
affected; (e) result in, or require, the creation or imposition of any Lien,
upon or with respect to any of the Properties now owned or hereafter acquired by
any Consolidated Entity; or (f) cause any Consolidated Entity to be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
Section 6.3. Legally Enforceable Agreements. Each Facility Document to
which any Obligor is a party is, or when delivered under this Agreement will be,
a legal, valid and binding obligation of such Obligor enforceable against such
Obligor in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.
Section 6.4. Litigation. Except as otherwise disclosed in the financial
statements described in Section 6.05(a), there are no actions, suits or
proceedings pending or, to the knowledge of any Obligor, threatened, against or
affecting any
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Consolidated Entity before any Governmental Authority which could reasonably be
expected to have a Material Adverse Effect.
Section 6.5. Financial Statements.
(a) The consolidated and consolidating balance sheets of the
Consolidated Entities as at December 31, 1996, 1995 and 1994, and the related
consolidated and consolidating income statements and statements of cash flows
and changes in stockholders' equity of the Consolidated Entities for the Fiscal
Years then ended, and the accompanying footnotes, together with the opinion on
the consolidated statements of KPMG Peat Marwick, independent certified public
accountants, and the interim consolidated and consolidating balance sheets as at
September 30, 1997 and the related consolidated and consolidating income
statements and statements of cash flows and changes in stockholders' equity of
the Consolidated Entities for the nine month period then ended, copies of which
have been furnished to each of the Lenders, are complete and correct and fairly
present the financial condition of the Consolidated Entities at such dates and
the results of the operations of the Consolidated Entities for the periods
covered by such statements, all in accordance with GAAP consistently applied.
(b) The operating plan for the Consolidated Entities for the current
and subsequent Fiscal Years, including budget, personnel, facilities and Capital
Expenditure projections, on a quarterly basis, and projected income and cash
flow statements for each such Fiscal Year, on a quarterly basis, incorporating
the items detailed in such operating plan for each such Fiscal Year, and
accompanied by a description of the material assumptions used in making such
operating plan, have each been prepared in good faith and are based on
reasonable estimates for the operating performance of the Consolidated Entities
on and after the Closing Date.
(c) Except as set forth on the consolidated balance sheet of the
Consolidated Entities as at December 31, 1996, there are no liabilities of any
Consolidated Entity, fixed or contingent, which are material but are not
reflected in the financial statements or in the notes thereto and which would be
required to be recorded in such financial statements or notes in accordance with
GAAP. No written information, exhibit or report furnished by any Consolidated
Entity to the Lenders in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not materially
misleading in each case as determined as of the date of the provision of such
information, exhibit or report. Since December 31, 1997, there has been no
change which could reasonably be expected to have a Material Adverse Effect.
Section 6.6. Ownership and Liens. Each of the Consolidated Entities has
title to, or valid leasehold interests in, all of its Properties, including the
Properties reflected in the financial statements referred to in Section 6.05
(other than any Properties disposed of in the ordinary course of business), and
none of the Properties owned by
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any Consolidated Entity and none of its leasehold interests is subject to any
Lien, except as may be permitted hereunder.
Section 6.7. Taxes. Each of the Consolidated Entities has filed (or
obtained extensions for) all tax returns (domestic, foreign, federal, state and
local) required to be filed and has paid all taxes, assessments and governmental
charges and levies shown thereon to be due, including interest and penalties.
The charges, accruals and reserves on the books of the Consolidated Entities in
respect of taxes, assessments and other governmental charges are adequate.
Section 6.8. ERISA. Each Domestic Plan, Foreign Plan and, to the best
knowledge of each Obligor, Multiemployer Plan, is in compliance in all material
respects with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other applicable
domestic, foreign, federal, state or local law, and no event or condition is
occurring or exists concerning which any Consolidated Entity would be under an
obligation to furnish a report to the Lenders in accordance with Section 7.08(j)
hereof. Each of the Consolidated Entities and the ERISA Affiliates have
fulfilled its obligations under the minimum funding standards of ERISA, the Code
and any other applicable domestic, foreign, federal, state or local law.
Section 6.9. Consolidated Entities and Affiliates. Schedule II sets forth
the name of each Consolidated Entity and each Affiliate, in each case showing
(a) the jurisdiction of its incorporation, (b) the percentage of each Person's
ownership of the outstanding capital stock of such Consolidated Entity or such
Affiliate and (c) its business and primary geographic scope of operation. All of
the outstanding shares of capital stock of each Consolidated Entity are validly
issued, fully paid and nonassessable, and all such shares are owned free and
clear of all Liens. Except as set forth on Schedule II, no Consolidated Entity
owns or holds the right to acquire any shares of stock or any other security or
interest in any other Person.
Section 6.10. Credit Arrangements. Schedule III is a complete and correct
list of all credit agreements, indentures, note purchase agreements, guaranties,
Capital Leases and other investments, agreements and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which any Consolidated Entity is in any manner directly
or contingently obligated; and the maximum principal or face amounts of the
credit in question, outstanding and which can be outstanding, are correctly
stated, and all Liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
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Section 6.11. Operation of Business. Each of the Consolidated Entities
possesses all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct its business substantially as now
conducted and as presently proposed to be conducted, and no Consolidated Entity
is in material violation of any valid rights of others with respect to any of
the foregoing.
Section 6.12. Hazardous Materials. Each of the Consolidated Entities is in
compliance in all material respects with all Environmental Laws in effect in
each jurisdiction where it is presently doing business. No Consolidated Entity
is subject to any material liability under any Environmental Law.
In addition, no Consolidated Entity has received any (i) notice from any
Governmental Authority by which any of its present or previously-owned or leased
real Properties has been designated, listed, or identified in any manner by any
Governmental Authority charged with administering or enforcing any Environmental
Law as a Hazardous Material disposal or removal site, "Super Fund" clean-up
site, or candidate for removal of Hazardous Materials or closure of a Hazardous
Material disposal site pursuant to any Environmental Law, (ii) notice of any
Lien arising under or in connection with any Environmental Law that has attached
to any revenues of, or to, any of its owned or leased real Properties, or (iii)
summons, citation, notice, directive, letter, or other written communication
from any Governmental Authority concerning any intentional or unintentional
action or omission by such Consolidated Entity in connection with its ownership
or leasing of any real Property resulting in the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, dumping, or otherwise disposing of any
Hazardous Material into the environment resulting in any violation of any
Environmental Law.
Section 6.13. No Default on Outstanding Judgments or Orders. Each of the
Consolidated Entities has satisfied all judgments and no Consolidated Entity is
in default with respect to any final judgment, writ, injunction or decree of any
Governmental Authority.
Section 6.14. No Defaults on Other Agreements. No Consolidated Entity is a
party to any indenture, loan or credit agreement or any lease or other agreement
or instrument or subject to any charter or corporate restriction which could
have a Material Adverse Effect. No Consolidated Entity is in default in any
material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 6.15. Labor Disputes and Acts of God. Neither the business nor the
Properties of any Consolidated Entity are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could have a Material Adverse
Effect.
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Section 6.16. Governmental Regulation. No Consolidated Entity is subject
to regulation under the Public Utility Holding Company Act of 1935, the
Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power
Act or any statute or regulation limiting its ability to incur indebtedness for
money borrowed as contemplated hereby.
Section 6.17. No Forfeiture. Neither any Consolidated Entity nor any of
its Affiliates is engaged in or proposes to be engaged in the conduct of any
business or activity which could result in a Forfeiture Proceeding which could
reasonably be expected to have a Material Adverse Effect and no Forfeiture
Proceeding against any of them is pending or threatened.
Section 6.18. Solvency.
(a) The present fair saleable value of the assets of each Obligor
after giving effect to all the transactions contemplated by the Facility
Documents and the funding of the Revolving Credit Commitments and the issuance
of the Letters of Credit hereunder exceeds the amount that will be required to
be paid on or in respect of the existing debts and other liabilities (including
contingent liabilities) of such Obligor as they mature.
(b) The Property of each Obligor does not constitute unreasonably
small capital for such Obligor to carry out its business as now conducted and as
proposed to be conducted including the capital needs of such Obligor.
(c) No Obligor intends to, nor does such Obligor believe that it
will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by such Obligor, and
of amounts to be payable on or in respect of Debt of such Obligor). The cash
available to such Obligor after taking into account all other anticipated uses
of the cash of such Obligor, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of such Obligor when such amounts are required
to be paid.
(d) No Obligor believes that final judgments against it in actions
for money damages will be rendered at a time when, or in an amount such that,
such Obligor will be unable to satisfy any such judgments promptly in accordance
with their terms (taking into account the maximum reasonable amount of such
judgments in any such actions and the earliest reasonable time at which such
judgments might be rendered). The cash available to such Obligor after taking
into account all other anticipated uses of the cash of such Obligor (including
the payments on or in respect of debt referred to in paragraph (c) of this
Section 6.18), is anticipated to be sufficient to pay all such judgments
promptly in accordance with their terms.
ARTICLE 7. AFFIRMATIVE COVENANTS.
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So long as any Obligation shall remain unpaid, any Letter of Credit shall
remain outstanding or any Lender shall have any Revolving Credit Commitment,
Micro Warehouse shall:
Section 7.1. Maintenance of Existence. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate existence and
good standing in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is required.
Section 7.2. Conduct of Business. Continue, and cause each of its
Subsidiaries to continue, to engage in the business of the same general type as
conducted by it on the date of this Agreement.
Section 7.3. Maintenance of Properties. Maintain, keep and preserve, and
cause each of its Subsidiaries to maintain, keep and preserve, all of its
Properties necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted.
Section 7.4. Maintenance of Records. Keep, and cause each of its
Subsidiaries to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions of the Consolidated Entities.
Section 7.5. Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof.
Section 7.6. Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including, without limitation, any Environmental
Law), such compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments and governmental charges imposed upon
it or upon its Properties.
Section 7.7. Right of Inspection. At any reasonable time and from time to
time permit the Administrative Agent or any Lender or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the Properties of, any Consolidated
Entity, and to discuss the affairs, finances and accounts of such Consolidated
Entity with any of their respective officers and directors and independent
accountants.
Section 7.8. Reporting Requirements. Furnish directly to each of the
Lenders:
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(a) as soon as available and in any event within 90 days after the
end of each Fiscal Year, consolidated and consolidating balance sheets of the
Consolidated Entities as of the end of such Fiscal Year and consolidated and
consolidating income statements and statements of cash flows and changes in
stockholders' equity of the Consolidated Entities for such Fiscal Year, all in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the prior Fiscal Year and all prepared in
accordance with GAAP and as to the consolidated statements accompanied by an
opinion thereon acceptable to the Administrative Agent and each of the Lenders
by KPMG Peat Marwick or other independent accountants of national standing
selected by the Consolidated Entities; provided that delivery within the period
specified above of copies of the Annual Report on Form 10-K of Micro Warehouse
filed with the Securities and Exchange Commission, together with the adjustments
to such consolidated statements necessary to provide consolidating information
for each of the Consolidated Entities, shall be deemed to satisfy the
requirements of this Section 7.08(a) so long as such Form 10-K as so adjusted
shall contain the information referred to in this Section 7.08(a);
(b) as soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters, consolidated and consolidating
balance sheet of the Consolidated Entities as of the end of such Fiscal Quarter
and consolidated and consolidating income statements and statements of cash
flows and changes in stockholders' equity of the Consolidated Entities for the
period commencing at the end of the previous Fiscal Year and ending with the end
of such Fiscal Quarter, all in reasonable detail and stating in comparative form
the respective consolidated figures for the corresponding date and period in the
previous Fiscal Year and all prepared in accordance with GAAP and certified by
the chief financial officer of the Consolidated Entities (subject to year-end
adjustments); provided that delivery within the period specified above of copies
of the Quarterly Report on Form 10-Q of Micro Warehouse filed with the
Securities and Exchange Commission, together with the adjustments to such
consolidated statements necessary to provide consolidating information for each
of the Consolidated Entities, shall be deemed to satisfy the requirements of
this Section 7.08(b) so long as such Form 10-Q as so adjusted shall contain the
information referred to in this Section 7.08(b);
(c) simultaneously with the delivery of the financial statements
referred to above, a Compliance Certificate of the chief financial officer of
Micro Warehouse (i) certifying that to the best of his knowledge no Default or
Event of Default has occurred and is continuing or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the action which is proposed to be taken with respect thereto, and (ii) with
computations demonstrating compliance with the covenants contained in Article 9;
(d) simultaneously with the delivery of the annual financial
statements referred to in Section 7.08(a), a certificate of the independent
public accountants who audited such statements to the effect that, in making the
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examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(e) simultaneously with the delivery of the financial statements
referred to in Section 7.08(a) and Section 7.08(b), a narrative explanation
signed by the chief financial officer of Micro Warehouse of any material
variance from the budget of the Consolidated Entities for the Fiscal Year that
is reflected in such financial statements;
(f) not later than the 30th day subsequent to the commencement of
each Fiscal Year, (i) a projected balance sheet of the Consolidated Entities for
such Fiscal Year on a quarterly basis and (ii) an operating plan for the
Consolidated Entities for such Fiscal Year, including budget, personnel,
facilities and Capital Expenditure projections, on a quarterly basis, and a
projected income and cash flows statement for such Fiscal Year, on a quarterly
basis, incorporating the items detailed in such operating plan for such Fiscal
Year, and accompanied by a description of the material assumptions used in
making such operating plan; and, as soon as available thereafter, any
modifications to any of the foregoing after the Board of Directors of Micro
Warehouse has reviewed such plan;
(g) promptly after the commencement thereof, notice of all actions,
suits, and proceedings before any Governmental Authority;
(h) as soon as possible and in any event within 10 days after
becoming aware of or having reason to become aware of the occurrence of each
Default or Event of Default a written notice setting forth the details of such
Default or Event of Default and the action which is proposed to be taken by the
Consolidated Entities with respect thereto;
(i) as soon as possible, and in any event within 10 days after any
Consolidated Entity knows or has reason to know that any of the events or
conditions specified below with respect to any Domestic Plan, Foreign Plan or
Multiemployer Plan have occurred or exist, a statement signed by a senior
financial officer of such Consolidated Entity setting forth details respecting
such event or condition and the action, if any, which such Consolidated Entity
or an ERISA Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC or any other
Governmental Authority by such Consolidated Entity or an ERISA Affiliate with
respect to such event or condition): (i) any reportable event, as defined in
Section 4043(b) of ERISA, with respect to a Domestic Plan, as to which PBGC has
not by regulation waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event (provided that a failure
to meet the minimum funding standard of Section 412 of the Code or Section 302
of
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ERISA including, without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code or Section 302(e)
of ERISA, shall be a reportable event regardless of the issuance of any waivers
in accordance with Section 412(d) of the Code) and any request for a waiver
under Section 412(d) of the Code for any Domestic Plan; (ii) the distribution
under Section 4041 of ERISA or under any similar foreign law of a notice of
intent to terminate any Domestic Plan or Foreign Plan or any action taken by
such Consolidated Entity or an ERISA Affiliate to terminate any Domestic Plan or
Foreign Plan; (iii) the institution by PBGC or any other Governmental Authority
of proceedings under Section 4042 of ERISA or under any similar foreign law for
the termination of, or the appointment of a trustee to administer, any Domestic
Plan or any Foreign Plan, or the receipt by such Consolidated Entity or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or
partial withdrawal from a Multiemployer Plan by such Consolidated Entity or any
ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt of such Consolidated Entity or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA; (v) the institution of
a proceeding by a fiduciary or any Multiemployer Plan against such Consolidated
Entity or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding
is not dismissed within 30 days; (vi) the adoption of an amendment to any
Domestic Plan that pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA would result in the loss of tax-exempt status of the trust of which such
Domestic Plan is a part if such Consolidated Entity or an ERISA Affiliate fails
to timely provide security to the Domestic Plan in accordance with the
provisions of said Sections; (vii) any event or circumstance exists which may
reasonably be expected to constitute grounds for such Consolidated Entity or any
ERISA Affiliate to incur liability under Title IV of ERISA or under Sections
412(c)(11) or 412(n) of the Code with respect to any Domestic Plan; and (viii)
the Unfunded Benefit Liabilities of one or more Domestic Plans and Foreign Plans
increase after the date of this Agreement in an amount which is material in
relation to the financial condition of the Consolidated Entities; provided,
however, that such increase shall not be deemed to be material so long as it
does not exceed during any consecutive 3 year period $1,000,000;
(j) promptly after the request of any Lender, copies of each annual
report filed pursuant to Section 104 of ERISA with respect to each Domestic Plan
(including, to the extent required by Section 104 of ERISA, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information referred to in Section 103) and each
annual report filed with respect to each Domestic Plan under Section 4065 of
ERISA; provided, however, that in the case of a Multiemployer Plan, such annual
reports shall be furnished only if they are available to such Consolidated
Entity or an ERISA Affiliate;
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(k) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which any Consolidated Entity
sends to its stockholders, and copies of all regular, periodic and special
reports, and all registration statements which such Consolidated Entity files
with the Securities and Exchange Commission or any Governmental Authority which
may be substituted therefor, or with any national securities exchange;
(l) promptly after becoming aware of the existence of any violation
or alleged violation in any material respect of any Environmental Law by any
Consolidated Entity, written notice of and a description of the nature of such
violation or alleged violation, what action such Consolidated Entity is taking
or proposes to take with respect thereto and, when known, any action taken, or
proposed to be taken, by any Governmental Authority with respect thereto;
(m) promptly after the commencement thereof or promptly after any
Consolidated Entity knows of the commencement or threat thereof, notice of any
Forfeiture Proceeding; and
(n) such other information respecting the condition or operations,
financial or otherwise, of any Consolidated Entity as the Administrative Agent
or any Lender may from time to time reasonably request.
Section 7.09. Additional Subsidiary Guarantors. In the event that any of
its Subsidiaries that is not an Obligor as of the date hereof shall have assets
greater than $500,000 (as determined as of the end of each Fiscal Quarter),
cause such Subsidiary to become a "Subsidiary Guarantor" and thereby an
"Obligor" hereunder pursuant to an Assumption Agreement, and shall deliver such
proof of corporate action, incumbency of officers, opinions of counsel and other
documents as is consistent with those delivered by the Obligors pursuant to
Article 5 of the Existing Credit Agreement upon the Closing Date or as the
Administrative Agent shall have reasonably requested.
ARTICLE 8. NEGATIVE COVENANTS.
So long as any Obligation shall remain unpaid, any Letter of Credit shall
remain outstanding or any Lender shall have any Revolving Credit Commitment,
Micro Warehouse shall not:
Section 8.1. Debt. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Debt,
except:
(a) Debt of the Obligors under this Agreement, the Revolving Credit
Notes, the Letters of Credit and the other Facility Documents;
(b) Consolidated Subordinated Debt;
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(c) Debt described on Schedule III but no renewals, extensions or
refinancings thereof;
(d) Debt consisting of Guaranties permitted pursuant to Section
8.02;
(e) Debt of any Obligor to any other Obligor incurred in the
ordinary course of business and either consistent with past practices or for
cash management services;
(f) accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money), in each case
incurred in the ordinary course of business and paid within prescribed time
limits that are in the ordinary course of business, unless contested in good
faith and by appropriate proceedings;
(g) Debt of any Consolidated Entity secured by Purchase Money Liens
permitted by Section 8.03(j) provided that the aggregate principal amount of
such Debt together with all Debt secured by Purchase Money Liens described on
Schedule III (other than Debt owing to Apple Computer, Inc. for the purchase of
inventory) does not at any time exceed $5,000,000;
(h) Debt of any Consolidated Entity under interest rate protection
agreements, foreign currency exchange agreements and other interest and exchange
rate arrangements so long as the "aggregate net exposure" (conclusively presumed
to be equal to 20% of the aggregate notional principal amount) under all such
arrangements does not at any time exceed $5,000,000; and
(i) Debt of Micro Warehouse Canada Limited so long as the aggregate
principal amount of such Debt does not at any time exceed $5,000,000.
Section 8.2. Guaranties. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Guaranty, except (a) the Unconditional Guaranties by the Guarantors hereunder,
(b) Guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business and (c)
Guaranties by Micro Warehouse of obligations owed by any of its Subsidiaries to
trade vendors that have been incurred in the ordinary course of business.
Section 8.3. Liens. Create, incur, assume or suffer to exist any Lien, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, upon
or with respect to any of its Property, now owned or hereafter acquired, except:
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(a) Liens in favor of the Administrative Agent on behalf of the
Lenders securing the Revolving Credit Loans and the Letter of Credit Obligations
hereunder;
(b) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 90 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established;
(d) Liens under workmen's compensation, unemployment insurance,
social security or similar legislation (other than ERISA);
(e) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(f) judgment and other similar Liens arising in connection with
court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by any Consolidated Entity of the Property
encumbered thereby in the normal course of its business or materially impair the
value of the Property subject thereto;
(h) Liens securing obligations of any Obligor to any other Obligor;
(i) Liens described on Schedule III provided that such Liens shall
secure only those obligations which they secure on the date hereof; and
(j) Purchase Money Liens; provided that:
(i) any Property subject to any of the foregoing is acquired
by any Consolidated Entity in the ordinary course of its business and the Lien
on any such Property is created contemporaneously with such acquisition;
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(ii) the obligation secured by any Lien so created, assumed or
existing shall not exceed 100% of the lesser of cost or fair market value as of
the time of acquisition of the Property covered thereby to such Consolidated
Entity acquiring the same;
(iii) each such Lien shall attach only to the Property so
acquired and fixed improvements thereon; and
(iv) the obligations secured by such Lien are permitted by the
provisions of Section 8.01(g) and the related expenditure is permitted under
Section 8.13.
Section 8.4. Leases. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal Property,
except:
(a) leases existing on the date of this Agreement and any extensions
or renewals thereof;
(b) Capital Leases permitted by Section 8.01, Section 8.03 and
Section 8.13; and
(c) leases (other than Capital Leases) so long as the Consolidated
Entities are not required on a consolidated basis to make payments (including
taxes, insurance, maintenance and similar expense which any Consolidated Entity
is required to pay under the terms of any lease) in the aggregate under all
leases (other than Capital Leases) in any Fiscal Year in excess of $20,000,000.
Section 8.5. Investments. Make, or permit any of its Subsidiaries to make,
any Investment, except for:
(a) Investments in Domestic Cash Equivalents and Foreign Cash
Equivalents;
(b) Investments in Property to be used or useful in the ordinary
course of business of the Consolidated Entities;
(c) Investments in stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to any
Consolidated Entity;
(d) Investments to or in any Obligor or in any corporation that
concurrently with such Investment becomes an Obligor;
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(e) Investments made in connection with an Acceptable Acquisition;
and
(f) other Investments not listed in clauses (a) through (e),
inclusive, provided that the aggregate amount of such Investments for all
Consolidated Entities does not exceed at any time $5,000,000.
Section 8.6. Distributions. Make, or permit any of its Subsidiaries to
make, any Distribution, except that:
(a) Micro Warehouse may make Distributions payable solely in its
common stock;
(b) any Consolidated Entity may make Distributions to any Obligor;
and
(c) so long as no Default or Event of Default would exist after
giving effect to such redemption, Micro Warehouse may redeem shares of its
capital stock in an amount not to exceed $30,000,000 in the aggregate during the
period from the Effective Date to the Revolving Credit Termination Date.
Section 8.7. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer
or otherwise dispose of, any of its now owned or hereafter acquired Property
(including, without limitation, shares of stock and indebtedness, receivables
and leasehold interests); except:
(a) for inventory disposed of in the ordinary course of business;
(b) the sale or other disposition of Property no longer used or
useful in the conduct of its business;
(c) any Consolidated Entity may sell, lease, assign, or otherwise
transfer its Property to any Obligor; and
(d) so long as no Default or Event of Default exists or would exist
after giving effect to such disposition, the sale or other disposition of
Property pursuant to the Restructuring Plan.
Section 8.8. Subsidiary Capital Stock. (a) Sell or otherwise dispose of
any shares of capital stock of any of its Subsidiaries, except (i) so long as no
Default or Event of Default would exist after giving effect to such disposition,
the sale or other disposition of shares of Subsidiaries pursuant to the
Restructuring Plan (provided that if such disposition involves shares of a
Subsidiary Borrower, all Debt under the Revolving Credit Notes of such
Subsidiary Borrower shall have been paid in full and all Revolving Credit
Commitments to such Subsidiary Borrower shall have been
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terminated) and (ii) in a transaction permitted by Section 8.10(a), or (b)
permit any such Subsidiary to issue any additional shares of its capital stock,
except (i) directors' qualifying shares and (ii) to Micro Warehouse or any
Wholly-Owned Subsidiary.
Section 8.9. Transactions with Affiliates. Enter, or permit any Subsidiary
to enter, into any transaction, including, without limitation, the purchase,
sale or exchange of Property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of Micro Warehouse's or such Subsidiary's business and upon fair
and reasonable terms no less favorable to Micro Warehouse or such Subsidiary
than would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
Section 8.10. Mergers, Etc. Merge or consolidate with, or sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, or acquire all or substantially all of the
assets or the business of any Person (or enter into any agreement to do any of
the foregoing), or permit any of its Subsidiaries to do so, except that:
(a) any Consolidated Entity may merge into or consolidate with or
transfer assets to any Obligor; and
(b) any Consolidated Entity may effect any Acquisition permitted by
Section 8.11.
Section 8.11. Acquisitions. Make, or permit any of its Subsidiaries to
make, any Acquisition other than an Acceptable Acquisition.
Section 8.12. No Activities Leading to Forfeiture. Engage in or propose to
be engaged in, or permit any of its Subsidiaries to engage in or propose to be
engaged in, the conduct of any business or activity which could result in a
Forfeiture Proceeding which could have a Material Adverse Effect.
Section 8.13. Capital Expenditures. Make or commit to make, or permit any
of its Subsidiaries to make or commit to make, (other than by way of
Acquisition) any expenditures in respect of the purchase or other acquisition of
fixed or capital assets, except for Consolidated Capital Expenditures in the
ordinary course of business not exceeding $27,000,000 in any Fiscal Year.
Section 8.14. Restrictions. Enter into, or suffer to exist, or permit any
of its Subsidiaries to enter into, or suffer to exist, any agreement with any
Person other than the Lenders that (a) prohibits, requires the consent of such
Person for or limits the ability of (i) any Consolidated Entity to pay dividends
or make other distributions or pay Debt owed to any other Consolidated Entity,
make loans or advances to any other Consolidated Entity or transfer any of its
Property to any other Consolidated Entity, (ii)
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any Consolidated Entity to create, incur, assume or suffer to exist any Lien
upon any of its Property or (iii) any Consolidated Entity to enter into any
modification or supplement of the Facility Documents; or (b) contains financial
covenants which, taken as a whole, are more restrictive on the Consolidated
Entities than the financial covenants contained in Article 9.
Section 8.15. Fiscal Year. Permit the fiscal year of the Consolidated
Entities to end on a day other than December 31.
ARTICLE 9. FINANCIAL COVENANTS.
So long as any Obligation shall remain unpaid, any Letter of Credit shall
remain outstanding or any Lender shall have any Revolving Credit Commitment and
as determined as of the end of each Fiscal Quarter:
Section 9.1. Interest Coverage Ratio. Micro Warehouse shall maintain at
all times an Interest Coverage Ratio of not less than 3.00 to 1.00.
Section 9.2. Minimum Tangible Net Worth. Micro Warehouse shall maintain at
all times Consolidated Tangible Net Worth of not less than the sum of (a)
$175,000,000 plus (b) the aggregate sum of the Fiscal Year Net Worth Increase
Amounts calculated for each Fiscal Year ending on or after the Closing Date.
Section 9.3. Leverage Ratio. Micro Warehouse shall maintain at all times a
Leverage Ratio of not greater than 1.00 to 1.00.
Section 9.4. Current Ratio. Micro Warehouse shall maintain at all times a
Current Ratio of not less than 1.50 to 1.00.
Section 9.5. Domestic Net Worth. Micro Warehouse shall maintain at all
times a Domestic Net Worth of not less than $150,000,000.
ARTICLE 10. EVENTS OF DEFAULT.
Section 10.1. Events of Default. Any of the following events shall be an
"Event of Default":
(a) any Borrower shall: (i) fail to pay the principal of any
Revolving Credit Note or any Reimbursement Obligation on or before the date when
due and payable; or (ii) fail to pay interest on any Revolving Credit Note or
any fee or other amount due hereunder on or before the date when due and
payable;
(b) any representation or warranty made or deemed made by any
Consolidated Entity in this Agreement or in any other Facility Document or which
is contained in any certificate, document, opinion, financial or other statement
furnished
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at any time under or in connection with any Facility Document shall prove to
have been incorrect in any material respect on or as of the date made;
(c) (i) any Obligor shall fail to perform or observe any term,
covenant or agreement contained in Section 2.03 or 3.02 or Articles 8 or 9; or
(ii) any Obligor shall fail to perform or observe any term, covenant or
agreement on its part to be performed or observed (other than the obligations
specifically referred to elsewhere in this Section 10.01) in any Facility
Document to which it is a party and such failure shall continue for 30
consecutive days;
(d) any Consolidated Entity shall: (i) fail to pay any indebtedness
in excess of $1,000,000 (other than the payment obligations described in (a)
above), or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); (ii) fail to
perform or observe any term, covenant or condition on its part to be performed
or observed under any agreement or instrument relating to any such indebtedness,
when required to be performed or observed, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration of, after the
giving of notice or passage of time, or both, the maturity of such indebtedness,
whether or not such failure to perform or observe shall be waived by the holder
of such indebtedness; or any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
(e) any Consolidated Entity: (i) shall generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as such debts
become due; or (ii) shall make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (iii) shall commence
any proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced, against it,
in which an adjudication or appointment is made or order for relief is entered,
or which petition, application or proceeding remains undismissed for a period of
30 days or more; or shall be the subject of any proceeding under which its
assets may be subject to seizure, forfeiture or divestiture (other than a
proceeding in respect of a Lien permitted under Section 8.03(b)); or (v) by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any substantial part
of its Property; or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of 30 days or more;
(f) one or more judgments, decrees or orders for the payment of
money in excess of $1,000,000 in the aggregate shall be rendered against any
Consolidated Entity and such judgments, decrees or orders shall continue
unsatisfied
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and in effect for a period of 30 consecutive days without being vacated,
discharged, satisfied or stayed or bonded pending appeal;
(g) any event or condition shall occur or exist with respect to any
Domestic Plan, Foreign Plan or Multiemployer Plan concerning which any
Consolidated Entity is under an obligation to furnish a report to the Lenders in
accordance with Section 7.08(j) hereof and as a result of such event or
condition, together with all other such events or conditions, such Consolidated
Entity or any ERISA Affiliate has incurred or in the opinion of the Lenders is
reasonably likely to incur a liability to a Domestic Plan, a Foreign Plan, a
Multiemployer Plan, the PBGC, a Section 4042 Trustee or any other Governmental
Authority (or any combination of the foregoing) which is material in relation to
the financial position of the Consolidated Entities; provided, however, that any
such amount shall not be deemed to be material so long as all such amounts do
not exceed $1,000,000 in the aggregate during the term of this Agreement;
(h) the Unfunded Benefit Liabilities of one or more Domestic Plans
or Foreign Plans have increased after the date of this Agreement in an amount
which is material (as specified in Section 7.08(j)(viii) hereof);
(i) (i) any Person or two or more Persons acting in concert shall
have acquired beneficial ownership (within the meaning of Rules 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934) of
10% or more of the outstanding shares of voting capital stock of Micro
Warehouse; or (ii) during any period of 12 consecutive months, commencing before
or after the date of this Agreement, individuals who at the beginning of such
12-month period were directors (or persons nominated by such individuals) of
Micro Warehouse cease for any reason to constitute a majority of the Board of
Directors of Micro Warehouse; or
(j) any Forfeiture Proceeding shall have been commenced or any
Consolidated Entity shall have given any Lender written notice of the
commencement of any Forfeiture Proceeding as provided in Section 7.08(n) which,
in either case, could reasonably be expected to have a Material Adverse Effect.
Section 10.2. Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent shall, upon request of the Required
Lenders, by notice to Micro Warehouse (a) declare the Revolving Credit
Commitments to be terminated, whereupon the same shall forthwith terminate and
so shall the obligations of the Issuing Lender to issue any Letter of Credit,
(b) declare the outstanding principal of any or all of the Revolving Credit
Notes, all interest thereon and all other amounts payable under this Agreement,
the Revolving Credit Notes and the other Facility Documents to be forthwith due
and payable, whereupon such Revolving Credit Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
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expressly waived by the Borrowers and/or (c) direct Micro Warehouse to pay to
the Administrative Agent an amount, to be held as cash security in the cash
collateral account held by the Administrative Agent under Section 3.08, equal to
the Letter of Credit Obligations then outstanding; provided that, in the case of
an Event of Default referred to in Section 10.01(e) or Section 10.01(i) above,
the Revolving Credit Commitments and the obligation to issue Letters of Credit
shall be immediately terminated, and the Revolving Credit Notes, all interest
thereon and all other amounts payable under this Agreement, the Revolving Credit
Notes and the other Facility Documents shall be immediately due and payable
without notice, presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrowers.
ARTICLE 11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS.
Guarantied Obligations. (a) Each of (x) the Borrowers other than, in each
of their respective capacities as the primary obligor under the respective
Revolving Credit Note to which it is party and (y) the Subsidiary Guarantors
(each of the foregoing entities individually a "Guarantor" and collectively the
"Guarantors") (but in the case of Micro Warehouse (Deutschland) GmbH, subject to
the limitations of Sections 30 and 31 of the German Act on Limited Liability
Companies), jointly and severally, in consideration of the execution and
delivery of this Agreement by the Lenders and the Administrative Agent, hereby
irrevocably and unconditionally guarantees to the Administrative Agent, for the
benefit of the Lenders, as and for such Guarantor's own debt, until final
payment has been made, the due and punctual payment and performance in full in
cash in the applicable currency of the Obligations (but excluding, with respect
to each Foreign Subsidiary, the Domestic Obligations) (all such obligations so
guarantied are herein collectively referred to as the "Guarantied Obligations"),
in each case when and as the same shall become due and payable, whether at
maturity, pursuant to mandatory or optional prepayment, by acceleration or
otherwise, all in accordance with the terms and provisions hereof and thereof,
it being the intent of the Guarantors that the guaranty set forth in this
Section 11.01 (the "Unconditional Guaranty") shall be a guaranty of payment and
not a guaranty of collection.
(b) As a separate and alternative stipulation, each of the
Guarantors unconditionally and irrevocably agrees that any sum expressed to be
payable by any Guarantor under Section 11.01(a) but which is for any reason
(whether or not now existing and whether or not now known or becoming known to
any party to this Agreement) not recoverable from such Guarantor on the basis of
a guaranty shall nevertheless be recoverable from it as if it were the sole
principal debtor and shall be paid by it to the Administrative Agent, for the
benefit of the Lenders, on demand.
Section 11.2. Performance Under This Agreement. In the event any Borrower
fails to make, on or before the due date thereof, any payment of the Guarantied
Obligations, the Guarantors shall cause forthwith to be paid the moneys, or to
be
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performed, kept, observed, or fulfilled each of such Guarantied Obligations, in
respect of which such failure has occurred.
Section 11.3. Waivers. To the fullest extent permitted by law, each
Guarantor does hereby waive:
(a) notice of acceptance of the Unconditional Guaranty;
(b) notice of any borrowings under this Agreement, or the creation,
existence or acquisition of any of the Guarantied Obligations, subject to such
Guarantor's right to make inquiry of the Administrative Agent to ascertain the
amount of the Guarantied Obligations at any reasonable time;
(c) notice of the amount of the Guarantied Obligations, subject to
such Guarantor's right to make inquiry of the Administrative Agent to ascertain
the amount of the Guarantied Obligations at any reasonable time;
(d) notice of adverse change in the financial condition of any
Borrower, any other Guarantor or any other fact that might increase such
Guarantor's risk hereunder;
(e) notice of presentment for payment, demand, protest, and notice
thereof as to the Revolving Credit Notes or any other instrument;
(f) notice of any Default or Event of Default;
(g) all other notices and demands to which such Guarantor might
otherwise be entitled (except if such notice or demand is specifically otherwise
required to be given to such Guarantor hereunder or under the other Facility
Documents);
(h) the right by statute or otherwise to require any or each Lender
or the Administrative Agent to institute suit against any Borrower or to exhaust
the rights and remedies of any or each Lender or the Administrative Agent
against any Borrower, such Guarantor being bound to the payment of each and all
Guarantied Obligations, whether now existing or hereafter accruing, as fully as
if such Guarantied Obligations were directly owing to each Lender by such
Guarantor;
(i) any defense arising by reason of any disability or other defense
(other than the defense that the Guarantied Obligations shall have been fully
and finally performed and indefeasibly paid) of any Borrower or by reason of the
cessation from any cause whatsoever of the liability of any Borrower in respect
thereof; and
(j) any stay (except in connection with a pending appeal),
valuation, appraisal, redemption or extension law now or at any time hereafter
in force which, but for this waiver, might be applicable to any sale of Property
of such Guarantor made
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under any judgment, order or decree based on this Agreement, and such Guarantor
covenants that it will not at any time insist upon or plead, or in any manner
claim or take the benefit or advantage of such law.
Until all of the Guarantied Obligations shall have been paid in full, none of
the Guarantors shall have any right of subrogation, reimbursement, or indemnity
whatsoever in respect thereof and any right of recourse to or with respect to
any assets or Property of any Borrower or any other Guarantor. Nothing shall
discharge or satisfy the obligations of the Guarantors hereunder except the full
and final performance and indefeasible payment of the Guarantied Obligations in
cash in the applicable currency by the Guarantors, upon which each Lender agrees
to transfer and assign its interest in the Revolving Credit Notes to the
Guarantors without recourse, representation or warranty of any kind (other than
that such Lender owns such Revolving Credit Notes and that such Revolving Credit
Notes are free of Liens created by such holder). All of the Guarantied
Obligations shall in the manner and subject to the limitations provided herein
for the acceleration of, the Revolving Credit Notes and the Letter of Credit
Obligations, forthwith become due and payable without notice.
Section 11.4. Releases. Each of the Guarantors consents and agrees that,
without notice to or by such Guarantor and without affecting or impairing the
obligations of such Guarantor hereunder, each Lender or the Administrative
Agent, in the manner provided herein, by action or inaction, may:
(a) compromise or settle, extend the period of duration or the time
for the payment, or discharge the performance of, or may refuse to, or otherwise
not, enforce, or may, by action or inaction, release all or any one or more
parties to, any one or more of the Revolving Credit Notes or the other Facility
Documents;
(b) grant other indulgences to any Borrower in respect thereof;
(c) amend or modify in any manner and at any time (or from time to
time) any one or more of the Revolving Credit Notes, the Letters of Credit and
the other Facility Documents in accordance with Section 13.01 or otherwise;
(d) release or substitute any one or more of the endorsers or
guarantors of the Guarantied Obligations whether parties hereto or not; and
(e) exchange, enforce, waive, or release, by action or inaction, any
security for the Guarantied Obligations (including, without limitation, any of
the collateral therefor) or any other guaranty of any of the Revolving Credit
Notes or the Letter of Credit Obligations.
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Section 11.5. Marshaling. Each of the Guarantors consents and agrees that:
(a) the Administrative Agent shall be under no obligation to marshal
any assets in favor of such Guarantor or against or in payment of any or all of
the Guarantied Obligations; and
(b) to the extent any Borrower or any other Guarantor makes a
payment or payments to any Lender, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, or required, for any of the foregoing reasons or for any other reason, to
be repaid or paid over to a custodian, trustee, receiver, or any other party
under any bankruptcy law, common law, or equitable cause, then to the extent of
such payment or repayment, the obligation or part thereof intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made and such Guarantor shall be primarily
liable for such obligation.
Section 11.6. Liability. Each of the Guarantors agrees that the liability
of such Guarantor in respect of this Article 11 shall not be contingent upon the
exercise or enforcement by any Lender or the Administrative Agent of whatever
remedies such Lender or the Administrative Agent may have against any Borrower
or any other Guarantor or the enforcement of any Lien or realization upon any
security such Lender or the Administrative Agent may at any time possess.
Section 11.7. Unconditional Obligation. The Unconditional Guaranty set
forth in this Article 11 is an absolute, unconditional, continuing and
irrevocable guaranty of payment and performance and shall remain in full force
and effect until the full and final payment of the Guarantied Obligations
without respect to future changes in conditions, including change of law or any
invalidity or irregularity with respect to the issuance or assumption of any
obligations (including, without limitation, the Revolving Credit Notes and the
Letter of Credit Obligations) of or by any Borrower or any other Guarantor, or
with respect to the execution and delivery of any agreement (including, without
limitation, the Revolving Credit Notes and the other Facility Documents) of any
Borrower or any other Guarantor.
Section 11.08. Election to Perform Obligations. Any election by any of the
Guarantors to pay or otherwise perform any of the obligations of any Borrower
under the Revolving Credit Notes or under any of the other Facility Documents,
whether pursuant to this Article 11 or otherwise, shall not release such
Borrower from such obligations or any of its other obligations under the
Revolving Credit Notes or under any of the other Facility Documents.
Section 11.09. No Election. The Administrative Agent shall have the right
to seek recourse against any one or more of the Guarantors to the fullest extent
provided for herein for such Guarantor's obligations under this Agreement
(including, without limitation, this Article 11) in respect of the Revolving
Credit Notes and the Letters of
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Credit. No election to proceed in one form of action or proceeding, or against
any party, or on any obligation, shall constitute a waiver of the Administrative
Agent's right to proceed in any other form of action or proceeding or against
other parties unless such holder has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by any Lender or the Administrative Agent against any Borrower under
any document or instrument evidencing obligations of such Borrower to such
Lender or the Administrative Agent shall serve to diminish the liability of any
of the Guarantors under this Agreement (including, without limitation, this
Article 11) except to the extent that such Lender finally and unconditionally
shall have realized payment by such action or proceeding, notwithstanding the
effect of any such action or proceeding upon any Guarantor's right of
subrogation against such Borrower.
Section 11.10. Severability. Subject to Article 10 hereof and applicable
law, each of the rights and remedies granted under this Article 11 to the
Administrative Agent may be exercised by the Administrative Agent without notice
by the Administrative Agent to, or the consent of or any other action by, the
Administrative Agent, provided that each of the Guarantors will give each Lender
immediate notice of any exercise of rights and remedies by the Administrative
Agent under this Article 11.
Section 11.11. Other Enforcement Rights. The Administrative Agent may
proceed, as provided in Article 11 hereof, to protect and enforce the
Unconditional Guaranty by suit or suits or proceedings in equity, at law or in
bankruptcy, and whether for the specific performance of any covenant or
agreement contained herein (including, without limitation, in this Article 11)
or in execution or aid of any power herein granted; or for the recovery of
judgment for the obligations hereby guarantied or for the enforcement of any
other proper, legal or equitable remedy available under applicable law. Each
Lender shall have, to the fullest extent permitted by law and this Agreement, a
right of set-off against, any and all credits and any and all other Property of
any Guarantor, now or at any time whatsoever with, or in the possession of, such
holder, or anyone acting for such holder, as security for any and all
obligations of the Guarantors hereunder and such Lien shall be deemed permitted
for all purposes under Article 8 hereof.
Section 11.12. Delay or Omission; No Waiver. No course of dealing on the
part of any Lender or the Administrative Agent and no delay or failure on the
part of any such Person to exercise any right hereunder (including, without
limitation, this Article 11) shall impair such right or operate as a waiver of
such right or otherwise prejudice such Person's rights, powers and remedies
hereunder. Every right and remedy given by the Unconditional Guaranty or by law
to any Lender or the Administrative Agent may be exercised from time to time as
often as may be deemed expedient by such Person.
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Section 11.13. Restoration of Rights and Remedies. If any Lender or the
Administrative Agent shall have instituted any proceeding to enforce any right
or remedy under the Unconditional Guaranty, under any Revolving Credit Note held
by such Lender, or under the Security Agreement, and such proceeding shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to such Lender or the Administrative Agent, then and in every such
case each such Lender, the Administrative Agent, each Borrower and each
Guarantor shall, except as may be limited or affected by any determination in
such proceeding, be restored severally and respectively to its respective former
positions hereunder and thereunder, and thereafter, subject as aforesaid, the
rights and remedies of such Lender or the Administrative Agent shall continue as
though no such proceeding had been instituted.
Section 11.14. Cumulative Remedies. No remedy under this Agreement
(including, without limitation, this Article 11), the Revolving Credit Notes,
the Letters of Credit or any of the other Facility Documents is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative and
in addition to any and every other remedy given hereunder this Agreement
(including, without limitation, this Article 11), under the Revolving Credit
Notes, the Letters of Credit or under any of the other Facility Documents.
Section 11.15. Survival. So long as the Guarantied Obligations shall not
have been fully and finally performed and indefeasibly paid, the obligations of
the Guarantors under this Article 11 shall survive the transfer and payment of
any Revolving Credit Note or Letter of Credit Obligation and the payment in full
of all the Revolving Credit Notes and Letter of Credit Obligations and the
expiration and termination of the Revolving Credit Commitments.
Section 11.16. No Setoff, Counterclaim or Withholding; Gross-Up. Each
payment by a Guarantor shall be made without setoff or counterclaim and without
withholding for or on account of any present or future Taxes imposed by any
Governmental Authority. If any such withholding is so required, such Guarantor
shall make the withholding and pay the amount withheld to the appropriate
Governmental Authority before penalties attach thereto or interest accrues
thereon.
Section 11.17. Payment in Applicable Currency. Any payment of a Guarantied
Obligation required to be made pursuant to this Agreement shall be made in the
currency in which such Guarantied Obligation is required to be made pursuant to
this Agreement, any Revolving Credit Note or any other Facility Document.
ARTICLE 12. THE ADMINISTRATIVE AGENT.
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Section 12.1. Appointment, Powers and Immunities of Administrative Agent.
Each Lender hereby irrevocably (but subject to removal by the Required Lenders
pursuant to Section 12.09) appoints and authorizes the Administrative Agent to
act as its agent hereunder and under any other Facility Document with such
powers as are specifically delegated to the Administrative Agent by the terms of
this Agreement and any other Facility Document, together with such other powers
as are reasonably incidental thereto. The Administrative Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and any other Facility Document, and shall not by reason of this Agreement be a
trustee for any Lender. The Administrative Agent shall not be responsible to the
Lenders for any recitals, statements, representations or warranties made by any
Obligor or any officer or official of such Obligor or any other Person contained
in this Agreement or any other Facility Document, or in any certificate or other
document or instrument referred to or provided for in, or received by any of
them under, this Agreement or any other Facility Document, or for the value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Facility Document or any other document or
instrument referred to or provided for herein or therein, for the perfection or
priority of any collateral security for the Revolving Credit Loans or the
Letters of Credit or for any failure by any Obligor to perform any of its
obligations hereunder or thereunder. The Administrative Agent may employ agents
and attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither the Administrative Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or under any other Facility
Document or in connection herewith or therewith, except for its or their own
gross negligence or willful misconduct.
Section 12.2. Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telecopier, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat each Lender as
the holder of the Revolving Credit Loans made by it and the Letter of Credit
Obligations attributable to it for all purposes hereof unless and until a notice
of the assignment or transfer thereof satisfactory to the Administrative Agent
signed by such Lender shall have been furnished to the Administrative Agent but
the Administrative Agent shall not be required to deal with any Person who has
acquired a participation in any Revolving Credit Loan or Letter of Credit
Obligation from a Lender. As to any matters not expressly provided for by this
Agreement or any other Facility Document, the Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Required Lenders, and such
instructions of the Required Lenders and any action taken or failure to act
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pursuant thereto shall be binding on all of the Lenders and any other holder of
all or any portion of any Revolving Credit Loan or Letter of Credit Obligation.
Section 12.3. Defaults. The Administrative Agent shall not be deemed to
have knowledge of the occurrence of a Default or Event of Default (other than
the non-payment of principal of or interest on the Revolving Credit Loans and
the Letter of Credit Obligations to the extent the same is required to be paid
to the Administrative Agent for the account of the Lenders) unless the
Administrative Agent has received notice from a Lender or any Obligor specifying
such Default or Event of Default and stating that such notice is a "Notice of
Default." In the event that the Administrative Agent receives such a notice of
the occurrence of a Default or Event of Default, the Administrative Agent shall
give prompt notice thereof to the Lenders (and shall give each Lender prompt
notice of each such non-payment). The Administrative Agent shall (subject to
Section 12.08) take such action with respect to such Default or Event of Default
which is continuing as shall be directed by the Required Lenders; provided that,
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders; and provided further that the
Administrative Agent shall not be required to take any such action which it
determines to be contrary to law.
Section 12.4. Rights of Administrative Agent as a Lender. With respect to
its Revolving Credit Commitments and the Revolving Credit Loans made by it and
the Letter of Credit Obligations attributable to it, the Administrative Agent in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
capacity as a Lender. The Administrative Agent and its affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to
(on a secured or unsecured basis), and generally engage in any kind of banking,
trust or other business with, any Consolidated Entity (and any of its
affiliates) as if it were not acting as the Administrative Agent, and the
Administrative Agent may accept fees and other consideration from any
Consolidated Entity for services in connection with this Agreement or otherwise
without having to account for the same to the Lenders. Although the
Administrative Agent and its affiliates may in the course of such relationships
and relationships with other Persons acquire information about any Obligor, its
Affiliates and such other Persons, the Administrative Agent shall have no duty
to disclose such information to the Lenders.
Section 12.5. Indemnification of Administrative Agent. The Lenders agree
to indemnify the Administrative Agent (to the extent not reimbursed under
Section 13.03 or under the applicable provisions of any other Facility Document,
but without limiting the obligations of the Obligors under Section 13.03 or such
provisions), ratably in accordance with the aggregate unpaid principal amount of
the Obligations held by the
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Lenders (without giving effect to any participations, in all or any portion of
such Obligations, sold by them to any other Person) (or, if no Obligations are
at the time outstanding, ratably in accordance with their respective Revolving
Credit Commitments), for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of this
Agreement, any other Facility Document or any other documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Obligors are
obligated to pay under Section 13.03 or under the applicable provisions of any
other Facility Document but excluding, unless a Default or Event of Default has
occurred, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents or instruments; provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
Section 12.6. Documents. The Administrative Agent will forward to each
Lender, promptly after the Administrative Agent's receipt thereof but in any
event within 10 days, a copy of each report, notice or other document required
by this Agreement or any other Facility Document to be delivered to the
Administrative Agent for such Lender.
Section 12.7. Non-Reliance on Administrative Agent and Other Lenders. Each
Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Consolidated Entities and decision to enter into this Agreement and that it
will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any other Facility Document.
The Administrative Agent shall not be required to keep itself informed as to the
performance or observance by the Consolidated Entities of this Agreement or any
other Facility Document or any other document referred to or provided for herein
or therein or to inspect the Properties or books of any Consolidated Entity.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition or business of any Consolidated Entity (or any of its
Affiliates) which may come into the possession of the Administrative Agent or
any of its affiliates. The Administrative Agent shall not be required to file
this Agreement, any other Facility Document or any document or instrument
referred to herein or therein, for record or give notice of this Agreement, any
other Facility Document or any document or instrument referred to herein or
therein, to anyone.
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Section 12.8. Failure of Administrative Agent to Act. Except for action
expressly required of the Administrative Agent hereunder, the Administrative
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
cash collateral) of the indemnification obligations of the Lenders under Section
12.05 in respect of any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
Section 12.9. Resignation or Removal of Administrative Agent. Subject to
the appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving written notice
thereof to the Lenders and Micro Warehouse, and the Administrative Agent may be
removed at any time with or without cause by the Required Lenders; provided that
Micro Warehouse and the other Lenders shall be promptly notified thereof. Upon
any such resignation or removal, the Required Lenders shall have the right to
appoint a successor Administrative Agent. If no successor Administrative Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Administrative Agent's giving
of notice of resignation or the Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a bank
which has an office in New York, New York. The Required Lenders or the retiring
Administrative Agent, as the case may be, shall upon the appointment of a
successor Administrative Agent promptly so notify Micro Warehouse and the other
Lenders. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article 12 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent.
Section 12.10. Amendments Concerning Agency Function. The Administrative
Agent shall not be bound by any waiver, amendment, supplement or modification of
this Agreement or any other Facility Document which affects its duties hereunder
or thereunder unless it shall have given its prior consent thereto.
Section 12.11. Liability of Administrative Agent. The Administrative Agent
shall not have any liabilities or responsibilities to any Consolidated Entity on
account of the failure of any Lender to perform its obligations hereunder or to
any Lender on account of the failure of any Consolidated Entity to perform its
obligations hereunder or under any other Facility Document.
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Section 12.12. Transfer of Agency Function. Without the consent of the
Obligors or any Lender, the Administrative Agent may at any time or from time to
time transfer its functions as Administrative Agent hereunder to any of its
offices wherever located, provided that the Administrative Agent shall promptly
notify Micro Warehouse and the Lenders thereof.
Section 12.13. Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or Micro Warehouse
(either one as appropriate being the "Payor") prior to the date on which such
Lender is to make payment hereunder to the Administrative Agent of the proceeds
of a Revolving Credit Loan or any Borrower is to make payment to the
Administrative Agent, as the case may be (either such payment being a "Required
Payment"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Administrative Agent, the
Administrative Agent may assume that the Required Payment has been made and may,
in reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Administrative Agent, the recipient
of such payment (and, if such recipient is a Borrower and the Payor Lender fails
to pay the amount thereof to the Administrative Agent forthwith upon demand,
such Borrower) shall, on demand, repay to the Administrative Agent the amount
made available to it together with interest thereon for the period from the date
such amount was so made available by the Administrative Agent until the date the
Administrative Agent recovers such amount at a rate per annum equal to the
average daily Federal Funds Rate for such period.
Section 12.14. Withholding Taxes. Each Lender represents that it will
furnish to the Administrative Agent such forms, certifications, statements and
other documents as the Administrative Agent may request from time to time to
evidence such Lender's exemption from the withholding of any tax imposed by any
jurisdiction to the extent an exemption is available or to enable the
Administrative Agent to comply with any applicable laws or regulations relating
thereto. Without limiting the effect of the foregoing, if any Lender is not
created or organized under the laws of the United States of America or any state
thereof, in the event that the payment of interest by any Borrower is treated
for U.S. income tax purposes as derived in whole or in part from sources from
within the U.S., such Lender will furnish to the Administrative Agent Form 4224
or Form 1001 of the Internal Revenue Service, or such other forms,
certifications, statements or documents, duly executed and completed by such
Lender as evidence of such Lender's exemption from the withholding of U.S. tax
with respect thereto. The Administrative Agent shall not be obligated to make
any payments hereunder to such Lender in respect of any Revolving Credit Loan or
such Lender's Revolving Credit Commitments until such Lender shall have
furnished to the Administrative Agent the requested form, certification,
statement or document.
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Section 12.15. Several Obligations and Rights of Lenders. The failure of
any Lender to make any Revolving Credit Loan to be made by it on the date
specified therefor shall not relieve any other Lender of its obligation to make
its Revolving Credit Loan on such date, but no Lender shall be responsible for
the failure of any other Lender to make a Revolving Credit Loan to be made by
such other Lender. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement, and it shall not
be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
Section 12.16. Pro Rata Treatment of Revolving Credit Loans, Etc. Except
to the extent otherwise provided: (a) each borrowing under Section 2.01 shall be
made from the Lenders, each reduction or termination of the amount of the
Revolving Credit Commitments under Section 2.06 shall be applied to the
Revolving Credit Commitments of the Lenders, and each payment of commitment fee
accruing under Section 2.09 shall be made for the account of the Lenders,
according to their Pro Rata Share; and (b) each prepayment and payment of
principal of or interest on Revolving Credit Loans shall be made to the
Administrative Agent for the account of the Lenders holding Revolving Credit
Loans pro rata in accordance with the respective unpaid principal amounts of
such Revolving Credit Loans held by such Lenders; and (c) each prepayment and
payment of fees under Section 3.09(a) and Letter of Credit Obligations shall be
made pro rata in accordance with the Pro Rata Share of the Lenders in the Letter
of Credit Obligations held by each of them.
Section 12.17. Sharing of Payments Among Lenders. If a Lender shall obtain
payment of any Obligation owed to it through the exercise of any right of
setoff, banker's lien, counterclaim, or by any other means, it shall promptly
purchase from the other Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Obligations of the other
Lenders in such amounts, and make such other adjustments from time to time as
shall be equitable to the end that all the Lenders shall share the benefit of
such payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro rata in accordance with the amount of
Obligations held by each of them. To such end the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. Each Obligor agrees
that any Lender so purchasing a participation (or direct interest) in the
Obligations owed to the other Lenders may exercise all rights of setoff,
banker's lien, counterclaim or similar rights with respect to such participation
(or direct interest). Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness of any Consolidated Entity.
ARTICLE 13. MISCELLANEOUS.
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Section 13.01. Amendments and Waivers. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be amended or
modified only by an instrument in writing signed by Micro Warehouse, the
affected Borrowers, the Administrative Agent and the Required Lenders, or by
Micro Warehouse, the affected Borrowers and the Administrative Agent acting with
the consent of the Required Lenders and any provision of this Agreement may be
waived by the Required Lenders or by the Administrative Agent acting with the
consent of the Required Lenders; provided that no amendment, modification or
waiver shall, unless by an instrument signed by all of the Lenders or by the
Administrative Agent acting with the consent of all of the Lenders: (a) increase
or extend the term, or extend the time or waive any requirement for the
reduction or termination, of the Revolving Credit Commitments; (b) modify the
date fixed for the payment of principal of or interest on any Revolving Credit
Loan, any Letter of Credit Obligation or any fee payable hereunder; (c) reduce
the amount of any payment of principal thereof or the rate at which interest is
payable thereon or any fee payable hereunder; (d) alter the terms of this
Section 13.01; (e) amend the definition of the term "Required Lenders"; (f)
waive any of the conditions precedent set forth in Section 4.01 hereof; or (g)
discharge any Guarantor from its Unconditional Guaranty under Article 11 hereof;
and provided, further, that any amendment of Article 12 hereof or any amendment
which increases the obligations of the Administrative Agent hereunder shall
require the consent of the Administrative Agent. No failure on the part of the
Administrative Agent or any Lender to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 13.02. Usury. Anything herein to the contrary notwithstanding, the
obligations of the Borrowers under this Agreement, the Revolving Credit Notes
and the other Facility Documents shall be subject to the limitation that
payments of interest shall not be required to the extent that receipt thereof
would be contrary to provisions of law applicable to a Lender limiting rates of
interest which may be charged or collected by such Lender.
Section 13.03. Expenses. Micro Warehouse (and, insofar it is responsible
for such expenses, each Obligor) shall reimburse the Administrative Agent on
demand for all reasonable costs, expenses and charges (including, without
limitation, reasonable fees and charges of external domestic and foreign legal
counsel for the Administrative Agent) in connection with the preparation of, and
any amendment, supplement, waiver or modification to (in each case, whether or
not consummated), this Agreement, any other Facility Document and any other
documents prepared in connection herewith or therewith. Micro Warehouse (and,
insofar it is responsible for such expenses, each Obligor) shall reimburse the
Administrative Agent and each Lender for all reasonable costs expenses and
charges (including, without limitation, reasonable fees and charges of external
domestic and foreign legal counsel for the Administrative Agent and each Lender)
in connection with the enforcement or preservation of any rights or remedies
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during the existence of an Event of Default (including, without limitation, in
connection with any restructuring or insolvency or bankruptcy proceeding). Micro
Warehouse (and, insofar as it is responsible for the indemnified liability in
question, each Obligor) agrees to indemnify the Administrative Agent and each
Lender and their respective directors, officers, employees and agent from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to this Agreement or
any other Facility Document or to any actual or proposed use by any Borrower of
the proceeds of the Revolving Credit Loans or the Letters of Credit or to the
performance or enforcement of this Agreement or the other Facility Documents,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the negligence or wilful misconduct of the Person
to be indemnified).
Section 13.04. Survival. The obligations of the Obligors under Sections
4.01, 4.05, 4.06, 13.03 and 13.16 shall survive the repayment of the Obligations
and the termination of the Revolving Credit Commitments.
Section 13.05. Assignment; Participations.
(a) This Agreement shall be binding upon, and shall inure to the
benefit of, Micro Warehouse, the Subsidiary Borrowers, the Subsidiary
Guarantors, the Administrative Agent, the Lenders and their respective
successors and assigns, except that none of the Obligors may not assign or
transfer their rights or obligations hereunder. So long as any assignment or
participation by any Lender of its rights and obligations in respect of the
Letters of Credit shall require the prior consent of the Issuing Lender such
consent not to be unreasonably withheld, each Lender may assign, or sell
participations in, all or any part of any Obligation to another bank or other
entity, in which event (i) in the case of an assignment, upon notice thereof by
the Lender to Micro Warehouse with a copy to the Administrative Agent, the
assignee shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it were
a Lender hereunder; and (ii) in the case of a participation, the participant
shall have no rights under the Facility Documents and all amounts payable by the
Borrowers under Articles 2 and 3 shall be determined as if such Lender had not
sold such participation. The agreement executed by such Lender in favor of the
participant shall not give the participant the right to require such Lender to
take or omit to take any action hereunder except action directly relating to (i)
the extension of a payment date with respect to any portion of the principal of
or interest on any amount outstanding hereunder allocated to such participant,
(ii) the reduction of the principal amount outstanding hereunder or (iii) the
reduction of the rate of interest payable on such amount or any amount of fees
payable hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with such Lender. Such
Lender
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may furnish any information concerning the Consolidated Entities in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that such Lender
shall require any such prospective assignee or such participant (prospective or
otherwise) to agree in writing to maintain the confidentiality of such
information. In connection with any assignment pursuant to this paragraph (a),
the assigning Lender shall pay the Administrative Agent an administrative fee
for processing such assignment in the amount of $5,000.
(b) In addition to the assignments and participations permitted
under paragraph (a) above, any Lender may assign and pledge all or any portion
of its Revolving Credit Loans and Revolving Credit Notes to (i) any affiliate of
such Lender or (ii) any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Lender from its obligations hereunder.
Section 13.06. Notices. Unless the party to be notified otherwise notifies
the other party in writing as provided in this Section, and except as otherwise
provided in this Agreement, notices shall be given to the Administrative Agent
by telephone, confirmed by telex, telecopy or other writing, and to the Lenders
and to the Obligors by ordinary mail or telecopier addressed to such party at
its address on the signature page of this Agreement. Notices shall be effective:
(a) if given by mail, 72 hours after deposit in the mails with first class
postage prepaid, addressed as aforesaid; and (b) if given by telecopier, when
the telecopy is transmitted to the telecopier number as aforesaid; provided that
notices to the Administrative Agent and the Lenders shall be effective upon
receipt.
Section 13.07. Setoff. Each Obligor agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim a
Lender may otherwise have, each Lender shall be entitled, at its option, to
offset balances (general or special, time or demand, provisional or final) held
by it for the account of such Obligor at any of such Lender's offices, in
Dollars or in any other currency, against any amount payable by such Obligor to
such Lender under this Agreement, such Lender's Revolving Credit Notes, any
Letter of Credit or any other Facility Document which is not paid when due
(regardless of whether such balances are then due to such Obligor), in which
case it shall promptly notify such Obligor and the Administrative Agent thereof;
provided that such Lender's failure to give such notice shall not affect the
validity thereof. Payments by any Obligor hereunder shall be made without setoff
or counterclaim.
SECTION 13.08. JURISDICTION; IMMUNITIES. (a) EACH OF THE OBLIGORS HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CONNECTICUT STATE OR UNITED
STATES FEDERAL COURT SITTING IN FAIRFIELD COUNTY OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY REVOLVING CREDIT NOTE, ANY
LETTER OF CREDIT OR ANY
65
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OTHER FACILITY DOCUMENT, AND EACH OF THE OBLIGORS HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH CONNECTICUT STATE OR FEDERAL COURT. EACH OF THE OBLIGORS DESIGNATES AND
APPOINTS MICRO WAREHOUSE, INC., 535 CONNECTICUT AVENUE, NORWALK, CONNECTICUT
06854 AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH
OBLIGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH
PROCESS SO SERVED SHALL BE MAILED TO THE APPLICABLE OBLIGOR AT ITS ADDRESS
SPECIFIED IN SECTION 13.06 EXCEPT ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT
THE VALIDITY OF SERVICE OF PROCESS. EACH OF THE OBLIGORS AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. EACH OF THE OBLIGORS FURTHER WAIVES ANY OBJECTION TO VENUE IN
SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE
BASIS OF FORUM NON CONVENIENS.
(b) EACH OF THE OBLIGORS WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL.
THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY EACH OF THE
OBLIGORS AND SUCH OBLIGOR ACKNOWLEDGES THAT NO PERSON ACTING ON BEHALF OF
ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. EACH
OF THE OBLIGORS FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD
THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(c) TO INDUCE THE LENDERS TO ENTER INTO THE COMMERCIAL LOAN
TRANSACTION EVIDENCED BY THE FACILITY DOCUMENTS, EACH OF THE OBLIGORS AGREES
THAT THE SAID TRANSACTION IS COMMERCIAL AND NOT A CONSUMER TRANSACTION AND
WAIVES ANY RIGHT TO NOTICE OF AND HEARING OF THE RIGHTS OF THE ADMINISTRATIVE
AGENT AND THE LENDERS UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES,
REVISIONS OF 1958, AS AMENDED, OR OTHER STATUTE OR STATUTES AFFECTING
PREJUDGMENT REMEDIES AND AUTHORIZES THE ADMINISTRATIVE AGENT'S OR ANY LENDER'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THAT THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
(d) Nothing in this Section 13.08 shall affect the right of the
Administrative Agent or any Lender to serve legal process in any other manner
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permitted by law or affect the right of the Administrative Agent or any Lender
to bring any action or proceeding against any Obligor or its Property in the
courts of any other jurisdictions.
(e) To the extent that any Obligor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its Property, such Obligor
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement, the Revolving Credit Notes, the Letters of Credit and the other
Facility Documents.
Section 13.09. Table of Contents; Headings. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 13.10. Severability. The provisions of this Agreement are intended
to be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction. Without limiting the foregoing, to the extent that
mandatory and non-waivable provisions of applicable law (including but not
limited to any applicable laws pertaining to fraudulent conveyance and any
applicable business corporation laws (including, in the case of Micro Warehouse
(Deutschland) GmbH, Section 30 of the German Act on Limited Liability Companies)
otherwise would render the full amount of any Obligor's obligations under this
Agreement and under the other Facility Documents invalid or unenforceable such
Obligor's obligations under this Agreement and under the other Facility
Documents shall be limited to the maximum amount which does not result in such
invalidity or unenforceability.
Section 13.11. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 13.12. Integration. The Facility Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.
SECTION 13.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CONNECTICUT. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
IN ACCORDANCE WITH, THE LAWS
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OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UCP")
AND AS TO MATTERS NOT GOVERNED BY THE UCP, THE LAWS OF THE STATE OF CONNECTICUT.
Section 13.14. Confidentiality. Each Lender and the Administrative Agent
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 safe and sound banking practices, any
non-public information supplied to it by any Consolidated Entity pursuant to
this Agreement which is identified by such Consolidated Entity as being
confidential at the time the same is delivered to the Lenders or the
Administrative Agent, provided that nothing herein shall limit the disclosure of
any such information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel for any of the Lenders or the Administrative
Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with
any litigation to which any one or more of the Lenders is a party or (v) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) agrees to use
reasonable precautions to keep such information confidential; and provided
finally that in no event shall any Lender or the Administrative Agent be
obligated or required to return any materials furnished by such Consolidated
Entity.
Section 13.15. Treatment of Certain Information. Each of the Obligors (a)
acknowledges that services may be offered or provided to it (in connection with
this Agreement or otherwise) by each Lender or by one or more of their
respective subsidiaries or affiliates and (b) acknowledges that information
delivered to each Lender by any Consolidated Entity may be provided to each such
subsidiary and affiliate.
Section 13.16. Judgment Currency. The obligations of each Obligor under
this Agreement, the Revolving Credit Notes, the Letters of Credit and the other
Facility Documents to make payments in Dollars or in any Alternative Currency
(the "Obligation Currency") shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to the extent that such tender or
recovery results in the effective receipt by the Administrative Agent or a
Lender of the full amount of the Obligation Currency expressed to be payable to
them under this Agreement, the Revolving Credit Notes, the Letters of Credit and
the other Facility Documents. If for the purpose of obtaining or enforcing
judgment against any Obligor in any court or in any jurisdiction, it becomes
necessary to convert into or from any currency other than the Obligation
Currency (such other currency being hereinafter referred to as the "Judgment
Currency") an amount due in the Obligation Currency, the conversion shall be
made, at the Alternative Currency Equivalent or Dollar Equivalent, in the case
of any Alternative Currency or Dollars, and, in the case of other currencies,
the rate of
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exchange (as quoted by the Administrative Agent or if the Administrative Agent
does not quote a rate of exchange on such currency, by a known dealer in such
currency designated by the Administrative Agent) determined, in each case, as on
the day immediately preceding the day on which the judgment is given (such
Banking Day being hereinafter referred to as the "Judgment Currency Conversion
Date").
(b) If there is a change in the rate of exchange prevailing between
the Judgment Currency Conversion Date and the date of actual payment of the
amount due, each Obligor covenants and agrees to pay such additional amounts, if
any (but in any event not a lesser amount), as may be necessary to ensure that
the amount paid in the Judgment Currency, when converted at the rate of exchange
prevailing on the date of payment, will produce the amount of the Obligation
Currency which could have been purchased with the amount of Judgment Currency
stipulated in the judgment or judicial award at the rate of exchange prevailing
on the Judgment Currency Conversion Date.
(c) For purposes of determining the Alternative Currency Equivalent
or Dollar Equivalent or rate of exchange for this Section 13.16, such amount
shall include any premium and costs payable in connection with the purchase of
the Obligation Currency.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Address for Notices: MICRO WAREHOUSE, INC.
535 Connecticut Avenue
Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev
Telephone No.: (203) 899-4000 ---------------------------
Telecopier No.: (203) 899-4203 Name:
Attention: Chief Financial Officer Title:
Attention: General Manager
SUBSIDIARY BORROWERS:
Address for Notices: MICRO WAREHOUSE SWEDEN AB
Midskogsgrand 1
S-115 43 Stockholm By:/s/ Bruce L. Lev
Sweden ---------------------------
Telephone No.: 011-46-8664-4650 Name:
Telecopier No.: 011-46-8664-4668 Title:
Attention: General Manager
Address for Notices: MICRO WAREHOUSE HOLDING B.V.
GSA Business Center B.V.
Prof. Lorenziann 3A By:/s/ Bruce L. Lev
3701 CA ZEIST ---------------------------
Telephone No.: 011-31-34043-6200 Name:
Telecopier No.: 011-31-34043-3248 Title:
Attention: General Manager
Address for Notices: MICRO WAREHOUSE LIMITED
Unit 6, Wolsey Park
Tolpits Lane By:/s/ Bruce L. Lev
Wetford Herts WD18QP ---------------------------
Telephone No.: 011-441-192321-1277 Name:
Telecopier No.: 011-441-192323-4112 Title:
Attention: General Manager
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
Address for Notices: MICRO WAREHOUSE FRANCE SARL
Techno Direct
6 Boulevard Henri Sollier By:/s/ Bruce L. Lev
92150 Sureanes ---------------------------
Telephone No.: 011-33-14099-2847 Name:
Telecopier No.: 011-33-14099-2888 Title:
Attention: General Manager
Address for Notices: MICRO WAREHOUSE (DEUTSCHLAND)
GMBH
Odenwaldatrasse 1
63283 Neu-isenburg
Deutschland By:/s/ Bruce L. Lev
Telephone No.: 011-49-6102-705110 ---------------------------
Telecopier No.: 011-49-6102-705200 Name:
Attention: General Manager Title:
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
SUBSIDIARY GUARANTORS:
Address for Notices: MICRO WAREHOUSE CANADA LIMITED
651 Queen Street East
Toronto, Ontario By:/s/ Bruce L. Lev
Canada M4M 1G4 ---------------------------
Telephone No.: 416-466-8107 Name:
Telecopier No.: 416-466-7390 Title:
Attention: General Manager
Address for Notices: MICRO WAREHOUSE, INC. OF OHIO
535 Connecticut Avenue
Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev
Telephone No.: (203) 899-4000 ---------------------------
Telecopier No.: (203) 899-4203 Name:
Attention: Chief Financial Officer Title:
Address for Notices: MICRO WAREHOUSE, INC. OF NEW JERSEY
535 Connecticut Avenue
Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev
Telephone No.: (203) 899-4000 ---------------------------
Telecopier No.: (203) 899-4203 Name:
Attention: Chief Financial Officer Title:
Address for Notices: MICRO WAREHOUSE INTERNATIONAL, INC.
535 Connecticut Avenue
Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev
Telephone No.: (203) 899-4000 ---------------------------
Telecopier No.: (203) 899-4203 Name:
Attention: Chief Financial Officer Title:
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
Address for Notices: BENTON SISTEMAS, S.A. de C.V.
Circuito Novelistas 129-106
Ciudad Satelite By:/s/ Bruce L. Lev
Naucalpan ---------------------------
Estado. de Mexico C.P. 53100 Name:
Telephone No.: 011-52-5572-53100 Title:
Telecopier No.: 011-52-5393-4777
Attention: General Manager
Address for Notices: INMAC AB SWEDEN
Midskogsgrand 1
S-115 43 Stockholm By:/s/ Bruce L. Lev
Sweden ---------------------------
Telephone No.: 011-46-8664-4650 Name:
Telecopier No.: 011-46-8664-4668 Title:
Attention: General Manager
Address for Notices: MICRO WAREHOUSE B.V.
GSA Business Center B.V.
Prof. Lorenziann 3A By:/s/ Bruce L. Lev
3701 CA ZEIST ---------------------------
Telephone No.: 011-31-34043-6200 Name:
Telecopier No.: 011-31-34043-3248 Title:
Attention: General Manager
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK
By /s/ Alan Aria
-------------------------------
Name:
Title:
Address for Notices:
New York Agency
4 Chase Metrotech Center
Brooklyn, New York 11245
with a copy to:
999 Broad Street
Bridgeport, CT 06604
Attn: Alan J. Aria
Telecopier No.: (203)382-6573
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
LENDERS:
THE CHASE MANHATTAN BANK
By /s/ Alan Aria
-------------------------------
Name:
Title:
Lending Office for Variable Rate Loans:
1 Chase Manhattan Plaza
New York, New York 10081
Lending Office for Eurocurrency Loans:
Nassau Branch c/o
Eurocurrency Operations
4 Chase Metrotech Center
Brooklyn, New York 11245
Address for Notices:
999 Broad Street
Bridgeport, CT 06604
Attn: Alan J. Aria
Telecopier No.: (203) 382-6573
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
LENDERS:
STATE STREET BANK AND
TRUST COMPANY
By /s/ Arlene M. Doherty
-------------------------------
Name:
Title:
Address for Notices:
225 Franklin Street
Boston, MA 02110
Attn: William Zola
Telecopier No.: (617) 654-4176
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE>
SCHEDULE I
REVOLVING CREDIT COMMITMENTS
================================================================================
THE CHASE STATE STREET
BORROWER MANHATTAN BANK AND TRUST
BANK COMPANY
================================================================================
MICRO WAREHOUSE, INC $28,666,666.66 $14,333,333.34
- --------------------------------------------------------------------------------
MICRO WAREHOUSE SWEDEN AB 2,666,666.67 1,333,333.33
- --------------------------------------------------------------------------------
MICRO WAREHOUSE HOLDING B.V 4,000,000.00 2,000,000.00
- --------------------------------------------------------------------------------
MICRO WAREHOUSE LIMITED 6,666,666.67 3,333,333.33
- --------------------------------------------------------------------------------
MICRO WAREHOUSE FRANCE SARL 4,000,000.00 2,000,000.00
- --------------------------------------------------------------------------------
MICRO WAREHOUSE (DEUTSCHLAND) GMBH 4,000,000.00 2,000,000.00
- --------------------------------------------------------------------------------
TOTAL REVOLVING CREDIT COMMITMENTS 50,000,000.00 25,000,000.00
================================================================================
December 8, 1997
Mr. Linwood A. Lacy, Jr.
2304 Cranborne Road
Midlothian, Virginia 23113
Dear Chip:
This agreement will serve to confirm the terms and conditions under which
we will accept your resignation as President, Chief Executive Officer and member
of the Board of Directors.
1. Resignations. Effective October 27, 1997 (hereinafter the "Resignation Date")
you have resigned as President and Chief Executive Officer and any other
officerships of Micro Warehouse, Inc. or any of its affiliates, sister companies
or subsidiaries (hereinafter "the Company"). Effective as of the date hereof,
you will resign as member of the Board of Directors of the Company by tendering
a letter of resignation substantially in the form appended hereto as Schedule A.
2. Employment Agreement. Your employment agreement with the Company made as of
the 4th day of September, 1996 has been terminated as of the Resignation Date.
Except for compensation previously paid to you or otherwise described in this
agreement, you shall not be eligible to receive any bonus or incentive
compensation or any other compensation for 1997 or any other period.
3. COBRA Benefits. For a period not to exceed six (6) months subsequent to the
Resignation Date, the Company agrees to pay directly or reimburse you for the
COBRA payments required to maintain your current health insurance coverage
through the Company. You acknowledge that the Company will have no obligation to
pay directly or reimburse you for any COBRA payments attributable to any period
of time after you are eligible to receive health insurance benefits with any new
employer nor, in any event, for any payments due more than 6 months subsequent
to the Resignation Date.
4. Stock Options. Schedule B sets forth stock options granted to you which have
already vested and which may be exercised by you on or prior to April 27, 1999.
Schedule B also sets forth stock options granted to you which as of the date of
this agreement have not yet vested. We confirm that out of the total unvested
options, you, although no longer an officer, director or employee of the
Company, will retain rights in (a) 83,333 of them so labeled on Schedule B which
will vest on March 4,
<PAGE>
1998 pursuant to their original terms and conditions, (b) 125,000 of them so
labeled on Schedule B which will vest on October 14, 1998 pursuant to their
original terms and conditions and (c) 83,333 of them so labeled on Schedule B
which will vest on March 4, 1999 pursuant to their original terms and
conditions. All of such options referred to in (a), (b) and (c) above may be
exercised by you on or prior to April 27, 1999. In the event of a "Change of
Control" (as such term is defined in a resolution of the Company's Board of
Directors with respect to accelerated vesting of options dated April 16, 1997
(the "April 16, 1997 Board Resolution")) of the Company at any time on or
between the date hereof and June 10, 1998, you shall be entitled to one year
accelerated vesting of options as if you had remained a director of the Company
until June 10, 1998 pursuant to the April 16, 1997 Board Resolution.
Notwithstanding the foregoing, in the event the independent certified public
accountants of the acquiring or merging entity in a Change of Control
transaction are unwilling to provide a "pooling opinion" because of your
retention of rights in options described in this Paragraph 4 (i.e. such
retention will prevent the Change of Control from being accounted as a pooling
of interests under APB Opinion Number 16 or any successor or related regulation
or interpretation), such retention of rights in options shall become null and
void and of no further force or effect. Further and notwithstanding the
foregoing, in the event the independent certified public accountants of the
acquiring or merging entity in a Change of Control transaction are unwilling to
provide a "pooling opinion" because of the acceleration of your rights in
options described in this Paragraph 4 (i.e. such acceleration will prevent the
Change of Control from being accounted as a pooling of interests under APB
Opinion Number 16 or any successor or related regulation or interpretation),
such acceleration shall not occur and you shall continue to have such option
rights but without any rights of acceleration. Except as specifically set forth
in this Paragraph 4 and subject to the following sentence, all other options
reflected as not vested on Schedule B are hereby deemed forfeited and of no
further force or effect as of June 10, 1998. You will, however, retain rights to
such options reflected on Schedule B as being forfeited in the event that you
are rehired as President and/or Chief Executive Officer (or other senior
executive position) of the Company by the Board of Directors of the Company at
any time prior to June 10, 1998. You will not be eligible to receive any further
stock options or otherwise participate in any deferred compensation programs.
You also agree that any such stock options that you retain pursuant to this
agreement will continue to be subject to the terms and conditions of the
agreements under which the applicable stock options were granted to you unless
the terms of such agreements conflict with this agreement in which case this
agreement shall prevail. Notwithstanding the foregoing, in the event, prior to
June 10, 1998, there are changes made to the terms and conditions of options
previously granted to members of the Board of Directors which increase or expand
the rights of such board members in connection with such options, you shall be
entitled to receive pari passu the benefits of such changes in connection with
your options.
5. Rescission of Stock Purchase Loan. You and the Company agree to hereby
rescind the transaction which took place on or about September 4, 1996 whereby
the Company loaned you One
2
<PAGE>
Million Four Hundred Thousand Dollars ($1,400,000.00) in order to purchase Fifty
Thousand (50,000) of the Company's common shares (the "Shares") from the
Company. Promptly after the date hereof, you shall deliver to the Company the
original stock certificate (Number MWC 1329) evidencing your ownership of the
Shares together with an executed, undated stock power transferring the Shares
from you to the Company. You hereby authorize the Company to date said Stock
Power, register the Shares in its name, and, at its option, to retire or sell
them. Upon receipt of the original certificate MWC 1329 and Stock Power, the
Company will surrender to you the original canceled Secured Note dated September
4, 1996 securing the loan to purchase the Shares and will return to you the
interest payments that you have made to the Company on the loan in the amount of
$46,848.28. You acknowledge that the foregoing agreed rescission of the stock
purchase transaction resolves any dispute with respect to your eligibility to
participate as a class member in the consolidated class action litigation
against the Company currently pending in the Federal District Court for the
District of Connecticut and you are not eligible to participate as a class
member by reason of your rescinded ownership of said Shares.
6. Indemnification. We confirm that the Indemnification Agreement between you
and the Company dated as of October 14, 1996 is in full force and effect.
7. Release. (a) As consideration for the Company to enter into this agreement
and as consideration for the covenants contained herein, subject to the
immediately following sentence, you irrevocably and unconditionally release,
remit, acquit and forever discharge the Company, its officers, directors,
shareholders, agents, employees, representatives, attorneys, parents, divisions,
subsidiaries, affiliates, related companies or entities, successors and assigns
and the officers, executives, directors, shareholders, agents and employees of
any and all of the Company's parents, divisions, subsidiaries, affiliates,
related companies or entities or successors (separately or collectively, the
"Released Parties"), jointly and individually, from any and all claims, charges,
complaints, expenses and causes of action of any nature or kind whatsoever,
known or unknown, which you, your heirs, successors or assigns have or may have
against the Released Parties based upon, related to or arising out of your
employment with the Company or your service as a member of the Board of
Directors of the Company through the date hereof, including, but not limited to,
claims, charges, complaints, liabilities, losses, obligations, demands, damages,
costs, expenses and causes of action relating to the terms, conditions,
commencement, duration or termination of your employment, or claims of
discrimination under any federal, state or local law, rule, regulation or common
law, whether such claims are past or present, whether they arise from equity,
common law or statute, and whether they arise from labor laws or discrimination
laws, such as the Age Discrimination in Employment Act, as amended, Title VII of
the Civil Rights Act of 1964, 42 U.S.C. ss.1981, the Equal Pay Act, as amended,
the Americans with Disabilities Act, or any other federal, state or local law,
rule or regulation. This release is intended to cover all possible relief,
including, but not limited to, reinstatement, wages, back pay, front pay,
vacation pay, bonuses or incentive compensation, supplemental or other
retirement benefits,
3
<PAGE>
perquisites, compensatory damages, punitive damages, damages for pain or
suffering, and attorneys' fees, provided, however, that nothing in this
agreement will limit or otherwise affect any right you may have to
indemnification under the Company's Articles of Incorporation, By Laws or any
insurance policy in effect as of the termination of your employment with the
Company or pursuant to Article 6 hereof. In addition, if the Company complies
with its obligations hereunder, you agree you will not be entitled to any
benefit from any claim or proceeding filed by you or on your behalf with any
agency or court which is within the scope of this agreement or which goes to the
validity of any provision of this agreement.
(b) The releases under this Paragraph 7 are intended to cover all possible
rights, obligations and liabilities, including any such rights, obligations or
liabilities based upon, relating to or arising from any claim which goes to the
validity of any provision of this agreement, other than a claim for any breach
of this agreement.
(c) You acknowledge that you have been given a period of at least 21 days to
review and consider this agreement before signing it, and that you understand
that you may use as much of the 21-day period as you wish prior to signing. You
also acknowledge that you obtained independent legal counsel in connection with
reviewing this agreement.
8. Covenant Not to Compete. (a) In consideration for the Company's undertakings
described in this agreement and the payments set forth in sub-paragraph (b)
hereinbelow, you hereby covenant and agree that for a period of three (3) months
subsequent to the Resignation Date (the "Non-Compete Period"), you shall not,
directly or indirectly, own, operate, manage, join, control, participate in the
ownership, management, operation or control of, or be paid or employed by, or
acquire any securities of, or otherwise become associated with or provide
assistance to, as an employee, consultant, director, officer, shareholder,
partner, agent, associate, principal, representative or in any other capacity,
any business entity or activity which is directly or indirectly a "Competitive
Business" (as hereinafter defined); provided, however, that the foregoing shall
not prevent you from (i) performing services for a Competitive Business if such
Competitive Business is also engaged in other lines of business and if your
services are restricted to employment in such other lines of business; or (ii)
acquiring the securities of or an interest in any Competitive Business, provided
such ownership of securities or interests represents at the time of such
acquisition, but including any previously held ownership interests, less than
five percent (5%) of any class or type of securities of, or interest in, such
Business. The term "Competitive Business" shall mean and include any business or
activity that is substantially the same as any business or activity conducted by
the Company, regardless of where such Competitive Business is located.
(b) In partial consideration for the Covenant not to Compete in sub-paragraph
8(a) hereinabove the Company shall make three payments to you in the gross
amount of $60,651.00 (Sixty Thousand
4
<PAGE>
Six Hundred and Fifty One Dollars) each (less any taxes required to be
withheld). The initial payment shall be made within 5 business days after this
agreement is fully executed and the two subsequent payments shall be made on or
before December 27, 1997 and January 27, 1998.
9. Confidential Information. You acknowledge that the Company would be damaged
if your knowledge with respect to the business of the Company was disclosed to
or utilized by parties other than the Company. Accordingly, you covenant and
agree that you will not disclose any presently known or hereafter acquired
confidential or proprietary information of the Company or its business to any
person, firm, corporation or other entity. For the purposes of this paragraph,
the term "confidential or proprietary information" shall mean all information
which is currently known to or hereafter acquired by you and relates to such
matters as budget and forecasts, customer mailing lists, data base management
techniques, pricing and credit techniques, marketing techniques, research and
development activities, sources of product, and other confidential or restricted
information which is not in the public domain. Confidential or proprietary
information shall not be deemed to include information released generally to the
public by the Company or others, information required by law to be disclosed or
information learned by you from third parties without restrictions on
disclosure.
10. Covenant Not to Solicit Employees. Unless you receive the prior written
consent of the Company you hereby covenant and agree that during the Non-Compete
Period you shall not, for or on behalf of any person or business, directly or
indirectly, as owner, officer, director, stockholder, partner, associate,
consultant, manager, advisor, representative, employee, agent, creditor or
otherwise, attempt to solicit any person who has been an employee of the Company
at any time during your period of employment with the Company and who is
employed by the Company at the time of the solicitation.
11. Company Representation. The Company hereby represents, based on
representations of Peter Godfrey, Felix Dennis, Joseph Walsh, Frederick
Fruitman, Bruce L. Lev, Kris Rogers and Wayne Garten, that at the date hereof
the Company has no actual knowledge of any claims or causes of action of any
nature or kind whatsoever against you except that no representation is made with
respect to any claim of the Company for disclosure of confidential or
proprietary information. You agree that in the event of a breach of this
Paragraph 11 your claims, if any, may be asserted only against the Company and
not any of the individuals listed above.
12. Assignment. This agreement is not assignable, except that the Company may
assign it to any successor of substantially all of the Company's business or
assets. This agreement will be binding upon, and inure to the benefit of, the
parties and their successors and assigns.
13. Partial Invalidity. If any provision of this agreement is held to be
invalid, void or unenforceable, the remaining provisions shall continue in full
force without being impaired or invalidated in any way.
5
<PAGE>
14. Governing Law. This agreement will be governed by the laws of the State of
Connecticut, without giving effect to the conflict of laws principles thereof.
15. Entire Agreement. This agreement reflects the complete agreement between the
parties with respect to the subject matter hereof, and there are no written or
oral understandings, promises or agreements directly or indirectly related to
this letter agreement or the subject matter hereof that are not incorporated
herein.
16. Revocation Period. For a period of seven (7) calendar days following your
execution of this agreement, you may revoke this agreement. This agreement will
not become effective or enforceable to release any claims or rights which you
may have under the Age Discrimination in Employment Act until this revocation
period has expired. This agreement also will not become effective or enforceable
with respect to any obligations that the Company may have hereunder until this
revocation period has expired. You acknowledge and agree that if the Company
satisfies any obligations hereunder that otherwise would have arisen during this
revocation period as soon as practicable after the revocation period has
expired, such action will constitute timely satisfaction of such obligations
hereunder. You also acknowledge and agree that the benefits to you of the
covenants contained herein, including, but not limited to, payments hereunder,
are provided to you in exchange for the promises in this agreement, are not
normally available under Company policy or practice to employees whose
employment is terminated and provide for the payments of amounts to which you
might not otherwise be entitled.
17. Confidentiality and Intent to be Bound. The terms and conditions of this
agreement are confidential and must not be disclosed to any person other than
those who must perform tasks to effect the agreement. Notwithstanding the
foregoing, the Company and you may disclose any term of this agreement, after
prior written notice to the other party that disclosure is about to take place,
(i) to any governing authority if disclosure is required to comply with
applicable law; or (ii) to either party's attorneys, accountants or advisors
with whom a fiduciary relationship has been established. In addition, nothing
contained herein shall be construed to prohibit either party from disclosing the
terms and conditions of this agreement to its attorneys, accountants or
bookkeepers or to any other person with whom a fiduciary relationship has been
established. Both parties have read this agreement, have had the opportunity to
consult with counsel, fully understand the agreement's terms and conditions, and
enter this agreement freely, voluntarily and intending to be legally bound
hereby.
18. Enforcement of Agreement. You hereby acknowledge and agree that your
obligations under Paragraphs 8, 9 and 10 are a material part of the
consideration for this agreement and for the payments from the Company to you
under Paragraph 8(b), that your failure to satisfy any of such obligations could
cause irreparable harm to the Company and that the damages caused by such
failure would be
6
<PAGE>
uncertain and difficult to measure. You further acknowledge and agree that the
Company may seek injunctive relief to prevent your failure or further failure to
satisfy any of such obligations, in addition to all other rights, remedies and
claims that it may have under this agreement, at law or in equity.
19. No Waiver. No failure on the part of either party at any time to require the
performance by the other party of any term hereof shall be taken or held to be a
waiver of such term or in any way affect such party's right to enforce such
term, and no waiver on the part of either party of any term hereof shall be
taken or held to be a waiver of any other term hereof or the breach thereof.
If you agree to and accept the terms and conditions of this agreement,
please sign both copies hereof in the space provided below, retain one copy for
your records and return the other copy to the undersigned.
Very truly yours,
MICRO WAREHOUSE, INC.
By:/s/ Peter Godfrey
-----------------------
Name: Peter Godfrey
Title: President and Chief Executive Officer
Agreed to and accepted on the date first above written:
/s/ Linwood A. Lacy, Jr.
- -------------------------
Linwood A. Lacy, Jr.
Date Signed: December 8, 1997
7
<PAGE>
SCHEDULE A TO
LETTER AGREEMENT WITH LINWOOD A. LACY, JR.
DATED AS OF DECEMBER 8, 1997
FORM OF RESIGNATION LETTER
Effective immediately, I, Linwood A. Lacy, Jr., hereby resign as a member
of the Board of Directors of Micro Warehouse, Inc. and any of its affiliates,
sister companies or subsidiaries.
8
<PAGE>
SCHEDULE B TO
LETTER AGREEMENT WITH LINWOOD A. LACY, JR.
DATED AS OF DECEMBER 8, 1997
Stock options already granted to you and already vested which may be exercised
pursuant to Paragraph 4 on or prior to April 27, 1999.
125,000 options at an exercise price of $25.00 per share granted per agreement
dated September 4, 1996.
Stock options already granted to you in which you will retain rights subject to
Paragraph 4 which may be exercised subject to Paragraph 4 on or prior to April
27, 1999.
83,333 options at an exercise price of $12.625 per share which will vest on
March 4, 1998 granted per resolutions of the Board of Directors dated January
23, 1997.
125,000 options at an exercise price of $25.00 per share which will vest on
October 14, 1998 granted per agreement dated September 4, 1996.
83,333 options at an exercise price of $12.625 per share which will vest on
March 4, 1999 granted per resolutions of the Board of Directors dated January
23, 1997.
Stock options deemed forfeited and of no further force or effect as of June 10,
1998 subject to Paragraph 4.
250,000 options at an exercise price of $25.00 per share granted per agreement
dated September 4, 1996.
333,334 options at an exercise price of 12.625 per share granted per resolutions
of the Board of Directors dated January 23, 1997.
9
January 28, 1998
Ms. Kris Rogers
81 Lyons Plain Road
Weston, CT 06883
Dear Kris:
This agreement will serve to confirm the terms and conditions under which
we will accept your resignation as Executive Vice President and General Manager
of the U.S. Business Unit.
1. Resignations. Effective April 30, 1998 or such earlier date as shall be
mutually agreed (hereinafter the "Resignation Date") you will resign from
employment as Executive Vice President and General Manager of the U.S. Business
Unit and any other officerships or directorships of Micro Warehouse, Inc. or any
of its affiliates, sister companies or subsidiaries (hereinafter "the Company").
2. Employment Agreement. Any employment agreement with the Company, whether
written or oral, except for the agreement set forth herein is terminated as of
the Resignation Date. Through the Resignation Date you shall be paid your
current salary and receive all benefits generally provided to all employees of
the Company and all of the Company's employment practices will be applicable to
you. You shall be entitled to receive your guaranteed bonus of Fifty Thousand
Dollars ($50,000.00) for fiscal year 1997. You shall also be entitled to receive
any other 1997 bonus (less the guaranteed amount) if the total 1997 bonus amount
to which you would be entitled exceeds the guaranteed amount. It is confirmed
that your entitlement to 1997 bonus compensation, except for the guaranteed
bonus which will be paid in any event, will be based on the achievement of
defined goals by the Company's U.S. (and not worldwide) operations. Your 1997
bonus will be paid on or about February 28, 1998. You shall also be entitled to
receive an agreed bonus of Fifty Thousand Dollars ($50,000.00) for the period
from January 1, 1998 through the Resignation Date which will be paid on or about
April 30, 1998. Except as described herein, you shall not be eligible to receive
any other 1997 or 1998 bonus notwithstanding the possibility that other
comparably compensated employees might receive bonuses attributable to said
years. As of the Resignation Date you will be entitled to a lump sum payment
equal to the sum of your base salary for nine months of One Hundred and Eighty
Seven Thousand Five Hundred Dollars ($187,500.00) and salary for 10 days of
accrued unused vacation time of Nine Thousand Six Hundred and Fifteen Dollars
and Thirty Eight Cents ($9,615.38). You shall also be entitled to reimbursement
of (i) reasonable relocation expenses of up to Forty Thousand Dollars
($40,000.00) if you accept a new position out of the area and such expenses are
not covered by your new employer; and (ii) actual legal fees incurred by you in
<PAGE>
connection with this agreement of up to Five Hundred Dollars ($500.00). Payments
described in this paragraph shall be reduced by deducting all required
withholding amounts.
3. COBRA Benefits. For a period of nine (9) months subsequent to the Resignation
Date the Company agrees to pay directly or reimburse you for COBRA payments
required to maintain your current health insurance coverage through the Company.
You acknowledge that the Company will have no obligation to pay directly or
reimburse you for any COBRA payments attributable to any period of time after
you are eligible to receive health insurance benefits with any new employer nor,
in any event, for any payments due more than nine (9) months subsequent to the
Resignation Date.
4. Stock Options. Schedule A sets forth stock options granted to you which as of
the date of this agreement have not yet vested. We confirm that 20,000 of the
stock options will vest on April 7, 1998. We further confirm that an additional
20,000 options, of the total 60,000 options which would have vested on April 7,
1999, will not be caused to be forfeited and deem these options vested as of the
Resignation Date. The total of said 40,000 options which will have vested by the
Resignation Date as described on Schedule A may be exercised by you on or prior
to April 30, 1999. Schedule A also sets forth other stock options granted to you
which are deemed forfeited and of no further force and effect. You will not be
eligible to receive any further stock options or otherwise participate in any
deferred compensation programs notwithstanding the possibility that the Company
might provide the same participation to other comparably compensated employees.
You also agree that any such stock options that you retain pursuant to this
agreement will continue to be subject to the terms and conditions of the
agreement under which the applicable stock options were granted to you unless
the terms of such agreement conflicts with this agreement in which case this
agreement shall prevail.
5. Indemnification. We confirm that the Indemnification Agreement between you
and the Company dated as of April 7, 1997 is in full force and effect.
6. Release. (a) As consideration for the Company to enter into this agreement
and as consideration for the covenants contained herein, subject to the
immediately following sentence, you irrevocably and unconditionally release,
remit, acquit and forever discharge the Company, its officers, directors,
shareholders, agents, employees, representatives, attorneys, parents, divisions,
subsidiaries, affiliates, related companies or entities, successors and assigns
and the officers, executives, directors, shareholders, agents and employees of
any and all of the Company's parents, divisions, subsidiaries, affiliates,
related companies or entities, successors or entities (separately or
collectively, the "Released Parties"), jointly and individually, from any and
all claims, charges, complaints, expenses and causes of action of any nature or
kind whatsoever, known or unknown, which you, your heirs, successors or assigns
have or may have against the Released Parties based upon, related to or arising
out of your employment with the Company through the date hereof, including, but
not limited to, claims, charges, complaints, liabilities, losses, obligations,
demands, damages, costs, expenses and causes of action relating to the terms,
conditions, commencement, duration or termination of your employment, or claims
of discrimination under any federal, state or local law, rule, regulation or
common law, whether such claims are past or present, whether they arise from
equity, common law or statute, and whether they arise from labor laws or
discrimination laws, such as the Age Discrimination in Employment Act, as
amended, Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.1981, the Equal
Pay Act, as amended, the Americans with Disabilities Act, or any other federal,
state or local law, rule or regulation. This release is intended to cover all
possible relief, including, but not limited to, reinstatement, wages, back pay,
front pay, vacation pay, bonuses or incentive compensation, supplemental or
other retirement benefits, perquisites, compensatory damages, punitive damages,
damages for pain or suffering, and attorneys' fees, provided, however, that
nothing in this agreement will limit or otherwise affect any right you may have
to indemnification under the Company's Articles of Incorporation, By Laws or any
insurance policy in effect as of the termination of your employment with the
Company or pursuant to Article 5 hereof. In addition, if the Company complies
with its obligations hereunder, you agree you will not be entitled to any
benefit from any claim or proceeding filed by you or on your behalf with any
agency or court which is within the scope of this agreement or which goes to the
validity of any provision of this agreement.
<PAGE>
(b) Effective as of the Resignation Date, the releases provided for in
Paragraph 6(a) will, without further action, be automatically extended to the
Resignation Date (except the same will not cover any breach of this agreement by
the Company).
(c) The releases under this Paragraph 6 are intended to cover all possible
rights, obligations and liabilities, including any such rights, obligations or
liabilities based upon, relating to or arising from any claim which goes to the
validity of any provision of this agreement, other than a claim for any breach
of this agreement.
(d) You acknowledge that you have been given a period of at least 21 days
to review and consider this agreement before signing it and that you may use as
much of the 21-day period as you wish prior to signing it.
7. Covenant Not to Compete. You hereby covenant and agree that until the
Resignation Date you shall not, directly or indirectly, own, operate, manage,
join, control, participate in the ownership, management, operation or control
of, or be paid or employed by, or acquire any securities of, or otherwise become
associated with or provide assistance to, as an employee, consultant, director,
officer, shareholder, partner, agent, associate, principal, representative or in
any other capacity, any business entity or activity which is directly or
indirectly a "Competitive Business" (as hereinafter defined); provided, however,
that the foregoing shall not prevent you from (a) performing services for a
Competitive Business if such Competitive Business is also engaged in other lines
of business and if your services are restricted to employment in such other
lines of business; or (b) acquiring the securities of or an interest in any
Competitive Business, provided such ownership of securities or interests
represents at the time of such acquisition, but including any previously held
ownership interests, less than two percent (2%) of any class or type of
securities of, or interest in, such Business. The term "Competitive Business"
shall mean and include any business or activity that is substantially the same
as any business or activity conducted by the Company as of the date of cessation
of your employment with the Company, regardless of where such Competitive
Business is located.
8. Covenant Not to Solicit Employees. Unless you have obtained the prior written
consent of the Company, you hereby covenant and agree that until the expiration
of two years from the Resignation Date, you shall not, for or on behalf of any
party, directly or indirectly, as owner, officer, director, stockholder,
partner, associate, consultant, manager, advisor, representative, employee,
agent creditor or otherwise, attempt to solicit for employment any person who
has been an employee of the Company at any time or times during your employment
by Company.
9. Confidential Information. You acknowledge that the Company would be damaged
if your knowledge with respect to the business of the Company was disclosed to
or utilized by parties other than the Company. Accordingly, you covenant and
agree that you will not disclose any presently known or hereafter acquired
confidential or proprietary information of the Company or its business to any
person, firm, corporation or other entity. For the purposes of this paragraph,
the term "confidential or proprietary information" shall mean all information
which is currently known to or hereafter acquired by you and relates to such
matters as budget and forecasts, customer mailing lists, data base management
techniques, pricing and credit techniques, marketing techniques, research and
development activities, sources of product, and other confidential or restricted
information which is not in the public domain. Confidential or proprietary
information shall not be deemed to include information released generally to the
public by the Company or others, information required by law to be disclosed or
information learned by you from third parties without restrictions on disclosure
provided the same would not, if released, damage the Company.
10. Continued Services. Through the Resignation Date you will continue to have
user access to the Company's voice mail system and you shall be entitled to
receive up to 2 hours per month of administrative support from an administrative
assistant employed by the Company.
<PAGE>
11. Assignment. This agreement is not assignable, except that the Company may
assign it to any successor of substantially all of the Company's business or
assets. This agreement will be binding upon, and inure to the benefit of, the
parties and their successors, heirs and assigns. Any payments due to you under
this agreement shall be paid to your estate in the event that you should die
before said payments are made.
12. Partial Invalidity. If any provision of this agreement is held to be
invalid, void or unenforceable, the remaining provisions shall continue in full
force without being impaired or invalidated in any way.
13. Governing Law. This agreement will be governed by the laws of the State of
Connecticut, without giving effect to the conflict of laws principles thereof.
14. Entire Agreement. This agreement reflects the complete agreement between the
parties with respect to the subject matter hereof, and there are no written or
oral understandings, promises or agreements directly or indirectly related to
this letter agreement or the subject matter hereof that are not incorporated
herein.
15. Revocation Period. For a period of seven (7) calendar days following your
execution of this agreement, you may revoke this agreement. This agreement will
not become effective or enforceable to release any claims or rights which you
may have under the Age Discrimination in Employment Act until this revocation
period has expired. This agreement also will not become effective or enforceable
with respect to any obligations that the Company may have hereunder until this
revocation period has expired. You acknowledge and agree that if the Company
satisfies any obligations hereunder that otherwise would have arisen during this
revocation period as soon as practicable after the revocation period has
expired, such action will constitute timely satisfaction of such obligations
hereunder. You also acknowledge and agree that the benefits to you of the
covenants contained herein, including, but not limited to, payments hereunder,
are provided to you in exchange for the promises in this agreement, are not
normally available under Company policy or practice to employees whose
employment is terminated and provide for the payments of amounts to which you
would not otherwise be entitled.
16. Confidentiality and Intent to be Bound. The terms and conditions of this
agreement are confidential and must not be disclosed to any person other than
those who must perform tasks to effect the agreement. Notwithstanding the
foregoing, the Company and you may disclose any term of this agreement, after
prior written notice to the other party that disclosure is about to take place,
(i) to any governing authority if disclosure is required to comply with
applicable law; or (ii) to either party's attorneys, accountants or advisors
with whom a fiduciary relationship has been established. In addition, the
Company shall be under no obligation to give you notice of disclosure if the
disclosure is required in connection with reporting requirements imposed on the
Company as a public company. Both parties have read this agreement, have had the
opportunity to consult with counsel, fully understand the agreement's terms and
conditions, and enter this agreement freely, voluntarily and intending to be
legally bound hereby.
17. Enforcement of Agreement; Liquidated Damages. You hereby acknowledge and
agree that your obligations under Paragraphs 7, 8 and 9 are a material part of
the consideration for this agreement and for the payments from the Company to
you under Paragraph 2; that your failure to satisfy any of such obligations
could cause irreparable harm to the Company and that the damages caused by such
failure would be uncertain and difficult to measure. You further acknowledge and
agree that the Company may seek injunctive relief to prevent your failure or
further failure to satisfy any of such obligations, in addition to all other
rights, remedies and claims that it may have under this agreement, at law or in
equity. You also acknowledge and agree that, if you fail to satisfy any of your
obligations under Paragraphs 7, 8 and 9, the Company will be entitled to receive
as liquidated damages for such failure recovery of any amounts paid to you under
this agreement, any amounts that you may have earned or received as a result of
or in
<PAGE>
connection with such failure, and all costs and expenses, including fees and
disbursements of counsel and other costs thereof, incurred by the Company in
connection with the enforcement of such obligations.
18. No Waiver. No failure on the part of either party at any time to require the
performance by the other party of any term hereof shall be taken or held to be a
waiver of such term or in any way affect such party's right to enforce such
term, and no waiver on the part of either party of any term hereof shall be
taken or held to be a waiver of any other term hereof or the breach thereof.
19. Non-Binding Mediation. The parties agree to submit any and all disputes and
or claims under this agreement to non-binding mediation before a mutually
agreeable mediator at Mediation Consultants in New Haven, Connecticut.
<PAGE>
If you agree to and accept the terms and conditions of this agreement,
please sign both copies hereof in the space provided below, retain one copy for
your records and return the other copy to the undersigned.
Very truly yours,
MICRO WAREHOUSE, INC.
By: /s/ Peter Godfrey
-------------------------
Name: Peter Godfrey
Title: President and Chief Executive Officer
Agreed to and accepted on the date first above written:
/s/ Kris Rogers
- -------------------------
Kris Rogers
Date Signed: January 30, 1998
<PAGE>
SCHEDULE A TO
LETTER AGREEMENT WITH KRIS ROGERS
DATED AS OF JANUARY 8, 1998
Stock options already granted to you which shall vest on April 7, 1998 and be
available for exercise pursuant to Paragraph 4 on or prior to April 30, 1999.
20,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997.
Stock options already granted to you, not vested as of the date hereof, which
shall be deemed vested as of April 30, 1998 and available for exercise pursuant
to Paragraph 4 on or prior to April 30, 1999.
20,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997 which options would have vested as of
April 7, 1999.
Stock options deemed forfeited and of no further force or effect pursuant to
Paragraph 4.
40,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997 which options would have vested as of
April 7, 1999.
40,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997 which options would have vested as of
April 7, 2000.
40,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997 which options would have vested as of
April 7, 2001.
40,000 options at an exercise price of $10.75 per share granted January 10, 1997
per agreement dated as of January 10, 1997 which options would have vested as of
April 7, 2002.
EXHIBIT 11
MICRO WAREHOUSE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss)
Income (loss) before extraordinary charge ($36,681) $16,882 $35,244 $24,556 $4,519
Extraordinary charge, net of taxes - 1,584 - - -
------------ --------- --------- ---------- -----------
Net income (loss) ($36,681) $15,298 $35,244 $24,556 $4,519
============ ========= ========= ========== ===========
Shares
Weighted average common shares outstanding 34,475 34,310 32,940 29,847 26,010
Common equivalent shares - 483 665 713 413
------------ --------- --------- ---------- -----------
Weighted average common shares and common stock
equivalent shares outstanding - Diluted 34,475 34,793 33,605 30,560 26,423
============ ========= ========= ========== ===========
Per share - Diluted
Income (loss) before extraordinary charge ($1.06) $0.49 $1.05 $0.80 $0.17
Extraordinary charge, net of taxes - 0.05 - - -
------------ --------- --------- ---------- -----------
Net income (loss) ($1.06) $0.44 $1.05 $0.80 $0.17
============ ========= ========= ========== ===========
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES
The following is a list of subsidiaries of the Company as of March 15, 1998
Name Place of Organization
- --------------------------------------------------------------------------------
Subsidiaries of Micro Warehouse, Inc. (Delaware):
Micro Warehouse Inc. of New Jersey United States
Micro Warehouse Inc. of Ohio United States
Micro Warehouse Canada Limited Canada
Inmac SA de CV Mexico
Benton Sistemas SA de CV Mexico
Micro Warehouse International, Inc. United States
Micro Warehouse Australia Pty. Ltd. Australia
Online Interactive Inc. United States
Auto Register Inc. United States
Micro Warehouse Switzerland AG Switzerland
Innosoft SARL France
Kelar SARL France
Inmac Spa Italy
Micro Warehouse Holding BV Netherlands
Computer Resources International Svenska AB Sweden
Subsidiaries of Micro Warehouse International Inc. :
Micro Warehouse Japan, KK Japan
Subsidiaries of Micro Warehouse Holding BV :
TD SA France
Micro Warehouse SARL France
Micro Warehouse BV Netherlands
Inmac AB Sweden
Micro Warehouse (Deutschland) GmbH Germany
Micro Warehouse Ltd. United Kingdom
Subsidiaries of Micro Warehouse Ltd.:
Inmac Ltd. United Kingdom
Micro Warehouse (1996) Ltd. United Kingdom
Subsidiaries of Micro Warehouse (1996) Ltd.:
Technomatic Ltd. United Kingdom
Subsidiaries of Inmac AB:
Micro Warehouse Sweden AB Sweden
Subsidiaries of Micro Warehouse Sweden AB:
MacKatalogen AB Sweden
The Board of Directors
Micro Warehouse, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-33945 and 333-47163) on Form S-8 of Mirco Warehouse, Inc. and subsidiaries
(the Company) of our reports dated February 18, 1998, related to the
consolidated balance sheets of the Company as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997, and the related schedule, which reports appear in the December 31, 1997,
annual report on form 10-K of the Company.
Stanford, Connecticut
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 58,051 32,234 81,614
<SECURITIES> 20,817 20,022 20,580
<RECEIVABLES> 217,475 203,687 172,275
<ALLOWANCES> 13,339 10,876 7,808
<INVENTORY> 170,543 201,119 143,941
<CURRENT-ASSETS> 533,004 494,828 468,262
<PP&E> 32,416 29,712 32,175
<DEPRECIATION> 48,727 39,482 32,621
<TOTAL-ASSETS> 619,344 607,842 554,546
<CURRENT-LIABILITIES> 270,477 223,298 169,419
<BONDS> 78 376 20,458
0 0 0
0 0 0
<COMMON> 346 343 339
<OTHER-SE> 348,443 383,825 364,330
<TOTAL-LIABILITY-AND-EQUITY> 619,344 607,842 554,546
<SALES> 2,125,698 1,916,244 1,684,627
<TOTAL-REVENUES> 2,125,698 1,916,244 1,684,627
<CGS> 1,773,722 1,573,798 1,360,636
<TOTAL-COSTS> 1,773,722 1,573,798 1,360,636
<OTHER-EXPENSES> 305,903 277,192 226,276
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,769 2,209 4,160
<INCOME-PRETAX> (37,816) 36,601 57,903
<INCOME-TAX> (1,135) 19,719 22,659
<INCOME-CONTINUING> (36,681) 16,882 35,244
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 1,584 0
<CHANGES> 0 0 0
<NET-INCOME> (36,681) 15,298 35,244
<EPS-PRIMARY> (1.06) 0.45 1.07
<EPS-DILUTED> (1.06) 0.44 1.05
</TABLE>
